    [Senate Hearing 114-744]
    [From the U.S. Government Publishing Office]

                                                           S. Hrg. 114-744

                                AN ASSESSMENT OF
                            U.S. ECONOMIC ASSISTANCE

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

                                    HEARING

                                   BEFORE THE

                         COMMITTEE ON FOREIGN RELATIONS
                              UNITED STATES SENATE

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                   JULY 7, 2016

                                   __________

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                    COMMITTEE ON FOREIGN RELATIONS

                    BOB CORKER, Tennessee, Chairman
    JAMES E. RISCH, Idaho                BENJAMIN L. CARDIN, Maryland
    MARCO RUBIO, Florida                 BARBARA BOXER, California
    RON JOHNSON, Wisconsin               ROBERT MENENDEZ, New Jersey
    JEFF FLAKE, Arizona                  JEANNE SHAHEEN, New Hampshire
    CORY GARDNER, Colorado               CHRISTOPHER A. COONS, Delaware
    DAVID PERDUE, Georgia                TOM UDALL, New Mexico
    JOHNNY ISAKSON, Georgia              CHRISTOPHER MURPHY, Connecticut
    RAND PAUL, Kentucky                  TIM KAINE, Virginia
    JOHN BARRASSO, Wyoming               EDWARD J. MARKEY, Massachusetts

                      Todd Womack, Staff Director
                Jessica Lewis, Democratic Staff Director
                        John Dutton, Chief Clerk

                                     (ii)

                                C O N T E N T S

                                  ----------
                                                                       Page

    Corker, Hon. Bob, U.S. Senator From Tennessee....................     1

    Cardin, Hon. Benjamin L., U.S. Senator From Maryland.............     2

    Herbst, Dr. Jeffrey, president and chief executive officer,
      Newseum, Washington, DC........................................     4
        Prepared statement...........................................     5

    Moss, Dr. Todd, chief operating officer and senior fellow, Center
      for Global Development, Washington, DC.........................     7
        Prepared statement...........................................     8

    Mandaville, Alicia Phillips, vice president, Global Development
      Practice, Interaction, Washington, DC..........................    10
        Prepared statement...........................................    12

                  Additional Material Submitted for the Record

    ``Bringing U.S. Development Finance Into the 21st Century,'' Ben
      Leo and Todd Moss, Center for Global Development, 2016.........    42

                                    (iii)

                                AN ASSESSMENT OF
                            U.S. ECONOMIC ASSISTANCE

                                  ----------

                             THURSDAY, JULY 7, 2016

                                           U.S. Senate,
                                Committee on Foreign Relations,
                                                        Washington, DC.
        The committee met, pursuant to notice, at 2:15 p.m., in
    Room SD-419, Dirksen Senate Office Building, Hon. Bob Corker,
    chairman of the committee, presiding.
        Present: Senators Corker [presiding], Gardner, Cardin,
    Shaheen, Coons, Kaine, and Markey.

                 OPENING STATEMENT OF HON. BOB CORKER,
                      U.S. SENATOR FROM TENNESSEE

        The Chairman. Senate Foreign Relations Committee will come
    to order.
        We thank our distinguished witnesses for being with us
    today. I will introduce you in just a moment.
        Today's hearing will consider whether our foreign
    assistance intended to promote economic growth in developing
    countries is working as intended. When Congress passed the
    Foreign Assistance Act of 1961, economic development was a core
    priority of our overall aid policy. The Act specifically calls
    for the promotion of conditions enabling developing countries
    to achieve self-sustaining economic growth as one of the five
    principal goals of U.S. foreign aid.
        Today, 10 percent of our aid, by category, goes to economic
    development, but the question is, can we really say that we are
    achieving concrete results? Various commissions over the past
    decades have affirmed an unfortunate reality: our foreign
    assistance programs largely lack strategic focus and are not
    accomplishing their intended objectives as well as they could.
    More optimistically, there is also a consensus that focusing on
    long-term economic growth and job creation contributes the most
    to sustainable development. Our foreign aid policies today seem
    mired in a Cold War mindset that values buying friends in the
    developing world over establishing the right environment for
    foreign economic growth to occur.
        For us to maintain support at home for these programs,
    obviously we need to demonstrate to the American people that
    this assistance can work and benefits our country. And,
    obviously, I think there is a lot of question about that.
        We thank all three of you, again, for being with us and
    sharing your insights in that regard. This hearing will examine
    how we have lost our way on this important goal of fostering
    economic growth with our limited foreign aid dollars. I am sure
    you can assist us in helping think about it in a little bit
    different way.
        With that, I will turn it over to our distinguished Ranking
    Member, and my friend, Ben Cardin.

                 STATEMENT OF HON. BENJAMIN L. CARDIN,
                       U.S. SENATOR FROM MARYLAND

        Senator Cardin. Well, Mr. Chairman, thank you very much for
    calling this hearing. It is an extremely important subject.
        And I thank our panelists for sharing their thoughts in
    this discussion.
        I share your goal of getting development assistance right.
    And I believe we all agree that sustainable economic growth
    must be a top priority for U.S. foreign assistance. Development
    assistance is one of the most important tools we have to ensure
    that we are promoting economic growth, stability, and security
    in the developing world. It is part of our toolbox for national
    security. It includes our soldiers and our weapons, certainly
    the Department of Defense. It also includes diplomacy, but it
    also includes our foreign aid. And a significant part of our
    foreign aid is devoted towards economic development. The
    question is, ``Are we doing it the right way?''
        We, here in Congress, have laid out a number of clear
    mandates to guide our foreign assistance programs. The one we
    are examining today calls for the promotion of conditions
    enabling developing countries to achieve self-sustaining
    economic growth with equitable distribution of benefits. Today,
    we will look at a wide array of programs, under the
    jurisdiction of the committee, that are intended to fulfill
    this mandate. We are here to see whether we are getting things
    right, and what we can do better.
        I want to make a couple of points before we hear from our
    witnesses.
        First, I must point out that our foreign assistance is just
    1 percent of our budget, but it pays large dividends. It is
    important to remember, with these relatively small investments,
    we have set goals of reducing maternal and child deaths,
    creating an AIDS-free generation and scaling up our investments
    to combat a host of global health challenges. We must make
    these investments not just because it is the right thing to do,
    but also because it helps contribute to economic growth and,
    just as importantly, stability.
        Second, we must be clear-eyed to remember that fostering
    economic growth, especially in extremely poor and unstable
    countries, requires strategic investments and strategic
    patience. Former USAID Administrator Raj Shah used to say that
    the aim of our development assistance is to eventually put
    ourselves out of business. This is achievable in countries ripe
    for growth, but, in other countries, such as Haiti or Nepal,
    constraints to growth are monumental. It will take time. We do
    need strategic patience.
        Third, while economic growth is, and must be, an important
    priority, it can be advanced through a variety of programs that
    contribute to the foundation of a functioning economy.
        Mr. Chairman, when we look at our own economic success in
    the United States, still the model and envy of the world, I am
    struck by all of the many things we do right, the things that
    contribute to our economic success. At the top of the list, I
    think we all would agree, are open markets, property rights, a
    strong financial sector, the things that we all think of when
    we think--talk about economics. But, I also think our
    healthcare system, our educational system, our ongoing work to
    make our society open to everyone so that everyone can benefit
    from their own energies and talent is a critical part to the
    growth of our economy. Take any of these away, and our economy
    is weaker.
        The same goes for countries where we are trying to promote
    economic growth. We cannot think just about the important
    elements of good business climate. If we do not help them fight
    corruption--we had a hearing on that last week, and I thank you
    for that--or to abide by the rule of law, to protect basic
    rights, then we will never attract the private investments or
    grow the workforce that is critical to ensuring the long-term
    success of our investments.
        Our development programs, such as nutrition, global health
    and education programs, as well as traditional economic
    programs that foster entrepreneurship and help get goods to the
    market, like those supported by MCC and Trade-Africa, are all
    important contributors to a sustainable economic growth. We
    know that our governance programs in developing countries help
    create enabling policy environments that are absolutely
    critical to economic growth and stability. As we learned last
    week at our corruption hearing, anticorruption programs, in
    particular, are essential to effectively implementing economic
    policy reforms. By tackling these fundamental issues, we are
    getting at the root cause that constrains growth in so many
    countries.
        I want to point to Feed the Future as an example of a
    development program that is getting it right when it comes to
    fostering sustainable economic growth. And, Mr. Chairman, I
    thank you for your leadership in the Global Food Security Act,
    which, yesterday, passed the House of Representatives, and is
    now on the way to the President of the United States for
    signature. That is a great accomplishment of this committee.
    And I thank you for your leadership on it. Feed the Future
    works with the private sector, governments, and civil societies
    to help countries develop their agricultural sectors to
    generate opportunities for broad-based economic growth and
    trade, which, in turn, supports increased incomes and helps
    reduce hunger and malnutrition, major impediments to economic
    growth.
        And I hold up Feed the Future as the gold star because it
    is also an example of how our development dollars yield
    compound interest by investing in women. Women make up a large
    percentage of the world's small-holder farmers. And if women
    farmers have the same access to resources and land rights as
    men, it is estimated that the number of hungry in the world
    could be reduced by 150 million. Furthermore, decades of
    research and experience prove that when women are able to fully
    engage society, they are more likely to invest their income in
    food, clean water, education, healthcare for their children,
    and, by the way, to further build their businesses. This is
    just another example of the way our development investments are
    down payments on the building blocks for economic stability.
        I look forward to examining how we can best support the
    full spectrum of policies that underpin inclusive economic
    growth.
        The Chairman. Thank you so much. It was a team effort, on
    both sides of the Capitol, to make happen what happened
    yesterday. It is a great step forward, and I thank you so much
    for everything you did to make that happen.
        So, today we have one panel with three private witnesses
    with significant experience in U.S. foreign aid programs. We
    will now turn to them.
        Our first witness is Dr. Jeffrey Herbst, President and
    Chief Executive Officer of the Newseum, here in Washington. Our
    second witness will be Dr. Todd Moss, Chief Operating Officer
    and Senior Fellow at the Center for Global Development. And our
    third witness will be Ms. Alicia Phillips Mandaville, Vice
    President of Global Development Practice at InterAction.
        I want to thank you all for being here. I think you all
    understand you can summarize your comments in about 5 minutes.
    Your written statement will be, without objection, entered into
    the record.
        And, with that, if you would just begin in the order that I
    introduced you, we would appreciate it. And we look forward to
    your comments.

    STATEMENT OF DR. JEFFREY HERBST, PRESIDENT AND CHIEF EXECUTIVE
                   OFFICER, NEWSEUM, WASHINGTON, D.C.

        Dr. Herbst. Mr. Chairman, Ranking Member Senator Cardin,
    thank you very much for inviting me here today on this very
    important topic.
        Addressing global poverty is a critical issue right now. In
    the past 10 or 15 years, we have seen massive reduction in
    global poverty. More people have been lifted out of poverty in
    the last few years than at any time in human history. Most of
    that has occurred in China and Asia, and not associated with
    foreign aid.
        I have concentrated, in my career over the last 30 years,
    with the 48 countries of sub-Saharan Africa, where an
    increasing percentage of the world's poor people, given what
    has happened in Asia in poor countries, will be. Africa is an
    increasing focus of U.S. foreign assistance, and will be so in
    the future.
        At the same time, we have seen two other critical
    developments. Population increases in Africa will continue.
    Most countries will see a doubling of their populations in the
    next 25 to 30 years. And the commodity boom which fueled high
    economic growth in the last decade is over. The role of foreign
    assistance, and well-designed foreign assistance, is therefore
    especially critical.
        The overwhelming point I want to make to you is that, while
    it is important to focus on the design of our policies and to
    execute, as well as we can, the necessary condition for
    economic assistance is the political commitment of recipient
    governments to good governance. If the recipient country is not
    committed to private-sector growth in a dynamic economy, then,
    no matter what the design of foreign assistance is, no matter
    how well-intentioned the donor, the aid is not going to have a
    significant effect. It is much more important what they do, in
    many ways, than what we do. That goes against much of the
    thinking in this town, where we always think we are the primary
    movers, but it is critical to understand the governance record
    in other countries.
        I should also note that we have often been wrong about the
    underlying commitment of good governance to countries,
    especially when the commodity boom of last decade covered up
    many flaws in many government policies. In Mozambique, for
    instance, which had been a recipient of significant amount of
    aid, an aid darling of the international community, we now see
    that public finance was badly mismanaged during the commodity
    boom. For United States economic assistance to be effective, we
    must recognize that, if a country is not committed to an
    economic policy that promotes, especially, private-sector
    growth and good infrastructure development, nothing else really
    matters.
        The design of U.S. economic policy is complex because, of
    course, it goes hand-in-hand with other aspects of U.S. foreign
    aid. As the Chairman noted, economic assistance which
    concentrates on growth is only one component of our overall
    foreign aid portfolio. As a result, we often face conflicting
    priorities between economic growth, governance and democracy,
    investing in people, disaster relief, and other worthwhile
    priorities that the U.S. Government has. It is, therefore, very
    difficult at times for managers and executives in AID and
    elsewhere to make decisions to allocate aid solely on the basis
    of good governance.
        If we are to have an economic policy which allows for a
    sunset of foreign assistance at some point, that we somehow get
    out of this business, then we will have to first make sure that
    we and recipient countries agree on the metrics necessary for
    improvement. There is only something of an agreement now, and a
    consensus is often missing between what the donor wants and
    what the recipient country is actually going to do. We will
    also have to have the discipline to reduce aid if we believe
    that the consensus is violated. So far, I would say, over many
    years, we have evidence only of partial discipline in cutting
    aid when countries violated their express commitments, because
    there are bureaucratic initiatives to promote and continue aid,
    and because there are many other priorities of the U.S.
    Government.
        Overall, as my time is running to an end, I would say to
    you that the world is, in fact, awash with aid at the moment.
    The problem is not that there is not enough foreign aid. Over
    the last 10 years since the Gleneagles Summit, many Western
    countries, including the United States, have increased their
    assistance, and China and other actors have also come on board.
    Aid is, in fact, chasing projects which deserve to be funded.
    The question, going forward, is, can we manage that aid so that
    it only goes to those recipient countries that have a good
    governance record?
        Thank you very much.
        [Dr. Herbst's prepared statement follows:]

