[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
MATCHING CAPITAL AND
ACCOUNTABILITY--THE MILLENNIUM
CHALLENGE ACCOUNT
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
DOMESTIC AND INTERNATIONAL
MONETARY POLICY, TRADE AND TECHNOLOGY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
JUNE 11, 2003
__________
Printed for the use of the Committee on Financial Services
Serial No. 108-36
90-109 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2003
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa B.A.RNEY FRANK, Massachusetts
DOUG BEREUTER, Nebraska PAUL E. KANJORSKI, Pennsylvania
RICHARD H. B.A.KER, Louisiana MAXINE WATERS, California
SPENCER B.A.CHUS, Alabama CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice JULIA CARSON, Indiana
Chairman BRAD SHERMAN, California
RON PAUL, Texas GREGORY W. MEEKS, New York
PAUL E. GILLMOR, Ohio B.A.RB.A.RA LEE, California
JIM RYUN, Kansas JAY INSLEE, Washington
STEVEN C. LaTOURETTE, Ohio DENNIS MOORE, Kansas
DONALD A. MANZULLO, Illinois CHARLES A. GONZALEZ, Texas
WALTER B. JONES, Jr., North MICHAEL E. CAPUANO, Massachusetts
Carolina HAROLD E. FORD, Jr., Tennessee
DOUG OSE, California RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois KEN LUCAS, Kentucky
MARK GREEN, Wisconsin JOSEPH CROWLEY, New York
PATRICK J. TOOMEY, Pennsylvania WM. LACY CLAY, Missouri
CHRISTOPHER SHAYS, Connecticut STEVE ISRAEL, New York
JOHN B. SHADEGG, Arizona MIKE ROSS, Arkansas
VITO FOSELLA, New York CAROLYN McCARTHY, New York
GARY G. MILLER, California JOE B.A.CA, California
MELISSA A. HART, Pennsylvania JIM MATHESON, Utah
SHELLEY MOORE CAPITO, West Virginia STEPHEN F. LYNCH, Massachusetts
PATRICK J. TIBERI, Ohio BRAD MILLER, North Carolina
MARK R. KENNEDY, Minnesota RAHM EMANUEL, Illinois
TOM FEENEY, Florida DAVID SCOTT, Georgia
JEB HENSARLING, Texas ARTUR DAVIS, Alabama
SCOTT GARRETT, New Jersey
TIM MURPHY, Pennsylvania BERNARD SANDERS, Vermont
GINNY BROWN-WAITE, Florida
J. GRESHAM B.A.RRETT, South
Carolina
KATHERINE HARRIS, Florida
RICK RENZI, Arizona
Robert U. Foster, III, Staff Director
Subcommittee on Domestic and International
Monetary Policy, Trade and Technology
PETER T. KING, New York, Chairman
JUDY BIGGERT, Illinois, Vice Chair CAROLYN B. MALONEY, New York
JAMES A. LEACH, Iowa BERNARD SANDERS, Vermont
MICHAEL N. CASTLE, Delaware MELVIN L. WATT, North Carolina
RON PAUL, Texas MAXINE WATERS, California
DONALD A. MANZULLO, Illinois B.A.RB.A.RA LEE, California
DOUG OSE, California PAUL E. KANJORSKI, Pennsylvania
JOHN B. SHADEGG, Arizona BRAD SHERMAN, California
MARK R. KENNEDY, Minnesota DARLENE HOOLEY, Oregon
TOM FEENEY, Florida LUIS V. GUTIERREZ, Illinois
JEB HENSARLING, Texas NYDIA M. VELAZQUEZ, New York
TIM MURPHY, Pennsylvania JOE B.A.CA, California
J. GRESHAM B.A.RRETT, South RAHM EMANUEL, Illinois
Carolina
KATHERINE HARRIS, Florida
C O N T E N T S
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Page
Hearing held on:
June 11, 2003................................................ 1
Appendix
June 11, 2003................................................ 33
WITNESSES
Wednesday, June 11, 2003
Larson, Hon. Alan, Under Secretary of State for Economic,
Business and Agriculture Affairs, Department of State.......... 10
Natsios, Hon. Andrew, Administrator, United States Agency for
International Development...................................... 11
Taylor, Hon. John, Under Secretary for International Affairs,
Department of the Treasury..................................... 8
APPENDIX
Prepared statements:
Oxley, Hon. Michael G........................................ 34
Larson, Hon. Alan............................................ 36
Natsios, Hon. Andrew......................................... 45
Taylor, Hon. John............................................ 53
MATCHING CAPITAL AND
ACCOUNTABILITY--THE MILLENNIUM
CHALLENGE ACCOUNT
----------
Wednesday, June 11, 2003
U.S. House of Representatives,
Subcommittee on Domestic and International,
Monetary Policy
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to call, at 10:14 a.m., in
Room 2128, Rayburn House Office Building, Hon. Katherine Harris
[acting chairwoman of the subcommittee] presiding.
Present: Representatives Ose, Kennedy, Feeney, Hensarling,
Barrett, Harris, Maloney, Watt, Waters, Lee, Sherman, Frank (ex
officio), Baca, and Crowley.
Ms. Harris. [Presiding.] The hearing of the Subcommittee on
Domestic and International Monetary Policy, Trade and
Technology will come to order.
Without objection, all members' opening statements are made
part of the record.
This morning's hearing provides us with an outstanding
opportunity to learn about President Bush's historic initiative
to comprehensively reform our nation's financial assistance to
the developing world.
We are fortunate that several of the Bush Administration's
distinguished leaders have joined us to explain how the
President's Millennium Challenge Account, the MCA, will achieve
this objective.
Treasury Secretary John Snow appeared before the full
Financial Services Committee in May to describe the
Administration's international economic policies. The MCA
played a prominent role in his testimony. I look forward to
hearing specific examples that will illustrate the vision he
outlined during this morning's testimony.
On behalf of Chairman Oxley, I wish to express our
appreciation to the Honorable John Taylor, Under Secretary for
International Affairs in the Department of the Treasury; the
Honorable Alan Larson, Under Secretary for Economic, Business
and Agriculture Affairs at Department of State; and the
Honorable Andrew S. Natsios, the Administrator of the Agency
for International Development, for their insights.
The Millennium Challenge Account is aptly named. Helping
eligible countries help themselves presents them and us with an
extraordinary challenge. Eligible nations can prompt the
challenge of improving their governance, investing in their
people and promoting economic freedom. We face the challenge of
helping them succeed while holding them accountable. We believe
that the construction of thriving, prosperous societies is
inseparable from good leadership, economies based upon sound
market principles and major investments in health and
education.
In short, for a country to be successful, its people must
be successful. As illustrations of this axiom, Americans can
point to our own experience, as well as to the transformations
that have occurred in South Korea, Chile and Botswana.
The MCA constitutes a bold initiative that demands
responsibility, transparency and accountability. It builds
upon, rather than detracting from, our other bilateral and
multilateral aid programs. It represents a way forward, not
backward. It creates a model of interagency corporation without
a bloated new bureaucracy, relying upon the expertise of the
Departments of Treasury and State, as well as the Agency for
International Development. I understand that the Office of
Management and Budget will serve in the corporation as well.
The challenge is not just extended to the applicant
countries, but also to our government guiding this process
forward. The jurisdiction of the Treasury Department,
International Finance and Multilateral Development Banks, I am
particularly concerned how coordination is undertaken so that
duplication of efforts or overlapping is avoided.
Like any sound investment strategy, the MCA is based upon a
long-term outlook. The President takes a positive step forward
by proposing $1.3 billion for the MCA in its first year and
ramping up to $5 billion by its third.
The Administration and our taxpaying constituents can rest
assured that Congress will be very involved in this process.
Sixteen performance indicators proposed by the Administration
will gauge just how seriously committed countries are to ruling
justly, investing in their people and promoting economic
freedom.
With indicators from regulatory quality, to political
rights, to public expenditures on health and primary education,
the range of indicators is expansive and objective. We are
talking about routing out corruption, establishing respect for
human rights and adhering to the rule of law, as well as
investing in better schools and health care.
These are long-term solutions and goals, but with the
leadership of an MCA corporation, I am confident that applicant
countries, which develop successfully, will provide a strong
civil society and a sound, market-driven economy to guide
future international development.
Thank you again for your testimony today, and I look
forward to your comments.
Are there additional opening statements?
Mrs. Maloney. I thank the Chairlady for yielding.
And I thank very much our witnesses, Mr. Taylor, Mr. Larson
and Natsios, for being here.
And I just want to share with you, I just came from a Joint
Economic Committee, where I submitted the Freedom From Debt Act
legislation that I will be introducing today to require the
United States to negotiate in the IMF, World Bank and other
appropriate multilateral development institutions for the IMF
and World Bank to relieve the debt owed by Iraq to these
institutions.
And I feel that this is in line, really, with many of the
MCA's priorities and challenges, and certainly would benefit
the Iraqi people. So I will be forwarding a copy of this
legislation to you to see and discuss with the Administration,
and I am hopeful that you will be supportive in a bipartisan
way.
I very much look forward to your testimony today. And in
reviewing the MCA, I think the goals are laudable. It is very
important, but basically, I would like to see more of an
emphasis or inclusion in it on women, children, families, and,
I would say, reproductive health, all of which are very much
tied to the stability of countries, the environment and,
really, the health and well-being of families. If you have a
strong family, you have a strong village. If you have a strong
village, you have a strong country.
But I would, in a broader way, just like to thank this
Administration for their increasing commitment to increasing
foreign aid to the world's poorest nations. This is truly a
historic step, and if fully implemented, is one of the largest
increases in foreign-aid spending in the past 50 years.
