U.S. GOVERNMENT PRINTING OFFICE

46–099 cc WASHINGTON : 1999

S. HRG. 105–809

FOREIGN OPERATIONS, EXPORT FINANCING, AND

RELATED PROGRAMS APPROPRIATIONS FOR

FISCAL YEAR 1999

HEARINGS

BEFORE A

SUBCOMMITTEE OF THE

COMMITTEE ON APPROPRIATIONS

UNITED STATES SENATE

ONE HUNDRED FIFTH CONGRESS

SECOND SESSION

ON

H.R. 4569/S. 2334

AN ACT MAKING APPROPRIATIONS FOR FOREIGN OPERATIONS, EXPORT

FINANCING, AND RELATED PROGRAMS FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 1999, AND FOR OTHER PURPOSES

Agency for International Development

Department of Health and Human Services

Department of Justice

Department of State

Department of the Treasury

Nondepartmental witnesses

Printed for the use of the Committee on Appropriations

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(II)

COMMITTEE ON APPROPRIATIONS

TED STEVENS, Alaska, Chairman

THAD COCHRAN, Mississippi

ARLEN SPECTER, Pennsylvania

PETE V. DOMENICI, New Mexico

CHRISTOPHER S. BOND, Missouri

SLADE GORTON, Washington

MITCH MCCONNELL, Kentucky

CONRAD BURNS, Montana

RICHARD C. SHELBY, Alabama

JUDD GREGG, New Hampshire

ROBERT F. BENNETT, Utah

BEN NIGHTHORSE CAMPBELL, Colorado

LARRY CRAIG, Idaho

LAUCH FAIRCLOTH, North Carolina

KAY BAILEY HUTCHISON, Texas

ROBERT C. BYRD, West Virginia

DANIEL K. INOUYE, Hawaii

ERNEST F. HOLLINGS, South Carolina

PATRICK J. LEAHY, Vermont

DALE BUMPERS, Arkansas

FRANK R. LAUTENBERG, New Jersey

TOM HARKIN, Iowa

BARBARA A. MIKULSKI, Maryland

HARRY REID, Nevada

HERB KOHL, Wisconsin

PATTY MURRAY, Washington

BYRON DORGAN, North Dakota

BARBARA BOXER, California

STEVEN J. CORTESE, Staff Director

LISA SUTHERLAND, Deputy Staff Director

JAMES H. ENGLISH, Minority Staff Director

SUBCOMMITTEE ON FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED

PROGRAMS

MITCH McCONNELL, Kentucky, Chairman

ARLEN SPECTER, Pennsylvania

JUDD GREGG, New Hampshire

RICHARD C. SHELBY, Alabama

ROBERT F. BENNETT, Utah

BEN NIGHTHORSE CAMPBELL, Colorado

TED STEVENS, Alaska

PATRICK J. LEAHY, Vermont

DANIEL K. INOUYE, Hawaii

FRANK R. LAUTENBERG, New Jersey

TOM HARKIN, Iowa

BARBARA A. MIKULSKI, Maryland

PATTY MURRAY, Washington

ROBERT C. BYRD, West Virginia

(Ex officio)

Professional Staff

ROBIN CLEVELAND

JENNIFER CHARTRAND

TIM RIESER (Minority)
(III)

CONTENTS

TUESDAY, MARCH 3, 1998

Page

Department of the Treasury: International Monetary Fund ............................... 1

TUESDAY, MARCH 31, 1998

Department of State ................................................................................................ 43

TUESDAY, APRIL 21, 1998

Department of Justice: Federal Bureau of Investigation ..................................... 69

THURSDAY, APRIL 23, 1998

Agency for International Development .................................................................. 95

Department of Health and Human Services: Centers for Disease Control

and Prevention ..................................................................................................... 95

TUESDAY, JUNE 9, 1998

Agency for International Development .................................................................. 141

TUESDAY, JUNE 16, 1998

Department of State: Office of the Secretary ........................................................ 173

Nondepartmental witnesses .................................................................................... 219
(1)

FOREIGN OPERATIONS, EXPORT FINANCING,

AND RELATED PROGRAMS APPROPRIATIONS FOR FISCAL YEAR 1999

TUESDAY, MARCH 3, 1998

U.S. SENATE,

SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS,

Washington, DC.

The subcommittee met at 10:32 a.m., in room SD–192, Dirksen

Senate Office Building, Hon. Mitch McConnell (chairman) presiding.

Present: Senators McConnell, Specter, Bennett, Stevens, Leahy,

and Mikulski.

Also present: Senator Faircloth.

DEPARTMENT OF THE TREASURY

INTERNATIONAL MONETARY FUND

STATEMENTS OF:

HON. ALAN GREENSPAN, CHAIRMAN, BOARD OF GOVERNORS OF

THE FEDERAL RESERVE SYSTEM

HON. ROBERT E. RUBIN, SECRETARY OF THE TREASURY

ACCOMPANIED BY LAWRENCE H. SUMMERS, DEPUTY SECRETARY OF

THE TREASURY

OPENING REMARKS OF SENATOR MITCH MC CONNELL

Senator MCCONNELL. The hearing will come to order.

We are pleased to have Secretary Rubin, Chairman Greenspan,

and Mr. Summers with us today as well as the chairman of our full

committee, Senator Stevens.

As early as next week, the committee may consider the adminis- tration’s two requests for the IMF: a $3.4 billion contribution to the

new arrangements to borrow [NAB] and a $14.5 billion quota increase.

In both instances, there is no budget outlay nor will the commitment increase the deficit because the transfer is considered an exchange of assets. In return for our commitment, we receive a liquid, interest bearing claim against IMF holdings.

There are three points I would like to make regarding the request.

First, current conditions warrant prompt action on the NAB, but

the quota should be considered as part of the fiscal year 1999 bill.
2

Second, Congress must have the time and opportunity to evaluate both IMF enforcement and recipient compliance with the largest loan agreements recently negotiated.

Third, the rapid and dangerous spread of this crisis suggests we

should consider appropriate and real reforms in the lending and

management practices of the IMF and sister institutions.

Let me review each point briefly.

As you know, the administration requested and the Senate

passed the NAB last year. Unfortunately, White House negotiators

decided a few million for population programs was more important

than a few billion for this IMF emergency reserve. Despite the best

efforts of many, including Chairman Stevens and my colleague,

Senator Leahy, who will be here shortly, agreement could not be

reached and the new arrangements to borrow was deleted from the

bill.

We should be able to move promptly on the NAB given the Senate’s prior support.

In addition to renewing the NAB request, the administration has

now asked to accelerate consideration of the quota as part of the

supplemental bill. Inclusion of the quota as a supplemental request

in some ways comes as something of a surprise.