                      Prepared Statement of Jeffrey Herbst

        Mr. Chairman, Ranking Member Senator Cardin, other distinguished
    members of the Committee, it is a great honor for me to testify before
    the committee on the panel ``An Assessment of U.S Foreign Economic
    Assistance.'' My observations are mainly based on my own academic work
    that has focused on the political economy of sub-Saharan Africa over
    the last thirty years.
        Without a doubt, the necessary condition for economic growth in a
    developing country is the commitment of the government to create the
    enabling conditions for growth. In particular, governments must create
    policy environments that are attractive to local and foreign investors.
    We have seen, in Africa and elsewhere, that governments (e.g.,
    Ethiopia, Rwanda) that create the necessary conditions are able to
    attract private investment even if there are very challenging
    historical legacies. We have also seen that countries that may seem
    more attractive (due to infrastructure and the existing private sector)
    but with a poor governance climates (e.g., South Africa) do not attract
    investment. Governments must also be able to make hard decisions,
    including a focus on building infrastructure rather than spending on
    consumption and be able to close state enterprises that are not viable.
    Finally, corruption must be kept to a low and predictable level.
        Absent the necessary will to make economic reform, it can be
    guaranteed that there will not be sustainable economic growth. There
    are several dozen countries in the developing world that are currently
    trying to attract investment and many recognize that they are in a
    global competition for investment. There are only a few cases (mostly
    in mining but even then there are often choices) where a company has to
    invest in a particular country.
        Whether U.S economic assistance promotes growth is a complicated
    question. It must first be noted that economic growth is not the
    primary goal of U.S foreign policy. The largest component of bilateral
    assistance (61% in FY2015) is devoted to global health, notably to
    support treatment of HIV/AIDS. \1\ According to the State Department's
    own framework, promoting economic growth is a priority but so is
    promoting peace and security, investing in people, governing justly and
    democratically, and humanitarian assistance. Underneath these major
    priorities are no less than twenty-four sub-goals ranging from counter-
    terrorism to agriculture to health to good governance.
    ---------------------------------------------------------------------------
        \1\ A good review of overall trends can be found in Curt Tarnoff
    and Marian L. Lawson, ``Foreign Aid: An Introduction to U.S. Programs
    and Policy,'' Congressional Research Service, June 17, 2016.
    ---------------------------------------------------------------------------
        Many of these goals are aligned but not all. There are, for
    instance, some African countries that are growing but who cannot be
    considered democratic (again Rwanda and Ethiopia are examples). While
    all of these goals are admirable, it must be noted that the breadth of
    such priorities spread over many countries makes it very hard for U.S
    government agencies to focus on any one priority and therefore tie aid
    to results. For instance, the U.S was constrained from using aid to
    protest the unfair elections held in Uganda in February 2016 because of
    the important security role that Kampala plays in the region.
        More generally, aid will be used well by countries that are
    committed to economic growth and will be wasted in countries where the
    government has other priorities. Outsiders can never instill a
    seriousness of purpose that is lacking in the national government.
        As the U.S government has so many stated priorities it would be all
    but impossible to say that aid was sufficiently tied to outcomes and
    objectives. The U.S, whether deliberately or not, has developed a very
    broad portfolio of aims spread over a large number of countries. There
    are strategic advantages to such a posture--displaying American
    involvement globally, participating in a broad range of issues, and
    flexibility to move across different sectors depending on felt need--
    but policy coherence naturally suffers.
        Economic assistance should only be expected to succeed when
    government is committed to having a private sector that thrives. Once
    that basic commitment is discerned, economic aid can be used in a
    variety of ways that would be productive, including building
    infrastructure, rationalizing and enhancing the competency of
    government ministries and state-owned enterprises, and fostering
    entrepreneurs. Foreign economic assistance cannot be expected to
    substitute for local political will.
        A policy stance which aimed for a sunset on American assistance in
    a given country is an attractive idea but would have to be based on a
    much smaller set of priorities than is currently the case and greater
    discernment in the disbursement of funds. Greater capacity-building
    will only occur with governments that want to enhance their fundamental
    structures, as opposed to enrich leaders, develop patronage networks,
    or pump up the economy for an upcoming election.
        A policy framework with a clear sunset would have to have well
    defined metrics that would be announced in advanced and then tracked.
    The U.S would also have to have the discipline to reduce aid if
    progress was not being made on the metrics.

        The Chairman. Thank you.
        Dr. Moss.

    STATEMENT OF DR. TODD MOSS, CHIEF OPERATING OFFICER AND SENIOR
        FELLOW, CENTER FOR GLOBAL DEVELOPMENT, WASHINGTON, D.C.

        Dr. Moss. Thank you, Chairman Corker, Ranking Member
    Cardin. I appreciate the opportunity to highlight ways the
    United States can be more effective in supporting private-
    sector growth and promoting economic opportunity around the
    world.
        I proudly served in the State Department, and I continue to
    work closely on global economic policy issues at the
    nonpartisan Center for Global Development. I have three points
    today. And this draws largely on my work at CGD with my
    colleague Ben Leo.
        First, it is development finance, rather than traditional
    aid, that is the future. Aid is the right tool for tackling
    health challenges and for dealing with humanitarian crises, but
    aid has been much less effective at generating broad economic
    growth. However, when carefully targeted, aid can be useful in
    addressing very specific barriers to business and issues in the
    enabling environment. The Millennium Challenge Corporation
    model, which uses 5-year compacts to explicitly attack
    constraints to growth, is a great example of doing this. So,
    too, are the U.S. Treasury's technical assistance programs and
    also USAID's very laudable coordination of the Power Africa
    Initiative. Yet, it is development finance or the deployment of
    commercial capital for public policy purposes that is the most
    potent weapon we have for expanding markets and for spurring
    private-sector growth.
        When the United States wants to encourage job creation in
    Tunisia, when we want to catalyze infrastructure investment in
    Nigeria, when we want to bring Pakistani women into the banking
    sector, we turn to development finance. And development finance
    is the future, because of the changing global landscape. Many
    previously poor countries are much richer today, and they are
    looking for more than aid. They want to partner with the United
    States to deliver jobs and roads and electricity. Development
    finance is the future, because of the rise of China, India, and
    other emerging powers. These countries, along with our
    traditional allies in Europe, are already using development
    finance to bolster their influence and to expand investment
    opportunities. The United States has made a start, but we risk
    falling further behind.
        Most of all, development finance is the future because of
    who we are as a country. Americans believe in a model of
    private-sector-led capitalism. Our deep capital markets, our
    culture of entrepreneurship, and our belief in free markets all
    provide a unique platform for using development finance to
    promote prosperity.
        Now, fortunately, the United States already has a very good
    development finance institution, the Overseas Private
    Investment Corporation. Since 1971, OPIC has provided political
    risk insurance and largely debt capital to private-sector
    projects around the world in support of U.S. foreign policy and
    U.S. development objectives. And for 38 years in a row, OPIC
    has returned money into the U.S. Treasury.
        Our recent analysis at CGD has shown that OPIC has been
    investing principally in the exact sectors that are the leading
    constraints to growth in developing countries. Those are
    infrastructure and access to finance.
        While some have worried that OPIC could become a boon for
    large U.S. corporations or could encourage corporate welfare,
    our recent analysis of OPIC's portfolio has shown this to be
    patently untrue. Instead, we find that less than 8 percent of
    OPIC commitments over the last 5 years have involved any of the
    Fortune 500 companies.
        My second point is that, while OPIC is small and high-
    performing, it could be even better with a few tweaks that
    Congress could enact at no additional cost to U.S. taxpayers.
    Chief among these reforms is allowing OPIC limited authority to
    make equity investments rather than being restricted to only
    issuing debt. Many projects in the riskiest markets where the
    U.S. Government needs OPIC the most are at a stage where they
    require equity, not debt. And nearly every other development
    finance institution in the world has equity authority. OPIC is
    an exception, largely because of a holdover from a rule during
    the Nixon administration.
        Another simple reform that would bring large benefits at no
    cost is multiyear authorization. Large, complex infrastructure
    projects take years to negotiate and implement, yet OPIC has
    been forced to rely on annual authorizations since 2007.
        A final minor reform that would allow OPIC to--would be to
    allow OPIC to retain a slightly larger portion of its profits
    to add staff to clear a big backlog of potential projects. OPIC
    does not need more capital, it needs a few dozen more people to
    deploy that capital. The agency covers more than 150 countries,
    yet currently has only about 200 staff or less than what we
    would deploy to a midsized embassy.
        My final point, if the United States is serious about
    promoting market solutions to poverty and insecurity, we need a
    modern, full-service U.S. development finance corporation that
    is worthy of the world's largest economic power. In the annex
    to my testimony, Ben Leo and I provide a series of options for
    how Congress could structure just such an institution,
    consistent with broad bipartisan support and budgetary
    realities. A U.S. development finance corporation could bring
    OPIC into the 21st century by consolidating all the existing
    tools and instruments that are currently spread across multiple
    Federal agencies, and enable their much more strategic
    deployment to promote private-sector growth. If we fail to
    update our development finance tools, the United States stands
    to lose out to other countries on potential opportunities. We
    would also be neglecting one of our most powerful levers to
    support prosperity and stability abroad. Modernizing America's
    development finance tools would cost nothing. It would bolster
    our fight against the remaining pockets of global poverty, and
    it would support our most pressing national security goals.
        Thank you.
        [Dr. Moss's prepared statement follows:]

                     Prepared Statement of Dr. Todd J. Moss

        Thank you Chairman Corker, Ranking Member Cardin, and other members
    of the Committee. I appreciate being invited to testify again and the
    opportunity to highlight ways the United States can more effectively
    support private sector growth and economic opportunity around the
    world. I proudly served in the State Department under Secretary
    Condoleezza Rice and continue to work closely on global economic policy
    issues at the nonpartisan Center for Global Development. I have three
    points today, drawing on my work at CGD with my colleague Ben Leo.
    First, development finance, rather than aid, is the future.
        Aid is the right tool for tackling health challenges and
    humanitarian crises. Aid has been much less effective at generating
    broad economic growth. However, when carefully targeted, aid can be
    useful in addressing specific barriers to business. The Millennium
    Challenge Corporation model, which uses five-year compacts to
    explicitly attack constraints to growth, is a great example. So too are
    the U.S. Treasury's technical assistance programs and USAID's laudable
    coordination of the Power Africa initiative.
        Yet it is development finance--or the deployment of commercial
    capital for public policy purposes--that is the most potent weapon we
    have for expanding markets and spurring private sector growth. When the
    United States wants to encourage job creation in Tunisia, wants to
    catalyze infrastructure investment in Nigeria, wants to bring Pakistani
    women into the banking sector, we turn to development finance.
        Development finance is the future because of the changing global
    landscape. Many previously poor countries are richer today and are
    looking for more than aid. They want to partner with the United States
    to deliver jobs, roads, and electricity.
        Development finance is the future because of the rise of China,
    India, and other emerging markets. These countries, along with our
    traditional allies in Europe, are using development finance to bolster
    their influence and to expand investment opportunities. The United
    States has made a start, but risks falling further behind.
        Most of all, development finance is the future because of who we
    are as a country. Americans believe in our model of private sector-led
    capitalism. Our deep capital markets, our culture of entrepreneurship,
    and our belief in free markets all provide a unique platform for using
    development finance to promote prosperity.
        Fortunately, the United States already has a very good development
    finance institution, the Overseas Private Investment Corporation. Since
    1971, OPIC has provided political risk insurance and debt capital to
    private sector projects around the world in support of U.S. foreign
    policy and development objectives. For 38 years in a row, OPIC has
    returned money into the U.S. Treasury. Our recent analysis at CGD has
    shown that OPIC has been investing principally in the very sectors that
    are the leading constraints to economic growth: infrastructure and
    access to finance.\1\
    ---------------------------------------------------------------------------
        \1\ Ben Leo and Todd Moss, ``Inside the Portfolio of the Overseas
    Private Investment Corporation,'' CGD Policy Paper, April 2016.
    ---------------------------------------------------------------------------
        While some have worried that OPIC could be a boon for large U.S.
    corporations or engender corporate welfare, our recent analysis of
    OPIC's portfolio has shown this to be patently untrue. Instead, we find
    that less than 8 percent of OPIC commitments over the last five years
    have involved Fortune 500 companies.\2\
    ---------------------------------------------------------------------------
        \2\ Ben Leo, ``Is OPIC Corporate Welfare? The Data Says . . .'' CGD
    blog post, April 19, 2016.
    ---------------------------------------------------------------------------
        My second point is that while OPIC is small and high-performing, it
    could be even better with a few tweaks that Congress could enact at no
    additional cost to taxpayers.\3\ Chief among these reforms is allowing
    OPIC limited authority to make equity investments rather than be
    restricted to only issuing debt. Many projects in the riskiest markets
    where the U.S. Government needs OPIC the most are at a stage where they
    need equity, not debt. In fact, nearly every other development finance
    institution in the world has equity authority, which accounts for
    nearly all of their project commitments in the poorest countries. OPIC
    is an exception because of a holdover from the Nixon administration.
    ---------------------------------------------------------------------------
        \3\ Ben Leo, Todd Moss, and Beth Schwanke, ``OPIC Unleashed:
    Strengthening US Tools to Promote Private-Sector Development
    Overseas,'' CGD Policy Paper, August 2013.
    ---------------------------------------------------------------------------
        Another simple reform that would bring large benefits at no cost is
    multi-year authorization. Large infrastructure projects take years to
    negotiate and implement, yet OPIC has been forced to rely on annual
    authorizations since 2007. OPIC should be authorized for an initial
    five-year period, with the goal of moving to permanent authorization.
        A final minor reform would be to allow OPIC to retain a slightly
    larger portion of its profits to add staff to clear the backlog of
    potential projects. OPIC does not need more capital. It needs to hire a
    few dozen more people to deploy that capital. The agency covers more
    than 150 countries yet currently has only about 200 staff, or less than
    what we deploy to a mid-sized embassy.
        My final point: if the United States is serious about promoting
    market solutions to poverty and insecurity, we need a modern, full-
    service U.S. Development Finance Corporation worthy of the world's
    largest economic power. In the annex to my testimony, Ben Leo and I
    provide a series of options for how Congress and the next President
    could structure such an institution consistent with bipartisan support
    and budgetary realities. \4\ A U.S. Development Finance Corporation
    could bring OPIC into the 21st Century by consolidating existing tools
    and instruments--currently spread across multiple federal agencies--and
    enable their strategic deployment to promote private sector growth. If
    we fail to update our development finance tools, the United States
    stands to lose out to other countries on potential opportunities in the
    next wave of emerging markets. We would also be neglecting one of our
    most powerful levers to support prosperity and stability abroad.
    Modernizing America's development finance would cost nothing, it would
    bolster our common fight against the remaining pockets of global
    poverty, and it would support our most pressing national security
    goals.
    ---------------------------------------------------------------------------
        \4\ Ben Leo and Todd Moss, ``Bringing U.S. Development Finance into
    the 21st Century Proposal for a Self-Sustaining, Full-Service USDFC,''
    CGD Policy Paper. March 2015.

