[Senate Hearing 110-203]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 110-203
 
     FOREIGN ASSISTANCE REFORM: SUCCESSES, FAILURES, AND NEXT STEPS

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

                                HEARING

                               BEFORE THE

             SUBCOMMITTEE ON INTERNATIONAL DEVELOPMENT AND
               FOREIGN ASSISTANCE, ECONOMIC AFFAIRS, AND
                 INTERNATIONAL ENVIRONMENTAL PROTECTION

                                 OF THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 12, 2007

                               __________

       Printed for the use of the Committee on Foreign Relations


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                     COMMITTEE ON FOREIGN RELATIONS

                JOSEPH R. BIDEN, Jr., Delaware, Chairman
CHRISTOPHER J. DODD, Connecticut     RICHARD G. LUGAR, Indiana
JOHN F. KERRY, Massachusetts         CHUCK HAGEL, Nebraska
RUSSELL D. FEINGOLD, Wisconsin       NORM COLEMAN, Minnesota
BARBARA BOXER, California            BOB CORKER, Tennessee
BILL NELSON, Florida                 JOHN E. SUNUNU, New Hampshire
BARACK OBAMA, Illinois               GEORGE V. VOINOVICH, Ohio
ROBERT MENENDEZ, New Jersey          LISA MURKOWSKI, Alaska
BENJAMIN L. CARDIN, Maryland         JIM DeMINT, South Carolina
ROBERT P. CASEY, Jr., Pennsylvania   JOHNNY ISAKSON, Georgia
JIM WEBB, Virginia                   DAVID VITTER, Louisiana
                   Antony J. Blinken, Staff Director
            Kenneth A. Myers, Jr., Republican Staff Director

                                 ------                                

   SUBCOMMITTEE ON INTERNATIONAL DEVELOPMENT AND FOREIGN ASSISTANCE, 
      ECONOMIC AFFAIRS, AND INTERNATIONAL ENVIRONMENTAL PROTECTION

                 ROBERT MENENDEZ, New Jersey, Chairman

JOHN F. KERRY, Massachusetts         CHUCK HAGEL, Nebraska
BARBARA BOXER, California            BOB CORKER, Tennessee
BARACK OBAMA, Illinois               LISA MURKOWSKI, Alaska
ROBERT P. CASEY, Jr., Pennsylvania   JIM DeMINT, South Carolina

                                  (ii)

  
?

                            C O N T E N T S

                              ----------                              
                                                                   Page

Brainard, Dr. Lael, vice president and director, Global Economy 
  and Development and Bernard L. Schwartz Chair in International 
  Economics, Brookings Institution, Washington, DC...............    32
    Prepared statement...........................................    35
    Response to question submitted by Senator Lugar..............    69
Fore, Hon. Henrietta H., Acting Administrator of U.S. Foreign 
  Assistance and Acting Director of the Agency for International 
  Development, Washington, DC....................................     6
    Prepared statement...........................................     8
    Responses to questions submitted by the following Senators:
        Questions of Senator Biden...............................    55
        Questions of Senator Lugar...............................    60
        Questions of Senator Menendez............................    62
        Questions of Senator Hagel...............................    66
Hagel, Hon. Chuck, U.S. Senator from Nebraska, opening statement.     5
Menendez, Hon. Robert, U.S. Senator from New Jersey, opening 
  statement......................................................     1
Radelet, Dr. Steve, senior fellow, Center for Global Development, 
  Washington, DC.................................................    39
    Prepared statement...........................................    42
    Responses to questions submitted by Senator Lugar............    75
Worthington, Sam, president and CEO, Interaction, Washington, DC.    24
    Prepared statement...........................................    26
    Responses to questions submitted by Senator Lugar............    70

              Additional Material Submitted for the Record

Holmes, Hon. J. Anthony, President, American Foreign Service 
  Association, Washington, DC, prepared statement................    55
Lugar, Hon. Richard G., U.S. Senator from Indiana, prepared 
  statement......................................................    53

                                 (iii)

  


     FOREIGN ASSISTANCE REFORM: SUCCESSES, FAILURES, AND NEXT STEPS

                              ----------                              


                         TUESDAY, JUNE 12, 2007

        U.S. Senate, Committee on Foreign Relations, 
            Subcommittee on International Development and 
            Foreign Assistance, Economic Affairs, and 
            International Environmental Protection,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:33 p.m., in 
room SD-419, Dirksen Senate Office Building, Hon. Robert 
Menendez (chairman of the subcommittee) presiding.
    Present: Senators Menendez, Feingold, Casey, Lugar, and 
Hagel.

           OPENING STATEMENT OF HON. ROBERT MENENDEZ,
                  U.S. SENATOR FROM NEW JERSEY

    Senator Menendez. This hearing will now come to order.
    Let me just say, this is the first hearing of the 
subcommittee. We think it's a good start, and an important 
topic. And I look forward to working with the distinguished 
ranking member, Senator Hagel, in a bipartisan fashion.
    I'm looking at the issues of the jurisdiction of the 
subcommittee, and we've gotten a good start working together, 
and we look forward to that continuing starting in the days 
ahead.
    Let me say, today the subcommittee will examine U.S. 
foreign assistance reform. We want to welcome the Under 
Secretary, Henrietta Fore, the Acting Director of U.S. Foreign 
Assistance, and the Acting USAID Administrator. She has a lot 
of titles. I think you're getting one salary, though, right? 
[Laughter.]
    I'd also like to thank our witnesses on the second panel. I 
would note that, at the conclusion of this subcommittee 
hearing, we will reconvene for a full-committee hearing on the 
nomination of Reuben Jeffery III to be Under Secretary of State 
for Economic, Energy, and Agricultural Affairs.
    I know we have a busy agenda, so I want to recognize myself 
now for an opening statement. I normally try to keep my opening 
statements brief when I had the privilege of being a ranking 
member of the other body, but this particular issue is of such 
serious nature, and has a lot of detailed issues, that this may 
be a little bit more than we normally will do. But we thought 
it is important to lay out the parameters of the discussions 
that we want to have, and then we'll turn to the distinguished 
ranking member for his comments.
    Secretary Fore, the foreign assistance reform process has 
been in place a little over a year, but I believe this new 
foreign assistance process is seriously flawed, and may be in 
serious trouble. And this is where you come in. You have just 
been just nominated for this job, and made both Acting USAID 
Administrator and Director of U.S. Foreign Assistance. You have 
an ability to reassess the situation, to bring a new 
perspective, and, if confirmed, to make real change.
    So, Secretary Fore, you have the opportunity today to take 
this opportunity before the committee to tell us what you 
believe needs to be done to fix the foreign assistance reform 
process, or, as it is often called, the ``F process.'' You have 
the opportunity to start fresh with USAID employees, with the 
State Department, with the NGO community, and with Members of 
Congress.
    But let me, for my own sake, be personally clear, if USAID 
and State simply move full speed ahead with this reform 
process, and make only minor changes around the edges, then the 
administration will have serious problems with Congress. I'm 
not saying that we may not actually agree with the ultimate 
goal the administration wants in this reform process; in fact, 
we may agree in many areas. But I am officially putting the 
administration on notice that you simply cannot go forward with 
this process in the nontransparent top-down way it has been 
handled in the past.
    I believe, and I certainly hope, that the foreign 
assistance reform process was started with the best of 
intentions. Clearly, we need more transparency in our work. We 
need to know exactly how much we are spending--not only how 
much we are spending, but how we are spending our money, and on 
what. We need to eliminate overlap between programs in 
different areas. We need cohesion and coherence. And I 
certainly recognize that there are many who have worked very 
hard to create this new transparency and to force disparate 
parts of the U.S. Government to work together.
    But after the first year of reform, I have serious 
questions about both the design and implementation of the 
reform. So, let's look at some of the problems we face now.
    The foreign aid reform process was carried out in what I 
consider an exclusive, secretive manner.
    People refer to the F process as a black box without any 
real input or consultation, except for post-facto briefings 
with Congress, with the NGO community, or others inside the 
Government.
    The process was top-down and excluded valuable input from 
the people in the field who know the most about what is 
happening on the ground.
    The foreign assistance reform was supposed to coordinate 
all of U.S. foreign assistance, but left the Millennium 
Challenge Account and the President's emergency plan for AIDS 
relief, among others, out of the F umbrella.
    USAID is in the process, in my view, of being decimated as 
its funding role and mission are reduced. As a result, USAID 
faces serious morale problems and questions about its future.
    The promise the administration made on MCC, I believe is 
false. MCC is not additive, and, instead, it appears to be 
taking funds away from USAID in core development. And the 
administration's decision to shift funds from the traditional 
core development assistance account into an account with much 
more flexibility raises serious concerns, and has, thus far, 
been rejected by the House appropriators.
    I'd like to address a few of these issues now, and then 
discuss specific items in more detail during the question 
period.
    I understand that the administration has carried out an 
after-
action review, and I look forward to hearing how you plan to 
take those results and make significant changes. I'm deeply 
concerned that by moving decisionmaking power away from USAID 
to the State Department, the administration is continuing the 
decimation of USAID that started with the creation of the 
Millennium Challenge Corporation, and may end up with a new 
development attaches you may be creating. I, for one, do not 
intend to preside over the slow death of USAID.
    Let me be clear, USAID is not a perfect agency, and I'm not 
against reform, but I am against taking money, power, control, 
and expertise away from one agency inside the U.S. Government 
that was designed with development and fighting poverty around 
the world as its core mission.
    And I would remind everyone that our foreign policy agenda 
is not identical, and should not be identical, to our 
development agenda. Development should not be about the short-
term strategic goals that the State Department is often focused 
on. Development is about long-term goals that don't always 
coincide with those who are friends, and especially friends 
with at the moment. For example, we're not giving $3 billion a 
year to Pakistan over a 5-year period because Pakistan is the 
country most in need of development assistance. No; we're 
providing those funds because the administration sees Pakistan 
as a key ally that is helping with central foreign policy 
goals, like stopping the war on terror, and we know and 
understand that.
    I'm also deeply concerned about whether the F process is 
really focusing on poverty alleviation. I know that the 
administration included the goal of reducing widespread poverty 
into the foreign assistance framework only after the persistent 
insistence of the NGO community and Members of Congress.
    I believe that reducing poverty should have been at the 
center of any foreign assistance reform from the beginning, 
and, as we move forward, I expect to see poverty alleviation 
front and center in the on-the-ground implementation of the 
reform.
    And just as I will not stand by and watch the decimation of 
USAID, I will not stand by and watch our core development 
agenda and our poverty alleviation agenda be swallowed by 
immediate foreign policy needs.
    That is why so many people are concerned about the decision 
to shift money from the development assistance account to the 
economic support fund account. This is not about semantics or a 
name change, in my mind. ESF funds were designed to be used in 
our national interest, to help our friends for strategic 
purposes, and to provide economic assistance. Let me quote from 
the language that authorized ESF. It says, ``The Congress 
recognizes that under special economic, political, or security 
conditions, the national interests of the United States may 
require economic support for countries or in amount which could 
not be solely justified for standard development purposes.'' 
These funds have always been a strategic fund used by State and 
the Secretary of State.
    Meanwhile, our development assistance accounts have been 
used to fund true development for the purposes of development 
itself. I see no reason to change that system, and I am deeply 
concerned that the administration's decision to move these 
funds isn't simply about matching accounts to countries' needs, 
but is designed to subsume development goals into short-term 
foreign policy goals. And I find the results of the shift in 
these funds disturbing.
    In the FY08 budget, the administration proposed shifting 
funds from the development assistance account to the ESF 
account. In addition to cutting the development assistance 
funding by 31 percent and shifting those funds to ESF, the 
budget also cuts total child survival and health by 9 percent, 
international disaster and famine assistance by 18 percent, 
while increasing funding to the MCC counternarcotics and law 
enforcement, among others. And, while I certainly support 
significant increases in good governance, rule of law, and 
counterterrorism, I don't believe that that justifies the 
proposed cuts in the administration's FY08 budget to human 
rights, maternal and child health, family planning, 
reproductive health, agriculture, and environment.
    I also am disturbed by the recent trend with the Department 
of Defense stepping into the role that USAID or the State 
Department has traditionally performed. The Department of 
Defense's disastrous record in Iraq reconstruction certainly 
speaks for itself. DOD's role has dramatically increased. In 
2001, it had just 7 percent of total disbursements of 
development assistance. In 2006, it took 20 percent.
    And there are serious risks with DOD continuing to take on 
these tasks. As Gordon Adams said during a Senate Budget 
Committee hearing on Iraq, ``The more we ask DOD and the 
military to do, the more that they become responsible for our 
overseas relationships. The more we expand DOD authorities and 
underfund State and USAID for such activities, the less State 
and USAID have the credibility and retain the competency to 
carry out policy, leadership, and program administration in 
these areas. This trend risk becomes a self-fulfilling 
prophecy.''
    So, I've just laid out some of the challenges we face as we 
move forward over the next year and a half. I also believe we 
need to look toward the long term. In January 2009, we will 
have a new President. We need to start talking about how we can 
work with that new President on real, long-term foreign 
assistance reform. I know that a number of our witnesses will 
suggest that we create a Cabinet-level position to head our 
development programs, and I look forward to discussing that 
idea today.
    But, for right now, we have a lot to do between this time 
and January 2009. And, Madam Secretary, on our second panel we 
have three very distinguished witnesses who have dedicated 
countless hours of research and writing to the issue of U.S. 
foreign assistance. They are leaders in their field. And I hope 
you'll take some of their recommendations seriously.
    Let me be clear, I expect the administration to make 
significant changes in the reform process. I expect the 
administration to work with Congress, both authorizers and 
appropriators. I expect real transparency and inclusion in the 
process. In essence, I expect real change. And the 
administration should expect significant and detailed oversight 
of foreign assistance reform from this subcommittee and from 
Congress.
    With that, let me recognize the distinguished ranking 
member of the committee, Senator Hagel, for any opening 
statement he may make.

   OPENING STATEMENT OF HON. CHUCK HAGEL, U.S. SENATOR FROM 
                            NEBRASKA

    Senator Hagel. Mr. Chairman, thank you.
    Welcome, Secretary Fore.
    Mr. Chairman, we are grateful for your convening this 
hearing, this important hearing, and we look forward to 
Secretary Fore's comments and her analysis and the opportunity 
to discuss the ongoing efforts to reform and restructure U.S. 
foreign assistance.
    Today's hearing will evaluate the results of the reforms 
over the last year, explore the issues and challenges that 
remain. And we will also consider what further changes are 
needed to ensure that America's foreign assistance framework is 
relevant to the 21st century.
    Last January, Secretary Rice announced her intention to 
implement significant changes to how U.S. taxpayer dollars are 
spent on foreign assistance. As Secretary Rice said, ``The 
current structure of America's foreign assistance risks 
incoherent policies and ineffective programs, and perhaps even 
wasted resources. In today's world, America's security is 
linked to the capacity of foreign governments to govern justly 
and effectively.''
    I agree with those comments, and believe that her decision 
to undertake these reforms was broadly supported. It is time to 
review the decisionmaking process in the executive branch to 
ensure that coherency, transparency, and effectiveness that 
Secretary Rice noted.
    Your focus on developing country-specific strategies is a 
step, I believe, in the right direction. I believe, also, that 
it is time to review the legislative framework under the 1961 
Foreign Assistance Act to consider whether further structural 
changes to the U.S. foreign assistance process are needed.
    Since 1961, a complex, diverse, and sometimes overlapping 
bureaucracy has emerged to administer U.S. foreign assistance. 
The State Department and USAID do not control all foreign 
assistance, particularly with the recent growth in nonmilitary 
assistance projects run by the Defense Department that the 
chairman has already noted.
    Ultimately, successfully reforming U.S. foreign assistance 
will require a more comprehensive approach. You need to have 
all of the relevant executive branch agencies involved. You 
need to consult closely with the dedicated professionals in 
your organizations. You need to consult and work closely with 
Congress. And you need to reach out and engage the hundreds of 
private organizations that actually implement assistance 
projects and are on the ground around the world.
    Secretary Fore, I look forward to the hearing, your 
comments, and also, as has been noted by the chairman, the 
second panel of distinguished experts.
    Secretary Fore, I understand your nomination to be USAID 
Administrator is before the committee, and that your paperwork 
is complete.
    And, Mr. Chairman, I hope that Secretary Fore's nomination 
hearing will be scheduled as quickly as possible, as we know 
this is a critical position, and the committee should move to 
consider Secretary Fore's nomination as quickly as we can.
    Mr. Chairman, thank you.
    Secretary Fore, thank you, look forward to your comments.
    Senator Menendez. Well, thank you, Senator Hagel.
    Let me say, Madam Secretary, we welcome you to the 
committee. We proceed to your opening statement. In the 
interest of time, we ask you to summarize your statements to 
about 7 minutes or so, and we'll certainly have all of your 
written testimony included for the record.

 STATEMENT OF HON. HENRIETTA H. FORE, ACTING ADMINISTRATOR OF 
THE AGENCY FOR INTERNATIONAL DEVELOPMENT AND ACTING DIRECTOR OF 
            U.S. FOREIGN ASSISTANCE, WASHINGTON, DC

    Ms. Fore. Thank you very much, Mr. Chairman. And thank you 
very much, Ranking Member Hagel. And thank you for the 
opportunity to testify before the subcommittee today. I thank 
you for your interest in what the State Department and USAID 
are doing to strengthen U.S. foreign assistance, and I want to 
address your concerns and your interest.
    As the President has said, we are a compassionate nation. 
When Americans see suffering, and know that our country can 
help stop it, they expect our Government to respond. They 
help--we help the least fortunate across the world, because our 
conscience demands it. We also recognize that helping 
struggling nations succeed is in our interest.
    With the full support of Congress, America's deeds have 
matched these words. For instance, we have nearly quadrupled 
our foreign assistance for sub-Saharan Africa. We have helped 
provide food to the hungry, medicine to the sick, security in 
troubled regions, and education and economic opportunities to 
people of every creed and culture. Our programs save lives and 
lift individuals from poverty. But we do not want simply to 
achieve disconnected good outcomes, we want to lift nations and 
all their citizens, including the poorest, to permanent 
prosperity.
    In America today, there is a new unity of purpose for 
foreign aid and a growing consensus that global development is 
both a moral ideal and a national interest. From community 
leaders to corporate leaders, from religious leaders to movie 
stars to college students, Americans recognize that if we, as 
members of the global community, are to address the most 
difficult challenges of our time, we must all work together.
    Yet, Secretary Rice rightly noted that, as we increase the 
quantity of our foreign assistance, we must also work to 
improve its quality. That is why she launched this broad reform 
of U.S. foreign assistance.
    As you know, Mr. Chairman, Secretary Rice arrived at the 
Department 2 years ago, and she asked a basic question, ``How 
much is the United States Government spending on democracy 
promotion?'' This question goes to the heart of America's post-
9/11 foreign policy of protecting America by encouraging good 
government around the world. She found it extremely difficult 
to get a straightforward answer. The problem is that our 
foreign assistance has been stovepiped. We can all agree that 
we have too many separate accounts overseen by multiple 
officials, each with different standards of measurement and 
different ways to judge success or failure. This left 
decisionmakers, including the Secretary of State and Members of 
Congress, without an effective way to judge tradeoffs, weigh 
options and priorities, or allocate money in a truly strategic 
way to meet America's foreign policy and development policy 
goals.
    Some of our Ambassadors did not have a comprehensive idea 
of all U.S. Government programs being implemented in their 
countries. Our State Assistant Secretaries and USAID Assistant 
Administrators had no adequate way to ask what are our long-
term goals in a given country, and how are we using all of our 
many forms of assistance to achieve them?
    Funding tradeoffs were often decided by budget officials 
rather than by those charged with carrying out America's 
foreign policy and development policy. And everyone was 
thinking of her or his own piece of the whole--not the whole--
because we did not have a mechanism to see the whole. Such a 
system would be considered deficient under any circumstances, 
but in the post-9/11 environment, as we focus on threats 
germinating in failed states and failing states, and work with 
our local partners to transform conditions within those states, 
Secretary Rice found the situation unacceptable, and I have no 
doubt that her successors will agree with that judgment.
    To address the problems, Secretary Rice established the 
position of the Director of U.S. Foreign Assistance. By placing 
all State and USAID foreign assistance under one official, 
reporting directly to the Secretary, we can use foreign 
assistance far more effectively. Starting with the Ambassador 
and his or her team, and the Mission Director, we can create 
long-term plans for our countries receiving assistance, plans 
that effectively use all of our resources. We will be able to 
employ foreign assistance strategically to advance U.S. goals.
    Secretary Rice's vision gives us a strong foundation for 
getting foreign assistance right. We are at the beginning of 
this important reform process, not in the middle and not at the 
end. We must continually work to improve our reform.
    There is no question that reform and institutional change 
are difficult, and they take time. But I believe that if we 
work together, we can make significant improvements. Already, 
we've begun to take some key steps, such as starting to develop 
the tools to link foreign assistance programs across the U.S. 
Government to our foreign policy and development policy goals.
    In the past few weeks, I've been listening to people's 
concerns and hopes for successful foreign assistance reform. 
And, at this moment, they are asking us to communicate, to 
collaborate, and to simplify. We need to communicate and 
collaborate with Congress, the people in State and USAID, the 
Federal Government, and our partner community. This will ensure 
our commitment to transparency.
    Since assuming these roles 4 weeks ago, as Acting USAID 
Administrator and Acting Director of U.S. Foreign Assistance, 
I've made it one of my top commitments to enhance our 
communication about what we are trying to accomplish with the 
Secretary's transformational diplomacy agenda and foreign 
assistance reform, generally. I expect to be fully engaged, 
here in the United States and abroad, in our outreach efforts 
to build greater understanding of U.S. foreign assistance and 
the role it has played in building a more peaceful and 
prosperous world.
    I'm committed to continuing our work with an increased 
spirit of consultation. I also intend to move forward 
immediately through more intensive collaboration with a broad 
and vibrant development community to reach a more unified 
approach.
    Last week, I met with the board of the Advisory Committee 
for Voluntary Foreign Assistance, InterAction, and the Society 
for International Development and several other key development 
leaders. And in the coming weeks, I look forward to meeting 
many more.
    We also need to simplify and streamline the process of 
foreign assistance. We need less time spent in meetings, and 
more focus on tapping the benefits of technology. We need to 
continue to break down stovepipe systems and foster 
flexibility. We also need to get on with the work of delivering 
foreign assistance effectively.
    I know USAID, and I share your concern; I do not want to be 
present at a time when it is being decimated. I want it to grow 
and be healthy and strong. I have extensive management 
experience in both the public and private sector. As Assistant 
Administrator for Asia and for Private Enterprise from 1990 to 
1992, my service in both regional and functional bureaus at 
USAID has provided me good lessons on the need for a more 
thorough collaboration with multiple public and private 
partners in the multilateral, bilateral, country, and local 
level to ensure effective development.
    We need to begin and end our discussions on development 
with our extraordinary women and men who are carrying out our 
foreign assistance in the field. As Secretary Rice has said, 
``We are helping people to better their own lives, to build 
their own nations, and to transform their own futures.''
    I pledge to enhance consultation with Congress and with the 
development community, and I look forward to working with you. 
I want decisions to be made as transparently as possible and to 
make this very important foreign assistance reform live up to 
its promise.
    Thank you. And I look forward to your thoughts and those of 
the distinguished panel which follows.
    [The prepared statement of Ms. Fore follows:]

 Prepared Statement of Hon. Henrietta H. Fore, Acting U.S. Director of 
          Foreign Assistance and Acting Administrator of USAID

    Thank you, Chairman Menendez and Ranking Member Hagel, for the 
opportunity to testify before the subcommittee today. I thank you for 
your interest in what the State Department and USAID are doing to 
strengthen U.S. foreign assistance, and I want to address your 
concerns.
    As President Bush has said, ``We are a compassionate nation. When 
Americans see suffering and know that our country can help stop it, 
they expect our Government to respond. We help the least fortunate 
across the world because our conscience demands it. We also recognize 
that helping struggling nations succeed is in our interest.''
    With the full support of Congress, America's deeds have matched the 
President's words. For instance we have quadrupled our bilateral 
foreign aid for sub-Saharan Africa. Our assistance has helped provide 
food to the hungry, medicine to the sick, security in troubled regions, 
and educational and economic opportunities to people of every creed and 
culture.
    Let me be clear, the dramatic increases in American foreign 
assistance in the 21st century required collaboration among all 
stakeholders--between Congress and the administration, both political 
parties, and the broad and vibrant development community, without whose 
partnership and support our efforts on the ground would not be 
possible.
    In America today, old divisions between those who saw foreign aid 
as a tool to influence strategic partners and those who viewed it as a 
means of doing good in the world are giving way to a new unity of 
purpose. There is a growing consensus that global development is both a 
moral ideal and a national interest. From community leaders to 
corporate leaders, religious leaders to movie stars to college 
students, Americans recognize that if we--as members of the global 
community--are to address the most difficult challenges of our time, we 
must all work together.
    But as Secretary Rice has rightly noted, as we increase the 
quantity of our foreign assistance, we must also work to improve its 
quality. That is why she launched an effort to reform U.S. foreign 
assistance.
    Probably the greatest challenge at hand is that of getting the 
balance right between field expertise, overall administration 
objectives and congressional intent. Often this is a difficult 
balancing act with State and USAID staff being pulled in competing 
directions. We need a process that figures out a way to balance those 
sometimes competing perspectives.

              THE CASE FOR REFORM: A NEED TO WORK TOGETHER

    Mr. Chairman, when Secretary Rice arrived at the Department 2 years 
ago, she asked a basic question: How much is the United States 
Government spending on democracy promotion?
    This question goes to the heart of America's post-9/11 foreign 
policy of protecting America by encouraging good government around the 
world.
    Incredibly, she found it extremely difficult to get a 
straightforward answer.
    The problem is that our foreign assistance was stove-piped into 
numerous separate accounts, overseen by multiple officials, each with 
different standards of measurement and different ways to judge success 
or failure.
    This left decisionmakers, including the Secretary of State and 
members of this committee, without an effective way to judge tradeoffs, 
weigh priorities, or allocate money in a truly strategic way to meet 
America's foreign policy goals.
    Our Ambassadors often only had a vague idea about some of the 
programs being implemented in their countries. Our State Assistant 
Secretaries and USAID Assistant Administrators, had no adequate way to 
ask what are our long-term goals in a given country and how are we 
using all of our many forms of assistance to achieve them. Funding 
tradeoffs were often decided by budget officials rather than by those 
charged with carrying out America's foreign policy.
    Such a system would be considered deficient under any 
circumstances. But in the post-9/11 environment, as we focus on the 
threats germinating in failing states and work with our local partners 
to transform conditions within those states, Secretary Rice found the 
situation unacceptable. I have no doubt that her successors will agree 
with that judgment.
    To address the problem, she established the position of Director of 
Foreign Assistance and delegated authority over most forms of State and 
USAID foreign assistance to that official. The goal was to build a 
system in which we can make strategic choices and ensure that foreign 
assistance is spent wisely and advances our foreign policy objectives.
    We are at the beginning of this important reform process, not the 
end. We must continually work to improve our reform.
    There is no question that reform and institutional change are 
difficult. They take time. But I believe that if we work together, we 
can make significant improvements. Already, we have begun taking some 
key steps--such as starting to develop the tools to link assistance 
programs across the U.S. Government to our foreign policy goals.
    In my acting capacity and if confirmed, I am committed to 
increasing consultation and communication with you and our many 
stakeholders as we take the next steps in this reform effort. Together, 
I believe we can make it work.

                      PROGRESS TO DATE: NEW TOOLS

    As you know, I appear before you today in my capacity as Acting 
Director of U.S. Foreign Assistance and as Acting Administrator of the 
U.S. Agency for International Development, an organization for which I 
have long had much respect and admiration. I have been serving in this 
acting capacity for a little over a month and looking at what has been 
accomplished and what can be improved.
    Consistent with the need to improve the coherence and coordination 
of State and USAID foreign assistance be improved, for the first time 
in the FY 2008 budget, the two agencies integrated their budget 
planning, taking into account a broader totality of U.S. Government 
resources--including resources provided by the President's Emergency 
Plan for AIDS Relief and the Millennium Challenge Corporation.
    This integrated planning was based on our governmentwide commitment 
to a shared goal--the goal Secretary Rice has articulated as 
Transformational Diplomacy: ``to help build and sustain democratic, 
well-governed states that respond to the needs of their people, reduce 
widespread poverty, and conduct themselves responsibly in the 
international system.''
    The goal itself has already benefited from collaboration. In 
response to recommendations received from many of you, our colleagues 
in the international development community, and our host government 
counterparts, that goal now expressly includes poverty reduction.
    I am committed to continuing our work in an increased spirit of 
consultation. I also intend to move forward immediately with more 
intensive collaboration with the broad and vibrant development 
community. This past week I have met with the board of the Advisory 
Committee for Voluntary Foreign Assistance, Interaction, the Society 
for International Development, and many other development leaders.
    Having served at USAID in both regional and functional bureaus, I 
know that effective development requires a more thorough effort at 
collaborating with multiple partners at the multilateral, bilateral, 
country, and even local level. I pledge to enhance consultation with 
the development community, especially as it relates to improving our 
aid effectiveness at the country level.
    The first step in this reform effort was developing a new strategic 
framework for foreign assistance and beginning to agree on how we will 
define progress. Now that we have a framework and the beginnings of a 
common language around foreign assistance, we must work to ensure our 
activities are targeted to help countries move from a relationship 
defined by dependence on traditional foreign assistance to one defined 
by partnership.
    A set of common definitions and indicators, on which we are still 
soliciting and accepting suggestions, will allow us to compare partner, 
program, and country performance across agencies and sources of 
funding. These new tools are being used to create detailed country-
level operational plans that describe how resources are being used.
    The first such plans--produced for an FY 2007 pilot by 67 fast-
track country teams, including most USAID missions, and many embassies, 
offices, and bureaus--were approved just before I was nominated. I look 
forward to becoming familiar with these plans and consulting with the 
Congress as we implement them.
    They will allow us to provide you in Congress, the American people, 
our partners around the world, and those we seek to assist with the 
means to readily access and understand foundational components of our 
foreign assistance initiatives, namely:

   First, across the U.S. Government, what are we trying to 
        accomplish with our foreign assistance in a particular country;
   Second, with whom are we working--both inside and outside 
        the USG--toward our objectives;
   Third, how much are we spending across the board; and
   Finally, what results are we achieving.

    Our foreign aid programs do a lot of good in the developing world. 
These programs save lives and lift individuals from poverty. But, we do 
not want simply to achieve disconnected good outcomes; we want to lift 
nations and all their citizens--including the poorest--to permanent 
prosperity. We want to create more donor nations. We want countries to 
build their own schools and train their own teachers. That was the 
motivation that impelled the reforms.
    Ultimately, our aim is to significantly improve the human 
condition, and to develop the tools to know if we are reaching our 
goal.

                LOOKING AHEAD: IMPROVEMENTS FOR FY 2009

    The Secretary and I are committed to continuous learning and 
improvement of the tools, processes, and principles of the reform. It 
is my strong desire to communicate, collaborate, and simplify this 
process. Reform itself is important--to all of us--and we are just 
beginning to go down this road together.
    As you know, the office to manage this system only became 
operational last June, in the middle of the fiscal year. Staff had to 
be detailed from many bureaus, new procedures had to be developed, a 
new way of doing things had to be accommodated. To be sure, decisions 
were not as transparent as they will be in the future. Some decisions 
need to be reviewed, some procedures need to be amended and some need 
to be abandoned altogether. And some decisions are good building blocks 
for the future.
    With a view toward improving the FY 2009 process, an After Action 
Review was conducted of the new budget formulation process. Review 
sessions were attended by a mix of people from State and USAID regional 
and functional bureaus, including both mid-level and senior-level 
individuals in the field and Washington.
    It was especially important that the field's views were heard, 
therefore, at least one USAID mission and one Embassy representative 
were included in the After Action Review from every region of the 
world. Suggestions were also solicited from other USG offices and 
agencies, such as the Department of Defense, Department of Justice, 
Office of the Global AIDS Coordinator, and the Millennium Challenge 
Corporation. Already, as a result of this review, we have formalized 
and increased opportunities for the field to be involved in every stage 
of the budget process. We have also streamlined processes and improved 
how we communicate.
    I pledge that in my acting capacity and if confirmed, I will 
continue to seek and respond to suggestions from stakeholders in 
Congress, in the NGO community, the university community, the USG's 
many other development partners, the donor community at large and of 
course in the USG agencies.