Clearly, we need full funding and a full commitment to getting
the aid to those countries who need it most.
I look forward to hearing about the concept of the program
and the criteria for country eligibility. I agree that it is
important to discuss the political and economic development
when we discuss indicators for aid recipients. However, I
notice one area that is directly related to economic
development which is missing from this debate: demographic
change.
October 12, 1999, was designated by the United Nations as
the day the Earth's population would reach 6 billion. By
reaching the global milestone of 6 billion was a testament to
the significant progress we have made in improving the quality
of life for each of the world's citizens, one-third of the
world's people still face a world of poverty, poor health and
pollution.
As the third most populated country on Earth, I strongly
believe that the United States must affirm its status as a
world leader and meet its financial responsibilities. The needs
of 6 billion people cannot be met unless the United States
fulfills its promise to help provide population and development
funding in countries that cannot afford it themselves.
When we address poverty eradication, we must address access
to modern contraceptive methods. As Mr. Natsios knows, USAID
investments in family planning helps stabilize population
growth in strategically important countries and resulted in the
creation of strong U.S. trading partners such as Korea, Taiwan
and Thailand.
More than 99 percent of population growth is occurring in
the developing world, where population pressure is contributing
to deforestation, water and food shortages, global warming,
wildlife dying and other environmental concerns.
Expanding populations undermine developing-country efforts
to provide citizens with adequate health care, food, education
and jobs. These conditions slow economic and social
development, thereby jeopardizing the potential for these
countries to be reliable allies, good trading partners and
growing markets for U.S. exports.
Supporting voluntary international family planning
programs, universal access to reproductive health care and
other services means stable populations, growing economies,
improved environmental conditions and a better world for
everyone.
We should be considering these issues when we discuss
performance measures for eligible countries for the Millennium
Challenge funding.
And I want to close just with one brief story. I visited
India once, and I was very much taken by the world's largest
democracy that had a strong independent court system, a form of
democracy, and spoke English and an industrious population.
And I asked the American Ambassador, ``What would be most
important thing that we could do to help India?'' I just loved
the country. I thought he would say economic development, I did
not know what he would say. I was stunned at his answer--and
this is Ambassador Wristen, and he was a professional career
ambassador. And his statement was, ``family planning.'' He said
that women and men and families gathered in lines at villages,
lined up, asking for support and information about family
planning.
So I feel that that should be something that I hope that
you will consider in the criteria and information that you put
forward with the MCA accounts. It is a good first start, but I
think this should be included.
Thank you.
Ms. Harris. Are there any additional opening statements?
Mr. Frank. Madam Chair?
Ms. Harris. The gentleman from----
Mr. Frank. Do you have one on the other side?
Ms. Harris. I did not see anybody from this side.
The gentleman from Massachusetts is recognized.
Mr. Frank. Thank you. I appreciate the fact that we are
having this hearing, and I am delighted that we have this
really impressive panel of high-ranking officials.
I think one of the greatest gaps in our international
policy over the years has been the absence of a forceful and
sustained economic development strategy. It has been too often
subordinated to other political considerations. Those are
important, but they ought to be pursued on their own.
And alleviating desperate poverty is, first of all,
important for itself; secondly, because it does, if we are
successful, create a less unsafe world. I do not think--the
direct relationship people try to draw between terrorism and
poverty is clearly wrong. Terrorists are not hungry. They are
not dealing with poverty. Osama Bin Laden is not a social
worker and has, as nearly as I can see, no decent instincts at
all.
But what happens when you have this sense of despair and
poverty, I think, is that the climate for terrorism increases.
That is, more people are supportive, less are willing to join
in the effort than would be in their own interest.
So there is a self-interested argument here, but it seems
to me, you know, we should not denigrate ourselves. We too
often, when we want to do something because it is the right and
moral, correct thing to do to alleviate human suffering, we
think we have to come up with a more instrumental reason. I
think we ought to acknowledge that the richest society in the
world's history can spend some fairly small percentage of its
wealth trying to alleviate desperate poverty, and we will also
benefit from it.
I just have a couple of questions, and I mentioned this to
Under Secretary Taylor, and I hope you will be able to address
it, and that is: There are criteria, as there should be, but we
obviously do not want people bouncing in and out. If people
join in--and particularly I am concerned because the criteria,
it is a relative thing, you are being graded on a curve here.
Technically, if a country does the right thing, it qualifies,
it gets into the program, and it continues to do well, but
other countries start doing better, its eligibility might be in
question. And I think we obviously need to have some guarantees
of continuity.
Secondly, I did have a concern because I was glad to see
the criteria. Corruption is an absolute. Human rights and
freedom is not. And that troubles me some.
There was a period when we were hoping that economic
development would, in itself, lead to greater political
freedom. Sadly, that does not seem to be empirically carried
out. The People's Republic of China seems to be showing that
you can progress economically without necessarily progressing
in human rights. Others in the Asian area seem to, sort of,
show that as well.
So I would hope that the human rights and freedom part
would get a kind of equal treatment. And the notion that,
technically, theoretically, you could be very bad on those and
still qualify is somewhat troubling.
Gentlemen, I welcome the initiative. I look forward to
being supportive of it, and I think that it has a great deal of
promise.
Thank you, Madam Chair.
Ms. Harris. Thank you.
Are there additional opening comments?
The gentleman from California is recognized.
Mr. Sherman. Thank you.
I strongly support foreign aid in general and this
Millennium process in particular. But it will be difficult to
explain to our constituents why one criteria is missing from
the proposal, and that is the degree to which the country
seeking aid has cooperated with us in the war on terrorism.
Now, there are some countries that, blessedly, are simply
irrelevant. There are not any international terrorists there.
We have not asked them to do anything.
But in the Committee on International Relations, I will be
proposing, and I hope that this subcommittee generally
supports, the idea of an amendment to this proposal--and
perhaps the panelists could focus on this--that would add as a
criteria the degree to which the country, upon request, if it
has been requested, has aided the United States in preventing
international terrorism and apprehending terrorists.
Otherwise, you may see a circumstance in which a country
meets all the qualifications, gets a grant or a loan, and has
refused to extradite, refused to cooperate, refused to trade
information. And when that happens and that hits the headlines,
support for further appropriations will shrivel.
So to think that we can take our desire to help the poorest
and divorce it from the expectation of our constituents, that
we will do everything possible to protect them from terrorism--
even if you do not want those two things married, they will be
married. And best we do it at the outset than do it in an
unfortunate program development later.
I yield back. Thank you.
Ms. Harris. Thank you.
Are there any additional opening statements?
Mr. Feeney. Madam Chairman?
Ms. Harris. Yes, the gentleman from Florida is recognized.
Mr. Feeney. Thank you, Madam Chairman.
I am very interested in the Millennium Challenge Accounts
because of the way it reforms the historic pattern of foreign
aid in America. The truth is that foreign aid, in terms of the
effect it has had on the companies that we have worked with,
historically, in my view, reminds me of Franklin Delano
Roosevelt's description of the welfare system. And that is that
it tends to become like a narcotic and creates dependency
rather than good behavior.
And to the extent foreign aid has done anything for us
positively, it has been because of the geopolitical interests
that we have and basically buying friends for a temporary
period of time. But even that, ultimately, it seems to me that
historically the countries we help the most with foreign aid,
on the long run, turn around and bite the hand that feeds them
the most aggressively.
And so there is this inverse, and directly inverse,
relationship between the amount of money we give countries and
how bad off they are, in terms of prosperity.
The nice thing about the Millennium Challenge Accounts is
that, for the first time, we are going to try to, in a coherent
manner, tie future behavior to the amount of foreign aid that
we hope to deliver.
And it seems to me, what we have done historically is to
carve out a part of the Americans' prosperity and wealth and
take money from taxpayers in America and give it to other
countries. What we want to do here, I think, is to share the
recipe for success and prosperity that has led us to be the
shining light.
And one of the things that I am very interested in is the
way that we are going to define countries that are moving in
that direction, because, by definition, the 74 or 75 countries
that we are talking about participating in this have the worst
record of creating prosperity.
So it is going to be very interesting how you incentivize
people and how you stay on them on a regular basis to do things
like create a rule of law that respects property rights, both
real property rights and intellectual property rights. How are
you going to repeatedly insist on transparency and lack of
corruption, low marginal tax rates for both investment and for
earner's free trade?
For example, we do not give much directly, in way of
foreign trade, to Hong Kong, Taiwan, South Korea or Thailand,
but we have given them the recipe for success. They do not need
foreign aid because they know what it takes to create
prosperity.
And finally, I hope that we will address the issue of
democracy. Hong Kong was hardly a democracy for the last 50
years, but they finish number one routinely on the Heritage
Foundation's list of free nations because of their economic
approach to prosperity. And they now have a higher per-capita
income than even Great Britain, who was the parent of the
economic freedom in Hong Kong.
So, I hope you will basically tell us how we are going to
change from a system of, in my view, failure in foreign aid to
maybe success and ultimately weaning these 75 nations and other
nations off of the burden on American taxpayers.
Ms. Harris. Excellent.
Are there any further additional opening statements? Very
well.
I would like to welcome a couple of new faces who are
appearing before this subcommittee and one familiar face. We
welcome again Dr. John Taylor, Under Secretary of Treasury for
International Affairs, at the Department of Treasury.
Dr. Taylor has a very distinguished academic and
professional record. He received his undergraduate degree from
Princeton University and his Ph.D. from Stanford University. He
has taught economics at Columbia, Yale, Princeton and Stanford
Universities.
In addition to these academic positions, Dr. Taylor was a
member of the President's Council of Economic Advisors during
the Administrations of President George Herbert Walker Bush.