        Annex: Ben Leo and Todd Moss, ``Bringing U.S. Development Finance
    into the 21st Century,'' CGD Policy Brief, White House and the World
    2016 Briefing Book, July 2015. [The Annex is located in the Additional
    Material Submitted for the Record section at the end of this
    ---------------------------------------------------------------------------
    trancript.]

        The Chairman. Thank you.
        Ms. Mandaville.

    STATEMENT OF ALICIA PHILLIPS MANDAVILLE, VICE PRESIDENT, GLOBAL
          DEVELOPMENT PRACTICE, INTERACTION, WASHINGTON, D.C.

        Ms. Mandaville. Chairman Corker, Ranking Member Cardin, and
    members of the committee, thank you for the opportunity to
    speak today about U.S. economic assistance and the pursuit of
    inclusive economic growth.
        I would like to recognize, on behalf of InterAction and its
    members, the leadership of this committee with regards to
    foreign assistance in general. We recognize it as a vital part
    of our values abroad and our national interests, and so I want
    to thank you for that.
        I should also say up front that InterAction is an alliance
    of about 180 different U.S.-based, nonprofit organizations that
    are working around the world, both in humanitarian and
    development settings. Our membership's views are as diverse as
    the membership itself, so my remarks today should not be
    construed as reflective of the views of any individual
    organization. I will take responsibility for them myself.
        With that said, and recognizing the written testimony has
    been submitted for the record, I would like to make three brief
    points.
        The first is to call out that, over the last several years,
    we have seen increasing evidence that, if we want targeted
    economic assistance to be effective, we need to put economic
    analysis at the center of things. And I appreciate that is
    possibly the most deadly-boring statement that you will hear,
    so let me give you an example that will bring it to life a
    little bit and show you why it is important.
        If you look at several landlocked countries in West Africa,
    it is obvious that a major constraint to economic growth is the
    high cost of getting goods from point A to point B. And if you
    visit any of these countries, you will find that when you look
    at the road system, they are too narrow to hold modern trucks,
    they are two-lane with no bypass in case of an accident, and
    they are in a condition that suggests slow speeds are the way
    to drive. So, if you went and you looked at this, you could
    conclude right away, ``Well, this is an infrastructure problem.
    If I want to reduce costs, I need to make an infrastructure
    investment.'' And we would be right--but only partly. Because
    if you follow the economic analysis down into what is actually
    driving high transport costs over one particular transit
    corridor, what you find is that, in the first segment, the
    problem is that there are three different ministries allowed to
    set up safety checkpoints. This has tripled the instances for
    graft and slowed down speeds by threefold. And if you look at
    the second segment of the transit corridor, you find that the
    single greatest problem in terms of cost, is that there is a
    trucking monopoly. So, if we had acted before the analysis
    level, we would have done the high-dollar investment in
    infrastructure, but missed the thing that is actually
    constraining businesses' ability to grow by moving goods from
    point A and point B.
        So, if the first point is that economic analysis matters,
    and matters dramatically, for targeting assistance, then the
    second point has to be that we have tools available to do this.
    We have seen them deployed more and more frequently in the
    cases of U.S. bilateral assistance, and that they can be
    deployed even more frequently.
        In this category I would put things like growth diagnostics
    (which is what I just described), looking specifically at the
    items that either constrain or drive economic growth in a
    particular geographic area. But also things like basic cost-
    benefit analysis, which tell you a lot about value for money
    over time. I would also put in this category something you have
    already moved on through the passage of the Foreign Assistance
    Transparency and Accountability Act. And by that I mean
    rigorous and transparent monitoring and evaluation practices.
    Transparency and rigor in monitoring and evaluation not only
    provide accountability, ``Have we done through a program what
    we set out to do?''--but they also tell us lessons for the
    future, ``What should we do more of, what should we do less
    of?''
        Point three is one of context. Economic assistance is one
    part of the broader U.S. foreign assistance portfolio, which
    also includes things like security assistance, humanitarian
    relief, and democracy support. And all of these are things that
    we hold dear as advancing U.S. values abroad and our own
    national interests. When they come up, I think people tend to
    talk about them in terms of their own intrinsic merit. And I
    wholeheartedly support those intrinsic merits and the case for
    that based on them. What I want to elevate in the context of an
    economic conversation, however, is that sometimes making
    investments in things that do not immediately appear to be
    economic can have positive economic consequences and outcomes
    for the very economic goals we have set for ourselves with the
    economic assistance.
        So, for example, if you look at measures to prevent
    stunting, those measures prevent the long-term mental and
    physical impairments that can haunt a workforce for a
    generation and fundamentally reduce productivity levels. So,
    preventing that outcome is wholly growth oriented and
    economically very favorable. Or if you consider programs that
    are designed to promote social accountability, social
    accountability matters dramatically in cases of pandemics, when
    you need citizens to trust their governments enough to follow
    public health instructions. And following those instructions
    not only prevents the spread of a disease, but prevents
    economic losses over time.
        So, as you look at ways to make sure U.S. economic
    assistance is maximally effective, I would ask you to bear in
    mind that there are some investments that the United States
    makes through other vehicles or other instruments, that do not
    appear to be immediately economic, that have intrinsic value of
    their own and are supported by the American public--Americans
    give something like $15 billion a year to charitable causes
    abroad. And, sometimes these other USG investments support the
    very favorable economic outcomes that we have set for ourselves
    through the economic portfolio, as well.
        With that, I thank you for the opportunity to speak, and I
    look forward to our discussion.
        [Ms. Mandaville's prepared statement follows:]

                Prepared Statement of Alicia Phillips Mandaville

        Chairman Corker, Ranking Member Cardin, and Members of the
    Committee, thank you for the opportunity to appear before you this
    morning to speak about something as critical as the shape and impact of
    the U.S. Governments' foreign economic assistance programs.
        I serve as Vice President for Global Development at InterAction, an
    alliance of nongovernmental organizations (NGOs). Our 180-plus members
    work around the world and in every country that receives economic
    assistance from the United States. What unites us is a commitment to
    working with the world's poor and vulnerable, and a belief that we can
    make the world a more peaceful, just, and prosperous place--together.
    InterActions' members range in size from 4 employees to 40,000
    employees and--through a combination of private fundraising and
    official donor financing--they are collectively responsible for the
    delivery of billions of dollars in development and relief programs
    around the world.
        InterActions' membership is as diverse as it is strong, and the
    views of our membership organizations are equally extensive.
    Consequently, my remarks today are informed by the experiences and
    lessons of InterActions' members, but they should not be taken to
    represent the specific view of any individual member organization.
        Because the specific key drivers and constraints to inclusive
    economic growth vary by country, the U.S. can maximize support for
    positive economic outcomes with a diverse portfolio approach to
    economic assistance. In essence, this is the same approach taken by any
    investor who diversifies his or her assets to ensure some level of
    return. To be effective, this requires more purposeful application of
    analysis, transparent evaluation and reporting, and a willingness to
    add legislative authorities that would allow existing assistance
    mechanisms to be responsive to global economic changes. Finally, given
    the ever deepening relationships among global economic, political, and
    societal changes, it remains in the U.S. national interest to provide
    both economic development assistance, as well as other types of
    support.
        In order to inform your assessment of U.S. economic assistance, I
    have organized my remarks around responding to three broad questions:

       What drives and constrains economic growth in developing
            countries?

       What does a diverse portfolio approach for U.S. economic
            assistance entail?

       How can U.S. assistance respond to todays' reality that
            economic and non-economic issues are deeply intertwined?

                    we know that drivers and constraints to
                   inclusive economic growth vary by country
        Questions about what drives or constrains national, inclusive,
    economic growth are the fundamental basis of an ever growing collection
    of economic research. While others on the panel are better positioned
    to provide details on the breadth and depth of current research, it is
    worth noting here two key research findings that continue to have
    significant implications for how the U.S. constructs its economic
    assistance programs, both in policy and in practice.
        The first is a tangible shift in recognizing the variety of policy
    combinations that other countries can adopt to effectively drive
    sustained and inclusive economic growth. While macroeconomic research
    in the 1980s and 1990s often focused on a specific combination of
    policies that correlated with growth and stability, research in the
    2000s began to recognize more diverse paths to growth. The World Bank
    Growth Commission, for example, concluded in 2008 that, ``. . . . no
    generic formula exists. Each country has specific characteristics and
    historical experiences that must be reflected in its growth strategy.''
    \1\ This recognition of countries' unique drivers and constraints to
    growth is significant because it opened a new door to how growth
    diagnostics can shape assistance programming outside of multilateral
    economic institutions.
    ---------------------------------------------------------------------------
        \1\ The Growth Report: Strategies for Sustained Growth and
    Inclusive Development. The Commission on Growth and Development. The
    World Bank. 2008. Overview: p 2.
    ---------------------------------------------------------------------------
        The second key development was a growing body of research on the
    effect of foreign assistance itself on economic growth. A seminal
    American Economic Review article in 2000 by Burnside and Dollar found
    that assistance leads to more growth in countries with good policies,
    but is ineffective elsewhere.\2\ The article was so influential that
    many credit it with inspiring the establishment of the Millennium
    Challenge Corporation, which is explicitly focused on promoting
    economic growth as a model of foreign assistance, and uses a data
    driven approach to make large investments in ``the most well governed
    poor countries.'' Since then, the field has seen a proliferation of
    econometrically rigorous studies, ably summarized by my fellow
    panelists' colleagues from the Center for Global Development in 2014
    as, ``the majority of studies on aid are positive--but the impact of
    aid is often modest.'' \3\
    ---------------------------------------------------------------------------
        \2\ Burnside, Craig and David Dollar, ``Aid, Policies, and
    Growth,'' American Economic Review 90(4) (September 2000): pp. 847-68.
        \3\ http://www.cgdev.org/blog/1385-billion-question-when-does-
    foreign-aid-work.
    ---------------------------------------------------------------------------
        Based on this, we cannot say that a single type of foreign
    assistance intervention is the one silver bullet for all countries that
    produces sustainable, inclusive economic growth. However, in policy
    terms, over the last 10 years there has been a clear recognition that
    inclusive growth fundamentally underpins a variety of foreign
    assistance, and therefore foreign policy, goals. Whether looking at the
    2010 Presidential Policy Directive on Global Development, or either of
    State and USAIDs' first two Quadrennial Diplomacy and Development
    Reviews (QDDR),\4\\5\ advancing inclusive economic growth is stated as
    a clear U.S. foreign policy priority.\6\
    ---------------------------------------------------------------------------
        \4\ Presidential Policy Directive #6. http://fas.org/irp/offdocs/
    ppd/ppd-6.pdf.
        \5\ Quadrennial Diplomacy and Development Review http://
    www.state.gov/documents/organization/153139.pdf 6 2015 Quadrennial
    Diplomacy and Development Review http://www.state.gov/documents/
    organization/241430.pdf 7 https://www.mcc.gov/our-impact/constraints-
    analysis.
        \6\ The results of these analysis further supported the notion that
    individual countries have distinct binding constraints to growth by
    ranging from a lack of electricity, to poor population health outcomes,
    to over-regulated labor markets.
    ---------------------------------------------------------------------------
        Practically speaking, this sentiment also informs the way providers
    of economic development funds consider the structure of their programs.
    Specifically, the last ten years brought greater application of
    preliminary economic assessment as a means of designing assistance
    programs that better contribute to sustainable, inclusive economic
    growth.
        While economic analysis in general is certainly not new to U.S.
    foreign assistance agencies, the MCCs' ``growth diagnostics,'' first
    implemented in 2007,\7\ put research about a countrys' binding
    constraints to growth at the center of decision making about how to
    allocate assistance dollars. By transparently basing the entirety of
    its (often half billion dollar) investments on economic research into
    what specifically constrained inclusive economic growth in a country,
    MCC provided a proof of concept that U.S. bilateral assistance
    programming could be based on publicly available evidence.\8\ Similar
    diagnostics were subsequently adopted by a variety of presidential
    initiatives (PFG, SGI), and now play a key role at USAID as well.\9\
    ---------------------------------------------------------------------------
        \7\ http://www.state.gov/r/pa/prs/ps/2011/11/177887.htm.
        \8\ http://www.state.gov/p/af/rls/2016/253906.htm.
        \9\ ``USAID increasingly looks to inclusive growth diagnostics
    (IGD) to sharpen its strategy development process.'' https://
    www.usaid.gov/who-we-are/organization/bureaus/bureau-economic-growth-
    education-and-environment/office-economic.
    ---------------------------------------------------------------------------
        Over this same time frame, the notion of inclusive growth as a
    precursor to nearly all human development outcomes has also been
    increasingly recognized by non-profits, foundations, and advocates.
    While individual organizations may disagree on the best way to promote
    inclusive growth, or how to manage the gains from economic growth,
    there is clear recognition that inclusive growth itself is a
    fundamental element of global development and poverty reduction.
                  as an investor, the u.s. needs a purposeful,
                     diverse, economic assistance portfolio
        Because the specific drivers and constraints to inclusive economic
    growth vary by country, the U.S. can maximize support for positive
    economic outcomes with a diverse portfolio approach to economic
    assistance. In essence, this is the same approach taken by any investor
    who diversifies his or her assets to ensure some level of return.
        This does not imply that we want a haphazard proliferation of
    overlapping programs. Capacity constraints in partner countries are
    real at the human resource, organizational, and system levels, and
    disorganized U.S. efforts to simultaneously support economic activity
    with all available tools are likely to lead to both haste and waste.
    Maintaining a diverse economic assistance portfolio means recognizing
    the primary value of different tools and deploying them in the country
    contexts in which they can have maximum impact. Key to this is the
    continued recognition of the different roles for public and private
    investments in stimulating economic activity, such as:

       Non-profit initiatives to identify and expand financial
            tools for traditionally under-banked populations: Although
            sometimes not directly supported by USG assistance, non-profit
            implementers of economic development programs are increasingly
            experimenting with new financial services. For example, Mercy
            Corps launched an early stage impact investment fund focused on
            East Africa in 2015,\10\ while Habitat for Humanity used its
            own seed money and expertise to partner with OPIC and the
            Omidyar Foundation to create MicroBuild, a mortgage fund for
            low income families in the developing world.\11\
    ---------------------------------------------------------------------------
        \10\ https://www.mercycorps.org/sites/default/files/Mercy-Corps-
    Social-Venture-Fund-Overview-May-2016.pdf.
        \11\ http://www.habitat.org/sites/default/files/2015-microbuild-
    fund-annual-report.pdf.