      CONCLUSION: A COMMITMENT TO COMMUNICATION AND COLLABORATION

    As Acting USAID Administrator and Acting Director of Foreign 
Assistance, I have made it one of my top commitments to enhance 
communication about what we are trying to accomplish with the 
Secretary's Transformational Diplomacy agenda and foreign assistance 
reform generally. I expect to be fully engaged here in the United 
States and abroad in outreach efforts to build greater understanding of 
U.S. foreign assistance and the role it has played in building a more 
peaceful, prosperous world.
    This is important not just for foreign assistance but also to help 
build support for U.S. foreign policy around the world. There is no 
better diplomacy for the United States than effective development 
assistance, combined with effective communications about these efforts 
to host country audiences. I think our ability to communicate what we 
stand for as a nation will be improved by foreign assistance reform.
    I have spent the vast majority of my time over the last few weeks 
listening--listening to my senior management at State and USAID as well 
as doing ``walk throughs'' to speak to all my colleagues in USAID and 
the Office of the Director of U.S. Foreign Assistance.
    People are the most important part of an organization, and both 
USAID and State have remarkable and extraordinarily capable people. As 
Americans, we are well served by the hard work and dedication of all 
the fine people in these organizations. I know they can achieve foreign 
assistance reform and I know they can do it well. I will work equally 
hard to listen to your concerns, their concerns, and the community's 
concerns to ensure that we use best practices to achieve results.
    In that same vein, I am here to listen to you. I hope to begin 
implementing a process moving forward that makes it easy for you to 
provide suggestions and receive timely answers to your questions, as 
well as a process which respects your opinions and ultimately makes our 
aid more effective.
    As we move forward, we must always remember that at a time when 
some of the greatest threats to our people come from conflicts within 
states, it is not enough to have a foreign assistance program that 
merely cements government-to-government relations. As the Secretary has 
said, ``Our foreign assistance needs to be an incentive for 
transformation, not a source of dependency.'' Improving the quality of 
our assistance is essential to transformation and we cannot improve the 
quality without reform.
    My commitment to you is that I will always strive to consult fully 
with the Congress, to make decisions as transparently as possible and 
to make foreign assistance live up to its promise.

    Senator Menendez. Thank you, Madam Secretary.
    And let me say that we have two panels, and, depending upon 
how many of our colleagues show, we'll start off with a round 
of 7 minutes, and then, if necessary, we'll revisit.
    I'll start off with myself.
    I'm enthused to hear some of what you said, that this is 
the beginning of the F process. If that's the case, good. I'm 
glad to hear about the consultations and your outreach, 
particularly to the development community. That's good. I'm 
glad to hear that you're talking about transparency, and also 
about this--not wanting to preside over the demise of USAID. 
So, that's all music to my ears, and I'm glad to hear it.
    Let me pursue, however, some of these things with some 
questions.
    The administration proposed a 15-percent cut to the FY08 
operating expense budget for USAID. That's the funding that 
runs our operations at USAID missions, and cutting it 
ultimately, I think, would mean closing missions. We have 
specifically heard that there are discussions about closing a 
number of missions in Latin America and Africa. Have there been 
any such discussions about closing missions in these regions? 
And, if so, exactly which ones?
    Ms. Fore. I believe, Mr. Chairman, that there has been the 
beginning of a discussion on a number of issues that have to do 
with operating expense funds. USAID, as you know, has struggled 
to fund enough of their operating expenses to support their 
people, to hire enough people, and to be able to have them be 
well supported when they are at work in the field.
    Facing tight budgets and very restricted budgets, the 
Agency started discussing ways that they could save operating 
expense money, and they have begun discussions on how they can 
better structure the organization.
    I have just begun reading in on those discussions. I know 
that they are ongoing. I know the decisions have not yet been 
made. So, I am interested to hear of your interest in it----
    Senator Menendez. Well, I appreciate----
    Ms. Fore [continuing]. And will follow it with interest.
    Senator Menendez. I appreciate--one thing you'll learn 
about me is, I like to get right to the point, so I'll try not 
to interrupt you, but--question: Within this process, have you 
talked about closing certain missions; yes or no?
    Ms. Fore. I've received briefings in which----
    Senator Menendez. Have those briefings suggested closing 
certain missions?
    Ms. Fore. They have suggested----
    Senator Menendez. OK.
    Ms. Fore [continuing]. Closing certain missions, but I 
personally have not talked about closing missions.
    Senator Menendez. OK. And exactly which ones have been 
identified that should be closed?
    Ms. Fore. I do not know that.
    Senator Menendez. They don't tell you that in the 
briefings.
    Ms. Fore. Well, they've just begun, sir, and----
    Senator Menendez. OK.
    Ms. Fore [continuing]. It's----
    Senator Menendez. So, we know that some--there is some----
    Ms. Fore. There----
    Senator Menendez [continuing]. Suggestion of closing----
    Ms. Fore. There is some discussion of it, yes.
    Senator Menendez. Have there been any other discussions 
that you've been briefed on inside of F, USAID, or State about 
closing other missions?
    Ms. Fore. About closing other than USAID missions?
    Senator Menendez. No; closing other missions within USAID.
    Ms. Fore. Well, there have----
    Senator Menendez. You mentioned that there were some that--
you got a briefing on USAID. Within the overall process, have 
you been informed about closing other missions?
    Ms. Fore. No; I've just received one briefing on this.
    Senator Menendez. OK.
    Ms. Fore. And it was not full.
    Senator Menendez. Let me ask you this. What is the 
difficulty of the administration's decision to shift funds from 
the development assistance account, which focuses on long-term 
poverty and development goals, to the economic support funding 
account, which gives the State broad jurisdiction? What is 
about the authority within the development assistance that is a 
problem for the administration? Why can it not leave the funds 
as they are? And what's the authority that you don't have in 
the development assistance account that you need?
    Ms. Fore. As I understand it, the thinking was that ESF 
would be used for restrictive or rebuilding countries; that is, 
countries that have been in conflict or were post-conflict. 
There was not a sense that ESF or DA would fund different types 
of projects, so that the very important health and education 
and government support projects that are going on in countries 
now using DA money could be used--could continue using ESF 
money. So, it was a question of structuring it within the 
framework.
    Senator Menendez. But isn't it true that ESF money largely 
gives the State Department a much broader jurisdiction of how 
it uses that money? I mentioned the example of Pakistan. We 
wouldn't advocate that it's the most in need of development 
assistance money, but we give it a very significant amount, 
because we have made, through the administration, a calculation 
that they are a very important partner in certain foreign 
policy objectives, and, therefore, we give them a very sizable 
amount of money within the context of the overall budget. Isn't 
it true that ESF funds gives you very broad flexibility to do 
what you want?
    Ms. Fore. ESF does give flexibility. It's--the construct--
--
    Senator Menendez. Including the flexibility to move in a 
direction that is away from development assistance.
    Ms. Fore. It could. But it could also give you the 
flexibility to do development assistance. And, at least as I 
have understood it, the intention was not to move away from 
development assistance, but, rather, to structure it in a way 
that was more--that was clearer, so that countries that were in 
conflict or that were just coming out of conflict would receive 
ESF funds.
    Senator Menendez. But there would be no guarantee--if we 
move all of the funds to ESF, there would be no guarantee that 
development assistance would actually take place or that we'd 
have a defined development program as part of our poverty 
alleviation strategy, because, in fact, that flexibility could 
allow the administration to use ESF funding in a way that would 
do very little, if any, development assistance. Is that not 
true?
    Ms. Fore. Well, as we look at the process the way it is 
now, it begins with the field, so it starts with mission 
strategic plans. So, if, in a mission strategic plan, they are 
suggesting assistance to the health sector, to the education 
sector, to the environment, then that funding, whether it came 
from DA or ESF, would be considered. So, the actual type of 
money would not be the determining factor for the kind of----
    Senator Menendez. Well, let me----
    Ms. Fore [continuing]. Work that was done.
    Senator Menendez. Let me try once again. Right now, under 
the present system, ESF funds are largely discretionary by the 
Secretary to promote foreign policy objectives; whereas, 
development assistance funds are pretty clear, they're for 
development assistance. If you shift all of them to ESF funds, 
the discretion is wide, the latitude is great, but there is no 
guarantee for development assistance. Now, I'm not saying--
you're saying that's not the administration's intention. I'm 
simply asking you, though, isn't it true that, if we make that 
change, that, in fact, we have no guarantee of development 
assistance, notwithstanding the administration's intention?
    Ms. Fore. Well, it's a collaborative process, so I don't 
think, in any collaborative process, that the guarantees are 
very easy to come by. There are lots of interests that are 
traded off because there are multiple interests, as you know, 
Mr. Chairman.
    Senator Menendez. Senator Hagel.
    Senator Hagel. Thank you, Mr. Chairman.
    Secretary Fore, as the Acting Director of Foreign 
Assistance and Acting USAID Administrator, what percentage of 
all the U.S. foreign assistance programs, including Department 
of Defense, the Millennium Challenge Corporation, and others, 
do you directly control, that you have authority over?
    Ms. Fore. It's approximately 60 percent. It covers the 
USAID portfolio and the State Department portfolio. And it also 
includes coordination for the Millennium Challenge Account and 
PEPFAR, the HIV/AIDS program.
    Senator Hagel. Thank you.
    Do you believe that the executive branch, in order to 
fulfill what Secretary Rice talked about earlier this year, can 
successfully develop a comprehensive foreign assistance program 
without any changes to the Foreign Assistance Act, 1961?
    Ms. Fore. Well, I think----
    Senator Hagel. Do you believe you have all the authority 
required in order to make the changes without legislative 
changes?
    Ms. Fore. I'd like to actually think about that, sir, as 
time progresses here. At the moment, I think we have lots that 
we can--that we can do within our current authorities, but 
there may well be authorities that would be useful. So, if I 
could come back to you on that, I would appreciate it.
    Senator Hagel. Thank you. If you'd provide an answer for 
the record, we would appreciate it.
    [The submitted written information from Ms. Fore follows:]

    We are still in the early stages of the foreign assistance reforms, 
and our focus remains on optimizing the performance of taxpayer funds 
within current authorities. We understand that we must demonstrate to 
Congress and to the American people the value added of a more strategic 
and integrated approach to foreign assistance. To that end, we have 
already begun to make changes to the FY 2009 budget process based on 
the comprehensive After Action Review. Together with Secretary Rice, I 
plan to continue to systematically evaluate our progress and to use 
this evaluation to identify any further changes that might be 
appropriate, legislative, or otherwise. I very much look forward to 
working with Congress going forward to consider the appropriateness and 
effectiveness of the tools that are currently available to help us 
improve our foreign assistance.

    Senator Hagel. The 80-percent number that you noted is 
obviously significant. The other 20 percent, how is that 
coordinated with your overall efforts, being--starting with the 
President? You used President Bush's quote to begin your 
testimony. I quoted Secretary Rice. So, obviously, there is, or 
should be, a Presidential administrative objective within this 
administration, on foreign assistance. So, then, how do you 
coordinate the other 20 percent? I'm particularly interested in 
Department of Defense's control of those assets.
    Ms. Fore. Well, we all fall under the national security 
strategy, and, as a result, diplomacy and development and 
defense are seen together as a whole. So, between the NSC and 
OMB and all of the working groups that exist that are 
interagency, we work hard at trying to coordinate with each 
other.
    With the Department of Defense, we have been working hard 
to coordinate our assets, because, in conflict and post-
conflict situations, it is important that we are there, and 
that we are as seamlessly working together as possible.
    Senator Hagel. So that coordination is done, essentially, 
through interagency----
    Ms. Fore. Working groups.
    Senator Hagel [continuing]. Purpose directive working 
toward common interests.
    Ms. Fore. Yes.
    Senator Hagel. Chairman Menendez touched on some of this in 
the ESF funding and some of the budget alterations, changes, 
shifts. Some refer to it as ``cuts.'' And I want to focus on a 
particular area, the development assistance funds, primarily 
viewed, I think, by most as money intended to address long-term 
development problems in these countries, particularly poverty.
    Can you explain the administration's FY 2008 budget-cut 
request in this funding--and I believe, by 31 percent?
    Ms. Fore. This, Senator, is the issue that we were just 
talking about with the chairman, of placing funding in with the 
category of the type of country, so that countries that are 
restrictive and rebuilding were given ESF funding, and 
countries that were developing or transforming were requested 
to have development assistance money. The intention, as I 
understand it, was not to change the actual work being done, 
the projects being carried out in the field, but, rather, to 
give a rationale for funding in these types of countries.
    Senator Hagel. Well--and I know you pursued some of this 
with the chairman--but where do those resources go? That--what 
you're saying is, that's the discretion of the administration 
as to where you would apply those resources in other areas, 
other programs?
    Ms. Fore. Yes. In the request, we then requested those 
funds in ESF for those----
    Senator Hagel. That 31 percent was shifted----
    Ms. Fore. Correct.
    Senator Hagel [continuing]. In the budget.
    Ms. Fore. Correct.
    Senator Hagel. OK.
    Ms. Fore. And that was because we had so many needs in 
countries that were in the rebuilding and restrictive 
categories.
    Senator Hagel. How many staff people will you have that 
will report to you? What kind of support staff are you going to 
have?
    Ms. Fore. Well, we are looking at that, sir. And if I might 
come back to you on that, I don't have an answer.
    I do know that it is important to have a very good staff, 
and we have some extraordinary individuals who are working 
there now. Most of the individuals who are in the Office of the 
Director of Foreign Assistance are from USAID, and I hold great 
respect for USAID people. And so, we will work to have the best 
staff, to be collaborative, and very good at communication and 
outreach.
    [The submitted written information from Ms. Fore follows:]

    To coordinate the entire gamut of activities associated with 
managing the approximate $25 billion foreign policy programs of the 
United States, I will have about 80 direct hires. I plan to have a very 
lean administrative staff and will rely, as much as possible, on 
existing State Department infrastructure for support.

    Senator Hagel. How do you intend to engage the hundreds of 
nongovernmental--nonprofit organizations that you work with? 
Any different approaches you intend to take? Any changes you 
intend to make?
    Ms. Fore. Well, I've just begun, and I really look forward 
to talking to all of our partners, because they really are our 
partners. It is how foreign assistance is delivered around the 
world. And we've begun to talk about what is going right and 
what is due for change within the current foreign assistance 
reform process. We've been making some changes for the 2009 
year, which, as you know, we are in the midst of. So, I think 
the discussions are leading to some very good suggestions and 
ideas. So, we are starting to put those ideas into practice.
    And then, what I would hope is that our discussions would 
begin to turn to some of the policy issues about what we are 
really trying to get accomplished in development around the 
world, and what we are accomplishing for both foreign policy, 
as well as for our development assistance.
    Senator Hagel. Thank you.
    Mr. Chairman, thank you.
    Senator Menendez. Thank you.
    I'm pleased to recognize a member of the full committee, 
Senator Feingold.
    Senator Feingold. Thank you, Mr. Chairman.
    Secretary Fore, thank you for your testimony today.
    And I just wanted to talk a little bit about the HELP 
Commission and what you think those recommendations, which are, 
as I understand, expected no later than December 2007--what 
role will they play in helping to inform the foreign aid reform 
process, particularly given that the proverbial F process ball 
has already started rolling and that the Commission was--the 
HELP Commission--was specifically created to influence a more 
effective foreign aid process?
    Ms. Fore. Senator, thank you for that question.
    I'm really looking forward to the suggestions that come 
from
the HELP Commission. There are some extremely expert 
individuals who serve on that Commission, and they have been 
taking some trips to see the work in the field, which I will 
find very valuable. So, I'm looking forward to seeing their 
report, to discussing with them what observations they have, 
and ways that we can strengthen both the U.S. Agency for 
International Development, as well as the Office of the 
Director for U.S. Foreign Assistance.
    Senator Feingold. So, you don't think the F process will be 
too far along to incorporate their good ideas.
    Ms. Fore. Oh, no. I think this is the beginning of a 
process, and that we will be able to improve it as the years go 
by.
    Senator Feingold. Well, talk a little bit about what you 
see as the indicators of success envisioned by the F process. 
How will we know--both here in Congress and in the countries 
where foreign aid is so critical--what success will look like? 
How do we know when we've reached it?
    Ms. Fore. I know when I first served in USAID, 17 years 
ago, I hoped that there would be a way that I would know when a 
country was ready to ``graduate,'' and that it was a time that 
we could then begin pulling down many of the projects, and they 
would go on and be picked up by private partners. And, in those 
years, what I've seen is that much of the private development 
community and foundations and private corporations have really 
risen up with an enormous wellspring of funds and attention 
into the development community and the foreign assistance 
community.
    So, I'm looking forward to really exploring the area of 
partnerships. I think we have enormous possibilities and 
opportunities there. And once we begin to see private partners 
coming into countries, and countries looking after their own 
health sectors and education sectors, I think we will begin to 
see when it is time to change our programs, that we will have 
success.
    I'm very interested in looking at these indicators of 
success and making sure that we refine them as the months and 
years progress, because I think it's a very important part of 
our country-based strategy that countries move along, and that 
all of us progress in our own ways, and that none of us are 
perfect.
    Senator Feingold. Talk a little bit, if you would, about 
what counterterrorism funding, from a foreign assistance 
perspective, looks like. I noticed, in the fiscal year 2006 
budget, there was a request of just over $157 million for this 
specific account, while the FY08 request is 18 percent higher--
at more than $185 million. What programs will this fund and who 
will implement them? And will this be coordinated with defense 
and intelligence counterterrorism programs?
    Ms. Fore. I would like to get back to you for which 
programs that they will fund, particularly.
    [The submitted written information from Ms. Fore follows:]

    Much of the increase you refer to under the Counter-Terrorism Area 
reflects our commitment to develop programs that address the underlying 
conditions that feed the terrorist threat. On the training and 
assistance side, we have requested increases in programs that help 
build partner-nation capabilities in law enforcement, as well as in the 
judicial, prosecutorial, and regulatory fields. We are particularly 
focused on developing programs that build on the Regional Strategic 
Initiatives, or RSIs, that we have launched in a number of regions 
around the world that are most directly challenged by the terrorist 
threat. the RSIs are field-centric programs that seek to develop 
policies and programs to deny terrorists the freedom to operate in 
ungoverned or poorly governed spaces and to use those spaces to train, 
equip, and finance their activities as well as to launch attacks. As 
ungoverned spaces are most frequently found in border areas between 
states, regional versus bilateral approaches are often the most 
effective means to address the challenge.
    In all of these programs, we work closely with our colleagues in 
the military and the intelligence community. Washington agencies, as 
well as the Combatant Commanders, are full participants in the Regional 
Strategic Initiatives. The Office of the Coordinator for 
Counterterrorism also chairs several interagency working groups on 
technical assistance and counterterrorism finance that coordinate 
training and assistance programs throughout the interagency.

    Ms. Fore. Yes; we must coordinate them with Department of 
Defense and other U.S. Government agencies, because that is 
where we will get our strength and clarity and focus and 
purpose.
    Senator Feingold. All right. And, as you mentioned in your 
testimony, one of the key goals for any strategic foreign aid 
assistance framework is the integration and coordination of all 
assistance mechanisms--which includes State, USAID, MCC, 
PEPFAR, and even DOD, given their increasing role in U.S. 
foreign assistance. Taking a holistic and integrated approach 
to dealing with all of these tools will ultimately, obviously, 
help us better reach our core objectives. Accordingly, and with 
the President's request to reauthorize PEPFAR, I'm wondering if 
you could outline how the F Bureau is currently coordinating 
with the PEPFAR office and what kind of coordination do you 
expect in the future between this initiative, traditional 
health assistance, and broader foreign aid initiatives?
    Ms. Fore. Yes; they're very interlinked. Programs with 
nutrition, with maternal child health care, with child 
survival, with PEPFAR and HIV/AIDS, and our traditional health 
programs, are all interwoven in the development tapestry.
    The Office of the Director of Foreign Assistance does 
closely coordinate with Office of the Global AIDS Coordinator. 
These working groups that Ranking Member Hagel and I were 
speaking about earlier involve PEPFAR. USAID is often the 
implementer with implementing partners on the ground for many 
of the PEPFAR programs. So, we are working at ways that can be 
future best practices and models for the developing world, as 
well as the foreign assistance world, in how these can 
integrate with each other.
    Senator Feingold. Thank you, Secretary.
    And thank you, Mr. Chairman.
    Senator Menendez. Thank you.
    I think we'll have another round of 7 minutes, for those 
members who wish to do so. And let me start with myself.
    Madam Secretary, I'm going to go back to where we--I 
finished off with you, which is the economic support funds and 
the development assistance accounts. Have there been any 
discussions inside of State about closing or eliminating one of 
these accounts?
    Ms. Fore. Not that I know of.
    Senator Menendez. Have there been any discussions inside of 
State about just creating an F account and eliminating all of 
the accounts?
    Ms. Fore. Not that I know of.
    Senator Menendez. OK. I--you know, if you understand that 
for those of us who care about poverty alleviation as one of 
the core missions, and saw that we had to fight to include it 
in the mission statement, and then see the movement toward the 
ESF accounts, for which there's total flexibility, you may get 
a sense of why some of us are concerned.
    Let me ask you--Congress uses congressional directives and 
appropriation bills to express the intent of Congress given to 
it under the Constitution to direct how funds should be used. 
These, to be clear, are not earmarks to send the money to a 
particular organization, they are a directive to detail how 
much money should be spent in a particular country or that a 
certain amount of money should be spent on educational funds in 
a specific region, by way of example.
    If you were ultimately confirmed, do you plan on honoring 
congressional directives?
    Ms. Fore. Yes, sir.
    Senator Menendez. And if you believe there is a reason--
that there is a compelling reason not to honor a directive, 
would you commit, to the members of this committee, assuming 
that you are confirmed, that you would come back to Congress 
for such consultation?
    Ms. Fore. I would.
    Senator Menendez. All right. Let me ask you--the whole 
idea, in part, is to create greater transparency, a move away 
from stovepipes. I have a chart here that is the foreign 
assistance framework under the new proposal, and I'm wondering 
to myself how much more clear and concise and less stovepipe 
this all is.
    Ms. Fore. Well, I did mention, sir, that we would look at 
ways to simplify it. In the discussions that I've had with our 
implementing partners, one of their requests has been to make 
it simpler and clearer, and it's one of the things that we will 
attempt to do.
    Senator Menendez. Well, in that respect, let me ask you 
this. USAID has assistant administrators who handle each area 
of the world. In addition, it's my understanding that the F 
Bureau has a person who handles each region of the world. So, 
who has say over the budget for the region? The F person or the 
USAID Assistant Administrator?
    Ms. Fore. There's actually another player in this----
    Senator Menendez. Oh?
    Ms. Fore [continuing]. Which is the State Department 
Assistant Secretaries. And what we are trying to do with the 
working groups is to bring everyone around the table, on a 
country-by-country basis, so that if you are a regional 
Assistant Secretary in State Department, or an Assistant 
Administrator in USAID, or if you work that portfolio at 
Treasury or Commerce or Justice or DOD, that, around one table, 
you can talk about the interests of that country and the United 
States and the host-country interests.
    Senator Menendez. I appreciate that, but, at the end of the 
day, there has to be someone who makes a decision, based upon 
that whole collaborative process, as to who has a determination 
of what the budget will be for that region, who has final say 
over how the money expended in the region would be. In my mind, 
that's pretty clear right now. Now you've added another layer 
to it, with the assistant secretaries. So, who is responsible 
in this process? Who makes that final determination?
    Ms. Fore. The final determination is made by the Secretary 
of State.
    Senator Menendez. Well, obviously. I--that's a poorly 
worded question on my behalf. [Laughter.]
    I will readily admit to it. So, before it goes to the 
Secretary of State, who is the entity that makes that 
recommendation to the Secretary?
    Ms. Fore. Well, the working group comes up with a 
recommendation that then----
    Senator Menendez. And who within the working group makes 
that determination of that that decision is, to the Secretary?
    Ms. Fore. Well, it's the members of the working group. But 
then, that working group makes a recommendation. As I 
understand it, it would then come to me and to my deputies. I 
have not yet been through this process, but we have seen the 
reviews that are coming up in the next month, and that's when 
the Secretary will first hear what the recommendations are for 
each region.
    Senator Menendez. Well, let me just say, by creating these 
new positions, it seems to me that we are duplicating work, 
we're reducing the power of the USAID assistant administrators. 
And, given that USAID assistant administrators are Senate-
confirmed and that F people are not, how do we justify that 
move, moving away from those individuals who have to go through 
the process of being confirmed by the Senate, as we recently 
had a hearing in this committee, of several USAID deputy 
administrators--assistant administrators?
    Ms. Fore. Well, and we're very pleased that they have been 
confirmed and are now working strongly at USAID.
    I just will reiterate that this is a collaborative process, 
but the final authority rests with--coming up through me to the 
Secretary of State.
    Senator Menendez. What about the--what about not just the 
budgeted money, but how it is expended? How does that process 
get determined? Because we could say, ``Look, this is the 
budget for this region or this country,'' but the actual 
determination--who makes the determination of how it's spent?
    Ms. Fore. Each country team sends in their request, and 
there is a country operational plan that is given. We have a 
first group, a pilot group, of countries that have sent in 
their country operational plans. Those operational plans become 
the basis on which money is then expended, so it goes--it is 
distributed through those plans.
    Senator Menendez. And you intend to continue that process?
    Ms. Fore. Well, it's just begun, sir.
    Senator Menendez. When you say ``a country team,'' is this 
a--the USAID country team in-country?
    Ms. Fore. No; this is the country team that represents all 
U.S. Government agencies within a country. So, it----
    Senator Menendez. Isn't it important, in this setting that 
you just described, who's sitting there and who they represent?
    Ms. Fore. Yes.
    Senator Menendez. Yeah. And isn't it true that some people 
clearly will have more weight than others in that process, as a 
reality?
    Ms. Fore. Yes.
    Senator Menendez. That's different than what we do now, in 
terms of the USAID assistant administrators and the experience 
that comes from in-country to the director of that particular 
region, and then ultimately percolates upward. This seems to me 
like a much more top-down process than using the expertise and 
experience of people in the field as to what that country 
needs.
    Ms. Fore. As you know, I've been an Assistant Administrator 
in USAID, and I remember the process, that used to exist, in 
which the funds would come up to an Assistant Administrator. 
This new process is really trying to get the country team in-
country to look at the country's needs from all aspects--so, it 
is not just development, but it's also defense, it's also 
diplomacy--and that they, as a country team begin to make some 
assessments for what are the greatest opportunities and 
priorities within the country, and they then recommend a plan.
    I have no intention of taking power away from the field. It 
is the field that we rely on to have the greatest knowledge. 
They are the closest to all of the projects--our implementing 
partners know what is actually going on in the field. It is 
where the process should begin, it's also where it should end 
once the money is ready to be distributed.
    So, the field must play--has to play a very important part 
of this process.
    Senator Menendez. Senator Hagel.
    Senator Hagel. Thank you, Mr. Chairman.
    Staying on this subject, Madam Secretary, I noted, in your 
testimony, you referenced Ambassadors having vague ideas, 
implying, I assume, that sometimes they don't have a very good 
understanding of these programs in their own country, and how 
they're implemented. Isn't that a rather significant problem, 
if that's the case, and what you say in your testimony? Then, 
if that is the case, what role do the Ambassadors play in the 
country where they are stationed? And how are you dealing with 
this issue?
    Ms. Fore. It is a problem, in that a--an ambassador should 
know everything that is going on in his or her country. It is 
also important that the team, as a whole, have an overview of 
the whole, because then they can see how their part, the part 
that they are working in, fits in with others.
    And when you are out in the field--and you can see it at 
posts that have many other government agencies present--when I 
was in Bangkok, I could see that occurring, that there is lots 
of synergy among various U.S. Government programs, but it's 
very important that they communicate and talk with each other 
on the ground, in the field, and in the country.
    This issue came up when a very prominent head of a 
nonprofit organization was speaking with one of our 
Ambassadors, and the Ambassador did not know all of the 
projects that this particular nonprofit organization had going 
on in-country.
    It is something that we can improve on. It is something 
that we must improve on. This is just not good enough. We can 
do foreign assistance in a much more cohesive, transparent, and 
collaborative way.
    Senator Hagel. How much weight do you give the Ambassador's 
opinion on these programs when you have this collaborative 
effort that you described to the chairman?
    Ms. Fore. A great deal. And in this--in the modifications 
we have been doing for the 2009 process, even more weight has 
been moved to the field recommendations, suggestions, and 
ideas.
    Senator Hagel. But that's--in the face of your testimony, 
that some Ambassadors--or, you say, ``our Ambassadors often 
only have a vague idea.'' So, the answer, then, to the question 
is more involvement by the Ambassadors, more education, more 
information, more collaboration, so that they have a better 
understanding of it. Is that what you're telling me?
    Ms. Fore. Yes; and that they work with their country teams 
and really forge that integration in the country so that there 
is a good sense of what our foreign assistance is to accomplish 
in the country.
    Senator Hagel. I want to go back to a point that Senator 
Feingold raised. And you spent some time answering the issue of 
measuring results. How do you know--as you, I think, noted in 
your own personal experience in a previous position--how do you 
know when these countries are actually developing in the way 
that you had hoped and what our programs are intended to do? 
What measurement is there, other than--at least what I heard 
from you, in your response to Senator Feingold, a subjective 
measurement--what measurement--measurements do we have? Are we 
going to change those measurements? Should we change them? How 
should we change them?
    Ms. Fore. Yes; it's a very interesting question. Currently, 
we're using a number of indicators. There's economic 
prosperity, child survival rates, education, literacy, a number 
of indicators across the entire spectrum of human development. 
And all of these indicators give one a sense for how a country, 
a sector within a country, is progressing. And so, they become 
touchstones for us in seeing how a country is progressing, and 
thus, what type of assistance and what our relationship should 
be with that country and those sectors.
    Senator Hagel. But you also, I suspect, still have to use 
some subjective analysis, based on people and leadership and 
uncontrollables, and those type of dynamics.
    Ms. Fore. Yes. There are times when you have opportunities, 
given a particular Education Minister that is interested in 
helping to bring more women and girls into schools, or when a 
particular minister is interested in looking at legal reform, 
or an Economics or Finance or Trade Minister is interested in 
looking at the regulatory systems, or in the customs 
procedures. And when those opportunities arrive, then the 
country teams recommend moving in those directions, because 
they can see real value in the chance for a real step forward 
in progress for that country in that sector at that time with 
that leadership.
    Senator Hagel. Thank you.
    Mr. Chairman, thank you.
    Senator Menendez. Thank you.
    Madam Secretary, we have several other questions. I will 
submit them for the record.
    You also have said that you will get back to some of the 
members of the committee in response to questions they posed to 
you. We would expect that, as well, and your answers to the 
ones that we submit to you in writing.
    I know this is not your confirmation hearing, but let me 
just raise some things with you while--for when we have that 
opportunity, of waiting upon the answer to a letter that both I 
and Senator Obama have sent to you, and we await, eagerly, your 
responses to that.
    One is, I'll be asking you for a commitment that, if 
confirmed, you'll work to repair the morale that I get a sense, 
at USAID, is waning. It's an excellent group of people who do a 
fantastic job. And yet, you know, off the record they express 
some real concerns about where they're at. That doesn't mean 
you won't make hard decisions--of course you will--but that you 
will to make sure that the people that are included--that are 
included in the process, and that the expertise that that 
agency has, is valued and utilized.
    I'll ask you not to close any USAID missions without 
intense consultations with Congress. You've already said you're 
going to observe congressional directives in the appropriations 
bill, and, if necessary, if you have a--if the Department has a 
deviation, you'll come and discuss it with the Congress.
    We didn't get a chance to talk about mission attaches, but 
we have a concern about the change of that title and what it 
means, and the consequences thereof.
    We hope that you'll run the 2009 budget process 
differently, in terms of real consultation on the ground with 
USAID mission directors and their team.
    We hope that you'll change, as interaction recommends in 
their testimony, the current model, to ``substantively 
implement the top-line goal of poverty alleviation.''
    And we're going to be pursuing with you the DA-to-ESF shift 
to see exactly why it is so necessary, and to ensure that, in 
fact, development assistance continues.
    I want to put that out there, so that, as we get closer to 
your hearing, you've been thinking about and have ample 
opportunity to have responses to it.
    With that, on behalf of the committee, we thank you for 
your testimony. And we appreciate you being here with us today.
    Let me call up the second panel. And let me, as the 
Secretary leaves----
    Ms. Fore. Thank you, Mr. Chairman.
    Senator Menendez. Thank you.
    Ms. Fore. Thank you, Mr. Ranking Member.
    Senator Menendez. Let me take a moment to introduce them. 
We want to thank all of our witnesses for joining us today: Sam 
Worthington, the president and CEO of InterAction; Lael 
Brainard, the senior fellow and vice president and director of 
the Brookings Institution; and Steve Radelet, senior fellow at 
the Center for Global Development.
    We'll proceed to opening statements from all of the 
witnesses. In the interest of time, we ask them to keep their 
statements to about 7 minutes, and summarize it. We'll include 
all of your written statements fully in the record.
    And let me start in the order that we recognized you.
    Mr. Worthington.