Moreover, he has also served in the private sector as an
analyst for Alan Greenspan's Wall Street firm, Townsend
Greenspan, in the later 1970s and early 1980s, where he studied
world commodity markets.
I also welcome Dr. Alan P. Larson, Assistant Secretary of
State for Economic and Business Affairs. Dr. Larson was sworn
in as Assistant Secretary of State for Economic and Business
Affairs in July 1996. Prior to his appointment by President
Clinton, Mr. Larson served as Deputy Assistant Secretary for
International Finance and Development. He served in that
position for more than two years.
From 1990, Mr. Larson served as America's ambassador to the
Organization for Economic Cooperation and Development in Paris.
Mr. Larson has a B.A., MA and Ph.D. degrees from University of
Iowa. He also attended John Hopkins' School of Advanced
International Studies.
We are also pleased to welcome the Honorable Andrew S.
Natsios, Administrator of the U.S. Agency for International
Development. Andrew S. Natsios was sworn in on May 1, 2001.
For more than 40 years, USAID has been the lead U.S.
government agency providing economic and humanitarian
assistance toward transitioning and developing nations.
President Bush has also appointed him special coordinator for
international disaster assistance and special humanitarian
coordinator for the Sudan.
Mr. Natsios is a graduate of Georgetown University and
Harvard University's School of Government, where he received a
master's degree in Public Administration. After serving 23
years in the U.S. Army Reserves, Natsios retired in 1995 with
the rank of Lieutenant Colonel. He is a veteran of the Gulf
War.
Without objection, your written statements will be made
part of the record. And you will each be recognized for a five-
minute summary of your testimony. We will start with Secretary
Taylor, then Secretary Larson and Administrator Natsios.
Thank you.
Welcome.
STATEMENT OF HON. JOHN TAYLOR, UNDER SECRETARY FOR
INTERNATIONAL AFFAIRS, DEPARTMENT OF THE TREASURY
Mr. Taylor. Thank you very much, Congresswoman Harris and
other members of the committee, for inviting us to testify. My
testimony follows that of Secretary Snow, as you indicated in
your opening remarks, on May 13th, where he described our
overall international economic policy and the Millennium
Challenge Account in particular. And we are going to focus on
the Millennium Challenge Account today, of course.
I am very pleased to be on this panel with Alan Larson and
Andrew Natsios. The three of us, and many others in the
Administration, have worked together since the President
announced this initiative in March of last year, spent many
hours working together. I think it is a good example of
interagency cooperation, and I expect that that is going to
continue very much as we move into the operational phases of
the Millennium Challenge Account.
I want to focus on how the Millennium Challenge Account
fits into our overall economic strategies, economic development
strategies, in my testimony.
As you know, there are 3 billion people in the world living
in what most Americans would call extreme poverty. The United
States has worked to combat this problem of poverty in many
ways.
This Administration, under President Bush's leadership, has
developed a new economic strategy--I would call it a growth
agenda--to deal with the poverty around the world, and the
Millennium Challenge Account is part of that strategy.
The strategy is to channel more funds, more resources, into
countries that are following pro-growth policies, policies that
we know are essential for reducing poverty--poverty will not be
reduced unless countries grow more rapidly--but also to channel
funds in a way that we can measure the results. So it is more
funds, focused on pro-growth policies, and measuring the
results that are the driving force behind the policy.
We are following this policy with respect to the
multilateral development banks, as this committee knows well.
For example, we have advocated an incentive contribution scheme
to IDA, the arm of the World Bank that deals with the poorest
countries.
And I would hasten to add that we appreciate the work of
this committee in moving ahead on the very important
authorization for IDA, for the Asian Development Fund and the
African Development Fund, which still are very important for
our Administration's policy. And we will work with the
committee as much as it requests in moving ahead with these
authorizations.
This pro-growth poverty-reduction agenda is also the
driving force behind the Millennium Challenge Account. As I
indicated, poverty reduction requires stronger economic growth.
And I would focus on productivity growth. Poverty cannot be
reduced unless workers can earn more, be employed. And they
earn more by producing more. It is as simple as that.
Productivity rises because there is more capital, more tools
for people to work with, for workers to work with, and because
they have better technology. More tools, better tools, better
ideas, is how workers can produce more and therefore earn more
and be removed from poverty.
As you look around the world, there are barriers to both
the use of capital, the movement of capital and the transfer of
technology. Those barriers have to do with poor governance, a
lack of rule of law.
A second barrier has to do with poor education, poor
health, lack of investment in people.
And the third barrier to the transfer of technology in
growth and capital is restrictions on economic transactions or
restrictions on economic freedom.
The Millennium Challenge Account attacks all these
barriers. Its strategy is to support countries which do the
things that will lead to economic growth.
And as President Bush has said, and as you said in your
opening, Congresswoman Harris, that is governing justly, it is
investing in people and it is encouraging economic freedom.
So what we have done, the people in front of you today and
many others in the Administration, is worked hard to find
specific measures of economic performance that fit into these
three categories that President Bush highlighted.
What we have looked at, in consultation with many people,
inside and outside of government, is we have focused on a total
of six indicators that represent governing justly. Two of those
indicators come from Freedom House. They measure civil
liberties, and they measure political rights.
Four of the indicators, four of those six, come from the
World Bank Institute. They are indicators that measure voice
and accountability, the effectiveness of government, the rule
of law and the control of corruption. Just the things that we
need to address--countries need to address if they are going to
increase growth and reduce poverty.
There are four indicators that have to do with investment
in people. Two of them focus on the inputs to education and to
health--that is, the fraction of GDP spent on education and
health. Two of the indicators focus on measures of output: What
do you get from your investment in education? What do you get?
You get completion rates, more kids getting out of elementary
school and learning things. What do you get for your health
expenditures? Better immunization rates. So those are two of
the measures of output that we focused on.
And then with respect to encouraging economic freedom,
there is a total of six indicators. Some of them are more
macroeconomic; some of them are microeconomic. On the
macroeconomic side, having a low inflation rate, a budget that
is not in a great deal of deficit. On the microeconomic side,
countries that find ways that makes it easier to start a
business, countries that are open to foreign trade, countries
where regulatory barriers to starting businesses is low.
So focusing on these indicators, we have tried to put in a
great degree of objectivity in what the criteria are from
policies that raise growth.
What we would like to do is say that countries that are
above the median in half of the indicators in each category
would qualify for funds under the Millennium Challenge Account.
There will be a board, a committee, to make the decisions
ultimately, and that committee will exercise judgment in using
these indicators, because no indicator is perfect, no indicator
is free from some error. So the idea is the committee will
ultimately make the decisions.
Ms. Harris. Mr. Secretary, could you----
Mr. Taylor. And then, finally----
Ms. Harris. Thank you.
Mr. Taylor. ----finally, we are going to insist that every
single contract, every single form of assistance has strict,
measurable results, where we say what should be done and
measure what is done in developing the aid.
So I urge you to support this important legislation, and
will conclude with that. Thank you.
[The prepared statement of Hon. John Taylor can be found on
page 53 in the appendix.]
Ms. Harris. Thank you.
Mr. Secretary Larson?
STATEMENT OF HON. ALAN LARSON, UNDER SECRETARY OF STATE FOR
ECONOMIC, BUSINESS AND AGRICULTURE AFFAIRS, DEPARTMENT OF STATE
Mr. Larson. Madam Chairperson, Congresswoman Maloney and
distinguished members, last March, President Bush caught the
attention of the world when he called for a new compact for
global development that would link greater contributions from
developed countries to greater commitments and responsibility
from developing countries.
The Millennium Challenge Account is intended to focus on
countries that govern justly, invest in the health and
education of their own citizens, and encourage economic
freedom. And by focusing on those countries whose own policies
encourage growth and lasting poverty reduction, the MCA will
deliver better development results. And for those countries
that do not initially qualify, it is offering a very, very
strong incentive to adopt growth-enabling policies.
The MCA is based on a partnership in which developing
countries, with a strong involvement of their own citizens,
would set forth their own development priorities and propose
MCA-funded activities. The MCA will insist on results. We will
have business-like contracts with each partner. We will invest
taxpayer resources only in well-implemented programs that have
clear objectives and built-in performance benchmarks.
The MCA will promote economic growth in countries with good
policies. The private sector will be a focus from the outset.
And one of the criteria will really be having a healthy climate
for entrepreneurship, including respect for private property
and limits that rein in corruption. It is only with strong
private sector growth that a country will be able to sustain,
over time, investments in health, education and achieve other
development gains.
The MCA will complement and not replace other forms of
assistance. In fact, President Bush has sought to increase
other types of assistance programs, including those that focus
on famine relief, HIV/AIDS or providing help for strategic
partners.
MCA activities will be transparent, and they will promote
accountability. The selection criteria, the board decisions,
MCA contracts, and program evaluations will all be public and
will be posted on the Internet.
To implement this radically new approach, the MCA must be
administered by a separate corporation with a very focused
mission. An independent Millennium Challenge Corporation with a
high-level board will signal that the MCA partnerships are not
business as usual. A lean Millennium Challenge Corporation
would be headed by a chief executive officer nominated by the
President and confirmed by the Senate. The CEO would report to
a board of directors, chaired by the Secretary of State,
including the Secretary of the Treasury and the Director of the
OMB.
The Secretary of State's participation will help ensure
strong supervision and ensure coordination in foreign policy
consistency. The Secretary of the Treasury, among other things,
is going to make sure that there is consistency with our
multilateral assistance policies and our foreign economic
policies. And the Director of OMB, as a member of the board,
can help ensure that the board implements the President's
management agenda priorities of increasing and improving
transparency, performance and accountability.
