[Congressional Record Volume 143, Number 17 (Tuesday, February 11, 1997)]
[Extensions of Remarks]
[Page E214]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                         WEED THE SEED PROGRAM

                                 ______
                                 

                      HON. JAMES A. TRAFICANT, JR.

                                of ohio

                    in the house of representatives

                       Tuesday, February 11, 1997

  Mr. TRAFICANT. Mr. Speaker, in 1989, at a time when communism was 
beginning to fall in Eastern Europe, Congress approved the Support for 
Eastern European Democracy [SEED] Act. The purpose of the SEED Act was 
to provide special enterprise funds to assist the fledgling democracies 
in the development of free-market economies. Originally intended to be 
used for economic restructuring and all-important humanitarian relief, 
the funds have become part of a never-ending web of corruption and 
mismanagement. America has already lost millions and millions of 
dollars of hard-earned taxpayer money through these funds, yet we keep 
throwing more good money after bad.
  The funds were established as private, nonprofit corporations. As 
such they are subject to little government oversight. According to a 
1990 Senate Appropriations Committee report (101-519) the only role 
that the U.S. Agency for International Development [USAID] is to have 
in the process is to ``simply write the check on a periodic basis when 
the enterprise funds determine that additional funding is necessary.'' 
This was done to give the boards of directors and the funds' managers 
wide latitude in determining how to invest the money and also to allow 
them the flexibility to react to market situations. While on the 
surface this may appear to be the best way to encourage the growth of 
market mechanisms, better, in fact, than traditional aid programs, it 
actually amounts to a situation in which there is no accountability to 
the investor, namely the American taxpayer. When the funds lose money 
as a result of poor investment practices it is the taxpayer who 
ultimately loses, with no way to recoup those losses.
  Unfortunately, it is not uncommon for money to be lost as a result of 
an ill-advised investment. There is a significant lack of quality 
personnel who are willing to relocate to Eastern Europe to oversee the 
funds. As a result the most prudent courses are not followed and it is 
almost the norm for investments to result in a net loss. In addition, 
the proper economic and political environments, to foster success, 
often do not exist. As an example, the original schedule for 
disbursement was to be carried out in lump sums over 3 years. However, 
the funds are experiencing difficulty in meeting this schedule and thus 
it has been extended. Other funds, such as the Hungarian Fund and the 
Polish Fund have requested, and the Polish Fund was granted, 
supplemental funding demonstrating that the funds are not self-
sustaining, as was originally intended. The most striking example, 
however, of the failure of funds' investments, is the case of the Czech 
and Slovak American Enterprise Funds (CSAEF). Authorized in 1991, the 
first two large investments failed terribly, resulting in a loss of $2 
million. In all bad investments have resulted in a loss of two-thirds 
of the CSAEF investment portfolio.
  A 1995 investigation conducted by an inspector general of U.S. Agency 
for International Development confirmed allegations of mismanagement 
and corruption within the system. Skyrocketing overhead costs are 
largely the result of corrupt management practices, as money is often 
used to line the pockets of corrupt profiteers. The president of the 
Hungarian Fund was found to have paid two U.S. executives salaries 
upwards of $400,000, forcing a salary cap to be imposed. Even more 
disturbing is the fact that a Hungarian government official received 
payments through the fund. The CSAEF, in addition to making poor 
investments, has been embroiled in scandal. John Petty, former deputy 
chairman of the CSAEF, was forced to resign due to his improper conduct 
in managing fund monies. The investigation discovered that he gave his 
mistress, who was working for the fund as an executive assistant, a 
more than 50 percent raise so that her salary amounted to $85,000 per 
year.
  The funds have simply not served their purpose. Corruption and 
mismanagement, coupled with poor environments for investment, have kept 
the funds from being an effective mechanism in moving Eastern Europe 
toward a market economy. The money has not been used for its original 
intent, economic restructuring and humanitarian relief. Instead, 
investments have been mismanaged and corruption has been a trademark of 
the system.
  At a time when we are searching for ways to balance the budget, when 
some even go so far as to propose an amendment to the Constitution, we 
cannot afford to waste money overseas. Rather than continuing to slash 
to the bone funding for vital domestic programs, it seems logical to 
eliminate programs that simply do nothing to benefit the American 
people. This program wastes hard-earned taxpayer dollars. The American 
people deserve to have their money work for them, not to have it 
squandered abroad. H.R. 564 will prohibit USAID from spending any money 
allocated to it to finance the funds and will effectively phase them 
out over 2 years following its passage into law.
  It is time to end wasteful overseas spending and to put that money to 
better use here at home. To that end, I encourage Members of Congress 
to join me by cosponsoring H.R. 564.

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