 STATEMENT OF SAM WORTHINGTON, PRESIDENT AND CEO, INTERACTION, 
                         WASHINGTON, DC

    Mr. Worthington. Chairman Menendez and Ranking Member 
Hagel, I thank you for this opportunity to speak on a topic 
that's of major interest to U.S. private volunteer 
organizations. And I want to thank the chair and the ranking 
member for your interest in the current transformational 
diplomacy reform process and how it affects the issues that are 
most important to our community, including poverty, aid 
effectiveness, gender, and humanitarian assistance.
    I have a longer written statement that I will submit for 
the record.
    Senator Menendez. Without objection.
    Mr. Worthington. InterAction is the largest coalition of 
U.S.-based international development and humanitarian 
organizations, or we'll call them ``U.S. NGOs.'' With over 165 
U.S. NGOs operating in every developing country around the 
world, we work to overcome poverty, exclusion, and suffering by 
advancing human dignity for all.
    Our members include service delivery and advocacy 
organizations, faith-based and secular organizations who work 
to help the world's poorest and most vulnerable people.
    Let me also say that if Under Secretary Fore is confirmed 
as the Administrator of the U.S. Agency for International 
Development, or as the Director of U.S. Foreign Assistance, we 
hope that we can work closely with her to monitor and provide 
counsel on the long-term effectiveness of these reforms.
    What I want to talk to you about today is about 
partnerships, the partnership between InterAction and the U.S. 
Government, and the partnership between the American people and 
the world's poor.
    InterAction members, collectively, leverage some $5 billion 
annually from donations from the American people for a wide 
range of both humanitarian and poverty-focused programs. These 
programs help countries around the world try to achieve and 
meet the millennium development goals. The field activities 
supported by these programs enable programs to work alongside 
with USAID-funded programs, mutually reinforcing them.
    The programs represent a partnership of the American people 
with the people of the rest of the world, a partnership that 
allows individuals and communities to articulate their needs, 
to identify results and to improve their lives.
    Our community tries to meet the needs of individuals, 
families, and communities halfway. We partner with local 
groups, NGOs, religious institutions, civil society, 
government, and many other actors, to help them meet the most 
basic rights and needs.
    InterAction has always argued that sustainable development 
and poverty alleviation will lead to a more secure world, but 
we feel that the needs of people who are plagued by chronic 
instability, and that the act of lifting people out of poverty 
is, in and of itself, a laudable goal, regardless of the 
strategic impact.
    The pursuit of these goals will have a direct impact on the 
image of the American people in the poorest parts of the world, 
thereby advancing our country's national best interest.
    As we address the diplomatic and security challenge we face 
as a nation, we must continue to make the proper investments in 
areas that mitigate the decivilization of poverty, ignorance, 
and hopelessness, items that foster militant ideologies and 
conflict.
    To achieve some form of complementarity between the three 
pillars of American foreign policy--of defense, diplomacy, and 
development--there must be a greater degree of parity between 
them and a respect for development's need to operate free from 
undue influence by diplomatic or security objectives.
    Our concern with regard to the current framework for 
foreign assistance reform is that it appears that either 
development goals are in competition with security goals, or, 
perhaps more troubling, subservient to them. Long-term 
development does support long-term security goals, but U.S. 
Government development agencies need the space to set their own 
priorities and agendas, and be informed by the technical 
expertise and on-the-ground experience of USAID staff, working 
with civil society organizations and our members, American 
NGOs.
    I'd like to share some select examples in the current 
transformational diplomacy budget that highlight some of these 
challenges.
    As noted in the earlier comments, we are troubled by the 
shift in the administration's budget for development assistance 
accounts to economic support funds account, or ESF. We 
recognize that there are no legal safeguards in place that 
could ensure that ESF funds, which traditionally, as you noted, 
are flexible and managed by the State Department, would not be 
funneled to short-term needs or driven by political agendas, 
either in this administration or a future one.
    In the area of basic education, we've seen dramatic shifts 
away from programs in Africa and India, and toward strategic 
allies. For example, in India, a country that has one-third of 
the world's illiterate population with 4.6 million children who 
have no access to schools, the program is being zeroed out. 
Strategic allies need major investment in basic education, but 
those investments should not be at the expense of poor 
individuals in other countries.
    Also, in terms of the budget, the administration has 
proposed significant cuts to health and development programs 
that you noted earlier, especially in countries where there 
have been large infusions of PEPFAR/MCC funding. These laudable 
Presidential initiatives were never set up to displace 
effective child survival, literacy, or civil society programs. 
For example, in Cote d'Ivoire, PEPFAR funds have nearly 
tripled, but basic maternal and child health are entirely 
zeroed out.
    In Latin America, the administration proposes cuts of core 
poverty programs by 25 to 40 percent in certain countries, with 
five of seven MCC-eligible countries facing significant cuts in 
child survival, health, particularly in family planning, 
reproductive health funding.
    We also express concern at the administration's FY08 budget 
for USAID's operational expenses, which are 15 percent lower, 
and recognize that, between 1992 to 2006, USAID workforce has 
been reduced by 29 percent. This is a significant reduction in 
technical expertise, and has led to a large bundling of 
contracts that shift the management burden to a few large 
contractors and grantees, and away from career professionals.
    Another area of note that came up in the earlier testimony 
is our concern with the level of transparency and consultation. 
The F Bureau did not hold its first information meeting with 
the NGO community until a full 7 months after Secretary Rice's 
announcement of transformational diplomacy reform. And, while 
the level of dialog has significantly increased in recent 
months, the NGO community would certainly like to see a greater 
degree of true consultation.
    The goals of U.S. development and humanitarian assistance 
can only be achieved if we have a more efficient, more 
coherent, and more accountable foreign aid system. Reforms need 
to account for not only where moneys are being invested, but 
also for what purpose, and, equally important, to determine 
whether or how they have helped make a change in someone's 
life.
    For us, the key elements of any successful reform are the 
following: The need for coherence across all civilian U.S. 
foreign assistance programs; a focus on the well-being of the 
world's poor; the space for the type of partnership we need to 
shape effective long-term and partial programs; and programs 
that enhance local capacity to meet mutually defined results.
    Now, to this end, we would like to see the creation of 
something new: A strong Cabinet-level foreign assistance 
agency. And we recognize that this may take a while, and that 
bipartisan congressional authorization would be needed. And it 
would build on, but need to go much further than, the current 
reforms.
    In the meanwhile, we will do our best and work as 
effectively as possible with the current U.S. assistance reform 
processes throughout the coming months.
    I have talked a lot about partnership with the world's 
poor, partnership with the American people, with the Department 
of State and USAID, but we have a special partnership also with 
Congress, and I would like to thank you for your support and 
oversight of the U.S. foreign assistance program, and I look 
forward to your questions.
    Thank you.
    [The prepared statement of Mr. Worthington follows:]

    Prepared Statement of Samuel A. Worthington, President and CEO, 
                      InterAction, Washington, DC

    Chairman Menendez, Senator Hagel, and other members of the 
subcommittee, I welcome the opportunity to testify before this 
subcommittee on a topic of major interest to U.S.-based international 
nongovernmental organizations. I also want to thank you, Chairman 
Menendez and Ranking Member Hagel, for your interest in foreign 
assistance reform and how it affects the issues that are most important 
to our community, including poverty, aid effectiveness, gender, and 
humanitarian assistance.
    U.S. foreign assistance operates in an increasingly complex 
environment of global development donors and recipients--national and 
international NGOs, multilateral institutions, governments, local NGOs, 
foundations. To ensure the effectiveness of overall foreign assistance 
in any country, collaboration becomes crucial among these varied 
actors.
    InterAction is the largest coalition of U.S.-based international 
development and humanitarian nongovernmental organizations (NGOs). With 
more than 165 member NGOs operating in every developing country, we 
work to overcome poverty, exclusion and suffering by advancing basic 
dignity for all. Our members include service delivery and advocacy 
organizations, focusing on health, hunger, economic development, 
children, refugee crises, the environment, and humanitarian 
emergencies. InterAction convenes and coordinates its members, so they 
can influence policy and debate on issues affecting millions of people. 
InterAction members collectively leverage more than $5 billion annually 
from the American people for a wide range of humanitarian relief and 
poverty-focused programs overseas. These programs help countries around 
the world further advance national commitments to reach all of their 
Millennium Development Goals.
    I am here today to tell you about our community's perspective on 
the role of international development assistance in U.S. foreign 
policy, how the foreign assistance reorganization and the President's 
2008 budget proposal to Congress reflects or contrasts with our 
perspective, and to make specific recommendations for the future 
direction of foreign aid reform.
    If Undersecretary Fore is confirmed as Administrator for the U.S. 
Agency for International Development and Director of Foreign 
Assistance, we hope to work closely with her to monitor and provide 
counsel on a process of reform that we hope will bring greater long-
term effectiveness and impact to the ways our country promotes 
transformational development around the world. InterAction members have 
a long history of partnering with USAID, we look forward to 
strengthening that partnership.
Why Foreign Assistance
    I'd like to relate at this point, if I may, a short story that 
captures the essence of the work we do in partnering around the world. 
Five years ago, as the CEO of Plan USA, an InterAction member 
organization that raised millions from the U.S. public, I met Michael, 
a young man who lives near Lake Victoria. He was an orphan at 15 and by 
17 had organized a group of orphaned children to provide sewing 
services for their village. He had lost his father and mother to HIV/
AIDS and within a 2-year period, without any external assistance, he 
had organized 103 orphaned children in an activity that provided them 
with food each day. He came to us, a group of U.S. nonprofits, 
including Save the Children, CARE, World Vision, and Religions for 
Peace for some resources that would bring access to education to the 
village's orphaned children. These InterAction members, who had raised 
tens of millions of dollars of support, provided help; we also tapped 
funding from the President's Emergency Plan for AIDS Relief (PEPFAR).
    Our community of U.S. NGOs meets the Michaels of this world half 
way. We partner with local community groups, NGO's, religious 
institutions, civil society, governments and many other local actors to 
help them meet their most basic needs and rights--their rights to a 
gainful livelihood and to participate fully in their societies, their 
rights to a healthier life, to be free from extreme poverty or abuse 
based on gender, ethnicity, or religion. Any effective U.S. foreign 
assistance reform must be able to both meet the Michaels of this world 
halfway as well as partner with the U.S. international NGOs operating 
on the ground.
    We have many decades of field experience, working directly with 
national governments, local communities and individuals, or partnering 
with USAID and the Department of State. We know that by focusing on 
vulnerable populations, promoting the ability of states to govern 
justly and invest in their people, and providing individuals and 
societies the means to help themselves, U.S. foreign assistance can 
help the world's poor while advancing U.S. strategic interests. Saving 
lives and alleviating poverty reflects Americans' deeply rooted 
humanitarian values, thereby furthering a positive U.S. image abroad.
    Our experience shows that an effective reform of U.S. foreign 
assistance must incorporate the following principles:

   In order to encourage self-sufficiency foreign assistance 
        programs must include local ownership of programs and 
        partnerships with stakeholders.
   Sustainable development is long-term and requires 
        commitments that should not be compromised for the sake of 
        short- or long-term political goals.
   U.S. foreign assistance programs need to be coherent, not 
        fragmented.
   The goals of the United States, recipient countries and 
        multilateral institutions like the United Nations must as much 
        as possible be in harmony and reinforce each other. A prominent 
        example are the Millennium Development Goals, endorsed by 
        President Bush and adopted by donor and recipient countries 
        around the world.
   Humanitarian initiatives must be impartial and not be 
        dictated by the strategic or political significance of any 
        nation.
   Gender equality must be placed at the heart of program 
        strategies.

    As I noted, foreign assistance can serve a dual purpose. Some 
foreign assistance has been, and will continue to be, a tool to further 
U.S. strategic interests. On the other hand, it is also clear to us 
that long-term foreign assistance comprises the development component 
of the administration's ``three Ds'' strategy (defense, development, 
and diplomacy), as outlined in the 2002 National Security Strategy. We 
view development as part of this three-legged stool; the development 
``leg'' must be equal to--not subsumed under--the other two legs of the 
stool. The development component, which is based upon partnerships, 
should not be dictated by the strategic or political significance of 
any nation.
Designing an Effective Development Aid Structure and Process
    The goals of U.S. development and humanitarian programs can best be 
achieved through a more efficient, coherent, and accountable foreign 
aid system. Getting more bang for our buck is best assured when foreign 
assistance programs operate under one coherent system and can account 
for not only where moneys are being invested and for what purpose, but 
equally whether and how we have helped improve peoples' lives, e.g., by 
increasing literacy rates, decreasing infant deaths, sustaining 
communities' natural resources, etc.
    The keys to the success of any reform are:

   Coherence across all civilian U.S. foreign assistance 
        programs;
   A focus on improving the well-being of the poor;
   The space for partnership to shape effective and long-term 
        programs;
   Programs that enhance local capacity and work to meet 
        mutually agreed upon results.

    Together they point to the need for an important institutional 
step: The creation of a Cabinet-level agency for international relief 
and development alongside the Secretaries of State and Defense. We 
recognize that the creation of a new strong foreign assistance agency 
may unfold over a number of years, that bipartisan congressional 
support will be needed, and that it must build on and exceed the 
current reforms. We also recognize that InterAction's desire to create 
a Cabinet-level department may place us at odds with efforts to make 
permanent the recent incorporation of a new foreign assistance 
structure within the Department of State. In the meantime we believe 
that the current arrangement--with the Director of Foreign Assistance 
reporting to the Secretary of State--has significant limitations and 
can hinder some of the principles of effective foreign assistance 
stated above. In the meantime, we are committed to work to create more 
effective U.S. foreign assistance within the current reform process.
Commentary on the Restructuring Process by the Office of Foreign 
        Assistance
    We support a number of steps taken by the Office of U.S. Foreign 
Assistance (F Bureau) through its reform process:

   At InterAction's urging last year the Office of the Director 
        of the F Bureau added the words ``reducing widespread poverty'' 
        in the top-line goal of foreign assistance.
   We support building systems for accountability and 
        measurement.
   We support developing an approach to track how U.S. foreign 
        assistance dollars are being spent.
   We welcome the F Bureau agreeing in the last year to 
        increase its sharing of information with our community on some 
        of its internal processes and decisions. Previous to that, the 
        F Bureau shared little such information.

    We continue, however, to oppose and be concerned about other 
aspects of the restructuring process. First, the goal of widespread 
poverty alleviation has yet to be truly integrated into operational 
practice. For example, we have seen only limited indications that 
reducing widespread poverty has been integrated into operational 
practices within the F Bureau. The Department of State has repeatedly 
referred to reducing widespread poverty only in the context of building 
democracies and strengthening national security. The preparation of 
Country Operational Plans and FY08 budget allocations were heavily 
directed by USAID and the Department of State in the Washington 
bureaus, and there were insufficient opportunities for mission staff to 
weigh in before significant decisions had already been made.
    Second, we find that the foreign assistance structure is still 
fragmented. The F Bureau's attempt to streamline and consolidate 
foreign assistance structures falls substantially short of its goal. 
Omitted from this ``reformed'' consolidation are major programs such as 
PEPFAR and the Millennium Challenge Corporation (MCC). Our urging for 
consolidation should be viewed in the larger context that the current 
restructuring undermines in our view the essential principles to 
effective development assistance. Ultimately U.S. foreign assistance 
must be organized in an altogether different structure that shields it 
from dominance by the Department of State.
    Third, the establishment of the new Office of the Director of U.S. 
Foreign Assistance and the current restructuring of foreign assistance 
are provisional and have no legislative basis, making them subject to 
the arbitrary changes by current and future administrations. New 
authorizing legislation would address this concern as well as legally 
ensure a system that truly consolidates the myriad institutions that 
administer foreign assistance. We realize this could be a long-term 
process involving Congress, the administration, our community, and 
other pertinent parties.
    Fourth, determining program strategies by using the U.S. Foreign 
Assistance Framework's 5X6 matrix (6 categories of recipient countries 
and 5 objectives for foreign assistance) reflects at times a lack of 
understanding of development realities within a particular country with 
very different levels of affluence, and a downplaying of the need for 
local-level authority.
    Fifth, certain budget cuts to regional and country programs have 
undermined the importance of local input and participation. This is 
counterproductive to ensuring that recipient countries will become 
self-sufficient.
    Finally, consultation with the NGO community on foreign assistance 
reform continues to be mixed. Despite providing more information and 
initial senior-level meetings, the F Bureau has yet, prior to the 
nomination of Acting Director and Acting Administrator Fore, to 
adequately address our concerns or questions or respond adequately to 
our appeals for regular two-way consultation. As a result, the 
relationship is marked by some suspicion and distrust. We look forward 
to working with the next director of U.S. Foreign Assistance and USAID 
Administrator to rectify these problems and urge for a more 
collaborative and transparent communication process.
Commentary on the Impact of the Restructuring on the 2008 Budget 
        Proposal
    InterAction supports the allocation of the critical resources 
Congress provides for foreign assistance, which constitutes .9 percent 
of the entire Federal budget. We are equally concerned with how these 
moneys are being spent, for what priorities, and for what results. The 
administration's FY08 budget proposals confirm our overriding concern: 
That poverty is in the topline goal but funding for basic needs appear 
to be sacrificed for funding of strategically sensitive countries and 
regions of the world. Drawing on our member's analyses and our own, I 
make a number of observations:
    The bulk of the foreign assistance is proposed to be allocated to 
many countries of strategic interests, who do have real needs, rather 
than those countries who are simply poor or facing a humanitarian 
crisis: The top nine FY08 U.S. foreign aid recipients are (in 
descending order of amount) Israel, Egypt, Afghanistan, Pakistan, 
Sudan, South Africa, Kenya, Nigeria, and Jordan. These countries' per 
capita income range from $17,000 in Israel to $230. Need does not 
appear to be a key factor in this funding distribution.
    In the area of Basic Education, the biggest recipients are Egypt, 
Jordan, Indonesia, Afghanistan, and Pakistan. Egypt, Jordan, and 
Pakistan need major investments in basic education but those 
investments should not be made at the expense of other very poor 
countries. Of the 25 countries in Africa with basic education programs, 
13 are proposed for cuts or zeroed out. One program in Madagascar to be 
zeroed out seeks to strengthen teacher training, to increase local 
support for elementary schools and planning for teacher professional 
development. Basic education programs are proposed to be zeroed out in 
four non-African countries--East Timor, India, Mexico, Nepal.
    The substantial increase in poverty-focused development assistance 
is primarily due to funding for MCC and PEPFAR. Without funding for 
these two programs, development assistance to many countries actually 
diminishes, particularly in African and Latin American countries. 
PEPFAR and MCC funding appears to be in competition with other core 
poverty programs, which violates the original understanding that the 
two programs' funds were to be in addition to core development 
assistance. In Uganda, PEPFAR funds have been nearly doubled, while 
Maternal and Child Health funds have been cut by half. This is 
troubling because it ignores an important lesson that our members have 
learned in their decades of experience: An integrated, multisectoral 
approach is the only way to successfully tackle the huge global health 
challenges that we are currently facing. Programs like PEPFAR that 
provide urgently needed medicine are certainly welcome, but without 
taking a comprehensive approach that improves nutrition and food 
security, access to clean water, and the strength of local health 
systems, we risk compromising the efficacy of our intervention overall. 
In Latin America, cuts in core poverty programs range from 25-40 
percent, in countries such as El Salvador, Nicaragua, Honduras all of 
which have an MCC presence.
    Under Transformational Diplomacy, the administration's FY08 budget 
proposed that much of the funding for traditional development 
assistance accounts be transferred from Development Assistance (DA) 
funds to Economic Support Funds (ESF); an account that is statutorily 
intended to support national security interests. There are no legal 
safeguards in place to prevent a scenario of arbitrarily putting 
development assistance activities under the Secretary of State. We are 
encouraged, however, by the recent decision of the House Foreign 
Operations Appropriations Subcommittee to reverse the administration's 
proposed shift of DA funds to the ESF account.
    The administration's FY08 budget request for USAID Operating 
Expenses, is 15 percent lower the FY06 actual budget. This would 
continue a long and disturbing trend in the diminution of technical 
expertise at that agency. USAID has been put in the unfortunate 
position of managing more and more foreign assistance dollars with less 
and less human and financial resources, to the detriment of aid 
effectiveness. This has led to a second problem, the bundling of large 
umbrella contracts that shift the management burden to a few large 
contractors and grantees and away from career professionals. This trend 
also extends to the area of monitoring and evaluation. As USAID's 
technical capacity to do M&E declines, the agency is forced to 
outsource this work to contractors, thus leading to a loss of 
institutional knowledge about important lessons learned and best 
practices in the field.
    The recent proposed cuts in operating expenses were rumored to have 
been related to the notional closings of some USAID missions, which 
means projects could be abruptly terminated. In Namibia, a country 
whose mission is targeted for closing, a $3 million successful 
education program in its final phase will be closed prematurely. The 
``Living in a Finite Environment'' (LIFE) program in Namibia, a highly 
successful program is also targeted for early closure. The LIFE 
program, a multiyear USAID investment, has placed 13 percent of 
Namibia's land under 44 community-managed conservancies and engaged 
some 185,000 community members in natural resource management 
activities. The benefits to the Namibian economy were an estimated $21 
million.
    Given the F Bureau's restructuring process on largely a country-by-
country basis, there is concern that natural resource management and 
biodiversity conservation, which transcend political boundaries, will 
fall between the cracks. There is also evidence of country-based 
environmental needs being ignored. The Government of Madagascar, one of 
the world's biologically richest countries, has identified the 
environment as a critical sector of the country's social and economic 
development. Yet USAID has proposed reducing environment funding for 
Madagascar by 40 percent.
Recommendations to the Administration
    If she is confirmed in her new role, we look forward to working 
with Under Secretary Fore on pursuing a number of issues outlined 
below. For some of those issues stated above, the F Bureau has made 
steps in the right direction, and we would encourage further movement:

   Amend the current Transformational Diplomacy restructure of 
        foreign assistance in a manner that substantively implements 
        the topline goal of poverty alleviation. This would include:

     Developing indicators that track the steps to achieve the 
            goal of poverty alleviation and local involvement
     Developing country plans whose content is more driven by the 
            technical expertise of missions' professionals on the 
            ground.

   Take further steps to improve the coordination, coherence, 
        and accountability of the foreign assistance reform. This would 
        include widening the purview of foreign assistance 
        consolidation to include MCC, PEPFAR, and other entities that 
        administer foreign assistance funds.
   Establish more substantial consultation and transparency 
        with the NGO community, including:

     Establish a meaningful two-way dialog with the U.S. NGO 
            community;
     Inform and consult the NGO community regarding followup 
            implementation plans for the outcome of the F Bureau's 
            After Action Review of the administration's FY08 budget 
            development process.
Impact of the Current Reforms on Field Operations
    We recently received anecdotal information from some of our members 
on the impact of the foreign assistance restructuring on their field 
operations. We surveyed some members with substantial USAID grant 
portfolios, asking whether the restructuring had affected their 
activities in the field, namely in terms of:

   The availability of new USAID proposals to manage or design 
        on-the-ground activities;
   The timeframes for deciding pending awards of proposals and/
        or funding continuity for ongoing awards.

    Of the members surveyed, virtually all noted a significant slowdown 
in 2007, compared to 2006, in available new USAID proposals. Some also 
expressed concern for the longer time lapse in which USAID notified the 
awardees. As a result of these funding delays and/or fewer 
opportunities to take on new projects, these members reported:

   Difficulty in future planning for ongoing programs;
   Higher risks of closing down the program or cutting back 
        staff;
   Risks of scaling down programs' activities;
   Difficulty leveraging other sources of funding.

    Many of these NGO members had been informed directly or indirectly 
by USAID that following the approval of country operating plans in 
April 2007, there would be a significant resurgence of available 
proposed new project activities. To date, some of these members have 
noted a minor increase, but no substantial changes.
    In addition, a few of the affected member organizations observed a 
definite trend in the funding mechanism for projects: Increase use of 
funding conditions that don't allow for local involvement in design and 
implementation and decreased use funding parameters that encourage 
strong local input.
InterAction's Ongoing Monitoring and Analysis of Transformational 
        Diplomacy
    In order to better understand the impact of the restructuring 
process at country mission level around the world, InterAction has 
undertaken recently a research project in designated recipient 
countries. The research will examine the types of future programs to be 
funded, the allocation of funding, and the nature of northern and 
southern civil society engagement in drafting USAID's Country 
Operational plans. We look forward to sharing our findings with 
Congress, Under Secretary Fore, the Secretary of State, and other 
interested members of the administration.
    We also welcome the research program initiated by Committee on 
Foreign Relations Ranking Member Senator Lugar, which seeks to examine 
the current impact of the foreign assistance restructuring. We also 
welcome the important oversight by this subcommittee under the 
leadership of Chairman Menendez and of Ranking Member Senator Hagel.
Conclusion and Recommendations to Congress
    We urge a more collaborative process among Congress, the Office of 
U.S. Foreign Assistance, and our community. Accordingly in the next 
year and a half, we urge Congress to:
   Urge Under Secretary Fore to ensure a plan that begins 
        restoring the authority of USAID in Washington, and the field-
        based technical capacity of USAID, including such actions as 
        restoring cuts in operating expenses. USAID was long recognized 
        as a global leader in effective development assistance. The 
        shrinking of the agency's cadre of experience experts has 
        substantially contributed to not only the loss of USAID's 
        stature, but also the loss opportunity of valuable lessons that 
        we can learn today in the future direction of development 
        assistance.
   Restore cuts in funding programs that pursue the poverty 
        alleviation goal;
   Oppose concentration of resources in 10 strategic countries;
   Oppose shifts from DA to ESF accounts (the House Foreign 
        Operations Subcommittee recently rejected this proposed shift 
        of funds);
   Work with Under Secretary Fore to reverse efforts toward 
        complete institutionalization of U.S. foreign assistance within 
        the Department of State;
   Work with Under Secretary Fore and NGOs to develop and 
        pursue political and diplomatic goals that do not compromise 
        but rather encourage the delivery of long-term development 
        programs or the space for effective humanitarian action;
   Oppose efforts that shift the rules for USAID implementation 
        mechanisms traditionally used by the InterAction community away 
        from a partnership and toward contracts. Under contracts, a 
        more time-effective delivery of services, there can be 
        substantial loss of local involvement, technical expertise, and 
        long-term commitment to program operations.

    InterAction offers an expanded vision for the future of U.S 
development assistance and we hope to promote a new dialog on the 
evolution of foreign assistance. We look forward to our vision being 
properly considered and vetted as part of a fully bipartisan reform of 
foreign assistance.
    I am inspired to quote Bill Gates who spoke at Harvard University's 
graduation ceremonies last week. He noted that ``. . . reducing 
inequity is the highest human achievement,'' and that this goal is one 
of the major challenges of our time--but a doable one. I could not 
agree more. Our community looks forward to collaborating with Congress 
and the administration to successfully take on this challenge.

    Senator Menendez. Thank you very much.
    Dr. Brainard.