The MCA needs a clean and flexible legislative mandate. If
it is going to respond to developing-country priorities, it
cannot be earmarked. If it is going to attract the best and the
brightest personnel in the public sector, the private sector,
the not-for-profit sector, the MCA must have special personnel
authority. If it is going to be lean and efficient, it has to
have the ability to contract broadly for goods and services.
As the MCA improves itself, we expect that multilateral and
other bilateral assistance programs will emulate many of its
core concepts.
Madam Chairperson, I believe the MCA is the most important
American assistance development initiative to be advanced in
the last 32 years. As we fight to defeat terrorism, it is also
important, in the words of President Bush, to fight for the
values that make life worth living: education, health, and
economic opportunity.
We welcome the strong interest of the Congress, of NGOs and
of the business community in the Millennium Challenge Account.
We would encourage the committee to give the Millennium
Challenge Act of 2003 its full support. And we pledge our
cooperation in working with the Congress on this important
initiative.
Thank you.
[The prepared statement of Hon. Alan Larson can be found on
page 36 in the appendix.]
Ms. Harris. Thank you, Mr. Secretary.
Administrator Natsios?
STATEMENT OF HON. ANDREW NATSIOS, ADMINISTRATOR, UNITED STATES
AGENCY FOR INTERNATIONAL DEVELOPMENT
Mr. Natsios. Thank you very much, Madam Chairwoman.
I would like to submit my longer testimony for the record,
if I could.
I would like to thank you and the members of the committee
for holding this hearing on the MCA. For us in USAID, the
Millennium Challenge Account is the most significant
development initiative since the establishment of the
International Cooperation Administration during the Eisenhower
Administration. We subsequently became the U.S. Agency for
International Development (USAID) under the Kennedy
Administration 50 years ago.
The MCA will provide close to a 50 percent increase over
current development resources and will firmly reestablish U.S.
leadership in international development. I might add, with the
$2.5 billion increase--we are already spending $1 billion on
HIV/AIDS, but there is a $2.5 billion increase in bilateral
assistance the President has proposed. So between the
Millennium Challenge Account and that $2.5 billion increase,
there is a 70 percent increase over three years in foreign
assistance, which is clearly large. We actually went back in
our historical records in USAID, which goes back to its roots
in the Marshall Plan, and this is the largest increase since
the Marshall Plan.
I want to make a second point, and that is that the MCA is
a direct outgrowth of the single most important lesson coming
out of USAID's experience, other donor bilateral agency
experience, the World Bank and the U.N. agencies, and that is
this: The single most important factor to successful
development is a country's commitment to good policies that are
conducive to growth.
Our experience has confirmed this year after year in
country after country. And the fact is that it is not the
quantity of aid that counts. No matter how much money you
invest in a country, if the country has bad policies, it is
difficult to make progress. At best, aid can play a supportive
role. A country's commitment to help itself is a primary
determinant of success.
If you have good policies and you invest money, you can
accelerate the growth process and the process of developing
sustainable institutions in the society.
This is the heart of the Monterrey consensus that was
forged last year and which the MCA embodies by focusing on
countries that have proven their commitment to good governance,
investing in people and promoting economic freedom.
I might add that my own experience--and I have traveled to
around 80 countries over the last 14 years since I have been
doing this sort of work--my experience is personally that there
are reformers in every country in the world. And in some
countries, those reformers are in charge, driving the country,
and those are the countries that are making substantial
progress. In other countries, the reformers are in the
parliaments or might be in the media or universities, but they
are not at the center of events, and they are certainly not
driving them.
What the MCA does, by creating this criteria, is to give
these reformers a giant stick. And I can give you one example.
I recently told a speaker of a parliament in a country that was
doing very well in all the indicators except one. There were
huge levels of corruption, and it was damaging the country's
economic growth. I told that to the speaker. I said, ``I have
to be very frank with you. You are not going to make it,
because you just are not doing what is necessary.''
I recently visited that country, in fact, a few weeks ago.
I will not tell you the country; I do not want to embarrass
them. And I asked the speaker when I met with him again. I
said, ``Have you made progress?'' He said, ``Well, we took what
you told us, and we beat back the people who have been opposing
the corruption reforms for the last four years. And the thing
whizzed through the parliament, because everybody knows in the
parliament and the government, and all the ministers, what the
MCA is, and we want to qualify. And if that is what is
preventing it, we want the reformers in charge instead of the
people who defended the old order.'' So it is already having an
effect, and the MCA legislation has not even passed yet.
The third point I want to make is that the MCA will
complement USAID's own mission for the existing $10 billion
bilateral aid program of the U.S. government. USAID has been
and will continue to play a central role in President Bush's
campaign to attack poverty by stimulating growth, promoting
democracy and investing in people.
But as you know, USAID is only one piece of what is a much
more complicated and diverse U.S. development strategy. We have
different challenges now than we did during the Cold War, and
there are many more actors involved in providing assistance.
The MCA gives us the opportunity to articulate and implement a
more coordinated strategy than we have had in the past.
The MCA will continue to assist a wide range of developing
countries, but it will allow us to have what we think is a
complementary relationship to the existing USAID bilateral
program, which the President has committed will not decline as
this Millennium Challenge Account increases in size.
The fourth point is that USAID will reorient its existing
assistance programs to support and to take into account the
principles driving the MCA. Basically what we are going to do
is divide countries that we have presence in--and we have
presence with USAID officers in 79 countries in the world--into
four categories.
The first category is countries which we are investing in
for purely geostrategic reasons. They are countries that are
necessary to the protection of the United States' interests in
sensitive areas of the world. And those countries are primarily
and almost exclusively financed out of the Economic Support
Fund (ESF) account, which is controlled by the State
Department. We administer the programs with that money. But
those are geostrategic categories.
The second is countries which just barely failed to make
MCA status but want to make it. I recently met with a head of
state in Africa. The country is doing very well in almost all
of the indicators except a critical one. The head of state
said, ``Can we get help in correcting these problems so we will
qualify the second year in this one area?'' So we are going to
refocus in those countries that almost made it but did not make
it, and focus our attention on those weaknesses.
The third is in failed and failing states. We have a $2
billion program in countries that are not even close to making
it. The Democratic Republic of the Congo has a central
government, but it does not control much of the country. There
is no central government, and there has not been for 12 years,
in Somalia. They are failed states or failing states, and we
need to treat those in a separate category. But we will not
abandon them. In fact, we have increased substantially the
amount of money we are providing to those countries.
Then finally, there are countries that are not close to
making it but we still have programs in those countries. We
will work in countries that are not disposed toward reform in
areas that we can work with nongovernmental organizations
(NGOs) rather than through the government itself.
So that is how we will reorient our program.
Thank you very much, Madam Chair.
[The prepared statement of Hon. Andrew Natsios can be found
on page 45 in the appendix.]
Ms. Harris. Thank you, Mr. Natsios.
The chair recognizes herself to ask the first question.
This committee has an interest in the adoption of a provision
of MCA that is currently before the IR Committee that improves
the coordination and avoids the overlapping and duplication of
efforts as we begin our bilateral and our multilateral aid
programs and they start to interact.
Are you prepared to support these provisions, since we
believe MCA will affect how we do business with our
multilateral development banks and international financial
institutions?
I would direct my question to Secretary Taylor.
Mr. Taylor. We are very supportive of making sure that the
MCA interacts well and is coordinated with the Multilateral
Development Banks and, of course, with USAID, as Andrew Natsios
has indicated, and for that matter, with bilateral aid from
other countries. And we are very, very supportive of any
efforts that will help us do that.
I could say already we have actually done a lot to
communicate. We have made presentations at the World Bank and
at the other MDBs. Under Secretary Larson and I had a long
session with the board of the World Bank. We are sort of in
daily contact with the G-7 about what we are up to in this
area. So I expect that there will be a lot of coordination and
communication.
Ms. Harris. Excellent. Thank you very much.
The chair recognizes the gentlewoman, the ranking member of
the subcommittee, from New York.
Mrs. Maloney. I thank the chair for yielding.
After 9/11, President Bush worked very, very hard to bring
the world community together with the United States to combat
terrorism. And I truly believe--and he was terribly successful,
wonderfully successful. And I truly believe that one of the
reasons he was successful was because of the hard work of
USAID, the State Department and all of our agencies in a
multilateral way, our friendships with countries, the goodwill
that we had spread.
And one of the things that I want to ask you is, how will
this new account of bilateral aid impact funding of
multilateral aid? In other words, will our multilateral aid
contributions decrease with this new source of funding?
And I, for one, raised this question with Secretary
Rumsfeld when he addressed Congress, because we are funding
many, many organizations to go into Iraq. And it seems that it
would be in our interest to let the United Nations in. I am not
talking about the weapons inspectors, although I understand
they are in now, but the humanitarian aid groups that are
willing to go in and work with us. I would think, particularly
from Arab countries that are our allies, to help our armed
services, et cetera, to get them in there so it is Arab to Arab
working so that you might be more successful.
Then there is also the aspect of burden-sharing of our
economic dollars. We are galloping toward a $500 billion
deficit. To the extent that we can get other countries to work
with us, share the burden and work with us, it seems like a
stronger approach.
So I just wonder, will this program in any way contribute
to an American policy of decreasing our participation in the
multilateral organizations that we have been funding, such as
UNICEF, United Nations, UNFPA and others?
Mr. Taylor. Well, let me answer that question with respect
to the international financial institutions.
Mrs. Maloney. World Bank and IMF, too, yes.
Mr. Taylor. And then my colleagues will address the others.
I think right now we have asked for increased funding for
our assistance to these institutions. For example, the IDA
funding was an increase in the past.
And, in fact, what we have tried to do is make these
contributions very consistent with the Millennium Challenge
Account. The increase in funding we are asking for IDA for this
year has a $100 million increment that is there to make sure
that we get measurable results.