       Funding for public goods: MCC provides public capital for
            large scale, multi-year investments in public goods such as
            infrastructure, sustainable public services, or institutional
            and market reform. Such funds support investment in large,
            often multifaceted public works that are unlikely to be
            independently supported by private sector actors because the
            gains cannot be captured, or even realized in the absence of
            government led policy reform. These investments are prioritized
            for the greatest growth potential through a politically-
            insulated cost-benefit analysis tool that estimates the return
    ---------------------------------------------------------------------------
            for each dollar investment

       Integrated approaches: USAID, present in nearly every
            country and capable of supporting year on year programming and
            sustaining long term relationships is perhaps the most
            flexible. In recent years USAID has not only provided both
            public funds and technical capacity building, but has also
            prioritized efforts to bring private sector actors to the table
            for joint investment. Whether looking at the agencys' big push
            to build public-private partnerships for investment in Power
            Africa, the way USAID moved ahead with USAID forward reforms to
            better align its operating styles with the private sector, or
            new momentum at the Global Development Lab to bring break
            through innovations to bear in development, the agency has
            taken significant steps over the last several years to maximize
            the economic growth impact it can have within its current
            mandate and earmarks.

       Facilitation of U.S. private investment: OPIC leverages
            funding to stimulate U.S.-based private sector activity in a
            country by providing U.S. companies with debt financing, loan
            guarantees, political risk insurance, and support for private-
            equity investment funds. Such funds not only crowd in U.S.
            investors, but support expansion of U.S. businesses, and
            generate income for the U.S. treasury.

       Focus Areas: Though they are not always economic growth
            focused, some recent sectoral initiatives explicitly recognize
            the need to address binding constraints to growth in multiple
            countries. This includes Power Africa as codified through the
            Electrify Africa legislation, or Feed the Future and the
            (pending) the Food Security Bill, which explicitly calls out
            the importance of functional markets in ensuring food security
            for populations and livelihoods for small holder farmers.

        To be effective without feeling chaotic, this approach requires
    more purposeful application of analysis and coordination, transparent
    evaluation and reporting, and a willingness to add authorities that
    would allow existing assistance mechanisms to respond to global
    economic changes.
        Prioritizing the results of economic analysis over politically
    popular solutions can feel counter intuitive, but may serve as a
    tangible way to push greater coordination and impact. For example, over
    a particular transport corridor in West Africa, a visual inspection
    would suggest that the primary driver of high shipping costs was the
    roads' condition (too narrow to bear the largest modern trucks, pot
    holes that required serious reduction in speed, and lack of shoulders
    for accident bypass). But deeper analysis shows that the greater
    constraint for the first stretch of transit was the sheer number of
    police check points at which bribes were solicited, and the greater
    constraint for the second stretch was the grip of a national trucking
    monopoly. Simply trusting the visual inspection would have led to a
    heavy dollar investment that feels satisfying to donors and is
    politically easy for recipient countries--but would have missed maximum
    impact by overlooking the effects of corruption or monopolistic
    behavior. Identifying the totality of the constraint also makes it
    possible to coordinate across actors who provide infrastructure
    funding, technical assistance, and support for regulatory reform.
        Once programs start, transparent, rigorous monitoring and
    evaluation is the most significant tool available to determine whether
    economic assistance is achieving intended outcomes. Impact evaluations
    and rigorous monitoring are more common at MCC and USAID, but are still
    mostly underfunded and therefore mostly un-adopted by other agencies
    responsible for funding or implementing economic assistance. This
    information, on whether programs achieved the specific impacts they set
    out to accomplish, is fundamentally necessary if the U.S. is to first
    understand the effectiveness of different interventions intended to
    support inclusive growth, and eventually make cost benefit decisions
    about subsequent investments. To this end, the passage of the Foreign
    Assistance Transparency Act is a positive step and has been broadly
    supported by InterAction and its members.
        Finally, keeping the portfolio up to date will also require more
    creative thinking about the authorities required for the U.S. to
    support national level financial instruments as tools, and to respond
    to evolving global trends. This may include new authorities for OPIC to
    self-fund expanded administrative services, regional or sub-national
    investment authorities for MCC, and greater flexibility for operational
    and program budgets for USAID so that it can begin a shift to the kind
    of systematic evaluation which would eventually allow the agency can to
    make evidence-based decisions about continuing and adjusting
    programming.
            u.s. assistance as a whole must recognize that economic
               and non-economic issues are ever more intertwined
        Economic development assistance represents only one part of the
    broader U.S. foreign assistance tool box, which also includes
    humanitarian relief, security assistance, and support for democracy and
    good-governance. These other tools not only alleviate human suffering,
    but they remain critical pieces of maintaining U.S. leadership abroad.
    Interventions in traditional human development sectors have also had
    tremendous impact--scholars document the eradication of small pox, a
    near doubling of the proportion of children enrolled in school in Sub-
    Saharan Africa, and planet wide improvements in life expectancy.\12\
    ---------------------------------------------------------------------------
        \12\ Getting Better: Why Global Development is Succeeding and How
    we can Improve the World Even More. Charles Kenny. Basic Books. 2012.
    ---------------------------------------------------------------------------
        There are compelling and credible cases to be made for a each these
    of investments, from maternal health, to water and sanitation, to post-
    conflict community development. What may be less immediately intuitive
    is that there are also economic rationales for supporting the broader
    range of U.S. foreign assistance. Economic growth doesn't happen in a
    social or political vacuum. Consequently, when considering the efficacy
    of U.S. economic assistance, it is worth bearing in mind the following
    inter-relationships, and the implications they have for how to ensure
    economic assistance funds generate positive economic outcomes.
    Reform, political will, and democratic societies
        When it comes to economic reform--even at the micro-regulatory
    level--no amount of U.S. economic assistance can compensate for a lack
    of political will. Because it is ultimately the other-country
    government that reforms and enforces new laws, decisions about which
    economic assistance tool to deploy should take incentive structures
    into account. Critical reforms--like subsidy reduction or tariff
    structure reform--are domestically controversial. In some places, a
    governments' desire to secure public funding for infrastructure or to
    attract international investors serves as sufficient incentive. In
    other places, domestic politics may mean that governments can only take
    difficult reforms if they are accompanied by popular traditional
    development programs that support health, education, or agricultural
    services. In this same vein, no amount of economic assistance to a
    government will fundamentally alter the degree of space for civil
    society actors, or respect for the rights of citizens. Democracy
    support remains a critical, and separate, way for the U.S. to support
    our values abroad.
    Exclusion, inequality, and economic opportunity
        Because there are fewer economic opportunities for traditionally
    excluded populations (women, youth, minorities, the elderly) many
    development programs designed to support these groups have an economic
    dimension to them. Consequently, a variety of development programs that
    appear non-economic at first glance may in fact directly support
    economic goals. For example, an agricultural program in the Sahel that
    focuses on small holder women farmers adopting more efficient
    irrigation practices may directly increase community incomes.
    Pandemics and economic loss
        While the health of a labor force has known implications for
    economic productivity, we have recently seen how the state of a
    countrys' health system has deeper implications in the face of a
    pandemic. For example, the economic consequences of the Ebola outbreak
    in West Africa were staggering, with Sierra Leone, Liberia, and Guinea
    estimated to have lost some $2.2 billion in forgone economic growth in
    2015. While traditional economic assistance before the outbreak would
    not have reduced the negative economic consequences later, health
    interventions might have (either long term support for health
    infrastructure systems or faster response to the initial outbreak).
    Our own national security goals
        In 2015, three countries received roughly 40 percent of U.S.
    economic development funding: Jordan, Afghanistan, and Pakistan.\13\
    From a national security perspective, the U.S. has multiple goals for
    providing all types of assistance in these three countries, which not
    only affects the level of funding, but also the choice of aid vehicles
    through which the assistance is provided. When U.S. goals around
    economic growth converge with goals around stability and national
    security, many of the best practices implemented in other purely
    economic development programs cannot be replicated.
    ---------------------------------------------------------------------------
        \13\ Based on data from the Foreign Assistance Dashboard at http://
    beta.foreignassistance.gov/
    ---------------------------------------------------------------------------
        This list goes on--urbanization, climate change, social
    accountability, demographic shifts--these are all intertwined with
    macroeconomic forces to affect the way U.S. economic assistance
    programs function. In that context, the U.S. must maintain a diverse
    portfolio of economic assistance tools while preserving other types of
    assistance which complement and deepen their impact.
    Conclusion
        I wish to thank the committee for this opportunity to provide
    testimony. InterActions' diverse membership strenuously and unanimously
    supports the United States'continued engagement in the world. To a
    person, our members recognize that that U.S. global leadership must
    include assistance designed to lift people out of poverty--and the $15
    billion in charitable donations that citizens direct abroad every year
    suggests the American people do too. In that context, we believe both
    in the economic necessity of growth, and the human imperative of
    ensuring that growth is inclusive.