 STATEMENT OF DR. LAEL BRAINARD, VICE PRESIDENT AND DIRECTOR, 
GLOBAL ECONOMY AND DEVELOPMENT AND BERNARD L. SCHWARTZ CHAIR IN 
 INTERNATIONAL ECONOMICS, BROOKINGS INSTITUTION, WASHINGTON, DC

    Dr. Brainard. Chairman Menendez, Ranking Member Hagel, and 
Senator Casey, thank you for the opportunity to testify today. 
I hope that this will be one of several hearings that really 
take a strong look at this area.
    Let me just touch briefly on four areas: Why I think this 
is a particularly critical juncture for U.S. foreign assistance 
reform; the problems that need to be addressed; a set of 
principles that might be used to assess current reforms; and a 
roadmap toward more fundamental reform.
    I believe that, today, foreign assistance is particularly 
important as a critical instrument of American soft power and a 
key determinant of the face that the poorest people around the 
world see of America. Recent polls show that this is true 
abroad, and it's also true here at home. There's a poll that 
shows, in the wake of the earthquake in Pakistan and the 
earlier Indian Ocean tsunami, that perceptions of America were 
markedly improved, and that that was sustained over a long 
period of time. Similarly, a recent poll here at home found 
that fully 57 percent of the American people favor building 
goodwill toward the United States by providing food and medical 
assistance to people in poor countries. So, when designed and 
executed well, foreign assistance is not just soft power, it 
can be smart power, working to advance not just national 
security, but also national interests, and, importantly, 
national values.
    Unfortunately, I don't think that's the case today. I will 
refer you to a chart, which is also in the testimony. This is 
what the Government looks like right now, doing foreign 
assistance. There is a striking quote that our foreign 
assistance structure is a haphazard and irrational structure 
covering at least four departments and several other agencies. 
That was actually John F. Kennedy in 1961. Unfortunately, that 
rings true again today. The last 6 years have seen foreign 
assistance rise at a faster rate than at any time since the 
cold war, and, unfortunately, new global challenges have been 
met by the administration by creating new institutional 
arrangements that sit alongside the existing ones. The result 
is more than 50 separate units, pursuing more than 50 
objectives, many of them overlapping with each other, the 
result of which is, we're not getting as much bang for our 
buck.
    So, 18 months ago the State Department started down the 
track of creating a coordination function overlaying these 
multiple entities. The nomination of Henrietta Fore provides a 
nice opportunity to take a breath and look at the process so 
far.
    We ran a bipartisan ``Task Force, on Transforming Foreign 
Assistance for the 21st Century,'' that developed a set of 
reform principles that are very relevant for assessing the 
process to date.
    State/F deserves credit for the very significant progress 
it has made in answering the Secretary's basic question: You 
now can figure out exactly what is being spent against what 
country and what objective. And that, in itself, was a 
herculean task, because, surprising as it may seem, USAID and 
the State Department kept completely separate accounts that 
didn't talk to each other.
    But on four other principles, I'm afraid the State/F 
process doesn't look so good.
    First, let me talk about stakeholder ownership. One of the 
few things we know about foreign assistance is that it works 
best when it supports priorities that are embraced locally, 
where recipients are invested, themselves, in achieving 
success. If you look at stakeholder ownership, it really 
doesn't show up anywhere in the State/F process. I don't think 
that there was sufficient consultation. It was a top-down, 
Washington-out process. It has had no recipient-country input.
    As this hearing is pointing out, a much broader lack of 
stakeholder engagement seems to be the central weakness. 
Interaction with key Members of Congress, with NGOs in the 
field and in Washington, and field staff have been perceived as 
one-way informational briefings rather than true consultations. 
As a result, I think there's very little buy-in outside of the 
narrow confines of the State/F process.
    The second principle is transparency. Transparency is 
critical for achieving aid effectiveness. Why? It diminishes 
the scope for short-term political considerations to overwhelm 
longer term investment priorities, and it provides very clear 
incentives for the recipients themselves to make reforms in 
priority areas. This was a clear rationale for the strong and 
transparent eligibility criteria that were set out in the MCC; 
in contrast, it's very hard to tell exactly how the five 
categories that were established by the State/F were decided. 
It was done in an opaque manner, using terminology unfamiliar 
to most of us. And the process for determining budget 
allocations was similarly opaque, providing ample scope for 
short-term political expediency, and very little inducement for 
policy reform.
    Obviously, the most conspicuous outcome has been the 
request to reduce the DA account by about $468 million, while 
requesting a $703 million increase to the Economic Support 
Funds. Although it is driven by the recategorization of 
countries into the rebuilding category, if you don't support 
the categories, it's very hard to understand or support that. 
Moreover, it also happens to be associated with a lot more 
flexibility for the State Department.
    It's also worth noting that, if you look on a per-capita 
aid allocation basis, some of the same patterns are very 
evident. Egypt gets about $24 in foreign assistance per capita; 
in comparison, Ecuador gets about a $1.50. That won't change.
    Third, it's absolutely critical to elevate the development 
mission. Many applauded when the President put development into 
the 2002 national security strategy alongside defense and 
diplomacy. Many of the same people are now worrying that the 
Director of Foreign Assistance process is subordinating 
development to diplomacy.
    Development and diplomacy are fundamentally different. 
Indeed, the development mission itself sometimes involves 
working around and outside governments with groups on the 
ground, especially in the area of democratization. So it is 
beneficial to the entire enterprise to separate them. It also 
allows better management of the tension between the short-term 
political goals and the longer term agenda.
    The sense of mission has to be restored in order to elevate 
the stature and the morale of the development enterprise, and 
to attract and retain the most talented professionals, who are 
not now going to USAID. For example, the MCC was recently 
ranked among the top five as one of the best small government 
agencies in which to work. The USAID was ranked among the 
bottom 10. This State/F process is not going to improve that.
    The fourth principle is policy coherence. Foreign 
assistance is now only one of many tools. Trade, debt relief, 
and investment all lie outside the State/F process. There has 
to be a mechanism for coordinating our policies toward 
developing countries more broadly, and there have to be 
incentives and organizational structures to make that happen. 
State/F cannot do that.
    And, finally, the mark of a successful reform ultimately 
will be a reduction in the number of players and elimination of 
overlapping jurisdictions. The current reforms superimpose 
another player into the mix, without eliminating any offices. 
In response to an earlier question posed by Senator Hagel, I 
think only about 55 percent of ODA, maybe a little bit more, is 
actually under the jurisdiction of State/F, when you take out 
things like DOD spending, MCC, PEPFAR. And so, it's going to 
require much more extensive effort. I don't see how you do that 
without Congress.
    Successful foreign assistance reform is going to require a 
little bit more patience, a lot more vision, and a lot more 
congressional involvement. Instead of the 50 separate offices, 
ultimately we probably should have one, maybe two; instead of 
the 50-odd objectives, we probably should have about five.
    We looked, in the task force, at episodes of successful 
reform, both within the United States and outside. I'll mention 
a few lessons.
    From the United Kingdom, I think we have a very strong 
instance where elevating the development mission empowered it 
and made U.K. foreign assistance both more effective and also a 
stronger voice in the international community.
    If you look at the seven major reform efforts that have 
taken place in the United States since the 1960s, there are 
about two that have succeeded.
    It is critical to have congressional involvement from the 
outset. Timing is also critical. Big reforms tend to take place 
at the start of new administrations.
    And if you look at the Goldwater-Nichols process, the clock 
has started ticking, since it took about 2 years for the 
congressional process to develop a consensus on that 
legislation.
    In conclusion, last week, was the 60th anniversary of the 
Marshall Plan. Our friends and partners abroad are looking to 
America to show a more compassionate and cooperative face. The 
time to act is now.
    Thank you.
    [The prepared statement of Dr. Brainard follows:]

    Prepared Statement of Dr. Lael Brainard, Senior Fellow and Vice 
 President and Director, Global Economy and Development and Bernard L. 
   Schwartz Chair in International Economics, Brookings Institution, 
                             Washington, DC

    Chairman Menendez, Senator Hagel, distinguished members of the 
subcommittee, I appreciate the opportunity to testify today on the 
subject of Foreign Assistance Reform: Successes, Failures, and Next 
Steps. I hope this hearing will be the first of several by this 
subcommittee that call attention to the critical importance of 
strengthening the Nation's foreign assistance.

                              SMART POWER

    In a world transformed by globalization and challenged by 
terrorism, foreign aid deserves attention as a critical instrument of 
American soft power and a key determinant of the face of America seen 
by poor people around the world. With hard power assets stretched thin 
and facing 21st century threats from global poverty, pandemics, and 
terrorism, the United States must deploy its soft power more 
effectively. But America's weak aid infrastructure hampers our ability 
to do so.
    Recent polls underscore the importance of getting this right. 
Abroad, Terror Free Tomorrow found that foreign aid dramatically 
improved public perceptions of the United States in Pakistan, 
Bangladesh, and Indonesia, for a sustained period following U.S. 
generosity in the wake of the tsunami and the Pakistan earthquake. Here 
at home, a majority of Americans appreciate that linkage: The Program 
on International Policy Attitudes/Knowledge Networks found that fully 
57 percent of Americans favor ``building goodwill toward the United 
States by providing food and medical assistance to people in poor 
countries.''
    When designed and executed well, foreign assistance is not just 
soft power but smart power, working to advance national security, 
national interests and national values. It works best when there is 
clarity about the objectives it is designed to serve and well aligned 
with the other instruments of American engagement. Unfortunately, at 
present clarity and alignment are the exception rather than the rule.

                  A HAPHAZARD AND IRRATIONAL STRUCTURE

    America's foreign assistance structure has been criticized as ``a 
haphazard and irrational structure covering at least four departments 
and several other agencies.'' That was the assessment of John F. 
Kennedy in 1961, when he proposed the creation of USAID. More than four 
decades later, his words again ring true.
    The urgent demands of post-conflict reconstruction in Iraq and 
Afghanistan and humanitarian disasters have led to a faster rate of 
expansion of foreign assistance dollars in the last 6 years than at any 
point since the cold war. The administration has responded to each new 
global challenge by creating new institutional arrangements alongside 
existing ones, most notably the President's Emergency Plan for AIDS 
Relief (PEPFAR) and the Millennium Challenge Corporation (MCC).
    As shown in the chart below, dozens upon dozens of separate units 
share responsibility for aid planning and delivery in the executive 
branch, with a dizzying array of objectives ranging from narcotics 
eradication to biodiversity preservation. Different agencies pursue 
overlapping objectives with poor communication and coordination. At 
best, the lack of integration means that the United States fails to 
take advantage of potential synergies; at worst, these disparate 
efforts work at cross purposes. As a result, the impact of American 
foreign assistance falls far short of the value of aid dollars 
expended--which remains unmatched among bilateral donors.

[Editor's note.--The chart mentioned above was not reproducible in this 
printing. It will be retained in the permanent record of the 
committee.]

    The Secretary of State in January 2006 designated a Director of 
Foreign Assistance with the rank of Deputy Secretary of State as the 
Administrator of USAID with the mandate to provide strategic direction, 
coordination, and guidance over foreign assistance. Last month, Under 
Secretary Henrietta Holsman Fore was nominated to serve as 
Administrator of USAID and appointed to concurrently serve as Director 
of Foreign Assistance. This change in leadership provides a welcome 
opportunity to reflect upon the direction and scope of the current 
foreign assistance reforms.
    Despite the creation of the State/F Bureau and the energetic 
efforts of Ambassador Tobias and his staff, lack of coherence is still 
a significant problem for overall U.S. foreign assistance and 
development policy. Little progress has been made in addressing the 
confusion demonstrated by the chart because the reforms to date are 
piecemeal and have not incorporated a truly consultative process across 
the legislative and executive branches of government or with outside 
stakeholders, which will be critical to building support for the 
statutory changes necessary for fundamental reform.

           FOREIGN ASSISTANCE REFORM: SUCCESSES AND FAILURES

    The bipartisan Task Force on Transforming Foreign Assistance for 
the 21st century recommended a number of principles for effective 
foreign assistance reform that provide useful benchmarks to assess 
progress to date.\1\ According to this assessment framework, the State/
F process has been successful on one important criterion but has not 
made progress on several others:
1. Track resources against objectives by country
    State/F deserves great credit for the significant progress it has 
made in a short time in developing a consistent system for categorizing 
and tracking resources for programmatic activities from a number of 
different foreign assistance budget accounts. In recent years, 
strategic, development, and humanitarian funds have been intermingled, 
with individual projects often in receipt of money from several types 
of accounts. This process was further complicated because the State 
Department and USAID budget offices tracked funding with two different 
systems that could not easily be cross-referenced.
    The new Office of the Director of Foreign Assistance was created in 
part to streamline this process within the confines of the current 
budget accounts. One result is an information management system with a 
standardized lexicon. The new reforms incorporate a computerized 
accounting system (the Foreign Assistance Coordination and Tracking 
System or FACTS) that includes funding levels, objectives, indicators, 
and outcomes, albeit for State and USAID only. This facilitates a basic 
set of management tools and enables successful queries regarding 
funding levels by year across regions, countries, program objectives 
and program elements. It is astonishing that such a system did not 
exist earlier.
2. Stakeholder ownership
    Aid works best when it supports priorities determined locally and 
recipients are invested in achieving success. Just 2 years ago, 
Congress made the principle of country ownership one of the central 
tenets of the design of the MCC.\2\ Obviously, the extent of U.S. 
oversight and control of aid implementation should vary with the 
quality of local governance, with poorly governed countries less likely 
to formulate national strategies based on the priorities of poor 
communities and thus requiring greater oversight in the aid process. 
But the principle of stakeholder ownership applies to the entire aid 
enterprise--even if it requires different mechanisms of implementation 
depending on circumstances on the ground.
    To date, the State/F reform process has ignored this important 
design principle. Programming decisions are made from a playbook put 
together by State/F known as the ``Standardized Program Structure and 
Definitions.'' The State/F process has provided no formal mechanism for 
recipient country input--let alone soliciting proposals or reflecting 
national priorities. This contravenes considerable research and 
experience.
    Indeed, the lack of stakeholder engagement seems to be the central 
weakness of the State effort overall. Not only are potential 
beneficiaries in the dark about what the reforms might mean for their 
ability to meet the needs of their constituents, but State/F 
interactions with key Members of Congress, delivery NGOs, and field 
staff have been perceived as informational briefings rather than truly 
consultative in nature. As a result, there is little sense of buy-in 
outside the narrow confines of
State/F.
3. Practice transparency
    Transparency is critical for achieving aid effectiveness. 
Transparency about the criteria by which countries are classified into 
different eligibility groups and resources are allocated has two 
virtues: It diminishes the scope for short-term political 
considerations in what should be a long-term investment process, and it 
provides clear incentives to potential recipients to improve policies 
in priority areas (such as investing in health or education). For these 
reasons, the administration and Congress put a high priority on 
transparency in the design of the MCC eligibility criteria.
    In contravention of transparency, teams established by the State/F 
Bureau assigned countries to five categories based on new and poorly 
explained terminology in an opaque manner with no outside 
consultations. For instance, a country classified as a ``rebuilding 
state'' might justifiably be confused regarding the point at which its 
status might change to a ``developing state,'' and how that change 
would affect U.S. assistance.
    The State/F process allocates budget resources among countries in a 
similarly opaque manner that provides ample scope for short-term 
political expediency and scarce inducement for policy reform on the 
part of beneficiaries. The process involves a complicated combination 
of country team input via Mission Strategic Plans, functional 
roundtables, a computational ``budget model,'' regional assistance 
working groups, Washington-based country core teams, country team 
feedback and senior reviews. Perhaps the most conspicuous outcome of 
this process has been the request to reduce the Development Assistance 
(DA) account by $468 million while correspondingly requesting a $703 
million increase to the Economic Support Funds (ESF) account, which 
coincidentally provides greater flexibility and discretion to the 
Secretary of State. This request is driven by the assignment of ESF to 
the Rebuilding and Restrictive Countries categories, but it will be 
hard to obtain support for the request as long as the country 
categorizations are not well understood or supported.
4. Elevate the development mission
    Many applauded when the President's 2002 National Security Strategy 
recognized development alongside defense and diplomacy as a third 
critical and independent pillar of national security.\3\ Many now worry 
that the 2006 decision to bring the Director of Foreign Assistance 
formally within the State Department structure subordinates development 
to diplomacy.\4\ Indeed, early versions of the State/F framework were 
marked by the conspicuous absence references to ``poverty,'' and there 
is still an overwhelming focus on the capacity of states and little 
reference to the well being of the poorest.
    Development and diplomacy are fundamentally different; it is 
important not to confuse them through such terms as ``transformational 
diplomacy.'' The primary function of diplomacy is state-to-state 
relations, whereas development and democratization often require 
working around foreign governments and sometimes with groups opposed to 
them. Development seeks not only to develop state capacity--the 
overarching objective of the State/F process--but to ensure that poor 
communities have the tools and resources they need to lift up their 
lives. Moreover, maintaining the integrity of independent diplomatic 
and development functions makes it far easier to manage the frequent 
tension between short-term political objectives--which often requires 
working with undemocratic regimes--and longer term economic and 
political reform objectives.
    If there is one principle that applies above all others to the 
revitalization of the U.S. foreign assistance enterprise, it is that 
the development mission--construed to include security and 
democratization--must be elevated to coequal status with defense and 
diplomacy not just in principle but also in practice. The sense of 
mission--vital to America's interests as well as to global peace and 
prosperity--must be restored in order to elevate the stature and morale 
of the enterprise and to attract and retain the most talented 
professionals in the field. One of the most compelling reasons for 
standing up the MCC independently was to create a strong organization 
that would attract top talent and instill a culture of delivering 
results in innovative ways. The MCC was recently rated among the top 5 
in a ranking of the best small government agencies to work, while USAID 
was ranked among the bottom 10, a troubling trend.
5. Achieve policy coherence
    At a time when the international community has identified policy 
coherence as a core principle for aid effectiveness, the United States 
too often stovepipes decisions on the key policy instruments affecting 
nations it seeks to support.\5\ Foreign assistance is but one of 
several tools to support development. Other instruments such as trade 
provisions, investment agreements, financial stabilization policies, 
debt relief, and economic sanctions are now more important than aid for 
many developing countries.
    The United States could wield greater influence per aid dollar 
spent than any other nation simply by deploying its influence in world 
trade, investment, debt, and financial policies in a deliberate manner 
as a force multiplier. Regularized mechanisms for policy integration 
are vital either by coordinating across agencies or assigning authority 
to a single empowered agency. Integration across agencies is just as 
important at the level of planning and operations, as illustrated by 
recent post conflict experiences. Achieving integration requires 
removing disincentives and creating positive incentives, such as 
reserving special budgetary funds to reward effective interagency 
collaboration on priority goals--as is done in the United Kingdom--and 
tying career advancement to interagency rotations and participation in 
joint operations.
6. Rationalize agencies and clarify missions
    Ultimately, the mark of a successful reform will be a reduction in 
the number of players within the executive branch and elimination of 
overlapping jurisdictions. The current reforms superimpose another 
player into the mix--the new State/F Bureau--without eliminating any of 
the offices or criss-crossing lines shown in the chart. The mandate of 
the Director of Foreign Assistance is expansive, but the office's 
actual power is more limited. It does not have jurisdiction even over 
PEPFAR within State, let alone foreign assistance administered by the 
MCC and the Departments of Treasury, Agriculture, and Defense. A more 
extensive effort will be required that reaches across the entire 
executive branch--possibly through White House coordination. This will 
require much greater congressional involvement and the expenditure of 
political capital.

                               NEXT STEPS

    Successful foreign assistance reform will require vision, patience, 
and congressional involvement. Instead of the 50 separate offices that 
currently manage U.S. aid programs, we should have one integrated 
agency. Instead of the 50-odd objectives these offices currently 
pursue, we should have no more than five strategic aid priorities. The 
ultimate goal should be to create a unified framework that fuses 
America's objectives--supporting sustained development, 
democratization, and poverty alleviation and countering security, 
humanitarian, and transnational threats with differentiation based on 
the governance and economic capacities of recipients. This requires 
integrating the national security perspective of foreign assistance as 
a soft power tool with that of a development tool allocated according 
to impact and human needs.
Lessons for fundamental reform
    The Task Force on Transforming Foreign Assistance for the 21st 
Century identified several episodes of reform that offer important 
lessons to guide these efforts. Outside the United States, the United 
Kingdom reforms of the 1990s are widely credited with boosting the 
impact of U.K. foreign assistance programs and Britain's influence in 
the international aid community. The U.K. reforms demonstrated that 
according development equal standing and independent status can yield 
an enormous payoff.
    In the United States, there have been seven major foreign aid 
reform efforts since 1960. Two of these were successful: The Kennedy 
reforms and passage of the New Directions legislation in 1973. These 
hold important lessons for successful reform today. The conditions for 
fundamental reform include an emergent political consensus surrounding 
the urgency of the mission, strong support from key groups outside 
government, and personal commitment on the part of the President or key 
congressional champions. Any successful reform process must engage all 
stakeholders--across branches of the government, across agencies, and 
outside government.
    Congress has an integral role in shaping the organization and 
delivery of U.S. foreign assistance by holding hearings such as this, 
mandating independent analysis of the current structure and operations, 
and requesting expert input on alternative organizational structures. 
The process leading to the Goldwater-Nichols Defense Reorganization Act 
of 1986 can serve as a model.
    Finally, timing is critical: Successful instances of transformation 
both here and in the United Kingdom have been initiated early in the 
course of a new administration. At the outset of the Goldwater-Nichols 
process, there was broad agreement on the problems confronting the 
military, but it took more than 2 years for key lawmakers and 
administration officials to build consensus on a road map for reform. 
If America is to develop an effective soft power response to new global 
challenges in this decade, the clock has already started ticking.
Quick fixes for the current foreign aid coordination process
    While broader reforms are being contemplated, foreign assistance 
planning and implementation can be improved in immediate ways. First, 
true consultation and greatly improved transparency should be built 
into the evolving system of foreign aid coordination immediately even 
as more fundamental changes are contemplated. Second, it is critical to 
improve morale at USAID or risk further erosion on recruitment and 
retention. Third, the process of formulating and requesting budgets 
must take given constraints into account. The process of planning 
budgets and operations for specific countries without taking into 
account the realities of stringent budget accounts, congressional 
earmarks, and other initiatives can waste time and demoralize the 
valuable Foreign Service officers and other public servants working to 
get U.S. foreign aid right in the field. Finally, the State/F process 
to date has been overly Washington-centric. Whereas Washington is an 
appropriate focus for discussions on strategic vision and objectives, 
the specifics of country programs are best developed by the country 
teams who are implementing in the field.

                           ACHIEVING SUCCESS

    The challenge of strengthening the planning and delivery of foreign 
aid is neither partisan nor short term. To achieve success, a patient 
effort will be required that involves Congress centrally at the outset 
and reaches across the entire executive branch. The development mission 
must be enhanced, stakeholder ownership strengthened, transparency 
instituted, and the number of players within the executive branch 
rationalized in order to achieve greater impact from foreign assistance 
dollars.
    These steps would go a long way in making U.S. foreign aid more 
strategic and effective during a time of intense global need and would 
also help showcase America's true spirit. On this 60th anniversary of 
the Marshall Plan, when our friends and partners abroad are looking to 
America to show a more compassionate and cooperative face, the time to 
act is now.

--------------
    \1\ This testimony draws upon the work of the bipartisan task 
force, Transforming Foreign Assistance for the 21st Century, which I 
codirected. The task force included representation from staff of both 
Houses of Congress and all committees of jurisdiction, current and 
former members of relevant executive branch agencies, practitioners 
from the NGO community, a senior U.K. foreign assistance official, and 
outside experts. The task force met nearly 20 times, benefited from 
presentations by administration officials, congressional staff and 
leading practitioners, and invited outside experts to critique all of 
the recommendations. The findings were published by Brookings in 
``Security by Other Means: Foreign Assistance, Global Poverty and 
American Leadership'' (http://www.brookings.edu/press/books/
securitybyothermeans.htm).
    \2\ For detailed analysis of the design of the MCC, see Lael 
Brainard, Carol Graham, Nigel Purvis, Steve Radelet, and Gayle Smith, 
``The Other War: Global Poverty and the Millennium Challenge Account,'' 
Brookings Press, 2004.
    \3\ White House, ``The National Security Strategy of the United 
States of America,'' September 17, 2002 (www.whitehouse.gov/nsc/
nssall.html).
    \4\ Carol Lancaster, ``Bush's Foreign Aid Reforms Do Not Go Far 
Enough,'' Financial Times, January 19, 2006.
    \5\ For example, determinations on investments in rural 
infrastructure and agricultural extension in cotton-growing parts of 
Africa are made by USAID, subsidies for American cotton farmers are 
made by the Department of Agriculture and Congress, and cotton trade 
barriers are made by the Office of the U.S. Trade Representative 
(USTR).

    Senator Menendez. Thank you.
    Dr. Radelet.

   STATEMENT OF DR. STEVE RADELET, SENIOR FELLOW, CENTER FOR 
               GLOBAL DEVELOPMENT, WASHINGTON, DC

    Dr. Radelet. Thank you, Chairman Menendez, Ranking Member 
Hagel, Senator Lugar, Senator Casey. I'm honored that you've 
invited me to offer some perspectives on this process.
    I want to make three points today. First, the reform of our 
foreign assistance programs is long overdue. Second, as 
designed, the current reform programs are only partial, and 
don't go far enough to substantially strengthen our foreign 
assistance programs to meet our important foreign policy goals. 
And, third, while the reform process includes some positive 
elements, the process, so far, has not been implemented 
particularly well. Some important changes will be necessary 
over the coming months to strengthen the process.
    On the first point, the reforms are long overdue, and we've 
talked--many of us have talked already today about some of the 
problems that we're trying to address about the fragmentation, 
the heavy bureaucracy and the little accountability in 
achieving results. And the reforms are overdue. But they must 
be seen in a larger context, I think, of the U.S. role in the 
world.
    The United States needs, today, a bold new vision for its 
foreign assistance programs, and, more broadly, about how it 
engages with the rest of the world. We face a variety of 
changes, from security threats to spreading disease to deep 
poverty, and, most importantly, in many parts of the world, as 
I travel around the world, we've lost our moral leadership, and 
it's been slowly replaced by a growing resentment of the United 
States from people who see us as the problem, rather than the 
solution.
    We can do better, and we must do better. We must use our 
ideas, our ingenuity, and our creativity to lead the world to 
greater openness, greater prosperity, greater security, and 
greater democracy. But to do so is going to require greater use 
of all of our tools of what we might call ``smart power,'' 
including diplomacy, defense, trade, investment, intelligence, 
and foreign assistance. Our foreign assistance strategy can no 
longer be a weak sister if we are going to be successful in the 
world.
    My second point is, while--is that, while some of these 
reforms are steps in the right direction, much deeper and more 
fundamental reforms are going to be necessary to achieve the 
goals to bring our foreign assistance programs into the 21st 
century.
    We need five things. We need a better strategy, we need the 
right organizational structure, we need the right legislation, 
we need a unified budget, and we need a monitoring and 
evaluation program that will let us know whether we're 
achieving our goals. And we're only part way on each of those. 
We've talked about some of them already today. Let me just 
highlight two.
    Organizationally, as the others--my other colleagues have 
mentioned, I believe that we do need one unified Cabinet-level 
agency to bring together all of our foreign assistance 
programs. Certainly, we need much more unity than we've got 
today.
    A second alternative--recognizing that a Cabinet agency 
might be difficult--would be a Cabinet-level coordinator that 
incorporates all of our programs, not just the ones that are 
here today.
    With respect to the legislation, Senator Hagel, I believe, 
is absolutely correct that many of these problems cannot be 
done with minor fixes, and that much of it does have to do with 
the Foreign Assistant Act of 1961, which served its purposes 
during the cold war, but it was for a different time in a 
different era. If you print that act out today, it's over 2,000 
pages long, which I think tells you enough about its clarity 
and its usefulness today. We really do need to think again, in 
today's day and age, about what we're going to do.
    The current reforms only partly deal with these issues. The 
Director of the Foreign Assistance Office claims that it covers 
80 percent. It's very hard to come up with that figure. The 
Congressional Research Service has estimated that it covers 55 
percent of our foreign assistance programs, and I think we must 
do better than that.
    My third broad point is, while the new process includes 
some steps in the right direction, they haven't been 
implemented as well as they could be. And so, let me talk more 
specifically about the reforms.
    There are some things that the administration deserves 
credit for:
    First of all, they deserve credit for initiating this 
process. It is long overdue. It should have been done earlier. 
They missed two opportunities. It should have been done when 
the Millennium Challenge Corporation was established. But, 
instead, we went around and established a new organization. It 
could have been done when PEPFAR started. But it is starting 
now. Better late than never. But it--they do deserve credit for 
taking on this issue.
    Second, they deserve credit--the naming of the Director of 
Foreign Assistance is a first step toward greater coherence, 
and it is good that we've got much more discussion now between 
State and USAID, and the beginnings of a dialog more broadly 
than that, although we must do better.
    Third, the strategic framework introduced last year, I 
believe, is a solid step forward. I think the country-based 
approach makes a lot of sense, from a development perspective 
and from a U.S. strategic-interest perspective. Rather than 
thinking about things from a sector approach, to look at the 
needs of particular countries, and build up from there. I have 
been calling for a change like that since 2003, and I am 
pleased to see the initial steps in this direction.
    But I have several concerns:
    First, as we mentioned, the approach is too narrow. We need 
to be bolder if this is going to be successful.
    Second, as has been mentioned, this cannot be done in a 
closed-door process with just the executive branch, there must 
be greater consultation with Congress and others to get the 
broad consensus necessary. The administration has already run 
directly up against this with its attempts to do country-based 
budgeting. They come directly in conflict with the 
congressional authorities that are based on sector approaches. 
And you can't have it both ways. So, if they're going to move 
toward a country-based approach, going to have to consult more 
with Congress to work out the differences in this approach.
    Third, as has been mentioned, the whole process has been 
too closed. There must be much greater openness, which has 
started in the last few months, about incorporating other 
people in the field and in the Washington area, and in other 
agencies in this process.
    Fourth, and perhaps most importantly--this reflects the 
chairman's remarks--I'm quite concerned about this being under 
the direction of the State Department, and the possible 
politicization of our foreign assistance programs. I think 
there's a need for this tool to be coordinated with our foreign 
policy, but it needs to separate from the State Department 
approach. Our other foreign assistance tools, like our defense, 
like our intelligence, like our foreign trade, like our 
international financial policy, are independent from State, and 
I believe that our foreign assistance programs need to be 
coordinated with State, but independent from them. And I do 
believe there is a great risk that these programs may become 
more politicized over time.
    So, going forward, let me suggest several more concrete 
steps, over the next couple of months, that could help 
strengthen this process.
    No. 1, strengthen communication and build a stronger 
constituency for this reform. This process has now started, in 
the last couple of months, where it's a little bit more open, 
but there has to be greater consultation with people within the 
AID, within the field missions, within other executive branch 
agencies, up on the Hill, and with other interested people in 
Washington. There's been a lot of misunderstanding and a lot of 
miscommunication. And if you talk to different people, they'll 
tell you very different things. And who's right and who's wrong 
and what's going on is very hard to understand, so there needs 
to be much greater outreach and communication. That's going to 
take time and be hard, but it's necessary to do.
    Second, they need to build a much stronger team at USAID. 
Some of the people that have been--had senior positions in this 
process have been rather young and rather inexperienced, and, I 
think, in many ways, it has shown. USAID needs to have its core 
competencies and technical skills rebuilt, and they need to 
bring more experienced people into this process.
    Third, you need to strengthen the process for these country 
operational plans. This first attempt over the last year was 
late, in terms of guidance going out to the countries. It was 
not well understood. That's to be understood, to some extent, 
the first year through this, but the process was very rough, 
and, I think, this next year, coming up, they need to do a 
better job at bringing in the technical expertise into these 
country operational plans.
    Fourth, we need a much stronger strategy for monitoring and 
evaluation. We have only talked a little bit today about how we 
ensure results. And I am not at all confident that the reforms 
have incorporated a fundamental new way, and strong way, to 
monitor what we're doing and how we're achieving different 
outputs, outcomes, and impact along the way. The process has 
introduced many new indicators, but I think there are too many, 
and I think they may not be focused on the right things. We 
need to have much better independent evaluation so we can tell 
what we're doing right, what we're doing wrong, what's working, 
and what's not working. I'm not sure that that's been 
incorporated.
    And then, finally, over the next few months I'd like to see 
how this process builds into the longer, more fundamental 
reform. Secretary Fore did say that this was the beginning of 
the process. Well, where does it go? And how does it map to 
these longer and more fundamental reforms of a broader 
organizational structure, of fixing up the budget issues, of 
dealing with the legislation? If it's the beginning of the 
process, where is this process going? And I think that needs to 
be laid out more clearly in the next couple of months.
    Thank you very much for your interest, and I look forward 
to your questions.
    [The prepared statement of Dr. Radelet follows:]

Prepared Statement of Steven Radelet, Senior Fellow, Center for Global 
                      Development, Washington, DC

    Thank you, Chairman Menendez, Ranking Member Hagel, and other 
members of the subcommittee. I am honored that you have invited me to 
offer some perspectives on the process of reform in U.S. foreign 
assistance programs.

                      I. INTRODUCTION AND OVERVIEW

    Today the United States and its partners face many complex global 
challenges, including new security threats, the spread of virulent 
diseases, the opportunities and potential pitfalls of globalization, 
climate change, and fallout from the war in Iraq. Meeting these 
challenges requires a bold new vision of American leadership. America 
must lead with the strength of its core values, ideas, and ingenuity. 
Today's challenges require an integrated foreign policy that promotes 
our values, enhances our security, helps create economic and political 
opportunities for people around the world, and restores America's 
faltering image abroad. To achieve these goals the United States must 
make greater use of ``smart power'' by integrating all the tools of 
statecraft, including diplomacy, defense, trade, investment, 
intelligence, and--the subject of our discussion today--a strong and 
effective foreign assistance strategy.
    I wish to make three key points in my testimony today. First, the 
process of reform of our foreign assistance programs is long overdue. 
While many of our programs are effective in achieving development 
outcomes, there is little doubt they can be improved. The 
administration deserves credit for initiating this process, however 
belatedly.
    Second, unfortunately, as designed, the reforms are only partial 
and do not go far enough to substantially strengthen our foreign 
assistance programs and to meet today's most important foreign policy 
challenges. Deeper reforms are necessary that incorporate a larger 
share of assistance programs, involve Congress in changing existing 
legislation, more deeply change executive branch administrative 
structures, and guard against the possibility of the politicization of 
foreign assistance programs.
    Third, while the reform process so far includes some important 
positive elements, the process has not been implemented as well as it 
could have been. A relatively closed deliberations process and poor 
communication has led to misunderstandings within the agencies 
involved, with other agencies, with Capitol Hill, and with key actors 
outside the government. A reinvigorated approach with greater 
consultations and some changes in strategy is needed to move the 
process forward in the coming months. Key next steps include 
strengthening communication and building constituencies for reform, 
bringing in a more experienced team as part of the effort, 
strengthening the process for developing country plans, further 
refining the budget process, and developing a stronger approach for 
monitoring and evaluation.