So it is an increase in funding. And President Bush always
made clear that the Millennium Challenge Account was meant to
be an increase over existing funding.
So it is certainly our intent to continue to support these
other institutions. But, again, we want to be very specific. We
are demanding a focus on policy, a focus on measurable results,
because that is the only way the money is going to work.
Mr. Frank. Would the gentlewoman yield for 10 seconds?
Mrs. Maloney. I would always yield to the distinguished
ranking member.
Mr. Frank. Just to underline the importance of our markup
next week, because the Under Secretary referred to IDA, and I
just would remind people we have what I think is a very
important markup next week in which I hope this subcommittee
will endorse that request, send it forward to the
Appropriations Committee, also for the other, I guess we have
the African Bank and the Inter-American Bank.
So I just want to say that I hope we will be able to do
that, and we have talked to the appropriators, and I am hoping
we will be able to get that one squared away.
Mrs. Maloney. Mr. Larson, where is the money going? Is it
going directly to country governments? Or is it going to NGOs,
local NGOs or U.S.-based NGOs working in eligible countries?
And who monitors how the money is being spent? Is the U.S.
government going to monitor the money, or are countries going
to send reports? What is the accountability in this aid
program?
Mr. Larson. One-sentence answer to your first question, as
well: The same answer that Secretary Taylor gave on IDA and so
forth would extend to the United Nations programs. And, in
fact, we are looking to the United Nations to work with us on
Iraq reconstruction.
On the money, the idea is that countries that have
qualified--and this would only be those that have shown the
strongest commitment to development--would come forward with
project proposals which would be negotiated with very clear
performance benchmarks. The actual Administration of a program
or an activity would be something that would have to be built
in.
In some cases, it may well be that USAID would be an
implementing agency. It could be implemented by an NGO, but it
would have to be something that was consistent with the
country's development strategy. These are countries that are
supposed to be committed to development, so we want to work
with the countries and with their governments, even though the
government may not be the administrating agency in every
respect.
We are committed to a very high degree of accountability,
which is going to require, of course, accountability from the
country. But that has to be checked. And that would have to be
checked with outside consultants, with auditors who are not
only looking at exactly where the money is going, but also
whether the results that we are looking for are actually being
achieved.
Mrs. Maloney. My time is up.
I just want to close by thanking Mr. Feeney for his really
beautiful opening statement and the values he expressed in it.
I agree.
Thank you.
Ms. Harris. Thank you.
Mr. Feeney, do you have any questions?
Mr. Feeney. Well, I do.
And I want to thank the gentlelady. I don't know, the more
I talk, I am sure, the more she will disagree with.
Mrs. Maloney. I was surprised I agreed so much.
[Laughter.]
Mr. Feeney. But, you know, I again am very pleased with the
concept of reforming foreign aid. And I was also extremely
pleased to hear Mr. Taylor suggest that productivity is the
key. Ultimately that leads to higher consumption on a repeated
basis, as opposed to one-time pump priming. And I am very
grateful for the direction that you are going.
But as I look at the specific criteria, I am not sure that
we have exactly articulated it the way I would. And I think
that 435 members of Congress would come up with their own
prescriptions.
I would like to have Mr. Taylor maybe comment on some
thoughts.
As I look at this, I certainly agree that you cannot bail
out bad policy with enough American taxpayer dollars, no matter
where we are talking about in the world. And I certainly agree
that inflation can be bad and deficits can be bad, which were
two of your major criteria on the Economic Freedom Account.
But they are very easy to handle. I mean, inflation you can
stop pretty quickly by deflating your currency. You handle the
M-1 or the M-2 or the M-3 supply, you quit printing bills. The
deficit is fairly easy to handle in most places. You just tax
the people that are producing and working sufficiently, and
ultimately you can wipe out a deficit pretty quickly in most
countries, although I know developing countries are a little
different.
But it seems to me that the recipe that you have put
together here, when you combine that with the second major
principles, which is investing in the public, the way to
qualify 100 percent for principles three and four that you are
trying to get here is to basically have 100 percent tax rates
and 100 percent expenditure rates on education and health care.
At least as I read the criteria that are set out here, that
would be one way to comply.
And I think, going back to Mr. Taylor's ultimate goal, that
we start with enhancing productivity in a county, what we
really want to measure is the percentage of gross domestic
product that is confiscated by the government and used not
according to individual wishes, which would be the economic
freedom that ultimately that you have laid out.
And so I am concerned that maybe some of the specific
factors that we have talked about actually are undermining the
ultimate. I would like to hear some descriptions there.
I mean, arguably, for example, public expenditures on
health care, I am just guessing at this, but nations that have
a higher percentage of private health-care spending and
insurance probably have much better health-care records, life
expectancies, et cetera, than nations that rely entirely on
public health-care expenditures. I think you could make the
same argument with respect to education. Legitimate home
schooling in countries that have legitimate private and
competitive systems actually have better public school systems.
So I guess I am a little worried, in terms of how we are
actually going to apply all of this concept.
And then finally, I would ask you to deal with some of
the--I was a little disturbed that, aside from the Millennium
Challenge Accounts, we are increasing spending for nations that
are abject failures under any criteria. And, again, we go back
to charity is important, and we want to be charitable. But it
sort of cuts against the grain of what we are trying to do with
the Millennium Challenge Accounts.
And already, myself and my colleagues have referred to
things other than productivity, going back to economic
productivity as the be-all and end-all of ultimately enhancing
the quality of life in developing nations. But we have talked
today about the importance of family planning, reduced
terrorist threats, democracy. And again, I argued that Hong
Kong is probably the principal example of economic success, and
it has had little or no political freedom, in terms of
elections, over its brief history.
We talked about the importance of health care and public
education. And of course, we have talked about, and I mentioned
it myself, corruption within a government and our geopolitical
interests. There are times when we simply want to buy favors
from nations who are strategically placed.
So how this all fits together in a foreign-policy scheme is
interesting to me. But the Millennium Challenge Accounts,
itself, which we are talking about today, I think it is
important that we develop criteria that are legitimately
designed to create productivity on the front end.
And I want to, I guess, maybe just have--I have just been
rambling, but if you can just respond to some of those
thoughts.
Mr. Taylor. Yes, thank you very much for those
observations.
I would say at the start--and, you know, we discussed all
sorts of possible indicators and had lots of suggestions. And
the points you are making are ones that have been on our mind.
There is a sense in which the indicators are objective,
observable, they can provide input to the decision-makers who
are going to make the judgments. So if there is a case which is
even close to as bizarre as the one you indicated, where taxes
are extraordinarily high and anybody could see would be
defeating the economic growth, that would not be what you would
be looking for, in terms of good policy performance.
There is an alternative, to just look at the fraction of
government spending as a share of GDP. That is another measure.
We considered that. Many different possibilities were
considered. This one seemed to be--the budget deficit itself
seemed to be one that brought things together as much as
possible.
With respect to public expenditures, you are right, that is
an input measure. That is why we thought this output measure
was important to add to it. The focus should be on, really, the
investing-in-people aspect, whether it is public sector or
private sector.
So these are things which we think are good indicators. I
do not want to indicate that they are not at all. But there is
no indicator without some problems. But I think, as a whole,
they work well, they are robust, they cover different areas.
With respect to the other reasons for foreign aid, which
there are and will be, we have other sources of funding. This
is an increase in funding over existing sources. And so this
MCA is meant to focus on these areas. Humanitarian support, as
Mr. Natsios has indicated, is a very important part of our
foreign policy. So is our strategic issues. And maybe my
colleagues want to address that.
But I think what we have got here with the MCA should focus
on the growth and productivity, as you indicate. And I think it
does that, considering all the different issues that we have
looked at.
Mr. Larson. Could I----
Ms. Harris. Mr.----
Mr. Larson. I am sorry. I just want to make two quick
observations on the congressman's questions.
One is that I think that some of the indicators in this
last basket of economic freedom and supporting entrepreneurship
are interesting and important ones: days to start a business,
the free trade orientation, regulatory quality and the country
credit rating, which is sort of a composite view of the doing-
business characteristics of this country.
And then I think this is an attempt to give more weight
than any other assistance program I know of to the factors that
are friendly to entrepreneurial initiative.
The second point would be, we tried to do this in a way
that no country would get in simply by being good in one of the
three baskets. We have come up with a structure that emphasizes
the importance of being a strong performer on economic freedom,
a strong performer on empowering one's own people through
education and health, and also a strong performer in the area
of political freedom and governing justly.
And so the idea is to not have a country get in because
they are a strong performer in only one or two of those areas.
Ms. Harris. Yes, Mr. Natsios?
Mr. Natsios. If I could just add a couple of comments. When
we talk about whether foreign aid has been a success or not, we
have to talk about which category of foreign aid. Are we
talking about disaster relief? We have actually had remarkable
success in preventing famines when they were sweeping across
countries, and our assistance has, in fact, resulted in the
prevention of mass starvation in many countries.
India has not, for example, had a famine since
independence. And one reason was, in the 1960s, when they were
faced with massive agricultural failure, there was massive
amounts of food aid that went into the country from the United
States. They are now a net importer of U.S. food commercially,
because they liked our food so much that they now buy it.
And the type of assistance we have increased for failed and
failing states is disaster assistance. It is to keep people
alive. It is not to reform the economy. We are not under any
illusions in those countries. But we are keeping people alive.
We are reducing the child mortality rates, that sort of thing.
Secondly, in the category of social services, where we have
put a lot of focus the last 30 years since the early 1970s, we
have been actually very successful. The child mortality rates
and health indicators right now in the developing world are the
same as they were in the United States in 1950 and in Canada.