The administration had advised us late last year to expect a

quota due to Asian pressures combined with historical or cyclical

lending patterns.

While I appreciate the administration’s desire to avoid having

two votes on IMF loans, the urgency of the case for the quota, in

my view, has not been made. In fact, all of the documents I have

been provided by Treasury make clear that the IMF’s liquidity

ratio exceeds 50 percent, even taking the loans into consideration.

The NAB, combined with prior appropriations for the general ar- rangements to borrow, would make another $48 billion available in

the unlikely event that the Asian contagion continues to spread.

The IMF’s lending has been measured, producing a steady decline in liquid assets. This argues for congressional consideration of

a request to replenish its resource base.

Now I have been a strong and consistent supporter of this and

related multilateral institutions and I certainly recognize their importance to U.S. exports and to U.S. growth. It is with a clear commitment to our mutual goal of sustaining this growth that I would

urge a careful and thorough review of IMF and recipient country

performance, not a rush to judgment which might be misunderstood as an attempt to avoid this important debate.

Secretary Rubin, you have never had a ‘‘Chicken Little’’ complex.

In the interest of market stability, I think we all need to exercise

some restraint and avoid the urge to declare that the sky is falling.

To put the issue in perspective, during the Bush administration,

when the Congress considered the last quota request, it took 20

months to pass that because the debate was mired in the unrelated

issue of Israeli housing loan guarantees. The 1983 quota request

took 8 months, even though IMF liquidity had fallen below 35 percent.

We need to take time to build confidence in the IMF and that

will be directly affected by my second concern, which relates to the

details of the stand-by agreements which have been negotiated.
3

There are critics who oppose the agreements reached in Asia as

a formula response, raising taxes and interest rates and cutting

spending. While aspects of the criticism may be justified, it seems

the agreements in Asia reach far beyond the formula and address

the systemic distortions and problems in banking, trade, and investment regulations and the practices which caused these economies to collapse.

If Korea fulfills its obligations—and I have confidence that the

new government is on the right track—we can expect dramatic

changes which strike to the core infection of crony capitalism. Insolvent banks owned by good friends rather than good bankers will

no longer be protected by government subsidies.

Bankruptcy proceedings will operate independently of government interference. Foreign ownership, direct investment opportunity, and market access will expand significantly.

International accounting and capitalization ratio standards will

be enforced, and key data on foreign exchange debt and financial

holdings of banks will be a matter of public record.

Had some of these conditions been in place last year, Korea

might not have suffered such an enormous shock.

Support for the NAB and the quota will depend on full compliance with the agreements. Of the four largest loan programs, it

seems that Korea and Thailand have worked quickly and effectively to meet their obligations. Unfortunately, I do not see the

same progress in Indonesia or in Russia.

Faced with the probability that Russia, once again, could not

meet the IMF’s targets, last week Mr. Camdessus announced plans

to relax the terms of Russia’s agreement and extend the length of

the loan. The clear message here is: if you don’t perform, don’t

worry. That is precisely the wrong message to send, I think, at

least as far as I am concerned.

Similarly, there appears to be little progress in implementing the

reforms required of the Suharto government. With an additional

disbursement of more than $3 billion anticipated in mid-March, I

know many of us will be interested in your assessment of the concrete steps the government has taken to meet IMF conditions, including the elimination of trade barriers which have protected preferred enterprises, an end to the marketing and distribution monopolies tied to the Suharto family, and moving more than 3,000

off-budget revenue accounts into the State budget.

As you both know better than any of us up here, compliance with

loan agreements is essential. If the terms are not met, the Fund’s

long-term solvency can be put at risk.

Finally, I hope the hearing today begins a serious debate about

reforms in management and lending practices needed at the IMF

and related international financial institutions. I am not sure how

many people realize that many of the ideas and legislation circulating are already a part of the Bretton Woods Agreement authorizing

our participation in international institutions.

Just as a few examples, section 14 of the act says that it is U.S.

policy to promote the removal of trade restrictions. Sections 44 and

49 tell our directors to work to eliminate agricultural subsidies.

Section 42 instructs our directors to initiate discussions to gather

information on the extension of credit by private banks and
4

nonbank institutions to borrowers and make that information

available to the public.

There is no shortage of policy guidance. The problem is we are

the only contributor paying any attention.

This agreements and its standards are not binding on the IMF,

its boards or its activities. We do not need to pass more legislation

urging the administration to use our voice and vote to assure a

loan meets congressional mandate. Instead, we need to see the IMF

Executive Board or the Board of Governors pass and implement

resolutions agreeing to standards already enunciated in U.S. law.

Today I hope to review and discuss several specific items the

IMF could take up to improve lending and management.

Before action on the quota, I hope to achieve a consensus working with both of you toward real reform and not just more bland

recommendations in order to assure our continued participation in

these institutions.

As a personal comment, let me thank both of our witnesses and

Mr. Summers as well and their staffs for providing information and

cooperating so fully with the subcommittee. As events in Asia developed, you and your staff have provided prompt and thorough information which has made an important difference in my level of

confidence in this undertaking.

We have an ambitious agenda for today, so we will start momentarily.

Let me see if the chairman of the committee would like to make

any observations.

OPENING REMARKS OF SENATOR TED STEVENS

Senator STEVENS. Thank you very much, Mr. Chairman. I welcome our two witnesses—three witnesses. I am sorry I will have to

leave here and meet with Senator Byrd to discuss the timing for

consideration of the supplemental. It is my feeling we will start

hearings on Friday morning on the supplemental if it is received

on Thursday afternoon, as we expect.

I congratulate you for moving forward on this portion.

My comment would be that I am one who believes that we should

get the Senate on record again—we are on record already—as supporting these concepts that are in the supplemental request. I do

believe that there should be delineation of the reforms that we expect and that we should find some way to assure that that will be

accomplished, particularly with regard to the quota.

But after just one trip to my home this last week, I found people

who are dealing in the Pacific rim, many of them involved in fulfilling substantial contracts out there who are very worried about

being paid for the deliveries that are being made right now.

I think this is a virus and if we do not really demonstrate our

willingness to help the IMF put it right, we could very well see

some of this come back.

I think we will hear today from some of the people from the Midwest and in the Grain Belt who are facing similar problems now

with regard to payment for some of the deliveries that are expected

to be made of our grain in the Far East this summer.

This is not something that I think we can pass by, and I hope

the Senate will go on record. I am not in disagreement with what
5

the chairman of the subcommittee has said about the necessity for

reforms. That is where we will have to rely on you gentlemen, to

help us delineate what those reforms can be within a reasonable

period of time. At least I hope we will have an opportunity to consider them on the floor when the time comes.