                     II. WHAT ARE WE TRYING TO FIX?

    Strong foreign assistance programs are vital to strengthening our 
foreign policy and restoring U.S. global leadership. However, we 
significantly underinvest in foreign assistance programs, and we have 
structured these programs in ways that weaken, rather than strengthen, 
their impact.
    U.S. foreign assistance programs have been long criticized as being 
ineffective. However, it is important to recognize that often the 
criticisms are overblown and miss the fact that many programs have been 
successful. U.S. foreign assistance was central to supporting the Green 
Revolution that provided the foundation for Asia's economic miracle; 
for eliminating small pox and substantially reducing polio, river 
blindness, maternal mortality, and childhood diarrheal diseases; for 
helping to secure peace in countries such as Liberia and Sierra Leone; 
and for supporting sustained economic growth in Korea, Taiwan, 
Botswana, and more recently Mozambique, Tanzania, Ghana, and several 
other countries. U.S. foreign assistance deserves more credit than it 
usually receives.
    Nevertheless, there is wide agreement that our programs can be 
significantly strengthened. U.S. foreign assistance programs continue 
to be a hodge-podge of uncoordinated initiatives from multiple 
institutions without a coherent guiding strategy. Many of the 
structures and guiding principles of our programs have their roots in 
the cold war, and they are not well-suited to meet today's global 
challenges. Programs are highly fragmented with little coordination 
across the 20 or so executive branch agencies that administer foreign 
aid programs. Sometimes these agencies work at cross purposes with each 
other with different objectives and techniques. Other times they are 
aiming to achieve the same goals, but duplicating each other's efforts 
without realizing it. Each agency has their own different processes, 
rules and procedures, which can put significant strain on countries. 
Recipients sometimes need to ask: Does this program need to conform to 
USAID procedures, PEPFAR procedures, MCC procedures, or Defense 
Department procedures?
    Many programs are subject to heavy bureaucracy that ensures that 
some funds never get close to its intended recipients. Aid flows are 
heavily earmarked and subject to myriad directives, procedural rules, 
and restrictions that add significantly to administrative costs and 
slow the delivery process. In addition, much aid is wasted on countries 
with governments that are not serious about development and that cannot 
use it well.
    Moreover, there is little accountability for achieving results. 
Monitoring and evaluation systems are weak and tend to focus on whether 
funds are spent where they were supposed to be, rather than whether 
programs achieved important strategic or development objectives.
    To some extent these problems can be traced to the structures and 
procedures of USAID and other agencies that administer our assistance. 
But much of the problem lies with the elaborate web of legislation and 
directives from Congress that lie at the foundation of our foreign 
assistance programs. The Foreign Assistance Act of 1961, as amended, is 
an outdated piece of legislation dating to the early days of the cold 
war. The act specifies a remarkable 33 different goals, 75 priority 
areas, and 247 directives. These multiple goals are more than just an 
administrative burden: They make it very difficult for the United 
States to achieve clear development results.

                III. THE REFORM AGENDA: THE BIG PICTURE

    Thus, the reform process is long overdue, and the administration 
deserves credit for beginning to wrestle with these issues, even if 
belatedly. However, the process underway is too narrow in its scope and 
breadth. Partial reforms will not solve the problems of a diffuse and 
segmented apparatus with outdated legislation that was built during the 
cold war. Making our aid programs more effective requires a bold, 
ambitious vision for updating these programs for the 21st century and 
strengthening America's role in the world. Although the focus of our 
discussion today is the current reform process, these steps should be 
seen in the context of the bigger picture of the deeper reforms 
necessary to put our foreign assistance programs on a stronger footing, 
including the following.
    1. Develop a National Foreign Assistance Strategic Framework. The 
most important first step is to reach broad agreement amongst all key 
actors--across the full range of executive branch agencies and with 
Congress--on the principal objectives and basic framework for foreign 
assistance as part of our broader policies for engaging with the world. 
The new Director of Foreign Assistance (DFA) released a Strategic 
Framework in 2006 that went part way toward achieving this goal, but 
since it did not include all agencies and did not fully incorporate the 
views of Congress it was incomplete. Going forward, a broader framework 
should be developed with wider participation that lays out key 
objectives and priorities, describes the key programs that will be used 
to meet these objectives, and details strategies for coordinating and 
communicating across agencies. The Strategic Framework must go beyond 
USAID and State and include Defense, Treasury, Agriculture, Energy, the 
MCC, and other agencies and organizations.
    2. Rewrite the Foreign Assistance Act (FAA). The FAA of 1961 is 
badly out of date. The current amended version of the act is nearly 
2,000 pages long and includes a complex web of rules, regulations, 
multiple objectives and directives. A new FAA is central to clarifying 
the central objectives and methods of foreign assistance to meet U.S. 
foreign policy goals in the 21st century. Rewriting the FAA would allow 
a fundamental redesign of the morass of personnel and procurement 
regulations and other rules that undermine the effectiveness of USAID 
and other agencies. It would reduce the extensive amount of earmarking 
and ``tied aid''--much of it well-intentioned--but which severely 
cripples the ability of agencies to effectively allocate funds to the 
highest priority areas. The new reform process has come squarely up 
against existing legislation: The administration cannot easily 
implement a country-based strategy--however wise that might be--when 
existing authorities are based on sector accounts rather than 
countries. Rewriting the act will not be simple, and concern over the 
inherent difficulties is a prime reason for the piecemeal approach. But 
it is becoming clearer that fundamental change is not possible without 
reexamining the basic legislation.
    3. Strengthen Coordination Across Agencies. U.S. foreign assistance 
cannot be fully effective when it is spread among nearly 20 different 
agencies with different objectives and implementing procedures. This 
problem cannot be solved through commitments for stronger interagency 
processes. And (according to an estimate by the Congressional Research 
Service), the current reform process only includes about 55 percent of 
the foreign assistance budget. There are at least two bolder 
possibilities:

   Create a new Department for International Development that 
        would bring under the direction of one Cabinet official all 
        U.S. foreign aid programs. This step would streamline the 
        bureaucracy, reduce duplication, and strengthen our ability to 
        align major programs with our key objectives. The United 
        Kingdom took this step several years ago, and its foreign aid 
        programs are now considered among the best of the bilateral 
        donors.
   Name a Cabinet-Level Coordinator reporting to the President, 
        to be responsible for all aid programs. This approach would 
        build on the Bush administration's initial step of naming a 
        DFA, but would widen it to include all agencies providing 
        foreign assistance and would elevate to a Cabinet-level 
        position.

    4. Clarify the Budget. The budget should be at the center of 
designing clear priorities and tradeoffs. However, foreign assistance 
activities are scattered throughout several accounts in the budget. It 
is very difficult to look through the budget and determine where and 
how we are spending our assistance dollars. The current reform process 
has tried to begin to tackle this problem, but there is far to go. As 
mentioned, it will not be possible to design a budget based on country 
priorities when current budget rules are based on a sector approach.
    5. Strengthen Monitoring and Evaluation. With only a few 
exceptions, monitoring and evaluation of U.S. foreign aid programs 
focuses on ensuring that funds are spent according to plan, rather than 
on their contribution to development or to achieving other objectives. 
We need strong monitoring and evaluation processes aimed at keeping 
funded programs on track to meet their goals, guiding the allocation of 
resources toward successful activities and away from failures; and 
ensuring that the lessons learned--from both successes and failures--
inform the design of new programs. Monitoring and evaluation should be 
incorporated into projects from the outset, not added on as an 
afterthought halfway through the process.

   IV. INITIAL STEPS AND MISSED OPPORTUNITIES FOR FUNDAMENTAL REFORM

    The administration deserves credit for some initial steps toward 
elevating the importance of foreign assistance in our overall foreign 
policy. Its National Security Strategy calls for strengthening 
approaches for development alongside defense and diplomacy. It 
introduced the Millennium Challenge Account as a way to provide 
significant support to a small number of low-income countries with good 
governance and a commitment to strong development policies. It 
established the Emergency Plan for AIDS Relief to substantially expand 
resources to fight this killer disease. It has significantly increased 
total spending on foreign assistance, although much of the increase has 
been focused on a relatively small number of countries.
    However, the administration has had three opportunities to tackle 
the broader challenges of restructuring and strengthening our foreign 
assistance organizations and structures, and in each case it has failed 
to do so. It has shied away from the bold, visionary changes needed to 
meet today's global challenges, and instead has opted for partial 
changes that have left the process incomplete and the future uncertain.
    Its first opportunity came with the introduction of the MCA. There 
was significant debate throughout 2002 about where to house and how to 
structure the MCA. The administration clearly believed that existing 
structures were not effective enough to take on this new initiative, 
but instead of addressing head-on the weaknesses of existing programs, 
it avoided the problem and decided to establish a new institution to 
implement the program.
    The second opportunity came with the Emergency Plan for AIDS 
Relief. The new initiative came with a problem: International HIV/AIDS 
programs were administered by many different agencies with different 
approaches and mechanisms. These institutional divides and bureaucratic 
duplication were symptomatic of broader problems in our foreign 
assistance programs. But again the administration opted for a partial 
fix: It established a new office to coordinate programs across multiple 
agencies. While this approach might have satisfied the immediate goal 
of quickly establishing new HIV/AIDS programs, it separated the HIV/
AIDS initiative from other health and development programs, and only 
added to the broader problem of multiple agencies implementing 
different programs without a clear and coherent strategy.
    The third opportunity came with the current reform process itself. 
To their credit, the early proponents of the process recognized the 
deeper structural problems and attempted to deal with them more 
directly. But a key flaw in the approach is that it is partial and 
narrow: It only deals with programs under the direct control of the 
State Department, including the Department itself, USAID, and to a 
lesser extent PEPFAR and the MCC. It does not include programs run by 
more than a dozen other executive branch agencies, including the 
Departments of Agriculture, Treasury, Defense, Labor, and others. The 
Congressional Research Service has estimated (based on the FY05 budget) 
that the DFA will manage just 55 percent of the foreign assistance 
budget, with the Department of Defense controlling 19 percent and other 
agencies managing 26 percent. In short, the scope of the reforms was 
limited to what the State Department could carry on its own without 
coordinating with other executive branch agencies or Congress. As a 
result the best it possibly can achieve are incomplete and partial 
reforms.

           V. INITIAL PROGRESS IN THE CURRENT REFORM PROCESS

    The current reform process has several positive elements. First, a 
reform process is long overdue, and the overall objectives of the 
broadly were the right ones. The designers deserve credit for trying to 
provide greater coherence to assistance programs, better align programs 
with objectives, focus first on countries rather than sectors, and to 
begin to rationalize the budget process.
    Second, the naming of a DFA clearly was aimed at bringing greater 
coherence across significant parts of U.S. assistance programs. The 
``dual-hatted'' nature of the appointment as both DFA and Administrator 
of USAID should lead to stronger communication and coordination across 
programs, and hopefully the beginnings of less fragmentation in 
assistance programs. Observers state that interagency coordination and 
communication has improved, although it still has a long way to go.
    Third, the Strategic Framework introduced in May 2006 is a solid 
initial step toward articulating clear goals and steps toward achieving 
those goals. The document describes five distinct goals for foreign 
assistance programs. It then groups all recipient countries into one of 
five categories, (Rebuilding, Developing, Transforming, Sustaining 
Partnerships, or Restrictive), reflecting current assessments of those 
countries' circumstances. I strongly support differentiating across 
countries as a first step toward more clearly identifying appropriate 
goals and designing more effective implementation strategies (indeed I 
called for a categorization of countries along these lines in 
congressional testimony in 2004), and in the idea of building budgets 
based primarily on country needs and priorities.
    Fourth, reorienting the budget to be more in line with these goals 
and with country needs is a sensible step. The first budget process 
revealed several significant concerns in how it was carried out and 
whether appropriate authorities exist, but a rationalization of budget 
accounts to better align them with strategic priorities is a welcome 
step forward.

                         VI. SOME KEY CONCERNS

    However, while the reform process has several positive elements, it 
represents only a partial reform process. It is too narrow and 
incomplete, and does not add up to a coherent and comprehensive 
strategy for foreign assistance designed to meet our major foreign 
policy goals in the post-September 11 world. There are several major 
concerns.
    First, the reforms omit large parts of our assistance programs. The 
DFA will have control over USAID and at least most State Department 
programs, but will only give ``guidance'' to MCC and PEPFAR programs, 
and will have at best only indirect influence over programs 
administered by other agencies.
    Second, by not including Congress in the deliberations, the reforms 
missed the opportunity to build greater consensus on the path forward 
and to redress some of the weaknesses in the Foreign Assistance Act. In 
the absence of agreement with Congress on major objectives, earmarks, 
procurement and personnel rules, and key strategies, the reforms will 
fall short of what is needed. Most importantly, as mentioned, the 
reform process came up squarely against existing legislation through 
the budget process. The reforms envisage a country-based budgeting 
process, while existing authorities provide for sector-based 
allocations. It is not possible to do both simultaneously in an 
effective manner. Moving forward with country-based budgeting will 
require much stronger buy-in from Congress, and probably new or amended 
legislation.
    Third, while the process has been ongoing for over a year, much of 
the discussion has been restricted to a small number of people, 
especially during the early months. Substantial confusion and 
misunderstanding remain about the process, objectives, and steps to 
date. Discussions with senior people in the process, staff at USAID, 
officials in other departments, and knowledgeable persons outside the 
government reveal widely different perceptions and lack of information 
about what is happening. Many people feel marginalized from, and 
uninformed about, the process. While some of this is to be expected in 
any reform effort, the process to date has been characterized by poor 
communication, which has undermined morale and potential support.
    Fourth, while appointing a DFA to coordinate across programs is 
welcome, putting that person under the direct control of the Secretary 
of State raises concerns. There is a danger that foreign assistance 
allocations will change quickly to address short-range and rapidly 
changing diplomatic and strategic concerns, sometimes to the detriment 
of achieving long-term development or institutional changes in 
recipient countries. While the new strategic framework calls for 
funding to support democracies and countries with strong governance, a 
large share of current funding goes to strategic partners with weak 
governance systems. The history of U.S. assistance to such countries--
the Philippines under Marcos, Zaire under Mobutu, and Haiti under the 
Duvaliers--suggests that achieving development results or strengthening 
governance systems often takes a back seat to short-term political 
expediency.
    Ensuring that foreign assistance is properly aligned with U.S. 
foreign policy does not necessarily mean that it should come under the 
direct authority of the State Department. U.S. policies in defense, 
international finance, trade, and intelligence are all aimed to be 
consistent with major foreign policy goals, but they purposively are 
established independently from (albeit coordinated with) the State 
Department. Achieving long-term success in supporting development and 
good governance systems in recipient countries demands programs that 
are coordinated across agencies and consistent with our foreign policy 
goals, and yet independent of direct control by the State Department.

                          VII. SOME NEXT STEPS

    The reform process is at a crucial juncture as a result of the 
political calendar and the nomination of a new DFA. Actions taken in 
the next few weeks and months will determine the ultimate success or 
failure of the effort. The most important next steps include the 
following:
    1. Strengthen communication and build a constituency for reforms. 
Senior officials must make much stronger efforts to communicate more 
clearly within State and USAID, with other departments, with Congress, 
and with key nongovernment agencies. For the reforms to succeed in the 
long run, they will need much stronger support than they currently 
enjoy. Building this support will require substantial time and effort, 
and will be all the harder with the change in the DFA. But it is 
crucial for success.
    2. Build a strong and experienced team. A widely held complaint is 
that key persons in the reform effort lacked significant technical 
expertise and experience in development and in program implementation, 
which weakened their understanding of the issues and of options. There 
is no substitute in development for significant experience living and 
working in developing countries. The new DFA should move quickly to 
build a team with strong experience that balances an understanding of 
the need for fundamental reform with an understanding of what works and 
does not work on the ground.
    3. Strengthen the process for developing country-level operational 
plans. Many participants complain that coordination between the center 
and country offices in the budget process was not sufficient. Guidance 
for developing country operational plans came late and was often 
unclear. While the DFA office claims that the process has been 
decentralized with more authority given to individual country offices, 
many country offices state that there is more direction from the center 
on how to use the funds. To some extent, misunderstandings and lack of 
clarity should be expected in the first year of major reforms where 
people comfortable with old systems resist changes to new ones. 
Nevertheless, for FY09 the process must start sooner and include 
greater consultations and communications to be more effective.
    4. Further refine the budgeting process. For FY08 the DFA office 
provided budget requests consistent with its new Strategic Framework. 
By many accounts, given the tight timeframes and unclear guidance, 
budgets using the old framework were retrofitted into the new framework 
with various activities simply renamed to fit the new categories. At an 
aggregate level, the new presentation failed to recognize the sector-
based budget accounts required under existing authorities. Reports 
suggest that the budget presentation did not meet requirements for many 
key areas of expenditure under existing legislation. As mentioned 
earlier, there remains a huge unresolved tension between the vision of 
country-based budgets and existing sector-based authorities.
    5. Develop a clearer strategy for monitoring and evaluation. One of 
the central objectives of the reform process is to make U.S. foreign 
assistance more effective. But at the core of increasing effectiveness 
is a strong monitoring and evaluation process that includes independent 
monitoring, regular review, and an assessment of results and impact. 
But the reform process appears to have made little progress in this 
area, and may have even stepped backward. The DFA office has introduced 
a large number of new indicators to track progress. However, there 
appear to be far too many indicators, and most of these emphasize 
immediate outcomes rather than output or actual impact. As of yet there 
is no independent process to verify results and to evaluate the 
connection between short- and medium-term results and impact. One key 
step would be for the United States to support and ultimately join the 
International Initiative for Impact Evaluation, which would join 
together foreign assistance providers from around the world to provide 
professional, independent evaluations of the impact of their 
initiatives.
    6. Begin to move to deeper and more fundamental reforms. The 
current reform process has made some positive steps forward, but its 
limited scope and its location within the State Department will 
undermine its ultimate effectiveness. It is critical to use these 
earlier steps to launch a broader discussion among all key parties on 
making our foreign assistance programs more effective to meet today's 
foreign policy goals.

    Senator Menendez. Well, thank you all for your testimony. 
It was very insightful.
    We'll have a series of 7-minute rounds, and I'll start by 
recognizing myself.
    One of the criticisms coming from merging USAID's 
decisionmaking into the State Department has been the fear that 
long-term development goals, which USAID has traditionally 
focused on, will be sacrificed for short-term strategic goals, 
which the State Department has traditionally focused on. And 
I'm wondering, from any of you who wish to answer, is that a 
legitimate concern? And what are the consequences that flow 
from that?
    Sam--Mr. Worthington.
    Mr. Worthington. InterAction is currently involved in a 
process of research in five countries to look at the different 
aspects of the framework, to look specifically at this 
question. We should have results later this year. Right now we 
have indications of this, but we are actually researching the 
question in-country, looking at it, how it applies to both the 
development of programs and the implementation of programs. So, 
we'll be able to get back to you on that.
    Senator Menendez. Anyone else?
    Dr. Radelet.
    Dr. Radelet. I am concerned about that, and I think we have 
a long record in the United States of providing significant 
foreign assistance to short--to meet short-term political 
expediency goals. Those have their role in U.S. foreign policy. 
Our assistance to Mr. Marcos, and our assistance to the 
Duvaliers, and, more recently, to others, have their role at 
their time, but it's very separate, and I think it can 
undermine development assistance. And I'm quite concerned that, 
with some programs, where we need to be there for the long 
haul, building health systems, building education systems, 
that, as those countries where we're doing that work begin to 
fall off the radar screen because they are not an immediate 
emergency or crisis, that funding might be cut for those in 
favor of whatever is today's more immediate crisis.
    Senator Menendez. Dr. Brainard.
    Dr. Brainard. The example that you raised, of Pakistan, is 
a good one. There's no question that the Government of Pakistan 
has not used the many, many dollars we've given it well for 
development purposes, but we have strategic interests there 
that justify some of our funding.
    The State Department needs to work with governments 
frequently for strategic interests. That's what diplomacy is 
all about. But, from a development and democratization point of 
view, in countries where you have autocratic regimes, you need 
to work around governments to make sure that money is actually 
going to the poorest populations, and to make sure that 
organizations on the ground who are promoting democratization, 
accountability, good governance, have the wherewithal to build 
the bottom-up demand for change. It's more effective to manage 
those development and democracy objectives if there is a very 
strong Cabinet-level entity in the U.S. Government making the 
case on the development side, and ensuring implementation. In 
these instances it's actually helpful for the State Department, 
to say, ``Look, I can't affect that money, and foreign 
assistance is being decided in a separate process.'' Sometimes 
it's actually useful for the person responsible for diplomacy 
to be able to say, ``I didn't have control over that foreign 
aid decision.''
    Senator Menendez. Can we collectively agree that 
development assistance is one of the important tools that we 
can use, which is in the national interests of the United 
States? Does anyone disagree with that?
    [No response.]
    Senator Menendez. In view of that, then one of the concerns 
I raise--I'm sure you've heard it--is the significant shift in 
funds between the development assistance account and the 
economic support fund accounts in the FY08 request. On the 
House committee, before I came to the Senate--a total 15 years 
in the House--the traditional objectives of ESF have been to 
strengthen markets, improve economic growth, develop democratic 
institutions, and they have traditionally been used for--and 
they're more vulnerable to diversions for political or 
strategic purposes. And we recognize that. But if that is the 
case--and we've had some--I've had my examples, you've had 
yours--some of them are not more shining in our history, but, 
nonetheless, they have been used in that regard--what's your 
opinion of the shifting of these funds, in terms of, you know, 
conserving the development assistance aspect of our foreign 
policy?
    Mr. Worthington.
    Mr. Worthington. We worked very hard to have three words 
added to the top-line goal of U.S. foreign assistance, and that 
was ``reducing widespread poverty.'' If we had a clear set of 
indicators that looked at the relative investments, in terms of 
poverty throughout U.S. development assistance, compared to 
security interests or other interests, we'd have a much better 
sense of actually where resources are going. In the absence of 
that, we need to rely on congressional directives that do a 
much better job of steering resources, because, at this point 
in time, it really comes down to an act of faith of where these 
resources will go, and, because there aren't the indicators 
that give us a sense of the degree to which this broad goal of 
reducing widespread poverty lies at the core of the investment. 
We then ask Congress to go back to the more traditional frame 
that enables it to ensure that these resources do have that 
intent.
    Senator Menendez. Anyone else?
    Dr. Radelet. I share your concern. I understand the point 
that Secretary Fore was making, that it doesn't necessarily 
mean that the funds won't be used for development assistance. I 
spend a lot of my time in Liberia. I just came back. And they 
are a recipient of economic support funds, at the moment, and 
much of that is going toward strong development processes. So, 
it is quite possible that the ESF funds could be used for the 
right kind of development purposes, but we don't know.
    I'm not so much concerned about the increase in ESF funds, 
given today's world and the number of strategic partners that 
we work with. The issue for me is less the shift than the 
decline in development assistance. And if we need more funds in 
the ESF account, that's fine, but those should not come out of 
the development assistance account.
    Senator Menendez. I appreciate that.
    Dr. Brainard.
    Dr. Brainard. One of the things that's most important in 
foreign assistance is being clear about our goals. I don't 
think you can measure results unless you know what you were 
trying to achieve in the first place. There's always going to 
be a category of assistance that's primarily strategic in 
nature. We should be very clear about that, and we should 
measure the outcomes there, not in development terms, but in 
strategic terms. To some extent, this big shift between DA and 
ESF, is a symptom of lack of clarity. I think it was a huge 
tactical misstep on the part of the administration, in the 
sense that I don't think they have buy-in for their new country 
categories to begin with, and this shift is driven by these 
categories that are not so obvious to begin with.
    But it strikes me that development assistance should be 
used to promote development, and we should measure the outcome 
accordingly. And because I care a great deal about development, 
I think it's a very troubling shift.
    Senator Menendez. Thank you.
    Let me turn to the distinguished ranking member of the full 
committee, Senator Lugar.
    Senator Lugar. Well, thank you very much, Mr. Chairman.
    Let me ask this question as a practical political 
consideration. In the past, we have tried to determine, through 
the foreign assistance budgets or the State Department budget, 
or a combination of that, for interest in development in 
foreign countries. Sometimes interest in a country's 
development is driven by strategic purposes. One proposition 
suggested by members of this panel of professionals is to 
elevate the head of U.S. foreign assistance to a Cabinet-level 
position, so that there would be a Secretary of Defense, a 
Secretary of State, Secretary of Development, or whatever the 
proper nomenclature. And the hope would be that the interests 
of the United States would be manifest to whoever was the 
Executive in the administration, or Members of Congress, so 
that they would support the three objectives of defense, 
diplomacy, and development.
    Now, as part of the work of this committee and others has 
been to discover why, in certain instances recently, the 
Department of Defense appears to have taken roles that 
historically would have been taken abroad by the Department of 
State or our Ambassador, whoever it might be. One pragmatic 
reason why this is so is that the Department of Defense had 
money, it had resources, and it had supplemental appropriation 
ability. So, as affairs arose, you can make the case that the 
Ambassador and other development authorities were not always 
included in the activities of the Defense Department--but, 
nevertheless, maybe some good things happened and American 
taxpayer money was the same in any event. However, the politics 
of the situation were not equal with regard to the two 
departments.
    Now, if we were to have the three departments, just as a 
practical matter, how do we develop a constituency in this 
country for development in other countries? There is clearly 
that constituency with many people in religious communities, in 
many NGOs, others who organize from goodwill, those who have 
had an international understanding. From your own experience in 
this field, as a practical matter, how do we develop, once we 
have the organization, the support, the budget? And what would 
be the criteria, then, for determining the countries as 
recipients? Would it be as the Millennium Challenge, in which 
we now take a look and say we want to encourage human rights, 
the right of women, democracy-building, and so forth, and 
there's an idea of reward, of movement of resources if 
countries seem to adopt those policies. Maybe that's the ethos. 
Would any of the three of you comment on your views of these 
general questions?
    Mr. Worthington.
    Mr. Worthington. Just a comment on a few InterAction 
members. The ONE Campaign, which is an InterAction member, just 
launched a campaign that will go out to all the Presidential 
candidates. The Campaign has a broad membership across the 
country. Today we can witness, for example, 20,000 ONE 
supporters in both New Hampshire and Ohio. ONE has 2.4 million 
members committed to our work across the country, and that is 
just through that one InterAction member. Later this week, I'll 
be traveling to Little Rock to meet with InterAction member, 
Heifer International, to meet with their board. They have about 
500,000 donors across the United States who give to Heifer. The 
shift that we've seen in the last 10 years is the strong 
interest of many of these donors to get involved in advocacy 
around issues outside the United States, and issues of poverty, 
because individuals in our country, across campuses, church 
groups, and others, are seeing a direct link between the United 
States being a good neighbor and the security and the well-
being of our Nation and our children. So, we see a rise of 
Americans' interest in this issue. We're actively investing 
resources in channeling this interest as it goes forward.
    With regard to the point you make as to, you know, which 
countries to invest in, I think development requires multiple 
tools. One of the tools is the MCC approach that enables us to 
get a sense of investment based on good governance. There are 
other investments that simply need to be made on the basis of 
need and the ability to deliver well-designed child survival 
other types of programs. Other investments are more geared 
toward security. If we're able to break down these different 
types of investments we're making, I believe that the American 
people will respond. And one way that our institutions have 
seen that response is a shift, close to a $1 billion increase, 
of giving of the American people to our institutions. And this 
is broadly based within the faith groups and others around the 
country. So, we're seeing a shift in public opinion, and our 
challenge is to see that shift reflected up here in Congress.
    Senator Lugar. Thank you.
    Dr. Brainard. I believe there is now a strong public 
constituency for poverty reduction and development in this 
country. We have seen an enormous shift, in just 10 years, in 
public involvement in these issues. If you look at polling 
inside the Beltway, national security is the rationale; outside 
the Beltway, in the Heartland, Americans respond on the basis 
of moral values and humanitarian impulses. You can also see 
enormous public support in the vast flows of private 
generosity, which, in the case of humanitarian disasters, 
greatly exceeds our official assistance funding. You can also 
see growing public interest in an explosion of volunteering 
overseas. There's a nice bill that's making its way around now 
that provides government support for this increased interest in 
voluntary service abroad. And we also see it in the fact that 
we now get missives from Angelina Jolie and Brad Pitt and Bono 
on these issues. And so, there's just tremendous interest.
    In terms of criteria, there will remain a limited number of 
different types of countries receiving funding according to 
different criteria. One of the criteria, obviously, is 
transformation, but another one is need, humanitarian need; 
HIV/AIDS is another compelling criterion. There is always going 
to be a strategic category. There is always going to be, 
unfortunately, the conflict prevention and post-conflict 
reconstruction category. And each one will require a separate 
set of eligibility criteria.
    Senator Lugar. Thank you.
    Dr. Radelet. I think it's an excellent question, or set of 
questions, Senator.
    In terms of how to develop the constituency, this month's 
cover story in Vanity Fair magazine is all about foreign 
assistance. So, if we've made it to Vanity Fair, I think we're 
making some progress here.
    I share my colleagues' view that, over the last 10 years, 
this has changed dramatically. It started with debt relief, and 
the ``drop the debt'' campaign in Jubilee, and accelerated with 
the attention to HIV/AIDS and other things that brought in a 
much broader constituency, and, after September 11, for 
different reasons, widened that constituency.
    So, I think the support is beginning to grow. But what the 
American people demand, and deserve, is to know that this money 
is spent well. And I think, at the core, that brings us back to 
the need for better organizational structure and, I think, 
stronger legislation that puts together all of these different 
pieces into a coherent whole, with a clear mission, at a more 
professional nature, instead of decimating and undermining the 
professionals that we have at USAID and other organizations, to 
put them together and give a stronger mandate, where we can 
recruit and retain the best talent in the world for this, give 
them a voice at more senior levels, at the executive--in the 
executive branch, and provide some independence from State and 
Defense and intelligence services, and our many different tools 
of foreign assistance that need--our many different tools of 
foreign policy that need to be coordinated, but have some 
independence from each other. So, I think building that 
constituency goes hand-in-hand with making these things much 
more effective.
    I think Sam is also right in terms of the need for multiple 
tools across different sets of countries. And I've been arguing 
this for many years, and I think the new approach of a country-
based approach, looking at the characteristics of countries, 
makes a lot of sense. Some countries, like the MCC countries, 
are on the right path, they've got a good government; we ought 
to give them more funding and more flexibility in what they do. 
But there are lots of other countries where we need to provide 
less money, with tighter strings, perhaps a lot of it through 
NGOs, rather than through governments, when we don't trust the 
governments, and we need different approaches in different 
kinds of countries. We're beginning to move in that direction, 
but we need to move more.
    Senator Lugar. Mr. Chairman--I thank the witnesses--I'd 
like to ask permission to insert in the record, at the 
appropriate spot, a statement welcoming Under Secretary Fore, 
who was a witness earlier on.
    Senator Menendez. Without objection.
    Senator Lugar. I thank the Chair.
    [The prepared statement of Senator Lugar follows:]

 Prepared Statement of Hon. Richard G. Lugar, U.S. Senator From Indiana

    I join in welcoming Undersecretary Fore. I appreciate the 
cooperation she has shown to the committee during her tenure at the 
State Department. I look forward to her insights related to her new 
role as the Director of U.S. Foreign Assistance and as the President's 
nominee to head the United States Agency for International Development.
    The Director of U.S. Foreign Assistance is a new position at the 
Department. It was created by Secretary Rice to oversee and coordinate 
our Government's multifaceted outreach to countries where poverty, 
disease, displacement, and other challenges create both a humanitarian 
imperative and a security risk. Americans have long supported their 
Government's work to save lives and alleviate human misery. Since 
September 11, 2001, we have acquired new insights into how failing 
states can provide fertile ground for terrorism.
    The Bush administration has expanded U.S. commitments to 
international economic development. It has increased foreign aid 
spending and created new funding mechanisms. It has boosted America's 
focus on crises--such as the HIV/AIDs epidemic--that can undermine the 
fabric of developing societies. And it has sought to promote good 
government, sound economic policies, and strong social programs focused 
on human development in poor nations around the world.
    Secretary Rice's instinct to seek greater coordination and clarity 
in the new firmament of foreign assistance is well founded. We should 
prioritize our goals and design our strategies in ways that are 
transparent to aid recipients and U.S. taxpayers, alike. We must ensure 
that we are able to measure the impact of our assistance. Every dollar 
of foreign assistance should count toward the realization of a more 
peaceful and prosperous world.
    Our witness today is taking over the crucial task of foreign aid 
coordination that Secretary Rice initiated a little more than a year 
ago. We will be looking for leadership that strikes the appropriate 
balance between the need to maintain focus on policy priorities, while 
at the same time allowing for the flexibility required to address 
unique challenges in each recipient country.
    Because of the importance of this topic to the success of U.S. 
foreign policy, I have directed the Republican staff of the Senate 
Foreign Relations Committee to undertake a field-based study of our 
foreign assistance efforts. Now ongoing, we are examining assistance 
funded by the State Department, USAID, the Defense Department and other 
agencies in more than 20 countries in Africa, Asia, Eastern Europe, and 
Latin America. We are paying particular attention to the new 
coordination process to see whether and how it is mirrored in the 
field. We are looking at USAID programs, section 1206 security 
assistance, the Millennium Challenge Corporation, the Middle East 
Partnership Initiative, and the President's Emergency Plan for AIDS 
Relief. We are also studying how programs run by other U.S. Government 
departments, such as Agriculture, Treasury, and Homeland Security, are 
coordinated at the embassy level.
    In 2006, the committee staff produced a report entitled ``Embassies 
as Command Posts in the Campaign Against Terror.'' The report 
recommended that all security assistance, including section 1206 
funding, be included under the Secretary of State's authority in the 
new coordination process for rationalizing and prioritizing foreign 
assistance. I am particularly interested in knowing how Under Secretary 
Fore views her own role in making certain that our security assistance 
is properly coordinated and supported by both civilian and military 
agencies.