So their rates now are what our rates were 50 years ago.
And the literacy rates in the developing world right now
are what they were in the United States in 1950.
If you look at where the developing countries were in 1950,
they have made enormous progress in the social services. The
problem is, social services are important; but they are not
sufficient to ensure economic growth.
All of the international institutions--the World Bank, the
regional banks, the United Nations and all the donor aid
agencies got out of doing two things, which, in my view, were a
disaster: One area is they stopped doing agriculture. Beginning
in the 1980s, mid 1980s, after Peter McPherson left as
administrator of USAID, we stopped investing in agriculture.
Two-thirds of the poor people in the world live in rural areas.
They are farmers. If you do not invest in agriculture, there is
going to be a lot of poverty in rural areas, and hunger. And
there still is. We are now reinvesting in those areas.
Most developing-country heads of state will tell you, if
they had a choice, they would not put money into places where
we put money. They want more money in the rural areas where all
their poor people are, because those poor people are going to
the cities now, and the cities do not have the infrastructure
to accept them.
The second area we stopped putting investments in is
infrastructure, particularly roads. You know, if you are a
farmer and grow more surplus and you cannot move it, the food
rots. So farmers do not grow surpluses because they cannot move
what they grow out of the area and the village they are in.
That was another major mistake, because you cannot have
industrial growth, commercial growth and agricultural growth
without some kind of infrastructure, particularly in the rural
areas.
Most of the people we talked to privately in countries that
may qualify will tell you, ``The first thing we are going to do
is build more roads into the rural areas, because that is what
we need to do our development.''
Ms. Harris. Thank you, Mr. Natsios.
The ranking member of the full committee is recognized for
questions, the gentleman from Massachusetts.
Mr. Frank. Thank you.
I want to begin by expressing my appreciation for the
remarks we have just heard from the Administrator of USAID. I
think it was an important distinction that he made. Keeping
children from starving is about as good a use of my time as I
can think of. And the people I represent, if I take a small
part of the taxes they pay to do that, I think they are happy.
And I think our record as humanitarians, it is very important,
and we ought to recognize the importance of doing that.
Secondly, I was very pleased to hear my former
Massachusetts legislative colleague--back in the old days, we
used to agree more there than people thought we might--talk
about agriculture, because, you know, I am one who has voted in
the past against some of the trade agreements. And when people
have been critical because they say I am not supporting free
trade, my answer is I voted against the agriculture bill. And I
think, in voting against the agriculture bill, I took a
stronger stand in favor of the right kind of trade than
everything else put together.
And I think you have just underlined the extent to which
our agricultural policy goes so counter to what we are trying
to do, because when we subsidize our food growth, we undercut
particularly what the Administrator was talking about.
I do have just a couple of questions. First, I did want to
say with regard to the question the ranking member of the
subcommittee asked about cooperation with the international
financial institutions, I was struck to note, of the 15
criteria here, in 12 of the 15 instances, it is the World Bank
or the IMF to whom you refer for the grading. So that does
show, it seems to me, a good integration of those.
I also want to note, I am very pleased to have this
threesome here. And maybe I am speaking against committee
interest here, but one of the things that has bothered me with
regard to the World Bank, the IMF, et cetera, is--and then we
have foreign aid--we have got two different international
economic policies. We have the State Department's international
economic policy, with USAID basically aligned there, which
deals with our bilateral assistance, and then we have our
participation in the multilateral entities, which is under the
jurisdiction of Treasury. And I think we need a mix in both
cases. I have felt that it was a shortcoming to have that kind
of bifurcation.
So one of the advantages of this is, this is the first time
that I can recall where we are talking about international
economic activity and we have both State and Treasury here. And
I hope we will build on that.
Now, just a couple of questions, and I raised this one
before. Corruption is pass-fail--you absolutely have to pass on
corruption--but civil liberties and political freedom is not.
And that troubles me. You know, maybe because I grew up in New
Jersey City in the 1950s and 1960s, and, you know, we did not
get rid of corruption but we had political freedom. I am not
sure, if we had been asked to do the tradeoff, where we would
have gone. Although under Frank Hague, actually, they had
neither, you may remember.
But why is that the case? And is there--I mean, some
corruption versus no freedom, that troubles me. Mr. Larson?
Mr. Larson. Well, thank you, Congressman, and I was
beginning to get at your question in response to the last one.
In other words, a country is not going to rise to the top
for consideration by the board unless it is above average in at
least three of these governance criteria. And so we did that
very deliberately, because we did not think it would be
appropriate or good use of taxpayers' money to be supporting
countries, even if they were the star performers in investing
in their people and the star performers in terms of economic
freedom, if they were not, you know, at least above average in
these broad governance criteria. So they have to be above the
median in at least three of them.
The corruption one, I think, is a very important one
because it is so endemic. Corruption does undercut democratic
institutions, as I know we all appreciate. It really saps the
development success in the countries where it is endemic.
And it was the Administration's view that in a country that
really was a poor performer on corruption that it would be
impossible to have support for investment of taxpayer dollars
and that we could not get the results that we wanted.
Mr. Frank. I appreciate that.
Actually, it also gets at one thing that troubles me, and
to some extent, as I read this, I get the sense that I am in
Lake Wobegon where all the children are above average, Garrison
Keillor's term. I mean, that does--what troubles me is that you
could have people doing very well, but because they are not
above the median that they could be in trouble.
And I would wonder why we could not have a more--but let
me--one last question, then I will be glad to get the answer.
And that is, when we talk about--one of the criteria is you
cannot have a deficit, a three-year budget deficit. And I think
we said 3 percent was the number, is that correct? I mean, how
do we explain to them why this applies to them and not to us?
[Laughter.]
Yes, go ahead.
Mr. Taylor. Yes. On the deficit, this is an average over
time. And it is meant to be what happens not just when you are
in a slow-down period, but when you are averaged across the
cycle. So----
Mr. Frank. Like, say, five years?
Mr. Taylor. Yes, it is meant to be an indication of overall
fiscal stance, soundness over a long period of time.
Mr. Frank. So, it does not just mean deficit. When it says
deficit, that is----
Mr. Taylor. Clearly, when you are going in a slump----
Mr. Frank. I mean, in other words--Okay. Because it does
seem to me we are going to be ineligible. Lucky we do not need
this.
But let me go back to the--if I could just get an answer on
absolute versus grading on the curve. I mean, that is the
troubling aspect.
Mr. Larson. Well, we want to focus on the countries that
have an overall policy framework that is going to get the best
development return. I think Andrew Natsios pointed out that is
the one big lesson that we have got, is----
Mr. Frank. But question, what if we have a good--what if
this succeeds and they all start getting good? Why do we then--
are we going to run out of money? I mean, only half of them,
are we sure that----
Mr. Larson. If we are able to show extraordinarily improved
developmental outcomes as a result of this approach, I think
there would be a lot of us that would believe we should go to
the Congress and say, ``We are getting such extraordinary
returns, we ought to be prepared to make larger investments.''
But we need to test this, and that is why we are beginning
with----
Mr. Frank. If Administrator Natsios could respond to this,
because he seemed eager to.
Mr. Natsios. Yes, if I could. We would love to have this
succeed so much that every country is going to be pushed into
this account. I have to tell you, in my own experience, that is
not going to happen.
The impediments to reform in most of these countries are as
substantial as they are in the United States. The only
difference is, we are already rich, so reform does not mean the
difference between complete deprivation for the whole society
and prosperity. In these countries, it does.
And this is the fact, this is the one statistic that is
most disturbing, and I think goes back to Congressman Feeney's
point about the failure of foreign aid. In terms of the
elimination of poverty as opposed to social services, in
humanitarian assistance, which is a different category, we have
a poor record. All the donors do--all of the banks, the U.N.
And why is that?
Since 1980, only one country has graduated from LDC status,
the least developed country status. There are forty-eight of
them. My first conference I went to after I took over as the
USAID administrator was the head of the delegation to a
conference on the least developed countries, which they have
every 10 years.
The one country is Botswana. And they did not do it from
foreign aid, although we had a big foreign aid program there.
They did it from preventing the elite from stealing the
revenues from the diamond mines, and using those revenues to
build the country. In other words, it is a democratic country,
they respect human rights, it is a parliamentary democracy, it
is well-governed, and they have relatively low levels of
corruption. They took the diamond revenues, and they used the
funds to develop the country. That is why they graduated.
No one else has graduated from the poorest countries in the
world. If we have 15 countries, which is our goal to get into
this program--and this is geared toward our criteria, the
poorest countries in the world--if we have 15, which would be
one-third of the LDCs, graduate, it will be miraculous. We will
have made more progress than is conceivable under the
legislation.
So, we only wish more countries would qualify, but I am not
sure that is going to happen.
Ms. Harris. Thank you.
Mr. Hensarling?
Mr. Hensarling. Thank you, Madam Chair.
As one member who has had the benefit of traveling
extensively in Latin America, I certainly applaud the goal of
poverty reduction, because if you truly want to see some real
poverty, there are places in Latin America where you can see
it.
Obviously, though, and I do associate myself with my
colleague, Mr. Feeney's, comments that historically there seems
to be a very poor correlation between poverty reduction and
U.S. aid. So, first, I would certainly like to applaud the
Administration for this initiative, for actually trying to tie
aid to demonstrable policy changes. I do believe the world
works off of incentives, so, to incent these people to engage
in better policies that will lead to poverty reduction is a
noble goal.
I have several questions that I would like to ask. One is,
I believe on your indicators of encouraging economic freedom,
one is trade policy. It takes two to trade, so I am curious,
what proposals or initiatives does the Administration have to
increase trade with potential MCA nations?
And I am not sure who is best qualified to answer that
question. Perhaps we will start with you, Mr. Taylor.