I hope you will excuse me. I look forward to reading this record.

Thank you.

Senator MCCONNELL. Thank you, Mr. Chairman.

It has been the policy of this subcommittee to limit opening

statements by members to the chairman of the subcommittee and

the ranking member, that is, unless the chairman of the full committee shows up, in which case he can do anything he wants to.

Senator Leahy will be here in a little while.

I understand that Chairman Greenspan has to leave at 11:30

a.m. I am completely open to which of you goes first. It is your call.

Mr. GREENSPAN. I will be delighted to start, Mr. Chairman. I

have a statement which I would like to read into the record and

then at some point I would answer whatever questions I can in the

timeframe that I have available.

Senator MCCONNELL. Your full statement will be made a part of

the record, Mr. Chairman.

SUMMARY STATEMENT OF HON. ALAN GREENSPAN

Mr. GREENSPAN. Thank you very much, Mr. Chairman.

The global financial system has been evolving rapidly in recent

years. New technology has radically reduced the costs of borrowing

and lending across traditional national borders, facilitating the development of new instruments and drawing in new players.

Information is transmitted instantaneously around the world,

and huge shifts in the supply and demand for funds naturally follow, resulting in a massive increase in capital flows.

This burgeoning global system has been demonstrated to be a

highly efficient structure that has significantly facilitated cross border trade in goods and services and, accordingly, has made a substantial contribution to standards of living worldwide.

Its efficiency exposes and punishes underlying economic imprudence swiftly and decisively. Regrettably, it also appears to have

facilitated the transmission of financial disturbances far more effectively than ever before.

Some 3 years ago, the Mexican crisis was the first such episode

associated with our new high-tech international financial system.

The current Asian crisis is the second.

We do not as yet fully understand the new system’s dynamics.

We are learning fast and we need to update and modify our institutions and practices to reduce the risks inherent in the new regime.

Meanwhile, we have to confront the current crisis with the institutions and techniques that we have.

Many argue that the current crisis should be allowed to run its

course without support from the International Monetary Fund or

the bilateral financial backing of other nations. They assert that allowing this crisis to play out, while doubtless having additional

negative effects on growth in Asia and engendering greater spillovers onto the rest of the world, is not likely to have a large or lasting impact on the United States and the world economy.
6

They may well be correct in their judgment.

There is, however, a small, but not negligible, probability that

the upset in East Asia could have unexpectedly large negative effects on Japan, Latin America, and Eastern and central Europe

that, in turn, could have repercussions elsewhere, including the

United States.

Thus, while the probability of such an outcome may be small, its

consequences, in my judgment, should not be left solely to chance.

We have observed that global financial markets as currently organized do not always achieve an appropriate equilibrium or at least

require time to stabilize.

Opponents of IMF support for member countries facing international financial difficulties also argue that such substantial financial backing, by cushioning the losses of imprudent investors,

could encourage excessive risk taking. There doubtless is some

truth in that although, arguably, it has been the expectation of government support of their financial systems that has been the more

obvious culprit, at least in the Asian case.

In any event, any expectations of broad bailouts have turned out

to have been disappointed. Many, if not most, investors in Asian

economies have, to date, suffered substantial losses. Asian equity

losses, excluding Japanese companies, since June 1997 worldwide

are estimated to have exceeded $700 billion at the end of January,

of which more than $30 billion have been lost by U.S. investors.

Substantial further losses have been recorded in bonds and real

estate.

Moreover, the policy conditionality, associated principally with

IMF lending, which dictates economic and financial discipline and

structural change, helps to mitigate some of the inappropriate risk

taking. Such conditionality is also critical to the success of the

overall stabilization effort. At the root of the problems is poor public policy that has resulted in misguided investments and very

weak financial sectors.

Convincing a sovereign nation to alter destructive policies that

impair its own performance and threaten contagion to its neighbors

is best handled by an international financial institution, such as

the IMF.

What we have in place today to respond to crises should be supported even as we work to improve those mechanisms and institutions.

Some observers have also expressed concern about whether we

can be confident that IMF programs for countries, in particular the

countries of East Asia, are likely to alter their economies significantly and permanently. My sense is that one consequence of this

Asian crisis is an increasing awareness in the region that market

capitalism, as practiced in the West, especially in the United

States, is the superior model; that is, it provides greater promise

of producing rising standards of living and continuous growth.

Although East Asian economies have exhibited considerable adherence to many aspects of free market capitalism, there has, nonetheless, been a pronounced tendency toward government directed

investment using the banking system to finance that investment.

Given a record of real growth rates of close to 10 percent per

annum over an extended period of time, it is not surprising that
7

it has been difficult to convince anyone that the economic system

practiced in East Asia could not continue to produce positive results indefinitely.

Following the breakdown, an increasing awareness bordering in

some cases on shock that their economic model was incomplete or

worse has, arguably, emerged in the region. As a consequence,

many of the leaders of these countries and their economic advisors

are endeavoring to move their economies much more rapidly toward the type of economic system that we have in the United

States.

The IMF, whatever one may say about its policy advice in the

past, is trying to play a critical role in this process, providing advice and incentives that promote sound money and long-term stability.

The IMF’s current approach in Asia is fully supportive of the

views of those in the West who understand the importance of

greater reliance on market forces, reduced government controls,

scaling back of government directed investment, and embracing

greater transparency—the publication of all data that are relevant

to the activities of the central bank, the government, financial institutions, and private companies.

It is a reasonable question to ask how long this conversion to embracing market capitalism in all its details will last in the countries once temporary IMF support is no longer necessary. We are,

after all, dealing with sovereign Nations with long traditions not

always consonant with market capitalism. There can be no guarantees. But my sense is that there is a growing understanding and

appreciation of the benefits of market capitalism, as we practice it,

that what is being prescribed in the IMF programs fosters their

own interests.

The just-inaugurated President of Korea, from what I can judge,

is unquestionably aware of the faults of the Korean system that

contributed to his country’s crisis. He appears to be very strenuously endeavoring to move his economy and society in the direction

of freer markets and a more flexible economy. In these efforts, he

and other leaders in the region with similar views, have the support of many younger people, a large proportion educated in the

West, who see the advantages of market capitalism and who will

soon assume the mantle of leadership.

PREPARED STATEMENT

Accordingly, Mr. Chairman, I fully back the administration’s request to augment the financial resources of the IMF by approving

as quickly as possible U.S. participation in the new arrangements

to borrow and an increase in the U.S. quota in the IMF. Hopefully,

neither will turn out to be needed and no funds will be drawn. But

it is better to have it available if that turns out not to be the case

and quick response to a pending crisis is essential.

Thank you very much, Mr. Chairman.