        The Chairman. Thank you.
        I might ask just a couple of questions and then move on,
    and then interject some.
        But, in a sentence or two, could each of you tell me the
    purpose of United States giving economic assistance to other
    countries? Seriously, in just a sentence or two.
        Dr. Moss. It should be about trying to generate economic
    opportunity, but all too often it is trying to do lots of
    things at once, and therefore, you wind up not achieving any of
    those goals. So, just--very briefly, just----
        The Chairman. But, now you are more than a couple of
    sentences.
        Dr. Moss. Okay, I will stop there. Yes.
        The Chairman. Okay.
        Dr. Herbst. I think it has been to show that the United
    States is committed to a broad range of goals across a broad
    range of countries. Actual performance has taken backseat.
        The Chairman. Ms. Mandaville?
        Ms. Mandaville. I believe it is to support actual
    generation of economic growth, and also to demonstrate our
    commitment to the factors that drive that growth.
        The Chairman. Okay. So, you think it is to--Dr. Herbst
    would say, to show; and you would say, to create actual.
        Ms. Mandaville. I would----
        The Chairman. I mean, it does appear that much of what we
    do is to gain influence. And I think all the people who serve
    on this committee, generally speaking, support us being
    involved around the world. I mean, it is the purpose. But, it
    does appear that much of what we do is--you say ``actual,'' I
    think Dr. Herbst will say it has been a total failure in sub-
    Saharan Africa. Would you--or a major failure, or----
        Dr. Herbst. I would say the actual performance has been
    well below what we might think is reasonable.
        Dr. Moss. It varies from country to country. Some countries
    have used that aid well----
        The Chairman. Yes.
        Dr. Moss [continuing]. But I think there have been a lot of
    disappointments along the way.
        The Chairman. Well, let me ask you this. Do we--do you
    think, as we begin at the top, when we look at economic aid, do
    you think that we have done a good job ourselves of
    internalizing what the purpose is, and then ensuring that,
    through all the activities that we carry out, that is carried
    through?
        Dr. Herbst. No. According to the State Department's own
    rubric, we have over 20 subgoals in five different categories
    for our foreign assistance. By the way, I agree, all of those
    goals are laudable. However, the notion that they are all
    aligned, that all good things go together, seems implausible to
    me. And so, we face confusion internally, and we confuse our
    recipients also.
        The Chairman. Yes.
        Any other comments before----
        Dr. Moss. I would just add that I think the Millennium
    Challenge Corporation is a pretty big exception to this. It is
    pretty clear about what they are trying to achieve, and the
    metrics that they assign to their compacts are aligned with
    what the goals are. And that does not apply to a lot of our
    other assistance programs.
        Dr. Herbst. And I would agree with that.
        The Chairman. Dr. Herbst, if I could, you said something
    that I think was probably surprising to most people in our
    audience in here. And you said the same thing in our office,
    when we met a few weeks ago. Your comment was that the world is
    awash in aid. That is not something that you would think, based
    on the types of crises that we deal with around the world. But,
    do you believe that the fact is there is a vast amount of aid
    that is being delivered, probably more so than even is
    necessary, at present?
        Dr. Herbst. Well, more would be useful if governance was
    better and recipients could perform better. But, since the mid-
    2000s, when there was a commitment on part of the Western
    countries to increase aid, aid has increased massively. The
    number of non-Western donors, China and the like, has come on
    board, increased. The absolute number of poor people decreased.
    On the ground, when you are talking to aid officials, American
    or otherwise--in my case, in a variety of African countries--
    they find it very difficult to deploy all the aid that they
    have been given. If the government's records of the countries
    they are operating in was better, there would be more projects.
    But, they find it very difficult, in many cases, to allocate
    aid which they believe will have a high impact. They face other
    bureaucratic imperatives, of course, to spend the aid, but they
    find it very difficult to spend it on projects which they
    believe are worthwhile.
        The Chairman. And, if I could, we obviously have gone
    through a period of time where the fiscal situation in the
    West, generally speaking, has hugely deteriorated, right? I
    mean, balance sheets in developed countries have gone negative,
    not positive. What is it that is driving the fact that there is
    so much economic assistance that is available to countries
    around the world? What is driving it going in the opposite
    direction, if you will, of what is happening domestically
    within these countries?
        Dr. Herbst. Well, Mr. Chairman, as you--as I think the
    Ranking Member mentioned, the actual percentage of our budget
    going to foreign assistance is very small. It is bigger in
    other Western countries, but it is hardly driving the fiscal
    problems. I think the increased fiscal commitment has come
    through a really human-values commitment that we should try to
    do more to address poverty. That is laudable. Execution of that
    laudable aim has proven to be very difficult.
        The Chairman. Do you want to say something?
        Ms. Mandaville. Yes. As--I think, also, that we need to
    distinguish between foreign direct investments and private
    capital flows and public support that is provided through
    direct--through overseas development assistance, in that
    private capital flows tend to focus on economic opportunities
    and business opportunities that are not necessarily always
    public in nature, and so there is a portion of the economy
    which can grow, but, in terms of long-term sustainable,
    inclusive economic growth, it can be hard to marshal those
    kinds of forces for the type of broadbased investment that is
    needed. If you think about, kind of, base public infrastructure
    as opposed to the infrastructure of an industrial park.
        That said, as a result, I think that, in instances where
    the United States has taken a specifically economic-focused
    approach, like the Millennium Challenge Corporation, made a
    decision that is targeting a particular economic outcome, a
    level of return on investment, and stayed the course over a
    period of time, over a 5-year duration, that is when we have
    seen success, in terms of actually contributing to the economic
    growth. I would agree that that does not necessarily
    characterize all of our assistance, but I do think that, in the
    last several years, we have seen, not just the MCC, but other
    parts of the U.S. economic and foreign assistance portfolio
    pick up some of that same analytical and selectivity elements
    of their investments.
        The Chairman. Thank you.
        Senator Cardin.
        Senator Cardin. Well, once again, thank you all for your
    testimony.
        I am following up on the Chairman's point and your
    testimonies, and that is, there seems to be a common theme,
    here, that the way that a lot of our development assistance has
    been handled over a long period of time is layering additional
    programs upon, or commitments upon commitments, spread thin
    around the world, to show our interest around the world, since
    we are a global power, and with little accountability and
    little expectation that there will be a strict accountability
    on the use of those funds that they serve there. The difference
    with the Millennium Challenge Corporation grants is, these are
    defined, specific commitments, where you have defined,
    achievable goals, and they are competitive, from the point of
    view that there are not a lot of them around the world and they
    are a significant amount of funds. So, for all those reasons,
    it is a little bit easier to get the type of results we are
    talking about.
        I would suggest that, in the health arena, PEPFAR was a
    similar type of commitment, where we could see specific results
    from a significant commitment, where the U.S. dollars were
    dominant, at least in starting the programs in these countries.
    And it is the same thing on the specific projects under the
    MCC. The other development programs are not quite as easy to
    follow.
        So, Dr. Herbst, following your point and the point that was
    made by Ms. Mandaville, on accountability--I mean, I could not
    agree with you more that if there is corruption and you cannot
    get the good governance, you should pull out of a country,
    rather than just continue to pour money in which is not going
    to get the return for the investments that we are making. So,
    we passed, as Ms. Mandaville pointed out, the Foreign Aid
    Transparency and Accountability Act. It is now in the Senate.
    It requires the President to--establish and implement
    guidelines with measurable goals, performance metrics, and
    monitoring and evaluation plans. It also requires the public
    posting of information on the Internet by the Secretary on
    these individual projects. Will this help us in trying to
    establish more accountability and transparency in these
    programs? What is your confidence level that this could make a
    difference?
        Ms. Mandaville. I do think that we are--things which
    encourage not just rigorous monitoring and evaluation, but also
    transparency of them, basically require learning. So, I think,
    in general, there can be a first-mover problem associated with
    publishing the results of work that you have done. If you are
    the only aid agency that is showing how effective your work has
    been, and no one else is showing how they are doing, then
    anytime you do not hit 100-percent success rate, it is very--
    there is--it is difficult for you to continue moving forward.
        You know, when you look at the success rate of small
    business in the United States, at the 5-year mark, 50 to 60
    percent of them have shut their doors. But, if you have a
    foreign assistance program that is at less than 100 percent,
    then, accountability-wise, people are very concerned about it.
        So, I do think that requiring accountability and a
    publishing of the results and the analysis underneath it will
    fundamentally improve not just what that single agency itself
    does, but actually ability to learn across the portfolio.
        Senator Cardin. Dr. Herbst, I will let you respond. We all
    know it is challenging, politically, to cut off funds, and
    there are reasons why economic assistance is given to
    countries, other than the specific purpose for which those
    dollars are made available. Can transparency and requirements
    of more direct expectations help us in trying to get greater
    governance-use changes in these countries?
        Dr. Herbst. I will have to admit, despite the good work of
    this committee, that I am skeptical.
        First, to the extent that money is fungible, governments
    move money around, you are not necessarily funding the project
    that the check goes to; you are funding the least--the lowest-
    priority project of the government, because it may have funded
    that project, the aid-recipient project, itself. You are
    freeing up money for project--you are freeing up money to go to
    other projects or to other purposes.
        Senator Cardin. But, would not the transparency perhaps
    demonstrate that and, therefore, if there is proper oversight,
    not just by Congress, but by NGOs, that, with more
    transparency, we could get to the point--well, I agree with
    you, I am prepared to cut off funds if we are not getting the
    intended results and if we do not have governance improvement.
        Dr. Herbst. I think that level of oversight is very
    difficult. I think that we underestimate the degree to which we
    are played by our aid recipients. They read our legislation.
    They follow these hearings. They are very sophisticated. They
    provide us with what we want to hear.
        I think going down the path of ever greater accountability,
    Web sites, and the like, while it is appealing, it suggests a
    basic lack of trust between the donor and the recipient. And I
    would be more comfortable being able to say we trust this
    recipient government to use the money in a proper way. I am
    afraid ever more measures, Web sites, investigations--I do not
    know if that is not a rabbit hole down which we will go, where
    we just try to make ever more observations on a relationship--
    --
        Senator Cardin. I would just point out that----
        Dr. Herbst [continuing]. That we fundamentally do not
    believe in.
        Senator Cardin. Yes. Well, if you look at past history, we
    have been continuing the programs, so I am not sure--and I
    think you and I would both agree that there are many countries
    that would not qualify if it was our dollars directly going
    into these countries.
        I want to get one final question to Dr. Moss, and that is--
    your point on leveraging the private investment, I think, is an
    extremely important point. And a lot of the programs that do
    that are working fairly effectively. On OPIC, your suggestions
    there are ones that I hope we will follow up on, because I
    think they make a great deal of sense. I just want to get your
    assessment on one program, and that is the Global Development
    Lab, it leverages the private-sector, NGOs, and local actors to
    solve development challenges. Is that a model that could be
    improved, or is that a model that is working well?
        Dr. Moss. I do not have any great insight into how well
    that is working, but one of the things that we have seen is a
    lot more experimentation. I think the frustration that the
    committee has with some of the ineffectiveness of our aid
    programs in the past has--one of the good things we have seen
    is a lot more testing of new models, piloting things, trying
    them out, and marrying that with good evaluation. So, you at
    least get a sense of, Did this project work, and what can we
    learn from it? So, I think as part of that effort, that has
    been positive.
        Senator Cardin. Thank you, Mr. Chairman.
        The Chairman. Thank you.
        Senator Gardner.
        Senator Gardner. Thank you, Mr. Chairman.
        Thanks, to the witnesses, for being here and your time and
    testimony today.
        Dr. Herbst, in your testimony, you state that, and I quote,
    ``It must be--it must first be noted that economic growth is
    not the primary goal of U.S. foreign policy. The largest
    component of bilateral assistance is devoted to global health,
    notably to support treatment of HIV/AIDS.'' Did you make that
    statement because you think that is the right priority? Is it
    the wrong priority? I mean, should we be doing more, or less,
    in terms of economic assistance?
        Dr. Herbst. That priority reflects the priorities of the
    legislative bodies and the President. And so, I take it as a--
    as important to the U.S. If--it came about because of a global
    health emergency, obviously, in the last two decades. And that
    program did save the lives of a significant number of people. I
    do not think there is any doubt about that. I am not sure how
    many other U.S. programs we could say about it.
        So, I applauded the development of the program. And I think
    that money is relatively well spent. I just do not think we
    should then say to ourselves that economic growth is the
    highest priority.
        Over time, as the Senator and the Ranking Member said, I
    think there is no escaping the conclusion that economic growth
    is the fundamental necessary condition for all of human
    improvement, that we can address other issues. They are
    important to address. But, if countries do not have a
    sufficiently high rate of economic growth, none of the other
    improvements we hope to see is--are going to occur.
        But, the HIV crisis was unique. We understand that. And the
    U.S. money was allocated accordingly.
        Senator Gardner. Thank you, Dr. Herbst.
        And I recently had the chance to visit Myanmar--Burma--with
    a number of our colleagues, and we talked about the urgent
    needs that they face, in terms of economic and development
    assistance, to help make sure that the new democratic
    government can succeed. According to the State Department's
    2017 budget request for Burma, U.S. efforts--and I quote here,
    ``U.S. efforts aim to strengthen political reforms, advance the
    national peace process, expand economic opportunity, and
    improve the health and welfare of all the people of Burma.''
    And I think these are obviously very important topics that I
    agree with, but wonder if we are properly aligning these
    efforts to address the most urgent needs in Burma that would
    result in the immediate deliverables for the new democratic
    government. We also met with a number of key leaders and
    supporters of Aung San Suu Kyi, and we talked about what
    success looks like for--at the end of the 5-year period of this
    administration. For instance, according to the Asian
    Development Bank assessment in 2015, per-capita electricity
    consumption in Myanmar remains among the lowest in Southeast
    Asia, reflecting poverty-level per-capita incomes and an
    electrification rate of only 31 percent. Lacking electricity,
    most rural households burn firewood and animal dung for
    lighting and cooking, causing widespread acute respiratory
    problem. Yet the '17--the fiscal year '17 request does not
    speak to any initiatives in this area.
        So, which economic sectors do you believe should be the
    near-term priority for U.S. development initiatives in Burma?
        And this should go to all the witnesses, if you would like.
        Ms. Mandaville. Maybe, then, the right place to start--and
    I will confess to not being an expert in this particular--in
    Burma, in particular. But, I think this is a space where it is
    thinking about both efforts to actually promote actual economic
    growth and the conditions which, in the long term, support
    economic growth. And so, I think that is--those are the right
    pair of questions to ask around how to prioritize the
    investments. Whether the--if you are looking at it from an
    economic perspective, what are the things that, at this moment,
    for the next 3 to 5 years--these are the characteristics of
    that economy that an investment does alter its ability tto have
    a stronger growth path. But, in addition to that, there is a
    question about what sustains those conditions, or, as
    conditions change, given the world around it, given the country
    itself and its own changes over time, what supports those
    conditions in the long run. So, I think there are probably two
    stages to the investment.
        Senator Gardner. And, given what you just said, can we more
    effectively utilize existing State and USAID programs, or can--
    better use them as they are today, or do we need to change
    course and establish a new program for Burma, itself?
        Ms. Mandaville. In my view--and again, not being a specific
    expert in Burma--this is something where I think USAID's more
    recent adopting of country-specific strategies, which dig in
    quite deeply into a variety of aspects about the different
    things that the U.S. Government is supporting over time in a
    country, be they economic or other, is possibly--is probably
    the right place to start thinking through this, which suggests
    that it also--these strategies also allow both State and USAID
    to look across the tools and instruments that they can use, and
    bring them together.
        Senator Gardner. And so, I do not know if you want to
    answer the next question, or perhaps the other two, as well,
    but it kind of leads into what you were saying--or builds off
    of what you were saying. With that country-specific approach
    that we have been developing through our aid dollars, is
    something like the Power Africa Initiative--could that be
    useful to assist the needs of Burma as we talk about the
    electrification rate and economic development, those kinds of
    things--would that be a good approach to develop sort of a
    prescriptive Power Burma kind of approach?
        Dr. Herbst. Not--again, although I have been to Burma, not