Mr. Taylor. The measure of trade that we have included is
the country's openness to trade, the country's reduction in
trade barriers.
Mr. Hensarling. No, I understand that, but my----
Mr. Taylor. And that is, of course, important.
One of the possible ways that the funds could be used is to
improve capacity to trade--port facilities, airports, things
like that. That is very much, in the sense of capacity
building, could be a source or a use of some of these funds.
And we will very much be supportive of that, if that is what
countries want to do.
In the meantime, of course, we have other trade
initiatives. For Africa, we have the African Growth and
Opportunity Act. We are moving with free trade agreements, et
cetera.
Mr. Larson. Congressman, if I could just add one quick
point.
We are in the midst of the Doha development agenda, the WTO
round that has a specific focus on development. And it is
particularly important for all of the countries that could be
beneficiaries in this program for that to succeed. Because
multilateral trade liberalization is the most important trade
tool we have. Seventy percent of the duties that developing
countries pay on their exports, they pay to other developing
countries.
So, we believe these preference programs such as the Africa
Growth and Opportunity Act are important, but we also believe
that it is very important, in order to stimulate development,
to achieve a global trade-liberalizing agenda on manufactured
goods and on agricultural products, as well as services.
Mr. Hensarling. Several Congresses ago, we passed welfare
reform. It has been a hugely successful program in moving
people off of welfare checks and onto paychecks, moving people
off of lives of dependency into lives of independence and self-
respect. And I think there is an analogy here. Part of what we
did was tie welfare receipts to behavioral changes, but another
thing we did is put a time limit on welfare.
I am curious, given that once again my observation is that
the world tends to work off of incentives, why would an MCA
nation not, perhaps, the regime, be incented to make very, very
small progress and string along their aid for a very long time,
as opposed to eventually weaning themselves off of that aid? Is
there any contemplation of a time limit for MCA assistance?
Mr. Larson. We definitely want to keep the incentives
right. And we have been very clear that specific activities
under the Millennium Challenge Account would be time-limited.
In other words, we would want to build into any project or any
activity a beginning period and an end date at which point the
country could undertake any further responsibility that is
necessary to make that project or activity succeed.
Mr. Hensarling. I will ask my last question, since I see my
time is running out. Obviously, the two greatest challenges
that I would observe in these countries in working their way
out of poverty has to do with their policies and corruption,
although I am not exactly sure how one gets their arms around
corruption.
For example, in our country, and I think we have had the
Secretary of HUD testify before this committee, two years ago,
HUD lost 10 percent or $3 billion, of their budget in
overpayments. Is that a facet of corruption? In addition, we
have the GAO who cannot certify 22 out of 26 major department
accounts.
So, if we cannot figure out where all the money is going in
our government, how are we ever going to figure out where all
the money is going in these governments?
Mr. Taylor. Just very briefly, Congressman, there is a
significant matter of degree here. If you take, for example, in
many developing countries which you know where just to move
goods down the road, across the border or around borders, there
are checkpoints, there are people checking there, taking their
charges, and that is a significant barrier to commerce and to
trade. But it goes on and on like that.
It is an order-of-magnitude difference. And nobody is
perfect, by any means, but, you know, seriously, this is a very
great impediment to development in these countries.
Ms. Harris. Thank you.
Oh, I am sorry.
Mr. Natsios. We have evidence that the countries that have
the highest levels of corruption are not only not making
progress, they are regressing.
There is one country in Africa that is very rich,
potentially, and 25 percent of the national income of the
country is missing from the national treasury, and that is not
from bad accounting. That is a World Bank estimate. The country
itself could not possibly tell you how much is missing because
they do not have accounting systems to do it. The bank had to
go in and do their own audit of it.
The difference between what you are talking about and what
we are seeing there is not because human nature is any
different here; it is not. I keep telling heads of state all
over the world, Americans are no different than your people
are. The difference is we have a whole set of powerful
institutions that mitigate against fallen human nature in the
American system. And that is what prevents the abuse from
getting out of control.
In many of these countries, there are no institutions that
control corruption. The inspector general exists, they call it
the general audit authority, but has no power at all to do
anything. They do not even have any auditors, in many
countries. And there is actually no way to prosecute the
offenders. The courts do not function. No one ever gets
indicted for corruption, in many of these countries.
If you do not have even the minimal set of institutions,
you will not control corruption, it gets completely out of
control, it is part of the system, it is expected, everybody
takes bribes.
None of those things are true in our system. We have our
scandals, as do the Western Europeans and the Canadians. That
happens, but we have systems for controlling it. And that is
what many of these countries need to establish, strong
institutions to deal with fallen human nature.
Ms. Harris. Thank you.
The gentlewoman from California is recognized.
Ms. Lee. Thank you, Madam Chair.
Let me first say that this, the MCA proposal, I believe we
are marking up in International Relations this week, and I
serve on it, the International Relations Committee. And since
it has been introduced, of course, I have had many, many
concerns about it.
And I say this, starting with the fact that once we learned
that the Heritage Foundation and, I believe, the Freedom Fund
had developed, for the most part, the criteria, this raised
concerns with many members of the Congressional Black Caucus,
because these two organizations do not reflect the diversity of
thought in America, in terms of criteria that could or should
be developed with such a magnitude of a program as this with
taxpayer dollars.
So having said that, I just want to say to you that we have
been looking at this very carefully, and so I welcome your
testimony today.
And one of the areas that we have been concerned with,
myself and many members of the Congressional Black Caucus, is
the role of the United States private sector. What exactly is
that role?
I noticed in your testimony, Mr. Larson, you talk about
possibly evaluations, technical assistance, auditing,
monitoring. What exactly does the U.S. business community see,
or how do you see this as it relates to the U.S. business
community and where the connection is?
Mr. Larson. Thank you.
With respect to your first comment about the indicators,
what we have tried to do is go into the public domain for the
best available public indicators so we could have the degree of
transparency that we think the Congress and the American people
would like. Most of these indicators were ones that are done by
the World Bank Institute.
There are some that where the best indicator of what we
were looking at, like trade policy, we felt, came from an
institution like Heritage House. We did not take it because of
their political orientation. We took it because they had a
good, publicly available indicator of trade policy.
On the U.S. private sector, my sense is that there is
strong interest and support from this from many of our
businesses. Not because they see immediate opportunity, because
many of these countries are very, very poor and where, at least
in the short run, there are not going to be significant
opportunities. But I think they do see an approach that they
like, an approach that sort of marries compassion and a
commitment to results and to accountability.
I think that we may find that when we are trying to measure
and assess results, that we may, you know, we want to have the
freedom to go to all sorts of contractors, whether it is NGOs,
businesses, accounting firms, international organizations, to
sort of help us assess what our successes or failures are.
Ms. Lee. In doing that, let me ask you, because I know the
point is to fast-track a lot of this in terms of the board and
the CEO having that kind of authority, how are you going to
ensure that when you do go out in terms of going into the
private sector, that there are non-discrimination aspects of
the contracting procedures, that there is outreach as it
relates to minority and women-owned businesses?
I mean, how is that piece going to be secured in an
operation such as this that is new and quasi-governmental,
quasi-private. It looks like you do not have to comply with
United States guidelines, as it relates to minority and women-
owned business contracting.
Mr. Larson. We want to have this organization be a model of
transparency and flexibility. I think that, among other things,
will mean using the Internet to disseminate very, very widely
opportunities for contractors to provide services.
We believe that by focusing largely on subsidy here in
Africa and the poorer countries of Latin America, we are going
to find that there are many Americans who have links to those
countries that will have very, very strong comparative
advantage in bidding for these contracts or services that are
required by the corporation. There is going to be a strong
interest in reaching out to those people, because they will be
in the best position to provide the services required.
Ms. Lee. But aside from Internet access, I mean, how do you
plan to do that? I mean, Mr. Natsios could tell you in terms of
the lack of participation of minority firms in USAID
contracting, and they have to comply.
So what is it that you are going to do to make sure that
the outreach, the technical assistance, the inclusion is there,
rather than just posting it on the Internet and say, ``Go for
what you know.''
This is a good--I will not say a good old boys' network of
firms out there, but this is a culture that is difficult to
penetrate for women and for minority-owned businesses.
And with an initiative with this much money involved, where
there is a chance that contracting with U.S. companies will
take place, what is it that you are going to do to make sure
that access is provided, other than providing it on the
Internet?
Mr. Larson. Well, again, one of the reasons for setting up
a corporation that is different is to get fresh thinking about
how to accomplish all of these things.
I stress the transparency in the Internet aspects, because
I think it is one of the most obvious tools.
We are at work now trying to develop options for the types
of management issues that you are raising. How can this
corporation do innovative, flexible, effective contracting and
reach out? How can it have a personnel policy that is flexible
and results-oriented?
I mean, this is some of the administrative and managerial
spadework that the Administration is doing right now, as the
Congress is considering authorization----
Ms. Lee. But will you be required to comply with existing
law and regulations with regard to this, or not?
Mr. Larson. The Administration has proposed to have
flexibility on contracting so we could go out and get the
services at the best possible price and with the best
possible----
Ms. Lee. So the answer is no. You can----
Mr. Larson. Well, I am trying to tell you what it is that
we are looking for.
Ms. Lee. Yes, that is what I am asking you.
Mr. Larson. And----
Ms. Lee. You do not have to comply with current, existing
laws, as it relates to the utilization of minority and women-
owned businesses.
Mr. Larson. We would propose to do that through the sort of
outreach efforts that I was just describing.
Ms. Lee. So, you do not have to comply. Okay. I am trying
to get a handle on that, and it has been very fuzzy up until
now. But thank you for stating it very clearly.