    Senator Menendez. Thank you, Senator Lugar.
    Let me ask you just two other quick questions before we go 
to the hearing on our next nominee.
    Mr. Worthington, you, in your testimony, said that without 
MCC and PEPFAR, development assistance to many country actually 
diminishes, particularly in Africa and in Latin American 
countries, two continents that perhaps need it the most, yet 
these two Presidential initiatives were supposed to be added to 
the regular assistance--and I stress the ``additive'' part. I 
have a particular interest in this. How do you see the F 
process hurting Latin America in this process?
    Mr. Worthington. I think the process, again, focuses on the 
top-line goal--when one should really focus on need. We could 
take Brazil as an example. In the northeast region of Brazil, 
which has massive amounts of poverty, you could then categorize 
Brazil as a country that is transforming itself. And, because 
of that categorization, you miss the complexity of the 
realities in-country, and, in essence, reduce programs that you 
should not be reducing.
    So, I think that it, again, comes down to need--there is 
tremendous need in Latin America, there's tremendous capacity 
to support a democratization process and other efforts, but 
because the security lens, or strategic lens, seems to 
dominate, we see this reduction, that I mentioned above, of up 
to 40 percent of resources.
    Senator Menendez. Dr. Brainard, let me ask you one other 
question.
    You were codirector of the Brookings CSIS Task Force that 
put out ``Transforming Foreign Assistance in the 21st 
Century.'' And it resulted in the publication of ``Security By 
Other Means,'' which I found interesting. Let me ask you--in 
it, you have a chapter entitled ``Organizing U.S. Foreign 
Assistance to Meet 21st-Century Challenges.'' How do you view 
U.S. foreign assistance having to change, in the long term, to 
meet those 21st-century challenges?
    Dr. Brainard. First of all, there are a lot more 
instruments that are now of great relevance to countries that 
are developing. In Latin America, for instance, trade 
agreements and investment agreements are just as relevant as 
foreign assistance. For many countries, the key issue is not 
even primarily about foreign assistance anymore. And we do a 
particularly bad job as a government, of bringing the 
development perspective to the table when we talk about trade 
or we talk about investment.
    Over time, I think foreign assistance needs to be much more 
effective, monitored, as Steve was talking about, in a way that 
connects the moneys actually to impact. Right now, there's a 
lot of assessment of inputs, rather than outcomes.
    And perhaps most immediately, we have an unwieldy cold-war 
structure that no longer fits the realities that we're trying 
to address as a nation. It needs to be fundamentally 
overhauled, streamlined, and elevated.
    Senator Menendez. Great. Well, thank you very much.
    Senator Lugar, do you have anything else?
    With that, let me thank all of our witnesses.
    Before I close, I'd like to ask unanimous consent to have a 
report, by Freedom House, which details cuts to democracy and 
human rights funding, entitled, ``Supporting Freedom's 
Advocates,'' and written testimony by the American Foreign 
Service Association, be added to the record. And, without 
objection, it so will be added.

[Editor's note.--The report referred to above was too 
voluminous to include in this hearing. It will be retained in 
the permanent record of the committee.]

    Senator Menendez. I want to thank all of the witnesses for 
testifying today. The record will be open for an additional day 
so that committee members may submit additional questions to 
the witnesses, and we certainly would ask you to respond 
expeditiously, should there be some questions to you.
    Senator Menendez. Thank you very much for your insight to 
today's hearing.
    And, with that, this part of the hearing is closed.
    [Whereupon, at 4:25 p.m., the hearing was adjourned.]
                              ----------                              


Additional Statement and Questions and Answers Submitted for the Record


   Prepared Statement of Hon. J. Anthony Holmes, President, American 
              Foreign Service Association, Washington, DC

    The American Foreign Service Association (AFSA), as the exclusive 
representative of the Foreign Service employees of the U.S. Agency for 
International Development (USAID) has been following closely the 
changes to U.S. foreign assistance administration, allocation, and 
policy adopted since the position of Director of Foreign Assistance (F) 
was created in early 2006. While recognizing that some reforms were 
needed in our foreign aid allocation system, AFSA has several serious 
concerns with the wholesale changes made by F over the past year.
    The nature and process of delivering foreign assistance has 
dramatically changed through the adoption of the ``Transformational 
Diplomacy'' initiative which is now being implemented at the State 
Department by F. Basically, ``development'' has now been subordinated 
to political concerns and decisionmaking and control shifted to the 
State Department. The upshot is that foreign assistance has been 
largely transformed from what was a partnership with developing 
countries to a more paternalistic relationship. Countries are 
classified using a Foreign Assistance Framework into five simplistic 
categories and a global category. The goal seems to be to have 
Washington, through a highly centralized decisionmaking process based 
on approved country-by-country Operational Plans, attempt to ``fix'' 
countries.
    The dominance of State--through F--in managing development 
priorities and directing our assistance programs will have negative, 
long-term results, and the USG capacity to deliver development 
assistance will atrophy, just as our ability to communicate effectively 
with external audiences withered after State's absorption of USIA.
    AFSA sees many flaws in this ``reform'' program, particularly given 
the way it has been implemented so far. Therefore, AFSA does not 
support the continuation of F as it is currently configured. Below are 
some of the issues we have identified that hurts our Nation's foreign 
affairs efforts that support our point of view:
    1. The centralization of decisionmaking has been taken too far. By 
trying to rein in and then reshape the scattered foreign assistance 
programs of State and USAID, F has created unacceptable delays. In 
theory this centralization is needed at the start and thus is a short-
term problem. But a plan for delegating appropriately back out to the 
field or the technical bureaus where development knowledge and 
expertise reside is still not in place. The whole process serves to 
marginalize the embassies and USAID missions overseas and imposes a 
level of central control that is antithetical to the Agency's 
traditional reliance on field staff to engage the host country and the 
embassy country team and design and implement activities and 
interventions to address country-specific development issues within 
broad guidelines established by Department of State, USAID, and 
Congress.
    2. Development expertise is being ignored, either by design or by 
fiat. Either way, U.S. objectives are ill-served. The highly 
centralized planning and decisionmaking has demoralized the 
experienced, technically qualified, and competent people in the field. 
Their role has been marginalized to being implementers of Washington 
decisions. Rather than building leadership, this has disempowered 
people. It also brought in an arbitrariness that has had a very 
negative impact on important programs.
    3. The Strategic Framework promulgated by F is not strategic. This 
framework is merely a tracking system. State and especially USAID need 
to think and plan assistance programs strategically over the long term. 
Nothing that F has produced assists with this, and the existence of 
this ``framework'' seems to excuse State and USAID from such thinking, 
planning and analysis, and it must not. And as mentioned above, the 
process of development is no longer collaborative but instead has 
become paternalistic.
    4. Long-term development is increasingly subordinated to short-term 
foreign policy goals. With F in place, the trend will only accelerate. 
F is doing a minimally acceptable job of laying out budgets for the 
Secretary of State. But neither the Secretary nor Deputy Secretary 
should be determining minutiae of budgets for foreign assistance as F 
and State's very hierarchical bureaucratic culture encourages. 
Development will never outweigh U.S. foreign or defense policy any 
serious way, even if the USAID Administrator is ``at the table.'' And 
bringing development into State has almost no hope of making foreign 
policymakers take a long-term view. While an actual merger of USAID 
into State might be preferable to the current ``merger by stealth,'' 
AFSA has serious misgivings about such an approach. A more independent 
and strengthened cabinet-level development assistance organization 
would be the optimal approach for the USG.
    5. Development policy has been divorced, from implementation. In 
the fluid and technically complex area of development, this is 
crippling. In addition, USAID has disbanded its policy function, thus 
abdicating this critical function to State, oftentimes regional 
bureaus. These State regional bureaus do not have the capacity to 
evaluate and set development policy. State regional bureaus are the 
appropriate home of foreign policymaking and implementation and are 
configured around this important task, not development assistance. 
Based on the findings from the Paris Declaration monitoring survey, the 
Operational Plan misses entirely what is found to be the key to 
successful development, i.e., engagement with the host government. If 
budget categories, levels, and activities are set by Washington, how 
can we get our host country to have ownership, alignment, 
harmonization, or mutual accountability?
    6. Roles and responsibilities between State and USAID are more and 
more confused. To add to the problem, the organizational structure 
which now exists is irrational and confusing, making it hard to 
determine which office has responsibility for which program. It does 
not help that F is located at the State Department far away from the 
USAID headquarters. Morale is low and plummeting even further as this 
process unfolds, and USG development expertise is eroding at a drastic 
rate and will take many years to rebuild. This and previous 
administrations' paltry requests for USAID Operating Expenses belie the 
rhetoric that development is an important part of the U.S. role in the 
world. The FY07 Operational Plan process lacked sufficient involvement 
of the Ambassadors and USAID Mission Directors in budget allocation 
decisions. The missions were only provided planning levels for 
preparation of the Operational Plan without prior consultations.
    7. Noninclusion of the PEPFAR funds in FY07 Operational Plan led to 
much confusion and does not reflect the whole workforce level for the 
country, since the workforce funded by PEPFAR funds gets reflected only 
in the PEPFAR Country Operational Plans.
    8. The FACTS system, which is a monitoring tool, is not very user-
friendly and gives a lot of problems in data entry. There were frequent 
outages. However, this centralized database, which makes budget and 
programmatic information about the entirety of State and USAID funding 
and programs, may be useful if further developed. A key feature of this 
database is the list of standardized program definitions and 
indicators, which rationalizes the descriptive aspect of foreign 
assistance and allows for cross-country comparison and aggregation. 
Some criticize these indicators as mere outputs or as encouraging 
stovepiping. These valid criticisms point out a fundamental limitation 
of the system. The advantages of having this system must not be turned 
into a straitjacket, which is a serious risk. The system cannot and 
should not replace strategic planning and good development thinking and 
analysis.
    AFSA believes it is important and timely for Congress, the public, 
this administration, and the next to learn from this experience and 
move forward using an improved approach. The United States is a 
generous nation and should be represented by the best people and 
programs the field of international development can produce. By trying 
to rationalize foreign assistance, F's early experience has shown how 
horribly bungled the U.S. foreign assistance system is and how a 
piecemeal effort to improve it is insufficient and in fact 
counterproductive. A comprehensive vision, political will, or 
considerably more time are needed to completely overhaul it. By 
embarking on radical process reforms without the necessary intellectual 
groundwork, and given the early and continuing flaws and significant 
failures of the effort so far, the present effort has proven that an 
even more dramatic reform/rethinking is essential. Piecemeal 
adjustments are nowhere near sufficient. Therefore, AFSA recommends a 
different approach which will elevate Development to be truly on par 
with Defense and Diplomacy, even if getting it involves creating a 
cabinet-level development agency.
                                 ______
                                 

    Responses of Under Secretary Fore to Questions Submitted by the 
                           Following Senators

                  QUESTIONS SUBMITTED BY SENATOR BIDEN

    Question. You indicated there were plans underway to modify and 
simplify the Foreign Assistance Framework. Please describe in more 
detail what this simplification would entail. Would certain categories 
of countries be merged? Would some of the existing objectives change or 
disappear? Will she have the authority to do accomplish those changes? 
What will be the process for approving and implementing them?

    Answer. As I noted in my opening remarks to the hearing, the 
Secretary believes that as we increase the quantity of our foreign 
assistance, which is critically important, we must also work to improve 
its quality. This is a driving factor behind her foreign assistance 
reform initiative. In my role as Acting Director of U.S. Foreign 
Assistance, I am charged with helping the Secretary to identify and 
realize new means to constantly improve our foreign assistance programs 
and activities. Having assumed this role but a few weeks ago, one of 
the first things I am doing is to listen to people's concerns and to 
consult with stakeholders about what we might improve. I will take all 
the ideas and suggestions I have received under advisement and continue 
to gather more as I think about the best ways to move forward. I am 
especially interested in any thoughts and suggestions you might have 
about the reforms, to include the processes and tools, and I would seek 
an opportunity to consult with you before making any significant 
changes thereto.

    Question. Near the end of Ambassador Tobias' tenure, he initiated a 
comprehensive review of USAID's core focus and alignment, beginning 
with the proposal that USAID should realign its focus toward the very 
poorest, most fragile countries, and away from activities related to 
investing in people, economic growth and democratic governance. Is this 
review and the lead working group in operation? How far along is the 
process and what is the timeline? Are final decisions being made to 
structurally realign the Agency's focus?

    Answer. The working group is developing recommendations for me, as 
Acting Administrator, regarding adjustments to overseas staffing 
levels, and the associated operating expenses. Currently, there is 
considerable variation in the number of USAID staff (direct hire and 
total staff) managing similar-sized portfolios in countries at 
comparable stages of development. Adjustments to respond to the need to 
establish or increase USAID's presence in countries with growing 
programs and more limited indigenous capacity to manage their 
development process do not imply a shift away from programs in Economic 
Growth, Governing Justly and Democratically, and Investing in People.
    As Acting Administrator I will consult with Members of Congress 
before making any decisions about restructuring. The working group's 
recommendations, if approved, will be incorporated in the FY 2009 
budget request and the 2009 Foreign Service assignment cycle.

    Question. If USAID were to change its core mandate and focus only 
on fragile states and least developed countries, which USG agencies 
will fill the gap and continue to implement critical social sector 
programs--such as education and health activities--in threshold and 
lower middle-income countries? How will the F process assure adequate 
funding for those responsibilities? Does USAID plan to fund these new 
priorities through shifting funds from the DA account to the ESF 
account?

    Answer. I am reviewing all of these options. We are at the very 
beginning of the process of looking at whether USAID's mandate is 
appropriately focused and if any changes are necessary. I have not made 
any decisions and I assure you that, if confirmed, I will look forward 
to substantive engagement with the Congress, and all stakeholders 
before any final decisions are made with regard to USAID's mandate. I 
want USAID to be healthy and strong. I am committed to supporting our 
extraordinary women and men who are carrying out our development and 
humanitarian assistance activities all over the world.
    It is simply too early in the process to fully answer your 
questions, but if confirmed, I look forward to working with you as we 
move forward to ensure USAID's place as the premier development U.S. 
Government agency.

    Question. Describe the role and expected function of ``development 
attaches''? How will they interact with mission chiefs? What gap are 
they expected to fill? What is their value add? Will development 
attaches be staffed by career foreign service or outside contractors? 
If the former, will this thin out an already overextended foreign 
service corps?

    Answer. The concept of a development attache, or development 
counselor, as we are now calling it, is inspired by the catalytic role 
that USAID officers play in bringing together host country government, 
private sector, and other public or private donor interests to address 
a development issue.
    We believe that this is a valuable form of assistance that USAID 
can provide in countries that are generally capable of financing and 
managing their own development process but that may not yet have the 
capacity or experience to put together these kinds of partnerships. 
USAID officers often leverage the U.S. Government's investment through 
innovative public/private partnerships and other arrangements.
    The development counselor position would give the U.S. Government 
(USG) an authoritative voice in a country's development dialog even as 
direct development assistance becomes less necessary.
    While we are still refining and discussing the concept, and welcome 
your input, we envision the development counselor as the U.S. 
Ambassador's principal advisor on development issues and coordinator of 
development-related activities of all USG agencies in a country on 
behalf of the Ambassador. The development counselor would provide 
guidance to any USAID activities in a country but operational 
management would be provided by a regional platform. It is envisioned 
that the development counselor would be an experienced USAID Foreign 
Service Officer with requisite technical expertise, and entrepreneurial 
skills. S/he would have a very small staff, perhaps 2-4 people, 
depending on the nature of USAID's role in a country. We will have to 
increase recruitment and enhance career development and training 
programs to have sufficient officers with the necessary skills and 
experience for this position.

    Question. As Acting Administrator of USAID, do you have plans to 
restore the technical capacity that has been lost at that agency over 
recent years? If yes, specify.

    Answer. Yes. When I first served at USAID, our technical capacity 
was much more robust. Since that time, significant downsizing has left 
us far less reliant on our core permanent workforce, in favor of a U.S. 
nondirect hire workforce. It is my strong belief that USAID needs to 
increase its in-house technical capability through the world. If 
confirmed, I plan to do this in a systematic, thoughtful manner.
    We need to both revitalize our Foreign Service Officer Corps and 
place those with the needed technical oversight skills in the positions 
where they will ensure an efficient and effective delivery of 
development services.
    Over the past several years, our Office of Human Resources has 
developed a workforce planning model (WPM) that projects the need for 
technical staff based mainly on the amount of funding in a program. It 
is clear from the model that USAID needs to increase its permanent core 
technical staff as well as other staff, both Civil Service and Foreign 
Service.
    In order to do this we have to increase our recruitment and career 
development programs and our supervisory training and absorptive 
capacity. This is the only way we can reach our increased mandates with 
rebuilding our capacity, both technical and other, as rapidly as 
possible.

    Question. It is our understanding that your predecessor proposed 
significant reductions to USAID funding for research and capacity-
building in the developing world. This important research, which USAID 
has supported successfully for many years, is vital to making sure that 
treatments and preventive technologies like vaccines and microbicides 
reach and serve the needs of people suffering from disease in 
developing countries. Do you plan to support this important function at 
USAID in the future?

    Answer. I assure you that I have made no decisions outside of the 
President's FY 2008 budget request regarding any change in the 
important research and capacity-building activities that USAID 
supports. I am committed to USAID carrying out the necessary research 
to make sure that health treatment and preventive technologies reach 
those most in need. I will rely on the expertise of my staff at USAID 
to advise on the best use of funds and the correct mix of assessment, 
development, and introduction research as well as of capacity-building.
    With the necessary funding support from Congress and the President, 
USAID will maintain its commitment to achieving its 5-year research 
strategy as outlined in the May 2006 Report to Congress, ``Health-
Related Research and Development Activities,'' and specifically to its 
projected FY07 obligations for health research as reported to Congress 
(attached).

        HEALTH RESEARCH REPORT TO CONGRESS: UPDATE CORE FUNDING FOR TARGETED HEALTH ISSUE STRATEGIES \1\
----------------------------------------------------------------------------------------------------------------
                                                                                      FY 2006
                    Health issue and product                       Projected FY      obligated     Projected FY
                                                                   2006 funding        funds       2007 funding
----------------------------------------------------------------------------------------------------------------
HIV/AIDS:
    Vaccines....................................................     $29,000,000     $28,710,000     $28,710,000
    Microbicides................................................      39,600,000      39,600,000      39,600,000
    Global Leadership in HIV/AIDS applied Research and Public                N/A       1,750,000       3,250,000
     Health Evaluation \2\......................................
                                                                 -----------------------------------------------
      Total.....................................................      68,600,000      70,060,000      71,560,000
                                                                 ===============================================
Malaria:
    Vaccines....................................................       6,200,000       6,200,000       6,000,000
    New Drugs, Formulations, and Approaches.....................       3,800,000       3,200,000       3,200,000
                                                                 -----------------------------------------------
      Total.....................................................      10,600,000       8,400,000       9,200,000
                                                                 ===============================================
Tuberculosis:
    New Drugs...................................................       2,300,000       2,400,000       3,000,000
    Improving Performance of and Access to DOTS \3\.............       1,400,000       2,790,000       2,790,000
                                                                 -----------------------------------------------
      Total.....................................................       3,700,000       5,190,000       5,790,000
                                                                 ===============================================
Reproductive Health:
    Contraceptive Technologies..................................      10,500,000      10,500,000      10,500,000
    Improved Use and Services Delivery..........................      14,000,000      14,000,000      14,000,000
                                                                 -----------------------------------------------
      Total.....................................................      24,500,000      24,500,000      24,500,000
                                                                 ===============================================
Maternal and Newborn Health:
    Healthy Pregnancy and Birth Care Outcomes...................       1,985,000       1,283,000       1,860,915
    Maternal Mortality Measurement Tools........................           \4\ 0         130,000         130,000
    New Pregnancy and Birth Interventions and Introduction......       3,725,000       4,065,000       3,545,000
    Neonatal Research and Newborn Care Practices................       1,600,000       1,600,000       2,200,000
                                                                 -----------------------------------------------
      Total.....................................................       7,310,000       7,078,000       7,735,915
                                                                 ===============================================
Micronutrient Deficiencies:
    Vitamin A Deficiency Prevention and Control \5\.............         700,000         759,000         200,000
    Zinc--Diarrhea Therapy and Prevention \6\...................         884,000         755,000         150,000
    Iron--Anemia Prevention/Rx Packages \7\.....................       1,100,000         376,600         380,810
    Community Therapeutic Care..................................       1,100,000       1,100,000       1,200,000
    Antenatal Multiple Micronutrient Supplementation \8\........               0         180,000       1,000,000
                                                                 -----------------------------------------------
      Total.....................................................       3,784,000       3,170,600       2,930,810
                                                                 ===============================================
Acute Respiratory Infections:
    Community--Based Pneumonia Treatment........................         550,000         650,000         630,000
    Reducing Exposure to Indoor Air Pollution...................         100,000          70,000          70,000
                                                                 -----------------------------------------------
      Total.....................................................         650,000         720,000         700,000
                                                                 ===============================================
Health Systems:
    Performance Assessment and Financing \9\....................         380,000         695,000         100,000
    Pharmaceutical Management...................................         125,000         150,000          75,000
    Quality Assurance...........................................         325,000         342,000         290,000
                                                                 -----------------------------------------------
      Total.....................................................         830,000       1,187,000         465,000
                                                                 ===============================================
      FY 2006 Funding \1\.......................................    $119,374,000    $121,305,600    $122,881,725
----------------------------------------------------------------------------------------------------------------
\1\ This report highlights approximately 80 percent of the total health-related research at USAID in FY 2006.
\2\ Interagency/OGAC strategy launched February 2007.
\3\ Reclassification of the category of research based on the new OP documentation process.
\4\ FY 2006 activities are based on prior-year investments.
\5\ As described in the May 2006 Health Research Report to Congress, research findings are currently being
  introduced into programs.
\6\ As described in the May 2006 Health Research Report to Congress, research findings are currently being
  introduced into programs.
\7\ The full complement of planned FY06 projects were dependent on the outcomes of a data analysis consultation,
  which have not yet been finalized.
\8\ A planned, new research study will begin mid FY07.
\9\ Reclassification of the category of research based on the new OP documentation process.


    Question. How will the change in leadership at the F Bureau impact 
the plans that Ambassador Tobias put in motion? Do you plan to follow 
the timelines he laid out? If not, how will they differ?

    Answer. My team and I immediately turned to review the FY 2007 
Operational Plan process so that we can learn how to improve the FY 
2008 process. What I hope to do is capitalize on, and reinforce, what 
appears to be working and make changes to those elements which are not 
proving useful. I am particularly interested in simplifying the 
process.
    Of course, within all of these changes and evaluations, I will 
ensure that the Department of State and USAID are able to deliver the 
FY 2009 Congressional Budget Justification to Congress on time.

    Question. Many have commented that the reform process has been one 
in which foreign assistance has been viewed solely through a lens of 
national security. Do you feel that national security concerns are the 
primary factor that determines how and where we spend our foreign 
assistance dollars?

    Answer. National security concerns are certainly considered in 
determining the allocation of our foreign assistance resources, as are 
development concerns. By acknowledging that an appropriate balance must 
be struck between the two, the Secretary of State has clearly 
articulated our overarching transformational diplomacy goal as: 
``helping to build and sustain democratic, well-governed states that 
respond to the needs of their people, reduce widespread poverty, and 
conduct themselves responsibly in the international system.''
    Our Nation's security depends on the stability of other nations. 
The locus of threats has shifted to the developing world, where 
poverty, injustice, and indifference are exploited by our foes to 
provide a haven for criminals and terrorists. Foreign assistance and 
the development it supports are a key part of our national security 
architecture and the war on terror.
    In the past there was a perception that development policy and 
foreign policy objectives were entirely separate and typically at odds. 
Poverty reduction, good governance, and capacity-building for 
sustainable long-term success are long-held development goals. Foreign 
policy goals also now recognize that lasting peace and prosperity 
cannot be achieved unless we expand opportunities for all citizens of 
the global community to live hopeful and prosperous lives. As evidence 
of the Secretary's commitment to long-term development, you will find 
that in the FY 2008 request, 51 percent of Department of State and 
USAID program assistance resources are concentrated in rebuilding and 
developing countries. These are the countries that are farthest away 
from sustaining partnership status, as measured by instability, 
poverty, human capacity, life expectancy, governance, and barriers to 
economic growth--all critical barriers to regional stability and 
success in the war on terror.

    Question. To avoid being compromised in both their effectiveness 
and perceived intent, development initiatives may sometimes require 
distance from diplomats and security officials. Has the Office of the 
Director of Foreign Assistance taken this reality into consideration as 
it moves to combine U.S. diplomacy, security, and development under the 
same policy and implementation rubric?

    Answer. Yes; but I think we can improve in the years to come. The 
new coordinated processes we have put in place are intended to maximize 
the involvement and expertise of our development, diplomacy, and 
security professionals at the point of planning and budgeting against 
broad strategic objectives and priorities for individual countries and 
global initiatives. In addition, operational plans provide a 
coordinated and comprehensive picture of how fiscal year funds will be 
used and what results will be achieved. With respect to the 
implementation of programs, however, we seek to empower our experts in 
the field to identify the best implementation strategy based on country 
circumstances and objectives to be achieved. This practice should allow 
the people who have the on-the-ground perspective to make the 
appropriate choices about implementation. This on-the-ground 
perspective will ensure that as in the past, where necessary, the 
appropriate distance is preserved.

    Question. Are there any plans to incorporate environmental 
considerations and activities into USAID's overall strategy going 
forward? Will a greater emphasis on sustainable environmental 
activities be reflected in the Foreign Assistance Framework (currently 
there is only one mention of the environment in the entire chart)?

    Answer. The framework and transformational diplomacy goal 
acknowledge that an appropriate balance must be struck among 
development objectives in order to bring about lasting change in 
countries. Our strategy as it relates to environmental activities is to 
link healthy ecosystems to sustainable economies, good governance, and 
equitable and just societies. We recognize that ecological stability is 
necessary for sustainable social and economic progress.
    Through the new Strategic Framework, foreign assistance is focused 
on five objectives (e.g., economic growth) designed to further the 
transformational diplomacy goal, and, in each country, to address the 
specific gaps and obstacles countries face in achieving the goal. In 
doing so, USAID's environmental compliance regulations and procedures 
help ensure that the environment and the natural resources are managed 
in ways that sustain productivity and growth as well as a healthy 
population.
    To that end, environment is present throughout the framework, and 
is explicitly recognized under the economic growth objective. Programs 
and activities consistent with this area include the management, 
policy, and governance of natural resources and biodiversity. USAID 
programs and activities focus on establishing and sustaining a clean 
productive environment, balancing the needs of present and future 
generations. These are highly synergistic with other components of the 
economic growth objective--e.g., energy and agriculture, and our global 
health objective; e.g., by improving the quality and cleanliness of air 
and water. Clean productive environment activities also address climate 
change, such as by reducing greenhouse gas emissions.

    Question. Describe the comparative benefit of adopting a country-
focused approach as opposed to the broad sectoral approaches used in 
the past. What have been some specific advantages of this shift? Where 
have there been problems and how will these be addressed? Is there 
value in keeping centrally funded programs, such as those promoting 
democracy, labor, and the environment? Does the agency plan to continue 
funding sectoral programs to some degree?