Senator MCCONNELL. Thank you very much, Mr. Chairman.

[The statement follows:]
8

PREPARED STATEMENT OF HON. ALAN GREENSPAN

The global financial system has been evolving rapidly in recent years. New technology has radically reduced the costs of borrowing and lending across traditional

national borders, facilitating the development of new instruments and drawing in

new players. Information is transmitted instantaneously around the world, and

huge shifts in the supply and demand for funds naturally follow, resulting in a massive increase in capital flows.

This burgeoning global system has been demonstrated to be a highly efficient

structure that has significantly facilitated cross-border trade in goods and services

and, accordingly, has made a substantial contribution to standards of living worldwide. Its efficiency exposes and punishes underlying economic imprudence swiftly

and decisively. Regrettably, it also appears to have facilitated the transmission of

financial disturbances far more effectively than ever before.

Three years ago, the Mexican crisis was the first such episode associated with our

new high-tech international financial system. The current Asian crisis is the second.

We do not as yet fully understand the new system’s dynamics. We are learning

fast, and need to update and modify our institutions and practices to reduce the

risks inherent in the new regime. Meanwhile, we have to confront the current crisis

with the institutions and techniques we have.

Many argue that the current crisis should be allowed to run its course without

support from the International Monetary Fund or the bilateral financial backing of

other nations. They assert that allowing this crisis to play out, while doubtless having additional negative effects on growth in Asia, and engendering greater spillovers onto the rest of the world, is not likely to have a large or lasting impact on

the United States and the world economy.

They may well be correct in their judgment. There is, however, a small but not

negligible probability that the upset in East Asia could have unexpectedly large negative effects on Japan, Latin America, and eastern and central Europe that, in turn,

could have repercussions elsewhere, including the United States. Thus, while the

probability of such an outcome may be small, its consequences, in my judgment,

should not be left solely to chance. We have observed that global financial markets,

as currently organized, do not always achieve an appropriate equilibrium, or at least

require time to stabilize.

Opponents of IMF support for member countries facing international financial difficulties also argue that such substantial financial backing, by cushioning the losses

of imprudent investors, could encourage excessive risk-taking. There doubtless is

some truth in that, though arguably it has been the expectation of governments’

support of their financial systems that has been the more obvious culprit, at least

in the Asian case. In any event, any expectations of broad bailouts have turned out

to have been disappointed. Many if not most investors in Asian economies have to

date suffered substantial losses. Asian equity losses, excluding Japanese companies,

since June 1997, worldwide, are estimated to have exceeded $700 billion, at the end

of January, of which more than $30 billion had been lost by U.S. investors. Substantial further losses have been recorded in bonds and real estate.

Moreover, the policy conditionality, associated principally with IMF lending,

which dictates economic and financial discipline and structural change, helps to

mitigate some of the inappropriate risk-taking. Such conditionality is also critical

to the success of the overall stabilization effort. At the root of the problems is poor

public policy that has resulted in misguided investments and very weak financial

sectors. Convincing a sovereign nation to alter destructive policies that impair its

own performance and threaten contagion to its neighbors is best handled by an

international financial institution, such as the IMF. What we have in place today

to respond to crises should be supported even as we work to improve those mechanisms and institutions.

Some observers have also expressed concern about whether we can be confident

that IMF programs for countries, in particular the countries of East Asia, are likely

to alter their economies significantly and permanently. My sense is that one consequence of this Asian crisis is an increasing awareness in the region that market

capitalism, as practiced in the West, especially in the United States, is the superior

model; that is, it provides greater promise of producing rising standards of living

and continuous growth.

Although East Asian economies have exhibited considerable adherence to many

aspects of free-market capitalism, there has, nonetheless, been a pronounced tendency toward government-directed investment, using the banking system to finance

that investment. Given a record of real growth rates of close to 10 percent per

annum over an extended period of time, it is not surprising that it has been difficult

to convince anyone that the economic system practiced in East Asia could not con-
9

tinue to produce positive results indefinitely. Following the breakdown, an increasing awareness, bordering in some cases on shock, that their economic model was incomplete, or worse, has arguably emerged in the region.

As a consequence, many of the leaders of these countries and their economic advisors are endeavoring to move their economies much more rapidly toward the type

of economic system that we have in the United States. The IMF, whatever one

might say about its policy advice in the past, is trying to play a critical role in this

process, providing advice and incentives that promote sound money and long-term

stability. The IMF’s current approach in Asia is fully supportive of the views of

those in the West who understand the importance of greater reliance on market

forces, reduced government controls, scaling back of government-directed investment, and embracing greater transparency—the publication of all the data that are

relevant to the activities of the central bank, the government, financial institutions,

and private companies.

It is a reasonable question to ask how long this conversion to embracing market

capitalism in all its details will last in countries once temporary IMF support is no

longer necessary. We are, after all, dealing with sovereign nations with long traditions, not always consonant with market capitalism. There can be no guarantees,

but my sense is that there is a growing understanding and appreciation of the benefits of market capitalism as we practice it—that what is being prescribed in IMF

programs fosters their own interests.

The just-inaugurated president of Korea, from what I can judge, is unquestionably

aware of the faults of the Korean system that contributed to his country’s crisis; he

appears to be very strenuously endeavoring to move his economy and society in the

direction of freer markets and a more flexible economy. In these efforts, he and

other leaders in the region with similar views, have the support of many younger

people, a large proportion educated in the West, that see the advantages of market

capitalism and who will soon assume the mantle of leadership.

Accordingly, I fully back the Administration’s request to augment the financial resources of the IMF by approving as quickly as possible U.S. participation in the New

Arrangements to Borrow and an increase in the U.S. quota in the IMF. Hopefully,

neither will turn out to be needed, and no funds will be drawn. But it is better to

have it available if that turns out not to be the case and quick response to a pending

crisis is essential.

SUMMARY STATEMENT OF HON. ROBERT E. RUBIN

Senator MCCONNELL. Secretary Rubin, do you want to go ahead

with your statement?

Secretary RUBIN. Thank you, Mr. Chairman.

Let me say that I, too, regret that the NAB did not pass at the

end of the last year, although our analysis of the cause might differ

a little bit. In any event, it is a pleasure to be with you and to discuss funding for the IMF.

I would like to do that, if I may, in the context of American leadership with respect to the global economy, the situation in Asia,

and also briefly bring you up to date on the international response

in the crisis and our efforts to modernize the architecture for the

financial markets.

As you well know, Mr. Chairman, because you have been very

much involved in these issues, there is truly a new era. I lived it

when I was in the private sector before coming into government.