    being an expert in it, I will say that President Obama was
    right to point out that electricity was a primary constraint to
    economic growth, and that infrastructure development, which the
    aid community has had an ambivalent relationship to over many
    years, is an absolute necessity. So, if we or others are not
    going to be part of helping Burma grow its electrical power
    generation, assuming that it can do so efficiently, that is
    going to be a major constraint on growth. And we have seen that
    elsewhere in the developing world also.
        Senator Gardner. Thank you.
        Dr. Moss. If you look at what the Power Africa Initiative
    tries to do, which is--and this was Alicia's point--you start
    from an analysis of what is holding back electricity. What is
    it that the U.S. could do? Is it put a technical advisor in a
    utility? Is it provide some political risk insurance to a
    private power producer? Is it investing something in the grid?
    It is starting from an analytical base and then figuring out
    what tools we need to bring to bear. That approach--I do not
    know if you need a White House initiative for it, but that kind
    of approach would certainly apply in a country with a 31-
    percent electrification rate.
        Senator Gardner. Thank you, Mr. Chairman.
        Thank you.
        The Chairman. Thank you.
        There is no question that Electrify Africa is one of those
    things that can make a massive difference in people's lives--
    over 50 million, we hope, in the next 4 years, 600 million
    people in sub-Saharan Africa without electricity. It is hard to
    have economic growth, hard to have healthcare, hard to have
    education without electricity. And the way this is construed
    with very little, from the standpoint of U.S. actual dollars,
    is fascinating, and a great model. And I appreciate Senator
    Gardner's leadership on all things Asia, and his focus in that
    regard.
        Senator Coons.
        Senator Coons. Thank you, Chairman Corker, Ranking Member
    Cardin, both for convening this important discussion and for
    your real leadership in this committee.
        I was pleased to see the Foreign Aid Transparency and
    Accountability Act just passed the House, and the Global Food
    Security Act has also passed the House, both of which I hope
    will be signed into law by the President soon. It is a reminder
    of the solid, sustained bipartisan work done by this committee.
        The Chairman. You have been involved in a lot of good
    things as a freshman Senator from----
        Senator Coons. The small State of Delaware.
        The Chairman. That is right. Very small State. [Laughter.]
        Senator Shaheen. No longer a freshman.
        Senator Coons. No longer freshman, my good colleague
    Senator Shaheen reminds us all.
        But--and Electrify Africa was one of the things I was proud
    to play some very small role in.
        Like many members of this committee, I am a strong believer
    in the potential of U.S. foreign assistance, not just to
    provide vital, even lifesaving, support, but also to strengthen
    our leadership role in the world. But, I also believe that U.S.
    taxpayers should not be committed indefinitely to assistance
    without reasonable metrics for its impact and its outcome. And
    there are ways we can, and should, work together to strengthen
    the transparency, the accountability, and the impact of our
    aid.
        I have been particularly impressed with the Millennium
    Challenge Corporation, its metrics-based approach. And later
    today, I will be joining some House colleagues at an OPIC
    event, presenting awards at the U.S. Chamber of Commerce to
    companies that have made real progress through OPIC.
        So, let me ask two questions. First, if I might, Mr. Moss,
    about Electrify Africa. The Obama administration's Power Africa
    Roadmap is very ambitious, 30,000 megawatts, 60 million
    connections by 2030. And yet, we have heard that, in some
    countries, business leaders I have met with do not feel that
    the governments are taking advantage yet of the strong
    incentives we have offered. There has been real progress
    towards a more market-based approach in some of the most active
    and engaged countries--competitive tenders, deregulation. But,
    I am concerned about meeting this aggressive timeline.
        Is it structured--the Power Africa Initiative--the right
    way to achieve this roadmap? Is it possible--this is what I
    think Senator Gardner was asking--to replicate this model in
    confronting other development challenges? And how do we get the
    public and private sector to work more closely together in
    addressing key challenges like power?
        Dr. Moss. Thank you for that question, Senator Coons.
        You know, I think that the general approach of Electrify
    Africa Act and of the Power Africa Initiative, which is to try
    to tackle what--tackle the barriers, kind of, one at a time in
    each country. In Nigeria, the problems are very different than
    in Liberia, and we are going to need different tools to help
    countries get to their ambitious energy goals. I do not know
    whether the 2030 is--you know, it is ambitious. I think it is
    a--it is certainly achievable under certain conditions. I would
    say what my principal concern about it is that it relies on an
    extremely ad hoc set--a coordination mechanism that I worry
    will not last into the next administration. There is no--unlike
    PEPFAR, there is no strong home that is going to carry on the
    work of Power Africa in the same way--you know, the team at
    USAID, I think, has done a tremendous job. Their roadmap, I
    actually was expecting it to be a government whitewash. I
    thought it was a really honest, terrific, analytically solid
    document. I have been very impressed. But, if Power Africa and
    Electrify Africa is going to be sustained through 2030 and
    reach these ambitious goals, it needs to--it needs a bit more
    political heft. It needs to have a home. And I am definitely
    worried that, in the next year or two, we could see a lot of
    that momentum lost.
        I have heard, both from governments in Africa and from
    people in--power-sector executives, that some of that early
    excitement has been lost. The summit is over, we are toward the
    end of the administration, there is a natural tapering of
    energy. I am worried that that will not get sustained.
        Senator Coons. Well, let me ask one follow-on question
    about OPIC, if I might. You suggest, in your testimony, OPIC
    should be able to make equity investments. Why equity? And what
    is the difference, in terms of leveraging private capital? And
    why would that, at, as you say, no cost to the taxpayers,
    significantly expand its reach?
        Dr. Moss. So, it is kind of a wonky answer, but when you
    are crowding in lots of investors, say in a power project, and
    most of them are coming in with equity, OPIC is forced to come
    in and, by statute, has to issue first-tier debt, which means
    they have to get paid back first, which means you have just
    aggravated all of your other partners, and it actually means
    that OPIC often has to--it gets pushed out of deals----
        Senator Coons. Right.
        Dr. Moss.--and it is not able to leverage that in the same
    way. It is just a--it is a flexibility that you would want,
    especially in the poorest countries. When you look at
    development finance institutions, like the Germans, the Dutch,
    the British--in the poorest countries, they are doing almost
    entirely equity, very little debt, and the U.S. is just unable
    to have that capability, because of this rule that goes back to
    the Nixon administration.
        Senator Coons. One more question, if I might?
        Mr. Herbst, if I might, I just--I was struck by the
    forcefulness of your repeated statement that the world is awash
    in aid. Let me make sure I hear you right. Did you mean
    relative to the amount of human need, the world is awash in
    aid? Or did you mean relative to opportunities to make clear,
    high-impact investments that will have a positive outcome, the
    world is awash in aid?
        Dr. Herbst. The latter.
        Senator Coons. Because I----
        Dr. Herbst. The latter.
        Senator Coons.--I just do not want those who might be
    watching or listening to get the mistaken impression that there
    is just huge amounts of excess aid. Given 65 million refugees,
    I am struck at just how much human need continues to spread
    into previously unexpected places in ways--and I think one of
    our biggest challenges now is confronting that humanitarian
    work and sustainable development need to blend in ways they
    have not previously, that we are confronting a generation of
    refugees living outside their home countries for 10 or 20
    years, and we need to look differently at how we do emergency
    response for refugees and how we do sustainable development.
        Ms. Mandaville, have any closing comment on that
    convergence?
        Ms. Mandaville. No, certainly. And I think, actually, this
    goes to a question about how--if part of our challenge is
    identifying the opportunities where resources can have the most
    impact, then I think that there is--this goes, actually, to a
    question about the Global Development Lab, and something that
    both the Global Development Lab and MCC are good at, which is
    structuring the way it thinks about a new undertaking or a new
    investment so that there is a point in time where you ask the
    question about whether the counterpart government or the
    recipient government has undertaken the policy steps it needs
    to for your own investment to proceed and have solid impact.
    And so, I think this actually supports this point that, you
    know, generating growth is not just about what the United
    States can bring to bear, it is also about what the country
    picks up and takes responsibility and brings to bear on its
    own. And so, something that Global Development Lab does quite
    well and the MCC does quite publicly is to make this point
    that, if you look even at Power Africa investments, the power
    infrastructure that MCC has invested in, there are tariff
    reforms associated with that, there are regulatory body reforms
    associated with that. And they are politically difficult for
    many of these countries to undertake. But, it is when we pair
    them together that we are able to identify, given the possible
    things that we could direct our resources to, this is one where
    both parties have skin in the game.
        Senator Coons. Thank you.
        Thank you, to the panel.
        Thank you, Mr. Chairman.
        The Chairman. Thank you.
        Senator Shaheen.
        Senator Shaheen. Thank you.
        Thank you all very much for being here. And I am sorry that
    I missed your presentations, but--so, I think this question may
    be for you, Mr. Moss.
        I was on a presentation this morning, talking about the
    success of enterprise funds after the fall of the Soviet Union
    and some of the eastern European countries. And can you talk a
    little bit about what was it about those funds that made them a
    success, and whether there is the ability to duplicate that.
    And should we be looking at enterprise funds again as we think
    about some of the need in some of the places that we are
    looking at?
        Dr. Moss. So, I have not looked in detail at the enterprise
    funds; however, there is a kind of general consensus among the
    development community that the initial fund in Poland was a
    great success.
        Senator Shaheen. Right.
        Dr. Moss. And we have yet to see that replicated ever
    again. The southern Africa development enterprise fund, the
    post-apartheid fund, was a total disaster, a complete washout.
    I know that some of the other funds that have been tried have
    not worked out. Part of that, I think, is that they are not
    structured in a way that allows--you are essentially making
    venture capital into very, very risky markets. There is some
    reason you need to even organize that. And there are going to
    be a lot of losses. As Alicia mentioned, you have to have a
    very, very high tolerance for loss for venture capital to work,
    and you have to give the fund the autonomy and time to make
    those investments, and you hopefully--maybe you only have a 20-
    percent hit rate, but those--that 20 percent makes it
    worthwhile. USAID, as an agency, is not structured in a way to
    allow that to happen. They are in a 1-year, no-failure, no-
    corruption, no-problem mindset, in part because of
    congressional hammering.
        Senator Shaheen. Right.
        Dr. Moss. And so, I have actually been much more impressed
    by the private equity funds that have been seeded and started
    by OPIC, where they will provide up to a third of the capital
    for a fund. They have done this very well in African
    infrastructure. They will provide up to a third of the initial
    capital if the third-party fund manager can go out and raise
    the other two-thirds, and they are given 10 years to go do
    that. And that has actually been a much better model. And OPIC,
    because of its structure, is just better set up for that than
    USAID.
        Senator Shaheen. Well, I know that we have been talking
    about Africa and Asia. I happen to be the Ranking Member on the
    European Affairs Subcommittee, with--and there are still
    pockets in Europe--the Balkans, in particular--where there is
    significant need. So, talk about the model that you have seen
    that you think may be more--or maybe it is the same model, but
    maybe--may work better in place like Europe, the Balkans,
    where--where they have different challenges than Africa.
        And I do not know who wants to try and respond to that.
        Ms. Mandaville. I spent the first part of my career at NDI
    working in the Balkans, so maybe I should go first.
        So, I think that, in some ways, it comes back to the same
    question about taking a country strategy approach. And one of
    the things that characterizes the Balkans is its proximity to
    an extraordinarily well-functioning, highly-dynamic market. And
    so, that has to be a fundamental piece of how you think about
    what countries in that space--what sustains their growth when
    they are in that context.
        And the, kind of, I think, relevant, maybe, Africa example,
    then,--or ``comparison'' is not the right word, but point to
    make would be--if you think about the way people invest in
    economic opportunity and growth in Lesotho, which is surrounded
    by a dynamic South African economy, it is much more focused on
    how you think about labor-force development, ability to work
    inside of markets that are around it, and work with markets
    that are around it, to take advantage of--comparative
    advantage. So, I think that that kind of lesson would probably
    be one of the best starting points.
        Senator Shaheen. You talked a little bit about the
    connection between incentive for reform and assistance. Can you
    talk about how the two are connected? Now, I appreciate that
    there has to be commitment in country to make those reforms,
    but how important is it for us to tie our economic assistance
    to the need to reform in the countries that we are supporting?
        Ms. Mandaville. I think that there is, kind of, two
    different types of assistance. And one is most effective when
    it is quite closely connected to policy reforms undertaken by
    countries, and the other is what it makes sense to do when it
    is not possible to make that tie. So, to be more specific, I
    think that when we think about large-scale investments that
    have a macro-effect, large-scale infrastructure, things that
    would require, over the long-time regulatory reform or
    anticorruption efforts in order for them to be practical, in
    those instances--and, like I said, this is something both MCC--
    MCC does well, and Global Development Lab does well because it
    is an actual technical approach, right?--is to look at, what is
    the point by which, if a certain paired reform is not in place,
    the rest of the investment makes less sense? MCC does this well
    by looking first at the policy environment as a whole in the
    country, but even inside investments, also looking at the
    specifics of regulatory reform and: ``Will our investment have
    a return if they do not put this in place?''
        However, there are countries where--which are fragile,
    where we still care about economic activity for the population.
    And we may believe that it is not--it is not as possible to
    have high-level economic growth outcomes, but we believe
    strenuously in supporting economic activity and income-
    generation outcomes. And, in those spaces, that is where I
    think it is--it is more important to think through what allows
    for economic activity at a community or regional--local level,
    and put support behind programs that reach to that space.
        Senator Shaheen. Thank you.
        Dr. Herbst. I would be more skeptical of the latter's
    programs. I think many of the poor, fragile countries that Ms.
    Mandaville mentioned are that way because of a lack of reform
    over time and that, while we cannot ignore human suffering and
    destitution, as a country and as a people, I do not think that
    countries--even poor countries--that do not take basic reforms
    will get themselves out of the trap of being poor and fragile.
    And I think we have seen this with Haiti for a very long time
    now. So, I do not think that the level of economic development
    should, at any point, give country immunity from us looking
    very carefully at what senior leadership government officials
    are doing. They may be asked to do different things, and the
    bar may be lower, but I think the--all countries should be on a
    reform trajectory.
        Senator Shaheen. I assume you would feel differently about
    countries that are in the midst of a crisis like Syria or Iraq?
        Dr. Herbst. Well, I do not think, there, you are talking--
    those countries--Syria a functioning country at the moment, so
    I think that those are different. But, if you look at a country
    I know fairly well, Zimbabwe, where I have been on and off for
    30 years, they are in the midst of a crisis right now that has
    come about because of lack of government reform. And we will
    continue to give food aid and other things, because we care
    about the people there. But, we should be under no illusions
    that it was the very government's policies that got them into
    this----
        Senator Shaheen. Right.
        Dr. Herbst.--spot in the first place.
        Senator Shaheen. Thank you.
        I am actually out of time.
        The Chairman. Okay.
        Senator Markey.
        Senator Markey. Thank you, Mr. Chairman, very much.
        And we thank the panel for joining us here today. And we
    thank you for your expertise on ways that--of our foreign
    economic assistance can more effectively advance the growth of
    prosperous societies around the world.
        Here in America and throughout the developed world,
    Internet access has been an enormous driver of economic growth,
    including to a recent Boston Consulting Group report. This
    year, the Internet contributed an estimated $4.2 trillion in
    annual growth to the economies of the G20 countries, adding
    between a--5 and 9 percent to GDP. But, in February, a report
    from the Alliance for Affordable Internet found that, without
    immediate and urgent action, the world will miss the newly
    agreed global goal of universal Internet access by 2020, and,
    on current trends, the world's least developed countries will
    only achieve universal access by 2042. Even then, persistent
    income inequality within and between countries may mean that
    millions of people will continue to be priced out of
    participating in the digital revolution. In the modern era, the
    Internet is like oxygen to the economy of every single country
    and every single individual within those countries.
        So, the United States has multiple tools which can lead in
    this area, including the State Department's Global Connect
    Initiative, USAID's Global Development Lab, the Millennium
    Challenge Corporation, and the Overseas Private Investment
    Corporation, to name just a few.
        Can you give us, from your perspectives, how you view the
    role that the United States can play in pushing along this
    agenda and ensuring that universal Internet access is something
    that can be realized by every country on the planet?
        Dr. Moss.
        Dr. Moss. I know this is not a very Washington thing to
    say, but I do not really have a strong view on that. I think a