    Answer. The intent in adopting a country-focused approach is to 
maximize country progress with our programs supporting these goals. 
With sectoral approaches, we find that while we may be doing good work 
within discrete sectors--e.g., HIV/AIDS, malaria, family planning, 
etc.--we may not be making the investments necessary to sustain the 
success of these investments and ensure that countries can sustain 
further progress on their own. In addition, with various sector-based 
strategies at play, country programs tended to be a patchwork of 
disconnected or loosely connected programs. Our programs thus tend to 
be ``patches of green'' instead of comprehensive, long-term country-
based development strategies targeted to sustained development 
progress. The FY 2008 request reflects a focus on the specific gaps and 
obstacles countries face in moving along a development trajectory. The 
ultimate intent is to support recipient country efforts to move from a 
relationship defined by dependence on traditional foreign assistance to 
one defined by full sustaining partnership status.
    In prior budget years, funds were allocated first by account, then 
by sector, and last, by country. Much of the budget was built by 
determining so much for family planning, so much for basic education, 
so much for security assistance, and so on. It is not that these 
sectors are not critical to a country's development strategy--clearly 
they are, and USAID and the State Department continues to evaluate 
resources by sector, ensure appropriate targeting, and incorporate best 
practices. It's a matter of what should drive the country's development 
program--country prioritized need or a set global amount for a sector. 
The Secretary feels that we must tailor programs to the unique needs of 
each recipient country in reaching the transformational diplomacy goal.
    Focusing resources in this way has its tradeoffs. When one area 
goes up, unless there is an abundance of new resources, other areas go 
down. While the FY 2008 budget increased by $2.2 billion over FY 2006 
enacted levels, we squeezed far more in the budget. The budget includes 
important increases for HIV/AIDS, malaria, and humanitarian assistance; 
and for countnes in which there are new requirements and opportunities 
such as in Kosovo, Iran, and Cuba. The FY 2008 budget also reflects 
efforts to continue to shift program funding, where requirements are 
predictable, from supplemental requests for Iraq, Afghanistan, Sudan, 
and avian influenza into the base budget. Country teams prioritized 
interventions that would help a country's institutions to build the 
capacity to take on challenges in the longer term.
    In order to ensure a coordinated response and effective and 
sustainable impact, the reform process sought to maximize all resources 
implemented at the country level within country budgets. In identifying 
resources within global or regional budgets which were actually 
allocated to specific countries, we sought to bring transparency to the 
process as well as to ensure that what were in truth country resources 
were maximized and coordinated within country level budgets.
    Previously, ambassadors and mission directors often did not have a 
full picture of the resources being implemented in their countries, 
because some activities were planned and implemented from Washington. 
Consequently, they did not exercise full oversight over these programs, 
and doing so from Washington was costly and time-consuming. To empower 
our mission directors, ambassadors, and country teams, the reform 
process maximized resources implemented at the country level into 
country-level budgets.
    However, the FY 2008 budget also includes substantial funding in 
the centrally funded programs. We fully recognize that not all foreign 
assistance is, or should be, implemented on a country basis, and that 
many issues are best addressed as part of a global or regional 
strategy. Accordingly, the Foreign Assistance Framework includes a 
separate category to highlight global and regional initiatives, defined 
as those activities that transcend a single country's borders. Such 
activities may include trade capacity-building, emergency humanitarian 
assistance, support to regional institutions or multilateral 
organizations or research. Certainly, issues such as trafficking and 
labor issues have a place in specific country programs as well as on a 
global basis. The framework allows for both these types of programs to 
take place within the goal of transformational diplomacy.
                                 ______
                                 
                  QUESTIONS SUBMITTED BY SENATOR LUGAR

    Questions. In FY08, basic education funds were reduced in Latin 
America and ``zeroed out'' in East Timor, Guinea, India, Madagascar, 
Mexico, Nepal, and South Africa.

   (a) What criteria are being used to determine the allocation 
        of education funding to various countries? What are the 
        targets?
   (b) If we are targeting our education funding where there is 
        the greatest health/HIV need, why cut education funding to 
        South Africa?
   (c) If we are targeting our education funding where there is 
        the greatest illiteracy problem, why cut education funding to 
        India?

    Answer (a). A collective decisionmaking process was used to 
determine the FY 2008 funding request for basic education involving 
country teams in both Washington and the field. These teams are 
knowledgeable about each country's mix of donors and what U.S. 
Government (USG) assistance is required to stimulate and sustain 
transformational development and country progress, including whether 
support for basic education is the most strategic use for USG funds. 
These teams used several sets of criteria to determine the allocation 
of education funding to countries.
    The first set of criteria was a set of index scores. The index 
scores provided a common yardstick of objective data for all countries, 
focusing on education access, country context, quality and performance, 
and education need. The second criterion was the strategic importance 
of countries to the broader transformation diplomacy goals.
    There are different levels of targets. At the highest level, the 
USG supports the six goals of Education for All (EFA) as these 
represent a global consensus on education targets. At the individual 
country level, the USG supports the Paris Declaration and the goal of 
donor harmonization around the specific targets set forth in individual 
country education plans. Below this are the targets that are within the 
manageable interest of USG-funded projects and that are articulated in 
monitoring and evaluation plans.

    Answer (b). Senator, it is not USAID policy to target education 
funding to countries with the greatest health/HIV needs. USAID is 
prioritizing basic education funding for countries other than South 
Africa because South Africa is generally capable of financing and 
managing its own development process in the basic education sector.

    Answer (c). This is precisely the type of difficult question that 
we have focused on in designing our foreign assistance reforms and in 
trying to make the most strategic use of limited resources. We 
recognize that India does have significant education needs. Because of 
the large population size, limited foreign assistance resources, and 
extreme and growing needs in health, we determined that focusing the 
majority of U.S. foreign assistance in the health sector will have a 
greater impact reducing poverty and transforming India than spreading 
limited resources across many sectors. According to the Millennium 
Challenge Corporation indicators, India has improved in education this 
year, while health indicators have declined. Therefore, over 90 percent 
of the FY 2008 request for India will be used to integrate health 
services and nutrition to improve survival of children and their 
mothers, stem global disease threats, and help India manage the growth 
of its rapidly increasing population.

    Question. What is the focus, strategy, and structure for the 
President's Education Initiative? Will it be housed at USAID? If not, 
why not? What is the process in determining the lead agency/house for 
the Education Initiative?

    Answer. Education is an important driver for poverty reduction, 
social empowerment, and gender equality, and the administration has 
made significant strides in expanding the amount of foreign assistance 
resources devoted to basic education programs in particular, and 
targeting these resources effectively. In FY 2008, the President's 
budget requested $535 million for basic education programs, up from 
$126 million in FY 2001. In FY 2006, the United States provided $521 
million.
    Currently, most of USAID's basic education programs support teacher 
training, scholarships, textbook distribution, and policy reforms. 
These metric-focused efforts have helped to address financial obstacles 
to schooling and availability of quality instruction. Empirical 
evidence illustrates that school enrollment, performance, and the 
development of employable skills are tied to a range of factors. This 
demands a more comprehensive approach. The United States will build 
upon existing efforts with a bold and innovative plan to: (1) Provide 
an additional 4 million children with accountable and quality basic 
education; (2) deliver technical training for 100,000 at-risk youth; 
and (3) coordinate with child health programs that impact educational 
attainment.
    The initiative would provide approximately $525 million over 5 
years--roughly $425 million for additional basic education activities 
and $100 million for a new Communities of Opportunity program that will 
provide after-school language and skills training for at-risk youth in 
the 8-14 age group. The basic education component would begin in 2008 
with a modest amount of funding to develop partnerships with target 
countries and support capacity-building. The effort would then scale up 
between 2009 through 2013 to help partner countries meet concrete needs 
identified through the Fast Track Initiative process. Funding and 
startup of Communities of Opportunity will begin in 2009 and the 
commitment runs through 2011. These centers will provide at-risk youth 
with training in English, computer skills, science, math and finance, 
and critical thinking.
    The initiative largely will be housed at USAID. The administration 
will establish a new high-profile Education Coordinator--located at the 
U.S. Agency for International Development--for international basic 
education programs. The Secretary of State, in consultation with the 
Secretary of Education, would appoint the Coordinator. The Communities 
of Opportunity program will be managed by the Bureau of Educational and 
Cultural Affairs at the Department of State, under the authority of the 
Under Secretary for Public Diplomacy and Public Affairs.

    Question. What specific criteria are being used to determine 
whether to close or reduce the size of USAID missions?

    Answer. The key considerations are program size, program complexity 
(including foreign policy visibility), security constraints and 
countries' capacity to manage their own development. The latter 
includes the capacity of the host government, civil society, and the 
private sector. USAID's clear preference is to maintain presence in a 
country when the level and complexity of development and humanitarian 
assistance justifies it. However, the rising cost of overseas 
operations makes this a challenge. I would like to review these options 
as Acting Administrator, and if confirmed, I will seek the views of the 
Congress on the difficult tradeoff between reducing presence in some 
countries and increasing presence in others.
                                 ______
                                 
                QUESTIONS SUBMITTED BY SENATOR MENENDEZ

    Question. One of the stated objectives of Transformational 
Diplomacy was to provide more flexibility to the executive branch in 
constructing the foreign assistance budget. The FY 2008 President's 
budget request, produced using the new strategic framework, directs a 
disproportionate amount of the funding to a handful of U.S. allies in 
the ``global war on terror'' and ignores congressional country, 
regional, and sectoral priorities. Can you provide assurances that the 
process that you will use in assembling the FY 2009 budget will better 
reflect congressional priorities and provide a more balanced country 
allocation based on need and U.S. comparative advantages in providing 
long-term development assistance?

    Answer. I support the checks and balances system of our Government 
that allows the executive branch to present a budget to Congress and 
for Congress to use its best judgment to direct how that money should 
be spent. One of my personal goals for the FY 2009 budget is to work 
very closely with the Congress, and I fully intend to consult with you 
and other members of our oversight committees about your priorities so 
that they might be appropriately reflected in the FY 2009 budget 
process.
    In the past there was a perception that development policy and 
foreign policy objectives were entirely separate and typically at odds. 
Poverty reduction, good governance, and capacity-building for 
sustainable long-term success are long-held development goals. Foreign 
policy goals also now recognize that lasting peace and prosperity 
cannot be achieved unless we expand opportunities for all citizens of 
the global community to live hopeful and prosperous lives. A driving 
purpose behind the establishment of the Office of the Director of U.S. 
Foreign Assistance is to strengthen the U.S. commitment to long-term 
development. To that end, the Office of the Director of U.S. Foreign 
Assistance has worked to replace fragmented programming with coherent, 
comprehensive planning, and focusing our foreign assistance on 
promoting greater ownership and responsibility on the part of host 
nations and citizens. As evidence of the Secretary's commitment to 
long-term development, you will find that in the FY 2008 request, 51 
percent of Department of State and USAID program assistance resources 
are concentrated in rebuilding and developing countries. These are the 
countries that are farthest away from sustaining partnership status, as 
measured by instability, poverty, human capacity, life expectancy, 
governance, and barriers to economic growth--all critical barriers to 
regional stability and success in the global war on terror.
    The President's FY 2008 budget request was built collaboratively by 
USAID and State. USAID and State country and regional teams identified 
the critical gaps and obstacles that recipient countries faced in 
trying to advance in a sustainable manner and requested funding 
allocations in accordance with those assessments. The result of this 
collaboration was a budget in which half of all resources were invested 
in rebuilding and developing states--those states in greatest need in 
terms of such critical barriers as poverty and governance.
    Following the completion of this first integrated budget, we set 
out to determine how we could improve the process for FY 2009. An 
after-action review was launched whereby scores of State and USAID 
regional and functional participants, both at the working and senior 
levels, were consulted, along with special consultation sessions in the 
field. While the field had significant input in the FY 2008 budget 
build, we wanted to bolster and better institutionalize these 
suggestions. Two of the key changes for FY 2009 are that the field will 
weigh in before the Secretary sets the initial control numbers, and the 
field will allocate funds to the program element level, specifically 
defining the activities in-country. We intend to maintain consultations 
with the field to ensure these changes prove useful and effective and 
to determine if further changes might be necessary.

    Question. I understand that the F Bureau intends to notify Congress 
of how USAID intends to spend its FY07 funds using a new notification 
format based upon the recently approved Operational Plans. What is the 
status of preparing this new congressional notification and when do you 
expect to submit it? What information has the F Bureau provided to 
Congress about how this new notification will differ from the 
congressional budget justification? Has USAID's withholding of funds 
for operating units until the notification is submitted caused any 
adverse impact on its operations on the ground?

    Answer. Funds have not been withheld on account of proposed changes 
to the CN format. The Department of State and USAID have been judicious 
in releasing funds, not to include urgent circumstances which are of 
course funded as quickly as possible, while discussions with the 
Appropriations Committees on the FY 2007 allocations are still taking 
place. We hope to bring these discussions to conclusion in short order.
    With respect to new formats for congressional notifications over 
the years, Congress has expressed concerns about how difficult it is to 
get a true picture of what is being done with our foreign assistance 
dollars. Both USAID and the Department of State are working closely 
with their oversight committees on a congressional notification (CN) 
format which addresses this concern--one that provides all the 
information that the committees require and reflects the Secretary's 
reforms. While the Department of State will wait until FY 2008 to make 
changes to its CN format, USAID is talking to the committees about 
getting a head start, especially since its operating systems, including 
its financial systems, already reflect the new foreign assistance 
framework.
    What is innovative about the framework format is that it allows for 
cross-agency comparisons and assessments. For example, in the past, we 
were unable to determine what funding and activities related to 
vulnerable children across agencies and accounts. This year, we are 
able to create this comprehensive picture of activities and to identify 
funding levels ($265 million in FY 2007).
    Again, our goal is to make sure that Congress receives all the 
information it needs in a timely and user friendly format, and we 
believe that moving toward a framework-based congressional notification 
is a significant step in that direction.

    Question. To what extent will transparency be an important element 
in moving forward with budgeting and strategic planning processes as 
the foreign assistance reform process matures? For example, approved 
Country Operational Plans contain the essence of how U.S. Government 
aid will be used to achieve critical reform goals on a country-by-
country basis. But these key documents are not available to the public 
as of yet. When will these documents, or declassified versions of them, 
be made available so that recipients, partners, and other donors can 
coordinate their assistance and activities with those of the USG?

    Answer. I am committed to providing as much information on our 
foreign assistance activities as possible to our oversight committees 
and congressional partners. We are currently looking at ways to make 
the information obtained from the FY 2007 Operational Plans as user 
friendly and available as we can. We are likewise exploring formats for 
future years' Operational Plans with an eye toward the same goal. In 
the meantime, if there is particular FY 2007 country or other 
information that you would like to discuss, we would be happy to meet 
with you.

    Question. How will the F Bureau ensure that missions include 
consultations with a diverse group of civil society organizations, 
including women's groups, and meaningfully consider the input for 
program development and implementation? How will you ensure that gender 
analysis will be incorporated throughout all stages of country program 
planning, project implementation, and monitoring and evaluation?

    Answer. Promoting a stronger and more productive role for women in 
development is a priority which demands a broad and flexible approach. 
The Office of the Director of U.S. Foreign Assistance has taken a 
number of steps to ensure that gender is considered at each stage of 
the assistance process. Prior to the country planning stage, staff 
consulted with gender-based advocacy groups in the NGO community about 
the appropriate integration of gender considerations into our planning 
and practices. The Foreign Assistance Framework definitions, used to 
account for and evaluate programs and activities, correspondingly 
highlight women and girls distinctively where possible and appropriate. 
For example, one program element on justice systems addresses whether 
innovations toward equitable access to the justice system are 
specifically in place for women. With regard to monitoring and 
evaluation overall, people-level indicators are being disaggregated, to 
the extent possible, by sex to best track the inclusion of women and 
girls in foreign assistance programs. In all, the contributions that 
women make to the economic, social, and political lives of their 
nations, communities, families and the next generation make them key 
actors in effective development, and we are committed to recognizing 
and encouraging their inclusion in our assistance activities. I am 
personally interested in encouraging this area.

    Question. As Acting Administrator of USAID, do you have plans to 
restore the technical capacity that has been lost at that agency over 
recent years?

    Answer. Yes. When I first served at USAID, our technical capacity 
was much more robust. Since that time, significant downsizing has left 
us far less reliant on our core permanent workforce, in favor of a U.S. 
nondirect-hire workforce. It is my strong belief that USAID needs to 
increase its in-house technical capability through the world. If 
confirmed, I plan to do this in a systematic, thoughtful manner.
    We need to both revitalize our Foreign Service Officer Corps and 
place those with the needed technical oversight skills in the positions 
where they will ensure an efficient and effective delivery of 
development services.
    Over the past several years, our Office of Human Resources has 
developed a workforce planning model (WPM) that projects the need for 
technical staff based mainly on the amount of funding in a program. It 
is clear from the model that USAID needs to increase its permanent core 
technical staff as well as other staff, both Civil Service and Foreign 
Service.
    In order to do this we have to increase our recruitment and career 
development programs and our supervisory training and absorptive 
capacity. This is the only way we can reach our increased mandates with 
rebuilding our capacity, both technical and other, as rapidly as 
possible.

    Question. Some NGO's have expressed concern about the indicators 
that have been developed to measure the success of U.S.-funded 
programs. For example, many of the indicators measure outputs rather 
than outcomes, the latter of which we believe to be the ultimate goal 
of USAID projects. Additionally, there is concern that the disease- or 
project-specific nature of the indicators may inhibit--and perhaps be 
detrimental to--critical efforts to integrate services and strengthen 
systems. Are you planning to address some of these shortcomings of the 
current indicators?

    Answer. Yes; as part of the review during this pilot year of the 
reform effort the Office of the Director of Foreign Assistance has 
begun to review the purpose and use of the indicators in the 
Operational Plans. We plan to consult with our development partners 
over the summer and fall, and will focus both on refinements to the 
Standard Program Definitions, as well as the indicators.
    The initial set of standard indicators includes measures at the 
activity, sector, and strategic levels for each foreign assistance 
objective. Indicators were developed to track and report on the way 
that foreign assistance money was being spent by each implementing 
partner. Missions and headquarter offices were asked to classify each 
program according to the standard program definitions; and to select 
indicators that measured the annual outputs and outcomes which were 
directly attributable to the U.S. Government's (USG) programs, 
projects, and activities.
    The standard indicators do not replace the critical performance 
management systems of the individual posts which measure the results 
over time of USG programs. These systems recognize the multisectoral 
nature of USG development programs and assess over time the integrated 
nature of the results being achieved, including for critical system 
strengthening.
    The Office of the Director of Foreign Assistance also measures 
progress at the country and sector levels. At the strategic level, 
indicators capture the impact of foreign and host-government efforts 
for the five objectives in the Foreign Assistance Framework, such as 
investing in people or economic growth. Area level indicators measure a 
country's performance within subsectors of the five functional 
objectives (such as health and education within the investing in people 
objective). These indicators necessarily measure results beyond what 
could be achieved solely by the USG (USG, host country, and other 
donors' activities combined). The data are collected from secondary 
sources, such as the World Bank, the United Nations Development 
Program, and Freedom House by staff in Washington. Our intent was to 
develop a system that would allow us to identify and account for the 
specific results of USG-funded programs (often necessarily at the 
output level) as well as evaluate the impact of programs overall.

    Question. What are the main reasons for the dearth of Requests for 
Applications and Requests for Proposals (RFAs and RFPs) in FY07 and 
will USAID have a normal procurement season in FY08?

    Answer. Due to the continuing resolution, the on-going negotiations 
to finalize FY 2007 allocations, coupled with the newness of the 
Operational Plan process, the release of funds this fiscal year has 
been slow. In an effort to counter the effects of these complicating 
factors, the Office of Director of Foreign Assistance and the USAID 
Procurement Executive have been encouraging operating units to issue 
draft solicitations in appropriate circumstances to permit firms and 
organizations to begin planning proposals. USAID is also trying to 
arrange for early availability of FY07/08 funds in FY08 to mitigate 
end-of-fiscal-year pressures on USAID and potential offerors. We expect 
FY 2008 to have a more normal procurement season based on anticipated 
adjustments to the programming process; however, the FY 2008 
appropriation will also play a role in availability of funds.

    Question. Seven countries' basic education funds have been ``zeroed 
out'' in FY08 (East Timor, Guinea, India, Madagascar, Mexico, Nepal, 
and South Africa). If we walk away from our current investments in 
these countries, we run the real risk of wasting that money when our 
programs have not yet created self-sustaining educational systems. Do 
you agree that walking away from our current investments in basic 
education in these seven countries could be detrimental to lasting 
transformational change?

    Answer. Funding for basic education has increased more than five-
fold since FY 2000, from less than $100 million to more than $500 
million. As a founding member of the Education for All--Fast Track 
Initiative and as a signatory to the DAC Agreement on Aid 
Effectiveness, the United States is committed to aligning its 
assistance with that of other donors in support of country-driven 
education strategies. A collective decisionmaking process was used to 
determine the FY 2008 funding request for basic education involving 
country teams in Washington and the field. These teams are 
knowledgeable about each country's mix of donors and what USG 
assistance is required to stimulate and sustain transformational 
development, including whether support for basic education is the best 
decision for the USG.
    The possible negative consequences of discontinuing our investments 
in the seven countries mentioned above must be balanced by the intended 
positive consequences of providing new or additional investments 
elsewhere. Basic education funds have been spread too thin in some 
cases; better and more strategic results may be achieved by supporting 
more robust programming in fewer countries. This will allow us to focus 
our technical attention on fewer countries while also having larger 
resources to leverage host country commitment to change.
    Overall, USAID feels that our requested FY 2008 budget will not be 
detrimental to lasting transformational change in these seven 
countries, and in each case there was a sound rationale for the 
decision. We certainly want to maximize our investments to date, and we 
will actively work toward this in each of these countries.

    Question. Why does the administration's FY08 request eliminate 
basic education funds to India, which is home to over one-third of the 
world's illiterate people, and a country where 4.6 million children do 
not have access to school?

    Answer. This is precisely the type of difficult question that the 
Secretary has focused on in designing our foreign assistance reforms. 
On the one hand, India does have significant remaining education needs. 
On the other hand, the USAID budget for basic education in India in FY 
2006 was less than $4 million, a miniscule part of the funds spent on 
education by the government and the people of a country as enormous as 
India. Moreover, India's economy is presently growing at over 8 percent 
a year, making it one of the world's best-performing economies for a 
quarter century. India has also emerged as a significant donor in its 
own right, notably in Afghanistan where it has contributed over $50 
million to rebuilding the country. Thus, despite the need, it is 
difficult to justify providing donor assistance for basic needs to a 
country that is devoting far larger shares of its own resources to 
assist other countries. Reflecting these trends and programmatic 
successes, the FY 2008 USG foreign assistance budget request level for 
India has declined by 35 percent from the FY 2006 level ($124.9 million 
to $81 million).
    An objective of the foreign assistance we provide to India is to 
diminish the conditions that permit and/or promote extremism by 
focusing on the most underserved and poorest segments of the 
population. Over 90 percent of the request is accordingly in health, 
where funds will be used to integrate health services and nutrition to 
improve survival of children and their mothers, stem global disease 
threats, and help India manage the growth of its rapidly increasing 
population. The U.S. Government will also focus FY 2008 assistance on 
energy and agriculture--interventions that the country team believed to 
be appropriate to continue India's progress.
    The Secretary's foreign assistance reforms are about making the 
most strategic use of taxpayer dollars. In many instances, such as with 
India, this means making tough decisions to ensure that our resources 
are used to leverage host country resources and a commitment to change 
in order to obtain maximum results.
                                 ______
                                 
                  QUESTIONS SUBMITTED BY SENATOR HAGEL

    Question. Do you believe that the executive branch can successfully 
develop a comprehensive, effective, transparent, and efficient country-
focused foreign assistance framework without changing the 1961 Foreign 
Assistance Act? If so, please describe how a ``reformed'' U.S. foreign 
assistance process would operate. If not, what legislative changes will 
you seek?

    Answer. The reforms that have been proposed so far--including the 
creation of the Director of U.S. Foreign Assistance--are an attempt to 
ensure that we make every effort within current statutory authorities 
to fulfill our responsibilities to maximize U.S. foreign assistance 
activities. With the reform process still in the early stages, we are 
taking time to review carefully, with input from a wide range of 
participants and stakeholders, what has been accomplished to date and 
how we might strengthen or adjust our processes. If as part of these 
ongoing assessments, we determine that successful reforms will require 
legislative changes, we will consult with you and other members of our 
authorizing committees to work together toward necessary change.

    Question. What will be the staffing structure and size of the 
Director of Foreign Assistance Office? Will you bring in new staff into 
the F bureau? Who will be your key advisors on foreign assistance 
reform?

    Answer. To coordinate the entire gamut of activities associated 
with managing the approximate $25 billion foreign policy programs of 
the United States, I will have about 80 direct hires. I plan to have a 
very lean administrative support mechanism and will rely as much as 
possible on existing State Department support mechanisms to manage my 
office.
    I am pleased to inform you that Richard Greene will act as my 
Deputy in the Director's office. He is experienced and committed, and I 
believe you will find him to be very responsive. At USAID, Jim Kunder 
will be acting as my Deputy, and I am confident that you are familiar 
with his excellent work. In addition, my key advisors will be USAID 
Assistant Administrators, State Under Secretaries and Assistant 
Secretaries, and I will actively seek suggestions from colleagues at 
the Millennium Challenge Corporation (MCC), the President's Emergency 
Plan for AIDS Relief (PEPFAR), the National Security Council (NSC), the 
Office of Management and Budget (OMB), and, of course, Congress and the 
nongovernmental organization (NGO) community.

    Question. In response to my question, you stated that 80 percent of 
U.S. foreign assistance is under the direct control of the Director of 
Foreign Assistance. However, Dr. Radelet testified on the second panel 
that only 55 percent of U.S. foreign assistance is controlled by State 
or USAID. Please provide a breakdown of the amounts and percentages of 
U.S. foreign assistance that are under the direct control of State and/
or USAID, under ``policy guidance'' of State and/or USAID, and not 
under any type of control of State and/or USAID. How much U.S. foreign 
assistance is controlled by the Defense Department?

    Answer. Attached please find a summary chart of the FY 2008 
International Affairs Request, which appears in the Congressional 
Budget Justification on pages 12 and 13. Section 1 of the chart, 
``Department of State and USAID Bilateral Economic Assistance,'' lists 
the accounts and programs under the approval authority of the Secretary 
of State, which amount to approximately 80 percent of the entire 
foreign operations request. The Director of U.S. Foreign Assistance and 
USAID Administrator has direct approval authority over roughly 60 
percent of all foreign assistance in the Foreign Operations request, 
and has robust coordinating authority over assistance provided under 
the Global HIV/AIDS (GHAI) and Millennium Challenge Corporation 
accounts (at which corporation the Administrator serves on the board).
    The Department of Defense is an important implementing partner of 
the Department of State, implementing both Foreign Military Financing 
and International Military Education and Training programs. The 
Department of Defense also implements programs with foreign partners 
that are authorized under Defense authorization acts using funds 
appropriated in the Defense appropriations acts. Some of those programs 
provide training and equipment for foreign forces, similar to that 
provided under the Department of State's foreign assistance 
authorities. Thus, for example, the Iraq Security Forces Fund and the 
Afghan Security Forces Fund are used to provide training and equipping 
to a range of security forces in those countries. Both of these 
authorities must be exercised with the concurrence of the Secretary of 
State. In addition, pursuant to section 1206 of the National Defense 
Authorization Act, the President is authorized to direct the 
Departments of Defense and State to jointly develop programs to build 
the capacity of foreign military forces to be funded from Department of 
Defense appropriations in an amount up to $300 million in this fiscal 
year. Likewise, pursuant to section 1207 of the same act, the 
Departments of State and Defense may concur on the provision of 
reconstruction and stabilization assistance to be funded through DOD 
appropriations up to $100 million per fiscal year. These authorities 
have proved effective in addressing rapidly evolving security 
situations. DOD has certain other authorities that they rely upon in 
specific circumstances to provide assistance to foreign countries in 
support of their mission, e.g., the Commanders Emergency Response Fund 
and authorities to respond to humanitarian emergencies.

                  FY 2008 INTERNATIONAL AFFAIRS REQUEST
                         [Dollars in thousands]
------------------------------------------------------------------------
                                   FY 2006       FY 2007       FY 2008
                                   actual       estimate       request
------------------------------------------------------------------------
Department of State, USAID and  $31,389,613   $29,916,040   $36,186,518
 Foreign Operations
 (International Affairs)......
========================================================================
I. Department of State and       18,074,969    17,713,444    20,266,913
 USAID Bilateral Economic
 Assistance...................
                               -----------------------------------------
  Andean Counterdrug                727,155       569,350       442,812
   Initiative (ACI)...........
  Assistance for Eastern            357,390       269,200       289,322
   Europe and the Baltic
   States (AEEB)..............
  Assistance for the                508,860       435,480       351,585
   Independent States of the
   Former Soviet Union (FSA)..
  Child Survival and Health       1,591,425     1,518,359     1,564,279
   Programs Fund (CSH)........
    Global Fund to Fight AIDS,     [247,500]     [247,500]           [0]
     Tuberculosis, and Malaria
  Development Assistance (DA).    1,508,760     1,508,000     1,041,248
  Development Credit                [21,000]           [0]      [21,000]
   Authority--Subsidy (DCA)...
  Economic Support Fund (ESF).    2,616,075     2,603,540     3,319,567
  U.S. Emergency Refugee and         29,700        30,000        55,000
   Migration Assistance (ERMA)
  Foreign Military Financing      4,464,900     4,454,900     4,536,000
   (FMF)......................
  Global HIV/AIDS Initiative      1,975,050     1,852,525     4,150,000
   (GHAI).....................
    Global Fund to Fight AIDS,     [198,000]     [198,000]           [0]
     Tuberculosis and Malaria.
  International Disaster and        361,350       348,800       297,300
   Famine Assistance (IDFA)...
  International Military             85,877        85,237        89,500
   Education and Training
   (IMET).....................
  International Narcotics           472,428       703,600       634,600
   Control and Law Enforcement
   (INCLE)....................
  Migration and Refugee             783,090       750,206       773,500
   Assistance (MRA)...........
  Nonproliferation, Anti-           405,999       392,821       464,000
   Terrorism, Demining (NADR).
  Peacekeeping Operations           173,250       170,000       221,200
   (PKO)......................
  P.L. 480 Title II...........    1,138,500     1,223,100     1,219,400
  Transition Initiatives (TI).       39,600        40,000        37,200
  USAID Operating Expenses          623,700       641,000       609,000
   (OE).......................
  Foreign Service Retirement        [42,000]      [38,700]      [36,400]
   and Disability Fund
   [Mandatory]................
  USAID Capital Investment           69,300        75,942       126,000
   Fund (CIF).................
  USAID Inspector General            35,640        37,915        38,000
   Operating Expenses.........
  Development Credit                  7,920         3,469         7,400
   Authority--Administrative
   Expenses...................
  Democracy Fund..............       94,050            --            --
  Iraq Relief and                     4,950            --            --
   Reconstruction Fund (IRRF).
========================================================================
II. Independent Department and    3,012,408     2,354,024     4,373,509
 Agencies Bilateral Assistance
                               -----------------------------------------
  African Development                22,770        22,225        30,000
   Foundation (ADF)...........
                               =========================================
  Broadcasting Board of
   Governors:
    International Broadcasting      633,257       636,060       618,777
     Operations...............
    Broadcasting to Cuba......           --            --        38,700
    Broadcasting Capital             10,754         7,624        10,748
     Improvements.............
                               -----------------------------------------
      Subtotal, Broadcasting        644,011       643,684       668,225
       Board of Governors.....
                               =========================================
  Department of Agriculture:
    McGovern-Dole                    99,000        98,260       100,000
     International Food for
     Education................
                               =========================================
  Department of the Treasury:
    Treasury Technical               19,800        23,700        24,800
     Assistance...............
    Debt Restructuring........       64,350        20,000       207,300
                               -----------------------------------------
      Subtotal, Department of        84,150        43,700       232,100
       the Treasury...........
                               =========================================
  Export-Import Bank:
    Loan Subsidy..............       74,000        26,382        68,000
    Administrative Expenses...       72,468        69,234        78,000
    Inspector General.........          990            --         1,000
    Direct Loans, Negative          -50,000       -45,000            --
     Subsidy..................
    Offsetting Collections....           --            --      -146,000
                               -----------------------------------------
      Subtotal, Export-Import        97,458        50,616         1,000
       Bank...................
                               =========================================
  Foreign Claims Settlement           1,303         1,417         1,684
   Commission.................
  Inter-American Foundation          19,305        19,268        19,000
   (IAF)......................
  International Trade                61,951        62,575        67,100
   Commission (ITC)...........
  Millennium Challenge            1,752,300     1,135,000     3,000,000
   Corporation (MCC)..........
                               =========================================
  Overseas Private Investment
   Corporation (OPIC):
    Administrative Expenses...       41,851        41,856        47,500
    Net Offsetting Collections     -223,000      -175,279      -236,000
    Credit Subsidy............       20,073         9,423        29,000
                               -----------------------------------------
      Net Negative Budget          -161,076      -124,000      -159,500
       Authority, OPIC........
                               =========================================
  Peace Corps.................      318,780       324,000       333,500
  Trade and Development Agency       50,391        50,300        50,400
   (TDA)......................
  United States Institute of         22,065        26,979        30,000
   Peace......................
========================================================================
III. Multilateral Economic        1,581,124     1,392,361     1,788,350
 Assistance...................
                               -----------------------------------------
  International Financial         1,277,236     1,066,198     1,498,950
   Institutions...............
    Global Environment               79,200        56,250       106,763
     Facility.................
    International Development       940,500       752,400     1,060,000
     Association..............
    Multilateral Investment           1,287         1,288         1,082
     Guarantee Agency.........
    Asian Development Fund....       99,000        99,000       133,906
    African Development Fund..      134,343       134,343       140,584
    African Development Bank..        3,602         3,613         2,037
    European Bank for                 1,006         1,006            10
     Reconstruction and
     Development..............
    Enterprise for the                1,724         1,724        29,232
     Americas Multilateral
     Investment Fund..........
    Inter-American Investment         1,724         1,724         7,264
     Corporation..............
    International Fund for           14,850        14,850        18,072
     Agricultural Development.
    Arrears...................       [5,453]       [4,018]     [175,000]
                               =========================================
  International Organizations       303,888       326,163       289,400
   and Programs (IOandP)......
========================================================================
IV. Department of State           8,721,112     8,456,211     9,757,746
 Operations and Related
 Programs.....................
                               -----------------------------------------
  State Administration of         6,434,123     6,238,058     7,194,596
   Foreign Affairs............
    State Programs............    4,421,359     4,561,170     5,013,443
      Diplomatic and Consular     4,294,734     4,460,084     4,942,700
       Programs...............
        Ongoing Operations....    3,614,018     3,664,914     3,977,940
        Worldwide Security          680,716       795,170       964,760
         Upgrades.............
      Capital Investment Fund.       58,143        34,319        70,743
      Centralized IT                 68,482        66,767            --
       Modernization Program..
------------------------------------------------------------------------

    Question. Also in your testimony, you highlight ``detailed country-
level operations plans that describe how resources are being used'' and 
that such plans have been developed for 67 countries already. Will you 
make these plans available to this committee? Will these plans be 
available to the public?