It is a new era of the global financial markets and a global economy—20 years ago, most of our businesses in this country were

predominantly domestic. Today the large businesses are predominantly global entities—20 years ago, developing countries accounted for virtually none of our exports. Today they account for

something over 40 percent of our exports.

Moreover, our leadership in the international financial institutions, including the IMF, have contributed enormously to the economic wellbeing of our workers, our farmers, and our businesses.
10

But, as Chairman Greenspan said, with these opportunities have

come risks.

I do not think there is any question but, if we are going to deal

with these risks, we are going to have to have a strong and effective American leadership. In that way we can try to make the most

of the opportunities while, at the same time, effectively manage the

risks.

Whether or not we provide that leadership will, in my judgment,

profoundly affect our economic and national security interests in

the years to come.

This need for American leadership has been brought home by the

recent crisis in Asia. We have critical economic and national security interests in Asia.

Chairman Stevens said before he left that we have very substantial exports to Asia. They are now something like 30 percent of our

total exports, and we export more to Asia than we do to Europe.

In States like California, Oregon, and Washington, exports to Asia

represent over 50 percent of each State’s exports.

Financial instability, economic distress, and depreciating currencies all have direct effects on the pace of our exports to the region and on the competitiveness of our goods and services in world

markets as a consequence of the depreciation of the currencies of

the affected countries in that region.

Moreover, if the problem were to spread to developing countries

around the globe, as Chairman Greenspan mentioned, the potential

impact to our economy could be severe. By doing everything sensible to help these Asian countries get back on track, we support

our exports to the region and help strengthen their currencies,

which, in turn, helps the competitiveness of our goods in world

markets, and we reduce the risk that the financial instability will

spread to other developing countries.

While this particular crisis is in Asia, I think its characteristics

are the kind of characteristics we may see in similar sorts of events

in the future. It is precisely in order to protect our economic interests against the possibilities that exist in these kinds of crises that,

in our judgment, we need to have a capacity, an IMF with the capacity to deal with a major world crisis should it occur, however

low the probability of such a crisis may be.

The United States has exercised strong leadership throughout

this situation in Asia. In Thailand, we saw the possibility of problems early. We went to the government to try to obtain reforms.

We went to the government with the IMF to try to obtain reforms.

Then, when problems did develop, we worked with the IMF to develop a strong program.

In Korea, the situation had deteriorated very rapidly by this past

Christmas, and I think it would be fair to say that the Korean

banking system was on the verge of systemic default which, had it

occurred, could have created the risk of the kind of contagion that

Chairman Greenspan referred to.

The Treasury and the Federal Reserve Board worked together

over a very few days to catalyze the participation of banks on three

continents to refinance short-term loans in order to give Korea

breathing room to address its economic problems.
11

In Indonesia, just this week, former Vice President Mondale, as

a personal representative of the President, has met with President

Suharto to encourage Indonesia to make the critical reforms necessary to get back on the right track.

More broadly, we have been part of an international effort, again

working through the IMF, to encourage countries outside of the region to put policies in place to limit their vulnerability to crisis.

Through all of this, the United States has strongly supported the

IMF as the central institution in the effort to resolve financial crises such as exist in Asia.

The IMF programs have been focused predominantly on structural reforms to address the specific causes of the crisis in each nation. These reforms include, as Chairman McConnell said, reshaping the relationship between banks, the government, and commercial entities, financial sector regulations and trade liberalization.

These are not—I repeat, these are not—austerity programs, though

they do involve macroeconomic policy regimes necessary to regain

financial market confidence.

In our view, the IMF is, without question, the right institution

to be at the center of this effort for three important reasons. First,

it has the expertise to shape effective reform programs. Second, it

has the ability to require a country to accept conditions that, for

political reasons, no assisting Nation could require bilaterally on

its own. Finally, it internationalizes the burden.

Moreover, as Chairman McConnell discussed in his opening remarks, funding for the IMF has not cost the taxpayer one dime in

50 years. When the IMF draws on our commitments, we receive an

interest bearing, offsetting claim on the IMF of equal value. There

are no budget outlays under CBO scoring, no increase in the deficit, nor reductions in resources for other spending priorities.

Today, we ask you to support two critical requests—an increase

in our IMF quota subscription and American participation in an

augmented backup facility, the new arrangements to borrow, to

supplement the IMF’s regular resources, if needed, to deal with

systemic crisis.

We need this money as quickly as possible because right now the

IMF does not have sufficient funds to deal with a truly major crisis, though we believe the probability of such a major crisis is low.

It is in our economic interest to have that vulnerability exist for

as little time as possible.

At the moment, the IMF has about $45 billion in uncommitted

resources, but only $10 billion to $15 billion is available because an

amount that we estimate at $30 billion to $35 billion must be held

in reserve to accommodate withdrawal by members.

In addition, the IMF has access to roughly $23 billion in the general arrangements to borrow, for a total of roughly $33 billion to

$38 billion of lending capacity.

To give you a sense of how inadequate that amount could be, in

the last 6 months alone, the IMF’s commitment to these Asian programs amounted to some $35 billion. The IMF could well not have

the capacity to respond effectively if that crisis were to deepen and

to spread to developing countries throughout the globe or a new crisis were to develop in the near-term—low probability events, in our
12

judgment, but events whose occurrence could have severe effects on

the American economy.

It is not sensible for us to remain vulnerable and unprotected with respect to such possibilities. Even if the $3.5 billion for the

NAB alone is approved, we still remain exposed, with the IMF not

having sufficient resources to deal with a truly major crisis. The $3.5 billion would become an additional, roughly, $21 billion

with the contributions by all others who are members. The U.S. contribution, totaling $18 billion, will leverage to a total of about $90 billion in usable resources. If we do not act, neither

the quota nor the NAB will come into effect.

On the other hand, once we act, the rest of the world will act

very quickly.

At the last IMF replenishment in 1992, all of the other countries

acted within 6 days of action by the U.S. Congress. Moreover, failure to fully support the IMF now could adversely affect confidence

in American leadership in the global economy just at a time when

confidence in American leadership is so important in reestablishing

stability in Asia.

Mr. Chairman, you have suggested and many others have as well

that, in consideration of providing new moneys to the IMF, we

should also consider conditions with respect to the IMF and its reform programs. We agree with the importance of many of these objectives, and I believe that we can work out constructive approaches to deal with these purposes.

However, there are practical limits on what can be done while

also still accomplishing our overall objectives of protecting the

American economy by dealing effectively with financial instability

in other parts of the world.

As we work to secure this funding and also to deal with the critical problems in Asia, we are, at the same time, working to

strengthen the architecture of the international financial system.

As Chairman Greenspan said, the global economy and the global

financial markets have grown very rapidly and the institutions

have not changed accordingly.