    lot of the countries that I deal with, Internet access is far
    from the top of the list of people's priorities. A lot of the
    countries I am--I work in, you know, less than half of the
    people have any meaningful electricity. And so, Internet is
    something that people aspire to, but would not be--you know,
    would not be--would not--probably not make the top five. I
    realize there are lots of markets where that is not the case,
    but I think the others are probably better placed to say.
        Senator Markey. Okay.
        Yes, sir.
        Dr. Herbst. I am pleased to report, Senator, that the
    Newseum, in conjunction with ITI, the internet trade
    association, is now conducting a project on expanding broadband
    access across the world. And we convened our first meeting,
    which included major technological companies as well as
    Ambassador-level representation of a variety of countries. And
    we will be having our second meeting in conjunction with the
    October World Bank meetings.
        I take a somewhat different approach to my friend, and
    agree with you, Senator. I think broadband access has become
    the fundamental avenue for free expression in the world, and is
    the link to the world economy. Our perception, after talking
    with companies in a certain number of countries in a project
    that is still going on, is that regulatory and political
    obstacles in developing countries are first-order problems, and
    that financing is a second-order problem, that there is money
    out there, some from official, a lot more from the private
    sector, but that the fundamental issue, when you look at
    countries where--and countries at the same per-capita income
    level do have different levels of broadband penetration. Some
    of that is geography, but some of it is regulation. And I think
    the role we can play is in providing models of how governments
    can regulate or deregulate their telecom sectors to allow for
    the kind of universal access which I think is going to be
    absolutely critical for the future. There are going to be
    further developments in mobile that are going to make this
    easier, but also going to raise the stakes, because the
    developed world's Internet infrastructure is advancing at such
    a rate that, if the developing world does not get into this
    race, the actual digital divide is going to get worse.
        Senator Markey. Ms. Mandaville.
        Ms. Mandaville. Yes, I would agree with Dr. Herbst on the--
    a point that there is a lot of private capital, I think,
    interested in this space, largely because it is a big piece of
    how they move in through economies, as well. And so, I think
    the question, then, to ask about, What is the role of thinking
    through U.S. assistance, in terms of what it provides to
    increase accessibility, universal access, moving into spaces
    that are more remote and not just urban centers, is to really
    ask the question about what is--What is the role of, kind of,
    influencing and in--pressing for regulatory reform that allow
    for universal access, that allow multiple types of providers?
    This is--I was at a--spent a year at a tech company prior to
    joining InterAction, and this is a space where lots of people
    are very, very interested in how they reach markets in other
    places, specifically through the Internet. And so, thinking
    through what we do that leverages that interest, that leverages
    that force, is really critical.
        Senator Markey. Yes. And I--when I look back in 1996, when
    we passed the Telecom Act of 1996, not one home in America had
    broadband. In February of 1996, not one home. Twenty years
    later, for 12-year-olds, it is a constitutional right to have a
    50-inch HD screen. Okay? They cannot even imagine life without
    it. But, for those people in 1996, it was unimaginable that
    there was such a thing as HDTV. It was such--that the screen
    could be interactive, that there could be a wireless device
    that they are carrying around in their pocket that is as
    powerful as the computers that put a man on the Moon, but it is
    in their pocket now. So, to a certain extent, I just think that
    the United States has to help these countries lift their gaze
    to the constellation of possibilities for their own people
    through the dissemination of technology.
        So, yes, on the one hand, electricity is important, and
    that is what Power Africa or Electrify Africa is all about, but
    electricity is just a means, then, to make sure that all these
    other devices that actually transform the country into a modern
    economy, into something that their younger citizens can
    compete, is absolutely essential.
        And so, in 1993, there were not any phones like this. They
    were the size of bricks. They cost 50 cents a minute. And
    Gordon Gecko had one, in Wall Street. Okay? But, by 1996, we
    had innovated, and, boom, we had one of these. By 2007, people
    have one of these. And 600 million people in Africa now have
    one of these, but the United States had to be the leader. We
    are the ones, ourselves, that had to get out of our own rut,
    the black, rotary-dial phone, and--a phone in your own pocket?
    Absolutely unimaginable. Now we wake up in the morning, and our
    first thought is, ``I cannot forget my phone. I have got to
    have it in the car. I am going to work.'' Well, those were not
    thoughts that anyone had up until 15 years ago, in our own
    country. But yet, we cannot leave behind all of these people in
    the developing countries without having access to, essentially,
    the global economy----
        The Chairman. Okay.
        Senator Markey.--the skillset you need in order to be able
    to expand. And then, like the United States, or like the 600
    million people in Africa right now, it happens overnight.
        So, you need to kind of Power Africa, but you also have to
    Internet Africa. You have to Internet----
        The Chairman. Okay.
        Senator Markey.--South America, their villages, and let
    these young people have these opportunities. So----
        The Chairman. Good.
        Senator Markey.--towards that goal, I just think that we
    should work, you know, together to try to accomplish those
    goals, because I think that is the most powerful democratizing
    capitalistic, you know, idea that we can have in inducing, you
    know, a different kind of way of thinking that serves as a
    proper counter to that which seeks to pollute the minds of
    young people across the planet.
        I thank you all for everything you do.
        I thank you----
        The Chairman. Thank you.
        Senator Markey.--Mr. Chairman.
        The Chairman. Thank you so much. I appreciate it.
        So, I know there are some additional questions. I want to
    get to the essence of what I think this hearing is really
    about.
        Ms. Mandaville, you kind of represent the aid industrial
    complex, I guess, at the intersection. And, in fairness--I
    travel around the world, and all of us do so extensively. So
    many of our Ambassadors tell me that we really do have a Cold
    War model that is tremendously ineffective, and that most of
    what we do as it relates to aid is wasted. So, the reason we
    are having this hearing is to ensure that that is not the case.
    And we certainly appreciate the work that the organizations you
    are a part of do. We really do. But, I think it is an outdated
    model. And Senator Markey was expressing some reference to
    outdated things. But, it is a problem. And I think it is just
    like what is happening in our country right now. I mean, there
    is tremendous upheaval because structures of government are not
    exactly responding to things in the way that people would like
    to see the same thing we know is happening in aid. And yet, we
    support being involved.
        So, you know, Dr. Herbst would talk about the fact that, in
    essence, we are pushing rope when we send money to countries
    that are not going through the reforms that need to occur. It
    is wasted money. I mean, the things that we want to see happen
    are not going to occur.
        Dr. Moss, I know, has talked a little bit about development
    finance. And I know our office is looking at ways of really
    increasing that so that you are focusing--and maybe diminishing
    some other things--so that you are focusing on things that are
    actually going to have an impact.
        And I just wonder if you might respond to what I just laid
    out and the concerns that we have from Ambassadors all over the
    world that represent us, that know that much of what we are
    doing really is just about buying influence, it is not about
    economic growth, it is not about affecting people's lives in an
    appropriate way, and how you might respond to what so many of
    them say to me, that are out there on the ground, that that is
    a big part of their life. I mean, it is what they care about.
    It is what they are administering.
        Ms. Mandaville. Thank you.
        And I think that there are spaces where--I agree that
    trying to achieve certain types of economic outcomes in
    environments where governments are not willing to take reforms
    that fundamentally affect those outcomes is not--cannot be
    successful at the level that we hope for. I spent 9 years at
    the Millennium Challenge Corporation, often sitting across the
    table from Prime Ministers and Ministers of Finance and
    Ministers of Infrastructure, explaining to them why I was very
    sorry, but they were not eligible, because we had not seen the
    level of policy reform and commitment that was required.
        The Chairman. But that does not happen in the other areas
    of assistance. You had the freedom, at the Millennium----
        Ms. Mandaville. I did.
        The Chairman [continuing]. Corporation, to make a
    difference, to make sure that whatever you did was
    transformative.
        Ms. Mandaville. Right.
        The Chairman. On the other hand, what we are doing at USAID
    on a daily basis is doling out money that is making no
    difference, in many cases, and they do not have the same
    mandate that you had at the Millennium Corporation.
        Ms. Mandaville. I also would say that nobody wants to be
    implementing a program that they do not feel like is having
    impact. People go into development or humanitarian work because
    they want to affect people's lives. And whether they are an
    implementer on the ground or there in the headquarters or at
    their--at USAID, nobody wants to be in that position. I just
    think----
        The Chairman. Well, let me just ask you this. Does the aid
    industrial complex, though, that you are associated with, does
    it create resistance to change that might migrate dollars away
    to other things that would be more effective?
        Ms. Mandaville [continuing]. I think that--I think we need
    to tolerate learning about what is effective. And I think
    that----
        The Chairman. I think the answer, though, is, somewhat,
    yes, is it not?
        Ms. Mandaville [continuing]. I think that, in the last 5 to
    10 years, we have seen more and more uptake of selectivity and
    analytical rigor, in terms of deciding what is going--what
    works and what does not in various places. I also recognize
    that, within our economic assistance portfolio, 40 percent of
    that assistance goes to three countries. I cannot speak to how
    those three countries affect the overall effectiveness of the
    portfolio, because even if you are extraordinarily rigorous in
    every other country in that portfolio, three swamp it. So, I do
    think that we have seen, over the last 5 to 10 years, more and
    more adoption of this notion that you have to be selective up
    front. You cannot work everywhere on everything. I do think
    that kind of change takes time.
        The Chairman. Okay.
        Dr. Moss?
        Dr. Moss. So, if we take my colleagues' testimony, which--I
    know it is boring, but I agree with their opening statements--
    so, if we take Jeff's premise that you have to focus on
    countries that--where there is a political commitment and
    governance is at least good enough, and we take Alicia's idea
    that targeted economic analysis is what will allow you to make
    smart choices and make good investments, you put those
    together, that means that the U.S. Government needs to be both
    highly selective and highly disciplined in turning off things
    when they do not work. Now, there are some experiments that
    work that way, but our budget process does not allow us to
    behave that way. Now, some of that is because other goals, like
    the State Department, as you suggest, likes to--I work there--
    we like to spread money around, because our job is to make
    friends, and one of the tools is the aid budget. It does not
    help if we are trying to get a--convince a country to send
    peacekeepers to turn off their--our aid program. Of course the
    State Department would fight against that.
        So, you have got other goals, you have got the budget
    process, which is often--there is no zero budgeting--you often
    start with, What was last year? And you spread it around a
    little bit differently, but there is a huge amount of inertia.
    And then there is also a big role from Congress. There are so
    many earmarks in the aid budget that there is very little
    flexibility for officials to say, ``You know what? It is not
    working in Kenya, so we are going to move it to Tanzania.''
    That is virtually impossible within our system. So, that is why
    you get these experiments, like MCC, like the Global
    Development Lab, that are trying to do it the new way, but the
    old, standard aid program run out of USAID, it just is not
    allowed to operate that way.
        The Chairman. You want to make a closing comment before I
    turn to Senator Cardin, Dr. Herbst?
        Dr. Herbst. I would just note that, as Senator Markey said,
    we have seen a revolution in telecommunications across the
    world, including in much of what we call the ``developing
    world.'' Hundreds of millions, billions of dollars have been
    invested, business practices have changed, lots of people have
    been brought online in poor countries. Almost none of that had
    anything to do with foreign aid. That was because governments
    made smart decisions. And we saw the same thing with the mobile
    phone revolution beforehand. Governments made smart decisions.
    Foreign investors found markets that were applicable.
        I think at all times we have to ask, Why are we investing
    this money, when the government of the day, or investors,
    private or foreign, cannot do it? There can be good answers to
    that. But, I would agree with Dr. Moss that selectivity and a
    portfolio which is more concomitant with the resources we are
    willing to develop and devote is necessary.
        I also believe, while I think, analytically, Dr. Moss is
    right, that it is hard, given all of our constraints, a few
    exemplary cases where we walked away or took highly disciplined
    measures would send an important signal, both across our
    government and across the world.
        The Chairman. Thank you.
        Senator Cardin.
        Senator Cardin. I agree, as I indicated earlier, that we
    need to have accountability. We are not doing a country any
    favor if we give them aid and it is not being used for its
    intended purpose and it is--not on a path towards good
    governance. But, as I said also, the amount of resources we are
    putting into economic development assistance is relatively
    small. And then, when you take out the three largest countries,
    it is really a small amount of money. And of the three major
    countries, the reasons for that aid--of course, Jordan is one,
    and I think most of us would say that there has been a pretty
    good return to the United States for what we have done in
    Jordan. The other two countries that receive a significant
    amount of aid, Afghanistan and Pakistan, there is a reason for
    that. And some of us question those reasons. But, it is not
    just the direct economic assistance.
        I do not think it is quite as simple as to try to take a
    look at this. What I said at the beginning, we should look at
    what has worked and what is our best chance to improve
    governance or put a country on a path towards good governance.
    And I think the MCC has been a really good model, and I think
    we need to build on that. I think PEPFAR has worked well. From
    the countries I have visited with PEPFAR investments, it has
    made a substantial difference. They know that the United States
    was there. And there is a generation, now, appreciative of what
    we did. And we have much more stable countries where these
    clinics have been able to produce the health results.
        And what has not worked as effectively--and the Chairman
    really alluded to this, and some of you have, also--and that
    is, ``Are we prepared to really hold a country accountable by
    either reducing or eliminating their funds?'' And that is very
    difficult in our political environment.
        So, we have used--let me just make a couple of
    suggestions--we have used the appropriation process to put
    conditions on aid. That has not worked.
        The Chairman. Yes.
        Senator Cardin. It has not worked. I think this committee
    could be helpful, if we could get into a regular practice of
    State Department authorization. We could help the authorizers
    and we could then take up some of these issues, and we could
    look at what tools work. So, I know we are working on that. And
    the Chairman has made that one of his top priorities. And I
    strongly support that.
        I also believe that suggestions that have been made about
    leveraging private-public partnerships are good, and OPIC
    reauthorization and reform. I think their suggestions make a
    great deal of sense, and things that we could do to make a
    difference.
        And I also think transparency is critically important. I
    understand skepticism about how it would be used, but, without
    transparency, it is very difficult to get everybody on the same
    page. So, I am all for the transparency, and pleased that we
    have been able to deal with that.
        But, I think this panel has raised a lot of good questions,
    and some good areas that we could advance that would give us a
    better chance to achieve our objectives of really transforming
    a country's economic capacity through the use of U.S.
    engagement.
        So, thank you all for your testimony.
        The Chairman. Thank you.
        Senator Shaheen.
        Senator Shaheen. Thank you.
        I just have one question. But, before I ask it, I want to
    make a point, Dr. Herbst, that I very much agree with the
    conversation that you all were having with Senator Markey about
    the importance of access to broadband and Internet technology.
    And I hope that, as you are thinking about that the Newseum
    around the world, you are also thinking about it in terms of
    the United States, because there are parts of my home State of
    New Hampshire that do not have access to affordable broadband,
    and it is having a significant impact on their development. And
    I know that we are not the only State in the country with that
    problem. So, at some point, it is unfortunate that we are not
    looking at rural broadband access in the same way that we
    looked at rural electrification, because certainly that would
    make a significant difference in a number of the rural areas of
    this country.
        Now--but, to go to my question, the last visits that I have
    made to Africa, to parts of the Middle East, there--what I have
    seen has been significant investment by China in those areas.
    And as we look at the influence that that gives to China--you
    know, EU has also made investments in other parts of the
    world--are there other countries that are providing assistance
    that are being more successful than we are? And are there
    models that we should be looking to? I am not suggesting that
    China is one of those models, necessarily, but are there ways
    that other countries are doing this investment that is more
    successful than what we are doing? And who should we be looking
    to?
        To whoever wants to answer that.
        Dr. Herbst. I do not think so, except that I would say that
    the United States, as the superpower, is burdened by the
    broadest portfolio, both in terms of number of countries and
    number of sectors. If you look at the Nordic countries, for
    instance, their portfolio, geographically and in the sectors
    they are involved in, is much narrower. I think that gives them
    an inherent advantage in executing their policies.
        So, I do not know that they are any smarter or any more
