[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 
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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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