At Treasury, we have been working with the Federal Reserve

Board on these enormously complex issues and we are working to

develop consensus around the world. But these are deeply complicated issues and major steps forward will take time.

One criticism that has arisen with respect to the international

response is the so-called ‘‘moral hazard’’ issue. Chairman Greenspan dealt with that fully. Let me just say that we are in total accord with Chairman Greenspan, and trying substantially to improve the international architecture is very high on our list of priorities as we deal with both the Federal Reserve Board and other

Nations around the world toward advancing in significant ways

this architecture.

Mr. Chairman, before I conclude, let me say a few words about

the status of the situation in Asia.

As a result, in our view, of American leadership and prompt action by the IMF and other international organizations, the spread

of instability to other developing nations was limited after an initial burst. In the countries where instability has occurred, there

was a long way to go and a great deal to do before we could feel
13

secure that the period of instability is over, that these countries are

back on a path of solid growth.

The countries in the region have great underlying strengths—a

commitment to education, a strong work ethic, and high savings

rates—and those, combined with strong reform programs, should

provide the basis for a successful resolution over time.

Thailand and Korea are in a constructive path of reform, though

there are certainly great challenges ahead. Such a path is most certainly the best path for Indonesia as well.

PREPARED STATEMENT

Mr. Chairman, to conclude, as I said at the beginning of my remarks, we live in an era of global financial markets and a global

economy which present enormous opportunities for American workers, farmers, and businessmen but also new risks. Within that context, to come again to the point of this hearing, in our judgment

we cannot afford to take the risk, however small the probability,

that a major crisis develop while the IMF is without the capacity

to respond. So we strongly recommend providing the full $18 billion

funding request that we have submitted to this Congress.

Thank you very much.

We would be delighted to respond to your questions.

[The statement follows:]

PREPARED STATEMENT OF HON. ROBERT E. RUBIN

Mr. Chairman, members of this Committee, it is a pleasure to appear before you

today to discuss funding for the International Monetary Fund in the context of U.S.

leadership in the global economy and the situation in Asia. I would also like to bring

you up to date on the international response to the crisis and our efforts to modernize the architecture of the international financial markets to better prevent financial

crises, or better manage them should they occur.

Mr. Chairman, as you well know, we live in a new era of the global economy and

global financial markets. Twenty years ago, the vast majority of our businesses were

predominantly domestic. Now many are global entities. Developing countries have

gone from having little impact on our economic well being to absorbing over 40 percent of our exports. Our leadership in international financial institutions such as

the IMF has played a key role in these developments that have contributed so much

to the economic well being of our workers, farmers, and businesses.

But with the opportunities have come risks. Strong and effective U.S. leadership

on the issues of the global economy is essential if we are to make the most of these

opportunities, and effectively manage the risks; and whether or not we provide that

leadership will profoundly affect our national economic and security interests in the

years ahead.

The need to exercise U.S. leadership in the global economy to protect and promote

our interests has been brought home by the recent situation in Asia. We have critical economic and national security interests in Asia. Thirty percent of U.S. exports

go to Asia, supporting millions of U.S. jobs, and we now export more to Asia than

Europe. In States like California, Oregon, and Washington, exports to Asia account

for more than half of each state’s total exports. Financial instability, economic distress, and depreciating currencies all have direct effects on the pace of our exports

to the region, the competitiveness of our goods and services in world markets, the

growth of our economy and, ultimately, the well-being of American workers. Moreover, if the problem were to spread to developing countries around the globe, the

potential impact to our economy could be severe. By doing everything sensible to

help these Asian countries get back on track, we support our exports to the region

and help strengthen their currencies, which helps the competitiveness of our goods

in world markets and we reduce the risk that financial instability will spread to

other developing countries.

In addition, the United States also has critical national security interests in seeing a restoration of financial stability in the region. We have 100,000 troops based

in Asia, 37,000 on the Korean peninsula alone. As the members of this committee
14

know well, financial stability and prosperity promotes social stability and peace—

both in Asia and throughout the globe.

The United States has exercised very strong leadership throughout this situation

to help resolve the Asian crises. In Thailand, we saw the signs of problems early

on and we moved with the IMF to put into place a reform program which the Thai

government is currently implementing. In Korea, the situation deteriorated very

rapidly and by Christmas the Korean banking sector was on the verge of systematic

default. Treasury and the Fed worked together over a very few days to catalyze the

participation of banks on three continents to refinance short term loans in order to

give Korea breathing room to address its economic problems. In Indonesia, just this

week President Clinton has sent former Vice-President Mondale as a personal representative to encourage Indonesia to make the critical reforms necessary to succeed. More broadly, we also have been part of an important international effort to

encourage countries outside of the region to put policies in place to limit their vulnerability to crises.

Through all of this, the United States has strongly supported the IMF, as the central institution in the effort to resolve the financial crises in Asia. The IMF programs have been focused predominantly on structural reforms, to address the specific causes of the crisis in each nation. These reforms include reshaping the relationships between banks, the government, and commercial entities; financial sector

regulations; trade liberalization; and appropriate monetary and fiscal policies. These

are not austerity programs, though they do involve macro-economic policy regimes

necessary to regain financial market confidence.

The IMF is the right institution to be at the center of this effort for three important reasons. First, it has the expertise to shape effective reform programs. Second,

it has the leverage to require a country to accept conditions that no assisting nation

could require on its own. Finally, it internationalizes the burden. Moreover, our contributions to the IMF have not cost the taxpayer one dime in fifty years. When the

IMF draws on our commitments, we receive an interest bearing offsetting claim on

the IMF of equal value. There are no budget outlays under CBO scoring and no increase in the deficit, or reduction in resources for other spending priorities.

Today we ask you to support two critical requests: an increase in our IMF quota

subscription, and U.S. participation in an augmented back-up facility, the New Arrangements to Borrow, to supplement the IMF’s resources, if needed, to deal with

crises such as this one.

We need this money as quickly as possible, because right now the IMF does not

have sufficient funds to deal with a truly major crisis and it is in our economic interest to have that vulnerability exist for as little time as possible. As a result of

the recent situation in Asia, the IMF’s normal financial resources are approaching

a historically low level. At the moment, the IMF has about $45 billion in uncommitted resources, but only $10–15 billion is available because an amount we estimate

at $30–35 billion must be held in reserve to accommodate withdrawals by members.