    Answer. I am committed to providing as much information on our 
foreign assistance activities as possible to our oversight committees 
and congressional partners. We are currently looking at ways to make 
the information obtained from the FY 2007 Operational Plans as user 
friendly and available as we can. We are likewise exploring formats for 
future years' Operational Plans with an eye toward the same goal. In 
the meantime, if there is particular FY 2007 country or other 
information that you would like to discuss, we would be happy to meet 
with you.
                                 ______
                                 

    Response of Dr. Brainard to Question Submitted by Senator Lugar

    Question. Why were new institutions created, such as the Millennium 
Challenge Corporation and the President's Emergency Plan for AIDS 
Relief, to address global challenges rather than utilizing the U.S. 
Agency for International Development? Are those concerns still 
relevant?

    Answer. In the case of the Millennium Challenge Corporation (MCC) 
and the President's Emergency Plan for AIDS Relief (PEPFAR), the 
administration decided, after extensive internal deliberations, to 
create new institutions rather than making such initiatives part of the 
U.S. Agency for International Development.
    The rationale underlying the decision to create the MCC as an 
independent agency governed by its own board was based on the sense 
that the delivery of Millennium Challenge Account (MCA) funds should be 
``freed from bureaucratic inertia, should be sufficiently independent 
from political interference that funds are invested in meritorious 
recipients and not on the basis of foreign policy considerations, and 
should be allowed sufficient flexibility by Congress to operate 
expeditiously.'' \1\ While at the time we agreed strongly with these 
objectives, a group of experts and I concluded that ``the existence of 
two U.S. Government agencies devoted to providing development 
assistance would appear to violate all the tenets of efficient, 
effective government (and common sense).'' \2\ We instead recommended 
that the MCC be placed within USAID and that the overall entity be 
given greater independence and stature. We noted that the integration 
of MCA with USAID would reduce costs and boost effectiveness because it 
would prompt the sharing of infrastructure and professional expertise 
while also leading to greater coherence across the spectrum of 
development programming. This integrated alternative was also 
attractive because it would strengthen rather than weaken U.S. 
capability to speak with one voice to development partners. The 
potential existed to integrate the MCA with USAID while legislatively 
ensuring independence, flexibility, and an innovative approach. Under 
this alternative, the Chief Executive Officer of the MCC would serve as 
a Deputy Administrator at USAID and lessons learned from mainstreaming 
best practices into the MCC endeavor would more easily and directly 
translate to improvements at USAID.
---------------------------------------------------------------------------
    \1\ Lael Brainard, Carol Graham, Nigel Purvis, Steve Radelet, and 
Gayle Smith, ``The Other War: Global Poverty and the Millennium 
Challenge Account,'' Brookings Press, 2003, p. 128.
    \2\ IBID.
---------------------------------------------------------------------------
    The decision to have a U.S. global AIDS coordinator run PEPFAR out 
of a newly created bureau at the State Department was based on a desire 
for domestic and international audiences to view the program as a bold 
appendage of U.S. foreign policy and a notion that this position would 
allow the coordinator to be a broker between USAID and the Department 
of Health and Human Services. This approach stemmed from the 
perspective that the larger post-9/11 context of U.S. projection of 
power required a balance to military initiatives, but it did not take 
into account the weaknesses of the State Department as an operational 
agency.\3\ The fact that the Office of the Global AIDS Coordinator 
(OGAC) was created apart from our primary agency for international 
development and its global health infrastructure served to highlight 
the difference in approach between OGAC's treatment oriented 
programming and the overwhelmingly prevention oriented programs already 
under implementation by USAID and Centers for Disease Control. Several 
of the same problems posed by the placement of the MCC--incoherence, 
the challenges of transferring innovation-based lessons learned, and a 
weakened U.S. capability to speak with one voice on development 
issues--were further compounded by the establishment of OGAC at the 
State Department.
---------------------------------------------------------------------------
    \3\ In his chapter, ``What Role for U.S. Assistance in the Fight 
Against Global HIV/AIDS?'' in Lael Brainard, ed. ``Security by Other 
Means: Foreign Assistance, Global Poverty, and American Leadership'' 
(Brookings, 2007), J. Stephen Morrison makes these arguments and notes 
that PEPFAR's institutional home failed to deliver some anticipated 
advantages.
---------------------------------------------------------------------------
    The administration intentionally set MCC apart, heeding concerns 
that MCA funds should be provided on the basis of performance and not 
political calculus, but it tied PEPFAR to the established U.S. foreign 
policy structure. The original concerns about maintaining development 
assistance independent from political interference and shorter term 
foreign policy considerations are still valid. Such concerns justify a 
separation from direct State Department control for both MCC and USAID. 
This argument further compels us to reconsider the institutional 
placement of OGAC. Also still relevant are the concerns about the 
cumbersome and outmoded bureaucracy of USAID, with its excessive 
regulations and requirements, which led to an aversion to integrate new 
initiatives within an agency that would otherwise be best-suited for 
the job. Although such concerns are still relevant, they should lead to 
a different path. The administration avoided the considerable 
investment necessary to fundamentally reform our development assistance 
capabilities--a daunting task our government must now confront. In the 
short-term such a fragmented approach may have resulted in more rapid 
programmatic change, but it has served to further weaken our overall 
foreign assistance infrastructure and posture.
                                 ______
                                 

  Responses of Sam Worthington to Questions Submitted by Senator Lugar

    Question. Could you provide, for the record, a chart of the level 
of USAID operating expenses over the past 25 years?

    Answer. I've enclosed a spreadsheet that charts USAID Operating 
Expense (OE) levels for the last 25 years, USAID's total budget 
authority for that period, and OE as a percentage of USAID's budget 
authority. You'll also find a graph (Table 1 below) which demonstrates 
the downward trend in OE funding relative to total budget authority 
from 1982 to 2007, and a graph (Table 2 below) that adjusts the numbers 
for inflation.\1\
---------------------------------------------------------------------------
    \1\ OMB Public Budget Database.
---------------------------------------------------------------------------
    The budget numbers in the attached spreadsheet clearly demonstrate 
an alarming downward trend in USAID Operating Expenses relative to 
total budget authority over the past 25 years, but the problem is even 
more serious than is apparent from looking at the top-line OE numbers. 
Over the last 15 years, larger and larger portions of Operating 
Expenses have been consumed by costs that were not as substantial in 
the 1980s when OE was generally funded at its highest levels. For 
instance, computers and other technology that were not as widespread 20 
years ago have become critical to doing business in the modern era, and 
their costs are funded by USAID's Operating Expenses. The agency's rent 
also consumes a greater proportion of the OE budget than it once did: 
USAID's rent costs increased by more than 10 percent between 1995 and 
2003.\2\ These increasing costs, when combined with decreasing 
appropriations for Operating Expenses, have forced the agency to 
operate with an ever-smaller workforce, which in turn compromises 
program effectiveness.
---------------------------------------------------------------------------
    \2\ GAO-03-1152R USAID Operating Expenses.
    
    

                                                                             [Dollars in thousands--actual amounts]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                     Account                           1982            1983            1984            1985            1986            1987            1988            1989            1990
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Agency for International Development
    USAID Operating expenses....................         331,000         346,438         372,512         394,033         360,167         348,263         406,000         429,500         431,894
    Total Budget Authority......................       1,210,901       1,137,019       1,315,947       1,770,642       1,256,299       1,444,600       1,576,388       1,556,383       1,825,588
    OE as % of Total Authority..................          27.34%          30.47%          28.31%          22.25%          28.67%          24.11%          25.76%          27.60%          23.66%
Adjusted for Inflation
    USAID Operating expenses....................      713,275.84      723,307.59      745,558.21      761,512.72      683,361.02      637,508.30      713,671.12      720,274.96      687,160.87
    Total Budget Authority......................       2,609,385    2,373,915.30    2,633,781.16    3,421,963.13    2,383,632.49    2,644,393.71    2,770,991.62    2,610,066.84    2,904,584.54
    OE as % of Total Authority..................          27.34%          30.47%          28.31%          22.25%          28.67%          24.11%          25.76%          27.60%          23.66%

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



                     Account                           1991            1992            1993            1994            1995            1996            1997            1998            1999
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Agency for International Development
    USAID Operating expenses....................         441,000         474,122         518,035         518,697         514,000         469,000         488,000         479,000         501,000
    Total Budget Authority......................       2,493,729       2,465,613       2,817,219       3,439,772       2,927,000       3,359,000       3,360,000       3,539,000       3,809,000
    OE as % of Total Authority..................          17.68%          29.23%          18.39%          15.08%          17.56%          13.96%          14.52%          13.53%          13.15%
Adjusted for Inflation
    USAID Operating expenses....................      673,315.04      702,731.26      745,500.76      727,817.29      701,350.30      621,593.89      632,268.61      611,089.39      625,344.83
    Total Budget Authority......................    3,807,404.20    3,654,467.27    4,054,241.34    4,826,556.45    3,993,876.14    4,451,884.58    4,353,324.86    4,514,917.25    4,754,368.19
    OE as % of Total Authority..................          17.68%          19.23%          18.39%          15.08%          17.56%          13.96%          14.52%          13.53%          13.15%
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



                     Account                           2000            2001            2002            2003            2004            2005            2006            2007
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Agency for International Development
    USAID Operating expenses....................         523,000          534,00         567,000         589,000         653,000         640,000         725,000         647,000
    Total Budget Authority......................       2,742,000       4,226,000       3,742,000       4,941,000       4,682,000       4,813,000       5,169,000       3,900,000
    OE as % of Total Authority..................          19.07%          12.64%          15.15%          11.92%          13.95%          13.30%          14.03%          16.59%
Adjusted for Inflation
    USAID Operating expenses....................      631,575.65      627,017.31      655,403.46      665,662.83      718,849.64      681,450.90      747,823.47         647,000
    Total Budget Authority......................    3,311,243.66    4,962,125.77    4,325,431.67    5,584,108.74    5,154,140.91    5,124,723.69    5,331,787.60       3,900,000
    OE as % of Total Authority..................          19.07%          12.64%          15.15%          11.92%          13.95%          13.30%          14.03%          16.59%
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Sources: OMB Public Budget Deatabase and Consumer Price Index Calculator.

    Question. Could you describe, in more detail, the impact on the 
USAID organization of operating expense constraints?

    Answer. Operating expense constraints, among other things, have 
resulted in the hypercentralization of USAID planning and program 
design, and in the months since Secretary Rice's announcement of 
Transformational Diplomacy in January 2006, that hypercentralization 
has even manifested itself in the suggestion that some missions should 
close in certain ``nonstrategic'' countries around the globe. In a memo 
that former Director of Foreign Assistance Randall Tobias sent to all 
USAID field staff on April 12, he described a process by which: 
``[USAID] will need to shift resources away from some functions, 
including those nations where USAID's full-scale mission platforms are 
not critical to delivering U.S. assistance effectively . . . 
Specifically, I will propose the deployment of USAID `development 
attaches' to assist U.S. chiefs of mission and countries teams in such 
nations.''
    It would seem that, in a time when the White House has acknowledged 
the importance of development relative to defense and diplomacy, the 
administration would be looking for ways to expand USAID's presence in 
the developing world. Rather, the administration requested a total OE 
number that was 15 percent lower than the FY 2006 actual budget for OE. 
The administration's request, when viewed in the context of the 
quotation above, was troubling to say the least. Budgetary and 
management decisions such as these will lead to the overcentralization 
of USAID's strategic planning and program management processes and 
compromise aid effectiveness by moving strategic decision points from 
the field to headquarters. For example, a 2005 study conducted by the 
USAID mission in Senegal found that the ability of a donor organization 
to achieve program objectives is closely linked to the ability to make 
key program implementation decisions in-country, rather than at the 
donor's headquarters. The results of the study, which compared eight 
different donor organizations operating in Senegal at the time, 
indicate that donors with few management decisions delegated from their 
headquarters had very low disbursement rates (10-15 percent of funds 
available in the beginning of fiscal years were spent by the end of 
that year), while USAID, which delegated the most decisions from 
headquarters, had the highest disbursement rates.\3\
---------------------------------------------------------------------------
    \3\ ``Senegal MCA Jumpstart Exercise Completion Report,'' January 
2005, USAID Senegal (submitted to GAO March 2005).
---------------------------------------------------------------------------
    Disbursement rates are a prerequisite for achieving results and 
thus are a good broad measure of a key aspect of performance that can 
be compared across donors and program types. Adequate funding 
disbursement is critical to USAID's program effectiveness, and it is 
one of many factors that risks being compromised if the agency lacks 
the top-notch human resources to make important decisions in the field, 
rather than here in Washington, DC. According to data compiled by 
USAID's Office of Policy and Program Coordination (PPC)--before it was 
folded into the State/F Bureau in 2006--the number of USAID direct 
hires working abroad dropped by 29 percent between 1992 and 2005, from 
1,173 to 833.\4\ A 15-percent cut in Operating Expenses would certainly 
have exacerbated this alarming trend, and we are very heartened that 
both the House and Senate State, Foreign Operations Appropriations 
Subcommittees increased funding for USAID's Operating Expenses 
substantially, by $17 million and $36 million above the 
administration's FY 2008 request, respectively.
---------------------------------------------------------------------------
    \4\ ``USAID 13-Year Workforce Levels.''

    Question. How does the alleged loss of institutional knowledge 
---------------------------------------------------------------------------
impact the effectiveness of USAID programs?

    Answer. The number of USAID Foreign Service Officers (FSOs) has 
decreased substantially over the last 15 years, which has led to the 
troubling loss of technical expertise at the agency. In the 1990s, for 
instance, 37 percent of the agency's workforce (including direct hires 
and FSOs) left without being replaced, or was laid off in the 1995 
reduction-in-force (RIF), and the current attrition rate is outpacing 
new hires by more than two-to-one.\5\ In 2006, 65 FSOs retired while 
only 29 were hired, and about half of all FSOs have been recruited in 
the last 6 or 7 years. Even when new officers are hired, it takes 2 
years to fully train them for entry-level jobs.\6\ The result is that 
the workforce increasingly lacks the institutional memory and technical 
knowledge that make USAID widely recognized as a leading bilateral 
development agency among other donor governments and in the developing 
world.
---------------------------------------------------------------------------
    \5\ Zeller, Shawn, ``On the Workforce Roller Coaster at USAID.'' 
The Foreign Service Journal, April 2004.
    \6\ Source: American Foreign Service Association.
---------------------------------------------------------------------------
    Because of the ever-constricting size of USAID's workforce, the 
agency has been forced to manage an increasingly large portfolio with 
fewer and fewer human resources. As Jim Kunder, USAID's Acting Deputy 
Administrator, noted at a recent Advisory Council on Voluntary Foreign 
Assistance (ACVFA) meeting, ``Federal guidelines indicate that the 
average [U.S. Government] contracting officer should manage around $10 
million in contracts per year; in USAID each contracting officer 
oversees an average of $57 million in contracts. At some point the 
system's management and oversight capabilities are simply 
overstressed.'' \7\ USAID's Foreign Service Officers are our country's 
first line of defense in many fragile states and countries in conflict, 
and it is extremely disconcerting that they have been asked by our 
government to do so much with so little.
---------------------------------------------------------------------------
    \7\ ACVFA Public Meeting, May 23, 2007.
---------------------------------------------------------------------------
    There are several problems that are directly attributable to the 
long-term reduction in USAID's human resources and the extraordinary 
management burden being carried by its remaining workforce. First, the 
shrinking size of the agency's direct-hire workforce has meant that 
most Foreign Service officers work as Cognizant Technical Officers 
(CTOs), managing programs rather than designing them. Accordingly, the 
technical aspects of program development have been outsourced to 
contractors, and the result is that much of the technical expertise 
that once resided within the agency has been lost. A secondary problem 
that results from this outsourcing of technical expertise, as well as 
the high attrition rates at USAID generally, is that many important 
development projects are being managed by unseasoned Foreign Service 
officers who lack the experience to do so effectively. Whereas in the 
1970s and 1980s a USAID development program would likely have been 
managed by agricultural or public health specialists, for example, 
those experts have since become contractors and have yet to be replaced 
at the agency.\8\
---------------------------------------------------------------------------
    \8\ Andrew Natsios, personal interview, June 29, 2007.
---------------------------------------------------------------------------
    Second, the management burden that has been placed on USAID's 
contracts officers, noted by Acting Deputy Director Kunder at the ACVFA 
meeting, has contributed to a troubling ``bundling'' phenomenon, in 
which giant umbrella contracts are being awarded to very large 
contractors or consortia of contractors. While these bundled contracts 
often provide many subgrants and subcontracts to smaller organizations, 
they are by their very nature biased to large institutions, which have 
the capacity to successfully manage them. This favoring of very large 
contractors not only reduces competition, and therefore the purchasing 
power of American tax dollars, but it also stifles the innovation of 
smaller indigenous nongovernmental organizations, which are often best 
able to ascertain and address the needs of communities throughout the 
developing world. These contracts, which shift the management burden 
away from U.S. Government personnel, discourage competition, and fail 
to stimulate innovation, seriously compromise aid effectiveness and are 
a direct result of the shrinking corps of Foreign Service officers at 
USAID.
    The reduction of personnel at USAID has also disrupted what was 
once a valuable method of sharing lessons learned and best practices 
around the globe, namely the rotation of FSOs between different 
missions and regions. As the contingent of FSOs serving overseas 
continues to shrink, there are fewer and fewer opportunities to 
transfer technical expertise from one country program to another. 
Again, this speaks to the negative impact on program effectiveness 
which is directly related to the loss of technical expertise at USAID. 
The failure to capture lessons learned also extends to USAID's ability 
to effectively monitor and evaluate its programs, as many of those 
functions have been shifted away from the agency to the State/F Bureau 
or to contractors. In either case, the technical capacity of USAID is 
significantly reduced, to the detriment of aid effectiveness.
    The Operating Expense constraints at USAID have also led to a 
proliferation of personnel systems at the Agency. According to former 
Administrator Andrew Natsios, there were 13 different personnel systems 
in place when he led the Agency from 2001 to 2005, many of them 
designed to circumvent OE and human resources restrictions.\9\ In order 
to implement its programs, USAID has even been forced to outsource jobs 
that require technical expertise to other U.S. Government agencies like 
the Department of Health and Human Services and the Department of 
Agriculture. This is problematic, according to Natsios, because the 
USAID Administrator lacks direct control over his own workforce, even 
when it comes to employees of the United States Government.
---------------------------------------------------------------------------
    \9\ Andrew Natsios, personal interview, June 29, 2007.
---------------------------------------------------------------------------
    Saving lives and alleviating the suffering of the world's poorest 
people is a noble goal, and I'd like to close by thanking you again for 
your committee's leadership on this issue, and for your own personal 
leadership on behalf of humanitarian and international development 
causes. When I spoke before the committee on June 12, I discussed the 
longstanding partnership between InterAction, Congress, USAID, and the 
world's poor, and I see this effort to improve technical capacity at 
USAID as an excellent example of that partnership. In working with 
Congress and career Foreign Service officers to improve the agency's 
ability to implement effective development programs around the globe, 
we are all working to lift the world's poorest people out of extreme 
poverty. Thanks again for this opportunity.
                                 ______
                                 

  Responses of Steven Radelet to Questions Submitted by Senator Lugar

                         FOREIGN ASSISTANCE ACT

    Questions. You assert that the Foreign Assistance Act of 1961 ``is 
badly out of date'' and that a new act ``is central to clarifying the 
central objectives and methods of foreign assistance to meet U.S. 
foreign policy goals in the 21st century.''

   1. What are the major components of such reform?
   2. What would you recommend as to how we can stem 
        earmarking?
   3. Would you change the human rights and other restrictions 
        contained in the current law?

    Answer to 1. The Foreign Assistance Act of 1961 and the major U.S. 
Government institutions charged with implementing foreign assistance 
programs were designed for the cold war for a set of threats that no 
longer apply. The act has been amended many times and is now over 2,000 
pages long and contains at least 33 different goals, 75 priority areas, 
and 247 directives. The act leads to conflicting objectives, heavy 
administrative burdens, and weak results. Our current foreign 
assistance apparatus consists of at least 20 separate government 
agencies operating without an overarching national mission and 
sometimes at cross-purposes. The executive branch and Congress should 
work together to reach consensus on several key reform elements as part 
of a new FAA, including the following:

   Clarifying objectives: Identify a small number (say around 
        five) of key objectives and purposes for foreign assistance.
   Rationalize and strengthen organizational structure: Ideally 
        fold all assistance programs into one Cabinet-level agency, or 
        name one person to coordinate all major aid programs, and 
        significantly strengthen the capacity of USAID.
   Clarify the principles for guiding policies and programs 
        (such as local ownership, coordination and harmonization with 
        other donors, transparency, use of budget support, etc.) and 
        how these mechanisms would differ across countries.
   Strengthen monitoring and impact evaluation so that we can 
        better learn what works, what doesn't, and why.
   Review all earmarks and restrictions (including tied aid) 
        and maintain only those that are of critical importance.
   Strengthen the budget and reporting processes, including 
        reviewing the option of moving toward a 4-year strategic plan, 
        and moving toward primarily regional or country-based budget 
        lines rather than sector-based approaches.

    One option to move forward would be for Congress to create a 
commission specifically mandated to review and redraft the FAA, a job 
that is not being tackled by Congressman Wolf's HELP Commission. 
Members could include congressional, executive branch, independent 
experts, and representatives from other donors and recipient 
governments.

    Answer to 2. Earmarks are an inherent tension in the struggle 
between the Congress and the executive branch to assert their 
respective roles in foreign policy and spending priorities. Earmarks 
are not necessarily bad in and of themselves at an individual level, 
but problems arise when there are too many earmarks, they conflict with 
each other and with major goals, and they add to costs and reduce the 
benefits of our assistance. The FAA has too many conflicting earmarks, 
so a major rationalization is required. Some key steps toward doing so 
include:

   Build consensus on overall goals and objectives. The process 
        of building a new consensus around the critical goals and 
        objectives of foreign assistance should help bring the 
        priorities of the Congress and the executive branch into closer 
        alignment and will thereby reduce the pressure for earmarks. 
        The MCA legislation has no earmarks, partly because there was 
        strong agreement on the key goals. If the goals are not clear, 
        than everything seems reasonable, and earmarks proliferate.
   Expand the budget consultation process. The annual process 
        of building the President's next year budget is a closed, 
        internal executive branch affair. As part of a new FAA the 
        executive branch and Congress should agree on new ground rules 
        that will open the budget process to greater consultation with 
        the Congress. The executive branch should consult with key 
        congressional actors during the process of building the budget, 
        take into consideration their priorities, and give them a 
        little ownership, all of which can contribute to the greater 
        likelihood that congressional leaders are able to accept and 
        defend the President's budget.
   Rationalize institutional and reporting lines. The plethora 
        of aid agencies leads to confusion and poor communication with 
        Congress, and therefore to more earmarks. A more rational 
        structure would lead to clearer lines of authority and 
        reporting, and stronger communication with Congress, which 
        would reduce pressure for earmarks.

    Answer to 3. There are two key issues on restrictions (similar to 
earmarks): First, all restrictions should be reviewed. Second, some 
should be retained, and in my judgment the human rights restrictions 
should remain.
    The process of developing consensus and writing a new FAA should 
encompass a review and justification of all of the restrictions which, 
over time, have been added through amendments without reviewing those 
that already exist. The review should aim to:

   Remove out-of-date restrictions.
   Justify the retention of restrictions and grouping them into 
        several categories by intent and purpose, with common 
        structures developed for each category relating them to broader 
        objectives. There should be only a few, clear, common standards 
        for applying waivers--(i) who is the decisionmaker (when the 
        President, when the Secretary, when the senior program officer, 
        etc)--and common standards and definitions for the basis of a 
        waiver (national interest, national foreign policy interest, 
        national security--get agreement on one or two terms; and the 
        basis of an administrative waiver might be program efficiency 
        or some other standard).
   Place all restrictions in a single section of the act.

    This kind of review would lead to a streamlining of current 
restrictions, and the retention of some of the most important. I would 
support retaining the current restrictions on U.S. foreign aid to 
countries with human rights violations, along with restrictions related 
to child labor and human trafficking.

                           IMPACT EVALUATION

    Your testimony suggests that the U.S. should support and join the 
International Initiative for Impact Evaluation which joins foreign 
assistance providers from around the world to provide independent 
evaluations.

   1. What is your assessment of the costs and benefits 
        evaluations?
   2. Why has there been reluctance to implement these 
        evaluations?
   3. How would the evaluations help ensure that U.S. 
        development dollars were not misused?

    Answer to 1. The costs of rigorous impact evaluations vary widely, 
depending on methods, context, and the duration of time between 
baseline and end-of-program period. As a rough guide, a small- to 
moderate-sized impact evaluation might cost about $250,000 on average; 
a large impact evaluation might cost about $750,000. Depending on the 
design, it is possible for much of this cost to be included in the 
implementation of the program. For example, it is often reasonable to 
include a portion of the baseline data collection costs in program 
budgets because the information is needed for establishing beneficiary 
needs, targeting benefits, and other program-related activities. In 
addition, activities typically included in the program implementation 
to provide information to managers can, in some cases, be modified to 
provide much (rarely all) of the data required for end-of-project 
evaluation. However, evaluation is a specialized activity requiring 
extensive data collection and analysis; good evaluation isn't cheap.
    Although impact evaluations are generally more costly than 
monitoring of outputs and/or process evaluations, the knowledge 
generated by impact evaluations can have extremely large benefits 
relative to its costs if findings are relevant and acted upon. For 
example, Mexico undertook a rigorous impact evaluation of a new 
conditional cash transfer program beginning in 1997. Without the study, 
it is likely that the program would have been eliminated under a 
subsequent administration and alternative uses of the program funds 
would probably not have been as effective. Thus, by preserving the 
program, the US$2 million spent on evaluating the intervention can be 
conservatively estimated to have led to an additional 275,000 children 
making the transition to secondary school schooling and 400,000 
children aged 12 to 36 months, at risk of stunting, experiencing 
incremental growth of 8 percent--a rather substantial benefit/cost 
ratio.
    Other examples demonstrate similarly high returns to rigorous 
impact evaluations. In Mexico and Bangladesh, studies found that 
important nutritional programs were having lower than expected impact 
on children's growth. The studies led to important reformulations of 
strategies and food supplements to improve the return from these large 
national public expenditures. In Kenya, a study of agricultural 
extension services aimed at improving rural productivity and incomes 
found that it had only been effective in areas with low productivity 
and that the information, messages, and approaches to outreach needed 
to be updated and adapted to changes that had occurred in farming 
communities.
    Moreover, the benefits of good evaluation can be multiplied many 
times over when the knowledge is used by decisionmakers elsewhere 
facing similar policy and program decisions. So, for example, 
information about the response of families to a girls' secondary school 
scholarship program in Bangladesh can inform design of programs to 
enhance girls education in Pakistan and India--and even in Senegal. 
This is the global public good aspect of the knowledge generated 
through impact evaluation.
    Beyond the strategic value of the knowledge generated is the badly 
needed reputational benefit to the development community when rigorous, 
credible evaluations are undertaken. As Senator Lugar said, ``If 
development projects are transparent, productive, and efficiently run, 
I believe they will enjoy broad support. If they are not, they are 
likely to fare poorly when placed in competition with domestic 
priorities or more tangible security-related expenditures.''

    Answer to 2. In addition to the inherent reluctance of most 
bureaucracies to risk exposing failure, there are two core incentive 
problems that have led to a situation of persistent underinvestment in 
impact evaluation:

   A portion of the knowledge generated through impact 
        evaluation is a public good. Those who benefit from the 
        knowledge include--but go far beyond--the ones directly 
        involved in a program and its funding. But because the cost-
        benefit calculation by any particular agency might not include 
        those benefits, an impact evaluation appears to be costlier 
        than appears to be justified by the returns.
   Development institutions typically are ``doing'' 
        organizations, which reward timely implementation rather than 
        learning or ``building evidence.'' Although those who are 
        designing and implementing programs recognize the value of 
        having a strong evidence base to draw upon, faced with the 
        choice to invest in evaluation or move implementation ahead, 
        they will opt for implementation. Development professionals 
        find it extremely difficult to protect the funding for good 
        evaluation, or to delay the initiation of a program to design 
        the evaluation and conduct a baseline study. Time and again, 
        resources initially earmarked for evaluation are redirected 
        toward project implementation, perpetuating the cycle.

    Answer to 3. Global progress depends on the success of programs to 
improve health, literacy and learning, and household economic 
conditions--and year after year governments, NGOs, and private actors 
dedicate resources to design and implement promising and innovative 
approaches to achieve those goals. Yet after decades in which U.S.-
funded donor agencies have disbursed billions of dollars for 
development programs, and developing country governments and NGOs have 
spent hundreds of billions more, it is disappointing to recognize that 
we know relatively little about the net impact of many important 
approaches. Instead, the focus has been on how much money has been 
disbursed and how many outputs have been generated. Addressing this gap 
in knowledge--systematically building more evidence about what works in 
development programs--would make it possible to improve the 
effectiveness of domestic spending and development assistance in low- 
and middle-income countries, and to sustain support for such 
expenditures over the long term. Moreover, the simple act of 
considering evaluation design at the inception of a program forces the 
appropriate discussion of what relevant and measurable change is being 
sought, and how. Finally, undertaking rigorous evaluation helps to 
signal to key constituencies, including the American taxpayer, that 
good stewardship is being exercised over precious public dollars that 
are intended to improve the lives of families in poor countries.

                                  
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