    capable than us, but I think the global responsibilities that
    have so vitally influenced our aid portfolio have made it
    especially difficult for us to execute. I think other donors
    have an easier time of it. But, certainly I have had lots of
    conversations with almost every Western donor, where they will
    tell you an unhappy story. And I will also tell you that you
    can go back 50 years now and read exhortations that aid donors
    should coordinate so that they would--should learn more,
    address the sectors they are best doing at, and that has
    essentially failed for five decades now.
        Ms. Mandaville. I would add just that I think partly the
    answer to this goes back to the very first question around what
    should be the purpose of economic assistance. And the--to my
    mind, that is still to both generate actual growth and to
    support the conditions that generate growth. And I do think we
    do a very strong job of thinking about some of the conditions
    which support growth, vis-a-vis, for example, Chinese
    investments, which have tended to be more infrastructure, which
    is immediately apparent----
        Senator Shaheen. Right.
        Ms. Mandaville [continuing]. But does not necessarily
    incentivize a reform process on the part of the government that
    is receiving it.
        Senator Shaheen. Not sure China wants to incentivize
    reform----
        Ms. Mandaville [continuing]. I suspect there is some----
        Senator Shaheen [continuing]. In the governments.
        Ms. Mandaville [continuing]. Other incentivizing going on.
        Dr. Moss. I would just add, you know, there is actually
    quite a broad range of countries involved. You know, India is
    very involved in sub-Saharan Africa, Malaysia, the Gulf states,
    Brazil. So, it is definitely much, much broader than just U.S.,
    China, Europe. I actually--I would agree with Jeff that there
    really is no other model that fits the American--you know, with
    the way that we operate. Our--you know, it is absolute folly
    for us to try to mirror or to compete with the Chinese with
    what they are trying to do. Their model does not fit with the
    way that we view business, and the distinction between private
    sector and the state.
        Senator Shaheen. Well, given that, and given--you all
    mentioned the expanded role of American leadership in the
    world, and the interests that we have around the world.
        Is it realistic to think that we can focus our aid
    assistance in a way that accomplishes what I understood you to
    say? Are we really going to be able to cut off aid to people
    who are not doing what we think they ought to be doing, in
    terms of reform? I mean, is that really realistic?
        Dr. Herbst. I think it is. But, we will have to look at the
    internal incentives that we provide to our aid agencies, both
    at the personal level and at the governmental level. I think
    that if you encourage--set the right incentives and regulations
    internally, then that is possible. We have certainly made
    demands of other countries in other areas, and walked away from
    them, in the security sector and in other areas. So, I do think
    it is possible. But, we have to be much clearer than before
    about our preferences, in terms of encouraging actual
    performance, as opposed to showing the flag, as opposed to
    deploying other types of influence. If we are clear on what we
    want, I believe we can have the same discipline as we have
    demonstrated in other areas.
        Ms. Mandaville. I think this is where the selectivity piece
    that Todd mentioned earlier really matters. I think we can
    credibly be clear about the expectations, both on investment on
    our side and policy reform on a country side--when it--when we
    are selective about where we are using that approach. And that
    is one of the reasons that I think MCC has been able to walk
    away from countries when they backtrack on reforms or when they
    do not take the steps that they are supposed to. So, there is a
    proof case that it is possible, but I would agree, it is
    probably not possible everywhere.
        Senator Shaheen. But, I guess you all would agree that we
    are looking at humanitarian assistance in one way, where it is
    probably not something that we want to think about, in terms of
    walking away. And the kind of economic assistance that most of
    the discussion is focused on is a different pot that--and we
    should be thinking about it differently.
        Ms. Mandaville. Absolutely.
        Senator Shaheen. Thank you.
        Dr. Herbst. I would agree, although humanitarian assistance
    can also be given more or less effectively.
        The Chairman. Senator Cardin needed to go to another
    hearing, and I just wanted to pursue a couple more questions,
    if you all have time to answer those.
        Dr. Herbst, you wrote, in a 2013 New York Times article.
    You made the point about the growing role of private capital.
    Can the three of you all respond to the impact, the difference
    that is occurring between what countries are doing around the
    world to help with economic aid through government entities and
    then, relatively, the impact that private capital is having
    doing the same thing?
        Dr. Herbst. Private capital is having an impact on more and
    more countries. We will see how it works out through the post-
    commodity-boom session. But, private capital is often more
    attractive than official aid, bilateral or multilateral,
    because it is not loaded with the same conditions that we,
    rightfully or wrongfully, add onto many of ours with regard
    to--take your pick: role of women, poverty reduction, climate
    change, environmental degradation, or lots of other admirable
    things, but which complicate the situation. So, if a government
    is looking to place paper, it might, quite often, want to place
    it on private markets.
        We are also seeing a world awash with capital. It is not
    only awash with foreign aid. There is a tremendous amount of
    capital out there looking for high returns. And increasingly,
    those high returns come from emerging or, as they say, frontier
    markets, where returns can be quite high.
        And finally, we are seeing a diversification of the private
    funds, no longer only from Western Europe and North America,
    but increasingly from Asia, not only China, where it is very
    significant, but we will see increases in India, Malaysia,
    Singapore, and the like. So, those--I think that is almost
    entirely good news, in that there will be more capital that
    will be available to more countries. It will mean that we have
    to recognize that our own place in this is increasingly
    diminished, and that we will be only one actors among many, and
    the capital we are willing to deploy, especially given the
    particular distribution of our aid, is not very high, and set
    our expectations accordingly.
        To me, this is just the world becoming more normal, that
    Africa, Asia, and other places are able to make commercial and
    economic ties----
        The Chairman. Yes.
        Dr. Herbst [continuing]. With other places. We will just
    have to recognize that our impact, given what we are willing to
    invest, is going to be less.
        Dr. Moss. I would just add that, you know, I think--
    obviously, private capital, the greater flows we can get into
    these regions, the better. But, private capital is already
    highly selective and highly disciplined, because they are
    focused on a rate of return, and nothing else. The United
    States Government, if you asked us, ``What are our objectives
    in Kenya?''--I will bet this room could come up with 50
    different objectives that we have in Kenya. It is not a simple
    rate of return and ``If we do not get X, we are out.'' But,
    that--if you are a bond trader, that is exactly what you can
    do. So, I think we want to encourage it, but it is not going to
    meet all of the U.S.--it is not going to replace all of the
    other things that we hope to achieve.
        The Chairman. Ms. Mandaville.
        Ms. Mandaville. I agree with Todd--and to that I would add
    that I think the inflows of private capital demonstrate an
    ability to sustain economic growth, but they need to be
    preceded by the conditions that support private capital
    inflows. And so, whether that is support for regulatory reform,
    small business climate, import/export regulation, and trade
    capacity, I think those are the things that, as we see larger
    and larger private flows seeking high returns in some markets,
    there are still a large number of countries with large numbers
    of people living in poverty, where it is not yet a high-return
    environment. And so, in those instances, then the role for U.S.
    economic assistance becomes what is possible that cultivates
    the environment that can attract private capital in the long
    run.
        The Chairman. How concerned should we be?--People always
    refer to China and their aid. And, of course, their model is
    very different, very focused on infrastructure and Chinese
    jobs. There are other models that are out there. How much
    concern should we have? I mean, if a country is coming and
    helping an impoverished country increase its standard of
    living, is there a reason, that you can share with the American
    people who are tuning in, why we should want to be competitive
    in that regard? Or should we let--as some people might say, let
    them deal with that country, and maybe we focus on other
    places? Can you give an explanation, for people that might be
    listening in?
        Dr. Moss. So, I think, in general, Chinese investment in
    developing countries is something that the United States should
    welcome. These country--especially given that the--there is a
    concentration in infrastructure, and the infrastructure gaps,
    particularly in sub-Saharan Africa, are so huge, we actually
    need the Chinese investment in there. I think there are two big
    exceptions, here. One is that there has been, generally,
    improved standards of economic transparency and better
    governance. Some kinds of Chinese investments can undermine
    that. For example, lending without disclosing the terms is a
    problem. The other is that there are occasionally rogue states,
    where we would rather see those regimes starved of capital and
    isolated, and the Chinese are willing to do business with
    tyrants. And Zimbabwe--thank you, Jeff, for mentioning that
    already--is one example of a country where Chinese engagement
    with Zimbabwe is counterproductive.
        Dr. Herbst. I agree. I think, in general, for the recipient
    countries, having more suitors, as it were, more potential
    investors, is a good thing, and the creation of infrastructure
    stock that the Chinese have focused on has filled the gap which
    Western aid agencies walked away from, in some ways, invested
    less in infrastructure.
        I think there are some worries. The Chinese have a
    different model that goes back to the fact that it is not a
    capitalist model, fundamentally, and concerns about governance,
    in particular, which should animate much of what we do, are
    largely absent, not only in dealing with rogue states, but in
    private deals with government leaders and the like. So, I think
    there is a real concern that the Chinese may cause governance
    to decline, in some cases. And we will have to be very
    attentive to that.
        I think we also face, more generally, that there is a
    Chinese model of development which says that--democracy, human
    rights, later or never, apropos of their own experience. And I
    think that that message--as Chinese involvement on the ground
    in dozens of countries becomes more significant--that message
    is becoming louder, and is part of the explanation for the
    erosion of democratic performance that we have seen over the
    last 10 years. And I worry about that greatly.
        The Chairman. Very good.
        Ms. Mandaville.
        Ms. Mandaville. I would just add, kind of from a market
    perspective, the idea of there being a competitor in the
    provision of assistance, although it tends to produce better
    results by the initial provider, right? So, I think, to that
    extent, and not only is the actual investment helpful for many
    countries, but it does force us to look at what we are doing
    and ask questions about what we are doing effectively.
        I think Chinese assistance also throws into relief where
    the U.S. is working in partnership with another country in
    pursuit of economic growth, and where the--our partner country
    is perhaps not as committed to the reform side of the equation,
    in that, in the absence of there being an alternative, the
    conversation around whether reforms are going to happen or not
    can drag on and on. And I have seen it do so in certain
    investments.
        When there is another alternative to go to for assistance
    that does not have the same regulatory or democracy or other
    concerns attached to it, some countries are willing to say,
    ``That is fine, I am going to go here.'' And then you know. And
    that is--while not necessarily uplifting, I think that is a
    practical way to think about how we understand working in
    partnership with countries in cultivating the types of policy
    environments that sustain growth over time.
        The Chairman. Let me just go to a whole other extreme. We
    are all impacted by the people we see around the world as we
    travel--the Ambassadors, in particular, that have been around
    for 30 years and have seen a lot of the same things occurring
    in our aid. I had one particularly impressive Ambassador tell
    me that our economic assistance ought to be about one thing,
    and that is promoting U.S. companies' growth in these
    countries, and that is it, nothing else, that our focus ought
    to be making sure that U.S. economic interests are dealt with,
    that we are spurring that on, and that is what our foreign aid
    ought to be mostly about, other than dealing with the health
    issues that I think we have been so effective in dealing with.
    I would just like for you to respond, if I could.
        Dr. Herbst. Yes. I would disagree. I think that would be a
    detriment to overall governance in countries, if we were
    saying, basically, ``We want our aid to be rigged, and we want
    the system to be rigged in favor or our companies.'' That goes
    to old system--and that is an--a type of capitalism which you
    find in many developing countries, where a certain number of
    companies have privileged relations with government, they are
    monopolistic or favored, and they make a lot of money.
        The Chairman. Not unlike, really, much of what China does.
    Is that correct?
        Dr. Herbst. Not--in many ways.
        So, I think we are better off, in the long term, promoting
    an enabling environment that allows countries to grow. And then
    I believe we should challenge our companies to go in and
    participate, and take the necessary risks, invest, and prosper
    in those countries. I think American companies, in many cases,
    have not been aggressive enough in investing in the developing
    world, even when there are legitimate economic opportunities. I
    think this would be a signal to them that the U.S. Government
    will take care of them. Instead, we should be signaling to the
    recipient countries, create a vibrant environment, and then we
    believe that our companies, on level playing field, will
    compete and do well. I think that would be better for all
    concerned.
        The Chairman. Dr. Moss.
        Dr. Moss. I think that would be a recipe for our aid
    program degenerating into exactly what people worry about,
    which is a program of corporate welfare. I think it is
    absolutely antithetical to what our foreign aid program should
    be about, which is pursuing our national security, our
    development, and our economic interests abroad.
        I do think there is a role for the U.S. Government in
    ensuring that American companies have a fair playing field.
    Absolutely, that seems perfectly legitimate. But, using that as
    a hammer for mercantilism, I think, is--terrible idea.
        The Chairman. Ms. Mandaville.
        Ms. Mandaville. No, I agree. And I think that, in addition
    to being antithetical to a lot of our goals, it is not terribly
    practical as a way to actually work forward, in that American
    companies are tremendously different, one from another. And so,
    what is particularly effective for this company to be able to
    move into a country is not necessarily the thing that is--
    facilitates this other company's ability to move forward.
        And if you look at the things that, across the board, allow
    American companies, as a whole, to move into a country, it--
    they are the enabling environment, they are the conditions that
    promote economic growth, and they are free and fair practices.
    And so, if that is at the core of how we are thinking about
    economic assistance, then we are, by default, actually leveling
    the playing field for our own companies.
        The Chairman. Dr. Moss, you mentioned something about us
    being able to provide equity at OPIC. All three of you moved in
    the direction that I thought you would, relative to U.S.
    economic interests only. On the other hand, you were talking
    earlier about models that China and other countries have that
    are very different, focused on state-owned enterprises. One of
    the reasons, I think, that TPP, from a strategic standpoint,
    has been pursued, is to take advantage of those countries that
    are being pushed in our direction. In particular, in Southeast
    Asia, where China is dominant with their state-owned-enterprise
    model, and without us providing some way, whether it is
    bilateral agreements, if TPP is not what is going to be
    enacted, but, in some way, capturing that and dealing with them
    in a way that creates a more free-enterprise-oriented system.
    But, you mentioned OPIC having the ability to do equity. So,
    for many Americans, that sort of brings back Solyndra, I mean,
    it is not a path I am particularly interested in going down,
    where government officials are making decisions about equity
    and which companies they are going to be investing in. And I
    wonder how, from your perspective, we might square that.
        Dr. Moss. Yes. I think that is an excellent question, and
    it is definitely a concern that would get to the structure of
    how the equity would work within OPIC. You do not want civil
    servants making decisions about what the U.S. Government will
    have a chunk of a foreign private company.
        But, a way to get--if you look at the objectives of OPIC,
    OPIC is a development agency. Its goal is to help build markets
    abroad and to try to create economic opportunity. It is not
    like the Export-Import Bank, whose goal is U.S. jobs and U.S.
    exports. So, OPIC is not trying to get American companies into
    new markets, it is trying to build those opportunities. And if
    we hold OPIC to account, then there is--and that is their
    mandate, it is not changed to become mercantilist--I do not
    think that those concerns about equity positions within a
    limited capacity should really hold.
        Another way to get rid of that concern would be to remove a
    lot--some of the restrictions that are currently on OPIC for a
    U.S. nexus. If we loosen some of those constraints on OPIC
    investments, then the concern about potential corporate welfare
    or the concern about long-term U.S. ownership can disappear.
        The Chairman. Any other observations? [No response.]
        The Chairman. We are going to close the meeting out now. Is
    there anything that you felt needed to be addressed, that was
    not, in the hearing? [No response.]
        The Chairman. We thank you all--thank all of you for being
    here, and thank you for your testimony.
        There will be numbers of written questions that likely will
    come in. We will close the record as of the close of business
    on Monday. But, if you, in a fairly prompt manner, could
    respond to those, it would be much appreciated.
        And we thank all three of you for what you have done to
    advance our Nation's interests and for being here today and
    helping us.
        And, with that, the meeting is adjourned.
        [Whereupon, at 4:00 p.m., the hearing was adjourned.]

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                  Additional Material Submitted for the Record

     ``Bringing U.S. Development Finance Into the 21st Century,'' Ben Leo
                  and Todd Moss, Center for Global Development

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