In addition, the IMF has access to roughly $23 billion in the General Arrangements

to Borrow, for a total of $33 to $38 billion of total lending capacity. To give you a

sense of how inadequate that amount could be, in the last six months alone the

IMF’s commitment in these Asia programs amounted to some $35 billion. The IMF

might not have the capacity to respond effectively if that crisis were to deepen,

spread to developing countries throughout the globe, or a new crisis were to develop

in the near term. Even if the $3.5 billion for the NAB alone is approved, we still

remain exposed with the IMF not having sufficient resources to deal with a truly

major crisis. The U.S. contribution totaling $18 billion will leverage a total amount

of about $90 billion in usable resources. If we don’t act, neither the quota nor the

NAB will come into effect. However, once we act the rest of the world will act very

quickly. At the last IMF replenishment, in 1992, all of the other countries acted

within six days of action by the U.S. Congress.

The probability of a serious reversal in the Asia situation and contagion to developing countries around the world, or of a new crisis in the short term, may be small.

But, these occurrences are possible and the consequences could be immense. We

cannot afford to take the risk that such events could start to unfold and the IMF

not have the capacity to try to cope effectively. Again, the full IMF funding is needed now, to protect our interests. Moreover, failure to support fully the IMF now

could shake confidence in American leadership in the global economy just at a time

when confidence and American leadership are so important in re-establishing stability in Asia.

Some have suggested that we should not advance new monies to the IMF unless

it agrees to attach certain conditions to its reform programs. We agree with the importance of many of their objectives, and I believe we can work out constructive

measures responsive to them. However, there are also practical limitations on what
15

can be done while still accomplishing the overall objective of protecting the American economy as fully as possible from the effects of financial instability in other

parts of the world.

Mr. Chairman, even as we work to secure this funding and to solve the immediate

problems in Asia, we are working to strengthen the architecture for the international financial system. While the global economy and the global financial markets have grown very rapidly and become very sophisticated in recent years, the institutions for preventing and dealing with these crisis has changed far less. We need

to make that architecture as modern as the markets. At Treasury, we have been

working with the Federal Reserve Board on these enormously complex issues. And

we are working to develop international consensus. But, these are deeply complicated problems and major steps forward will take time.

One criticism that has arisen with respect to the international response to the situation is that providing financial assistance to these countries shields investors

from the consequences of bad decisions. This, the so-called moral hazard issue, concerns us as well. We do not believe that international efforts to resolve financial crises should protect investors or creditors from the consequences of their actions and

as you know numerous banks, investors and creditors have taken or will take huge

losses in Asia. However, a byproduct of the international assistance effort may be

that some creditors will be shielded from the full consequences of their actions. Addressing this issue is a high priority for us as we work to strengthen the international architecture, but is also extremely complicated.

Mr. Chairman, before I conclude, let me say a few words about the status of the

situation in Asia. As a result of U.S. leadership and prompt action by the IMF and

other international organizations, the spread of instability to other developing nations was limited after an initial burst. In the countries where instability has occurred, there is a long way to go and a great deal to do before we can feel secure

that the period of instability is over and these countries are back on a path of solid

growth. The countries in the region have great underlying strengths, such as high

savings rates, a strong work ethic, and a commitment to education and that combined with strong reform programs, should provide the basis for a successful resolution over time. Thailand and Korea are on a constructive path of reform—though

there are great challenges ahead—and that is the best path for Indonesia as well.

In the meantime, it is critical that we have an IMF with the capacity to respond

further—or in other developing countries—if necessary.

Mr. Chairman, as I said earlier, we live in an era of global financial markets and

a global economy which presents both opportunities and risks for American workers,

farmers and businessmen. Within that context, and to come again to the point of

this hearing, we cannot afford to take the risk—however small the probability—that

a major crisis develops while the IMF is without the capacity to respond, and so

we should provide the full $18 billion IMF funding requested now.

RECOVERY IN ASIA

Senator MCCONNELL. Thank you. What I would like to do, in

order to give all four of us an opportunity to question Chairman

Greenspan before he leaves is limit the first round of questioning

to 5 minutes each. This should give everybody an opportunity to

interact with Chairman Greenspan before he leaves. Then subsequent rounds will be 10 minutes.

Chairman Greenspan, it seems that there are two components—

maybe many more—but at least two components, central to a regional recovery in Asia: a Japanese budget stimulus package enabling absorption of more exports and China maintaining its pledge

not to devalue its currency.

What are the implications for the latter if the Japanese do not

move swiftly to stimulate their economy?

Mr. GREENSPAN. Do you mean what are the implications to

China if the Japanese do not do so?

Senator MCCONNELL. Yes.

Mr. GREENSPAN. I think, as the Deputy Secretary, who met with

Zhu Rongji and publicly discussed the strong commitment to hold

the exchange rate can testify, all of our contacts have indicated
16

that they recognize that sustaining their exchange rate is important both to them and to the region generally. I see no reason that

any significant pressures will emerge in the near-term to break

them off that path.

I would suspect that, even were the Japanese not to engage in

some strong fiscal expansion, the Chinese would respond in a negative way to that.

Having said that, however, I want to emphasize that Japan is a

very large player in the Asian system and, indeed, dominates virtually all aspects of it. A necessary condition for the stability of

East Asia is the restabilization and growth of Japan.

Japan has two problems, as I see it. One, they have a financial

system which is bloated with nonperforming loans and, unless and

until those are excised from the system, it is going to be difficult

to expand, even with significant fiscal actions. So there is, essentially, a two-stage issue, which I have discussed elsewhere, with respect to Japanese recovery. One is the rectification of the financial

imbalances which they are now finally beginning to address after

a long number of years of poor financial performance. Second is to

come to grips with what I suspect is going to be significant further

financial impetus from the tax side.

Senator MCCONNELL. Senator Mikulski, I am going to hold my

questions to one and would see if you would like to ask Chairman

Greenspan a question.

Senator MIKULSKI. Thank you, Mr. Chairman.

First, to both Mr. Greenspan and Mr. Rubin, we normally would

be inclined to take your advice. Mr. Greenspan, you have presided

and led over a monetary policy that has helped create a tremendous, robust economy in the United States of America. Mr. Rubin,

you, through being Secretary of the Treasury and your advice to

the President and the Congress, helped us arrive at a balanced

budget, helped us get through a Mexico crisis that was fiscally

sound and that enhanced the dignity of both Nations in the way

it was handled. So we would normally be inclined to take your advice.

But there are a couple of yellow, flashing lights. This, then, goes

to you, Mr. Greenspan, and perhaps the Secretary could comment.

CRONY CAPITALISM

We have nations that are in difficulty because they practiced

crony capitalism, and there was no push for reform until Western

financial institutions started to take significant and large losses.

Then they cried out for help and went to the IMF, which has been

a stabilizer and a leader in reform.

So, then, this takes me to the question. Everybody was content

with crony capitalism as long as the banks did not take a hit, nor

did any Western financial institution that was making very heavy

investments in East Asia.