Ms. Harris. The gentleman from Minnesota is recognized.
Mr. Kennedy. In reference to the ranking member's comments
about Lake Wobegon, I am pleased to be the official
representative of Lake Wobegon.
[Laughter.]
And yes, all of our children are above average, though a
prior Kennedy chose to address international development and
exporting those above-average children from Lake Wobegon as
part of the Peace Corps. And I think this a great step forward
to export the principles of what we stand for in Lake Wobegon
and across the country, to try to get others to embrace those,
because those principles have, indeed, been so successful for
us.
And I think I would also agree with the ranking member that
there are few more important things we can do than try to
address the needs, in this case, of people in your initial
sample that have a per-capita income of $1,425. I mean, these
are people that are really in need.
And I think this does leverage--if it is successful, this
can hopefully influence the way that the international bodies
are addressing economic development and our other examples to
try to leverage the successful track record that embracing the
free markets, embracing open economies can really result in.
I have a couple of criteria questions, though. The first
one is, if you read the founding of our country in the
Federalist Papers, and James Madison, he highlighted the
importance of property rights to begin any real economic
development. And although, you know, we have a couple of
bankshots here toward property rights, I do not really see it
listed as one of the criteria that needs to be preserved.
Mr. Taylor. The property rights are certainly essential.
Rule of law, property rights go together. The indicators that
we have under the civil liberties and political rights do
emphasize the rule of law. And, of course, the control of
corruption relates to property rights, as well.
So, it is definitely part of these measures in a number of
different ways as you look through them.
Mr. Kennedy. Okay. And I would just encourage that, you
know, we maybe look at that as being a bit more central and a
bit more stated as part of those criteria. You can have a rule
of law that still has a law that ignores property rights. And I
think we need to make sure that we keep that central, given how
important that is.
Another key concern to us, particularly on the Financial
Services Committee, is to make sure that there is a solid
banking in a system that is out there, that is honest, that is
sound, that is providing what it needs to the private industry,
the entrepreneurs, to go. And do we feel confident that, again,
the criteria we have established ensures that that is being
encouraged to be developed?
Mr. Taylor. I would say that is an area which we always
focus on in our relationships with other countries, and the IMF
in particular looks at that with their financial-sector
assessment programs.
There are some regulatory measures that are developed by
the World Bank Institute. It is in the encouraging economic
freedoms, called Regulatory Quality Rating, and it is an
indicator that includes many--it is an aggregate of other
indicators.
I believe if you combine that with the credit rating
index--the credit rating index is measuring financial stability
to some extent. It is also fiscal stability. But the people who
look at the credit rating will, of course, be looking at the
soundness of the banking system. It is a very important part of
a credit rating for a country.
And one of the economic freedom measures we have is the
country credit rating developed by Institutional Investor
Magazine. So, those are a couple of ways where that factor
comes into play.
But that is going to require, I think, continued emphasis,
because even countries that are not so poor still have
improvements to be made in their financial sector.
Mr. Kennedy. And, Secretary Taylor, in your submitted
testimony, you listed the criteria underneath each of the
categories. And as I went through ``investing in people'' and
``encouraging economic freedom'' criteria, there was always an
objective published data that could be used to develop that. As
I go through the ``governing justly,'' no sort of existing
indexes that are published and available were cited.
Is that something we are creating, those indexes, or are we
looking at outside entities to provide those?
Mr. Taylor. The ``governing justly'' indicators are
actually all available publicly. Freedom House does the two
indices called Civil Liberties and Political Rights, and those
are published annually. They have a nice little paperback book
you can get out and look at the descriptions for each country,
plus it is on the website.
Now, the World Bank Institute developed the other four
indicators, and those are also publicly available. Those four
indicators are, in turn, based on lots of other measures that
are put together by other agencies and other research firms,
other surveys. But those are all publicly available. In fact,
they are all on the websites right now.
Mr. Kennedy. That is great.
And I just want to follow up on Congressman Feeney's
concern about the health expenditures. When we say ``public
expenditure on health,'' does that mean just government
spending on health? Or does that mean with the private sector
spending on health in addition?
Because, you know, when we talk about people are acting the
way they are incented to act, I do not want to encourage people
to have a single payer in a government health plan that
certainly a number of us would not support, and have that be
exported because of this criteria to other countries.
Mr. Taylor. The measure now is public sector as stated.
What we were looking for is good measures of a country's intent
to invest in people. When we get more and more data, perhaps
some of these could be refined and revised.
And I would also say that it is not just the expenditures,
it is the results, those immunization rates, for example, that
we focused on, and the completion rates for schools. So, it is
not just the inputs, it is the outputs.
And, finally, I would emphasize that the judgment about the
country's qualification is going to depend on these indicators,
but also taking other things into account. So, for example, if
there is some missing data, some judgment will have to be
applied.
Also, if you are in a situation where there is a clear
intent, maybe measured by private-sector development of health,
that is very significant in a country, and for that reason the
public expenditures may be lower, that would be exactly the
kind of thing that the Millennium Challenge Board would take
into account.
Mr. Kennedy. Now, you talked about judgments, you talked
about potentially revising these criteria over time. What role
would you see Congress having, in terms of oversight in
providing input as we go through this with the Millennium
Challenge?
And will there be an inspector general that MCA will have,
to help make sure that these criteria are being applied and
that we are being rigorous in our approach?
Whoever wants to answer that.
Mr. Larson. There will be an inspector general. The
Administration is still considering whether it should be
USAID's inspector general or a different inspector general, but
there will be an inspector general.
And I do think that--I know that Secretary Powell and I am
sure that Secretary Snow would feel the same way. We expect to
have very strong accountability to the Congress and oversight
to the Congress for the results that we are achieving, and that
the CEO will be someone who will want to work with the
Congress.
I think it is very important what Under Secretary Taylor
was stressing. At the end of the day, the Cabinet-level board
is going to take all of this information into account, and then
make its best judgment on recommendations to the President
about which countries really meet the underlying criteria of
governing justly, promoting economic freedom and investing in
their own people.
And that board, that Cabinet-level board, will be
accountable to the President, accountable to the Congress and
accountable for the results that they are achieving. And that
will entail any revision of these indicators, which are tools
but not a replacement for the judgment of the board.
Ms. Harris. Thank you.
The gentlewoman from California is recognized.
Ms. Waters. Thank you very much. And I am sorry that I was
not able to spend more time here. We have so many conflicts in
scheduling. But I did want to come to show my interest.
The one, I guess, major concern that I have, as I look at
the makeup of the board, is the absence of USAID. What role
will USAID play with this board?
Mr. Natsios. I report to the Secretary of State. I go to
Colin Powell's morning meeting at 8:30 every morning. He is our
representative on that board. So we have a representative, and
he is the Secretary of State, or she, depending on the
Administration.
We expect, in the field, that if an MCA country is chosen
and there is a USAID mission in the country, that USAID will be
called on by the MCC corporation to help administer the
program. But that is a decision that will be made based on the
country in particular and the decisions of the board.
Ms. Waters. Am I correct in understanding that USAID has
been the lead, historically, with these kinds of decisions?
Mr. Larson. In foreign assistance, the responsibility is
divided. The Treasury Department handles the international
financial institutions. In other words, our assistance that
goes through those institutions is handled by Treasury.
Except for the World Food Programme, most of the U.N.
agencies that get money from the U.S. government get it through
the State Department. The State Department also has an account
called the ESF account.
I would say that maybe 60 percent, 55 percent of the
foreign assistance program of the U.S. government has been,
historically, in the last 20 years, handled by USAID, and the
other 45 percent by either State or Treasury and now some by
HHS. So, it is divided.
Ms. Waters. Am I to--I have always understood that USAID,
being involved on the ground, interacting with nongovernmental
organizations, have an intimate knowledge of how things really
work in many of these countries, and that is the kind of
information that has helped us make some decisions about
financial assistance and funding.
How do you anticipate having that on-the-ground,
interactive knowledge communicated to and acted on by this
board?
And do not tell me the Secretary of State, because I
recognize that is your boss.
Mr. Natsios. Sure.
Ms. Waters. But I also understand that he gets his
information from the bottom up, and that he really cannot make
decisions unless he knows what is going on on the ground and
that the combination of work that is done by our embassies and
all of that personnel and USAID--my husband was an ambassador,
so I understand that very well.
Now, so, how will they get this information?
Ms. Harris. Could I ask the gentlewoman if she would yield
a moment?
In the latest information that we have, the USAID will be
represented on the board.
Ms. Waters. I am sorry, what did you say?
Ms. Harris. In the information, USAID will be on the MCA
board.
Ms. Waters. Why doesn't he know that?
Ms. Harris. I am not sure if he is----
Mr. Natsios. There are some things I know I do not say,
Congresswoman, because they are decisions of the Congress that
have been made, but Congresswoman Harris has said this, and
that is a decision of the Congress.
The way our legislation was submitted, the USAID
administrator is not on the board. But there are----
Ms. Waters. Oh, but you are saying that you are going to be
active in helping to make sure he is on the board.
Ms. Harris. In the information that we received that will
be presented in the markup, USAID is on the board.
Ms. Waters. I see. All right. Thank you very much. Just
wondering.
Ms. Harris. Great question.
Well, I want to thank the members of the panel, Secretary
Taylor, Secretary Larson and Administrator Natsios, for
participating today.
I understand that the chair notes that some members may
have additional questions that they wish to submit to the panel
in writing. So, without objection, the hearing record will
remain open for 30 days for members to submit written questions
to these witnesses and place their responses in the record.
This hearing is adjourned.
[Whereupon, at 11:52 a.m., the subcommittee was adjourned.]
A P P E N D I X
June 11, 2003
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