So here is the question. With asking the American people to do

this, many of whom have lost their jobs to Asia, particularly in

shipbuilding, garments, steel—my core constituency—what, then,

can we say to them if we follow the two requests being made under

your advice, Mr. Greenspan and the Secretary, for coming in with

the supplemental, raising the quota, and supporting IMF? How do
17

you really think we could go back to our constituents and say, No.

1, we are going to clean up crony capitalism so that it not only does

not happen here but is it in a lot of the other aspects of the world?

Second is that the banks or financial institutions do have to eat a

substantial amount of their loss, the so-called moral hazard. Third

is in doing this, we continue to enhance jobs in their countries even

though we have had irrevocable losses in manufacturing such as

shipbuilding and steel over here.

Mr. GREENSPAN. Senator, the problem that I think we had is not

the issue of nobody getting losses. Rather, it was very difficult to

look at what seemed to be a very odd form of economic organization

in East Asia prospering or ostensibly prospering as strongly as it

was for so many years.

I can sit and look at that phenomenon as an economist and say

I don’t know what the levitation is that is keeping it going. I think

we do know in retrospect how it was done. But it is very difficult

to argue against the economic policies of sovereign nations which

have engendered near 10 percent growth for two or three decades

and say that you are doing it wrong.

What has happened is that that system inevitably broke down,

and what we are now beginning to see is a really extraordinary

comparison between the types of institutions that we have in the

West and they had in the East, and we can see why it doesn’t

work. Far more importantly they are beginning to see that as well.

Senator MIKULSKI. That is what I was going to say. Do they have

a sense of urgency?

Mr. GREENSPAN. Yes; but not fully.

Senator MIKULSKI. I know that Indonesia is separate.

Mr. GREENSPAN. I do not think that one can realistically expect

that you can have regimes, which have been very successful for a

very long period of time, run into one serious crisis and all of a

sudden their whole sense of what makes the world run gets

changed.

I do think, however, that what we are seeing, for example, in

Korea is a very major change because the new incoming government has always been very questioning of the stability of what that

regime was.

I do think that is true increasingly in Thailand. I cannot say to

you it is evidently true in Indonesia. Nor can I say with any degree

of certainty that it will continue.

All I am saying is that there is a very dramatic shock that has

occurred. It is having a significant impact on the views of the people, especially the younger people who are coming up in the ranks

and who have been largely educated in the West.

There are no guarantees. But I would say that I am far more encouraged now, that they are going to restructure their systems in

a far more viable, open manner, which will be far more beneficial

to the world trading system than it has been in the past. Certainly

our assistance and the assistance of the IMF are crucial players in

making certain that occurs.

Senator MIKULSKI. Thank you.

Senator MCCONNELL. Senator Faircloth.

Senator FAIRCLOTH. Thank you, Mr. Chairman.
18

Chairman Greenspan, thank you again for being before the Congress.

As you say, the systems were doing well there for a good while,

the Asian systems. Plonsit did well for a while.

Mr. GREENSPAN. I said ‘‘ostensibly well.’’ I think I did. I hope I

said that.

GLOBAL MARKETS

Senator FAIRCLOTH. They appeared to be.

I have a couple of questions. First, we have global markets, as

you said. It is a very global market. And we have very, very global

banking with all sorts of potential for information and insight as

to what is happening.

Why did we not suspect or see? The IMF wrote a great report

on how wonderful things were in South Korea just moments before

the collapse. It was somewhat like playing tennis before the

Khymer Rouge took the club.

Would you explain why we knew so little?

Mr. GREENSPAN. That is a very important point, Senator. I think

the answer to that is in the nature of these apparently newly developing types of financial crises which are associated with this

new, high tech financial structure.

I look at these various, different episodes which nobody forecast—we had some general views of excess flows of funds into these

countries; we had concerns about very large current account deficits in Thailand—and a lot of people in retrospect are saying well,

you know, we saw it coming. The truth of the matter is nobody saw

the virulence of what this is.

The reason why not, is there is something that is extremely difficult to forecast, and that is the onset of a vicious cycle. It is almost a type of phenomenon which, so long as confidence seems to

be in place, even with distorted and not terribly well functioning

economies, you do have equilibrium. You have balance. The system

does not break apart.

But there comes a point every once in a while when you go over

the edge, and it is like breaching a dam. All of a sudden the confidence just flows out radically and everything turns 180 degrees

in a very short period of time.

I think we know the necessary conditions for that type of phenomenon occurring. We do not know the sufficient conditions. In

other words, I do not believe that we will ever be in a position

where we can effectively forecast in advance those types of crises.

What we can do is put into place a series of preventive measures

which lowers the probability that that type of event will occur.

But I do not believe we can ever reduce that probability to zero

nor have any technical capability through some sophisticated set of

indicators or some great financial insight in being able to predict

those things in advance.

So I fully agree with you. I think if you go back and read that

South Korean report, you have characterized it exactly right. What

they should not have done is make the presumption, which was implicit in that report, that, therefore, everything is fine.

It is one thing to report what is happening; it is another thing

to say what you think is going to happen all the time in the future.
19

Senator FAIRCLOTH. Thank you, Mr. Chairman.

Senator MCCONNELL. Senator Bennett.

Senator BENNETT. Thank you, Mr. Chairman.

Senator Faircloth asked the question I wanted to ask.

Senator FAIRCLOTH. You can ask it again. [Laughter.]

Senator BENNETT. No; no; you have made your point. It leads to

the next question, though, dealing with the IMF itself.

I can accept that no one has a crystal ball that is infallible and

we can, with hindsight, say well, they have missed it. Now we are

talking about the IMF playing a very significant role in making

policy in these countries. They come in with a very big stick and

they say you do as we tell you or we will beat you with our stick.

The question of the personnel of the IMF, how many and how

good in the face of this crisis, becomes a question we have to ask

ourselves.

I have information—I am not sure that it is correct—that the

IMF personnel with any degree of expertise in these areas is

stretched pretty thin over the Asian crisis; that the number available for any one particular country of people who really know what

they are doing is relatively small. Also I hear that they are harried

and they are driven.

We speak of the IMF as if it were a monolithic entity capable of

doing all of these things and producing all of these reforms. It’s

kind of the way we speak of the U.S. military.

Well, the U.S. military breaks down into commanders and divisions, and sometimes we have good commanders and sometimes we

have bad ones.

Can any of you speak to this issue of the capability and size, the

numbers, of the IMF personnel to carry on this particular challenge, particularly back to the comments of Senator Mikulski, with

respect to Indonesia? I mean, we have a glowing IMF report about

Indonesia, too, about how wonderful it is. It was not quite as current as the one in Korea. But that is the area where I am most

concerned about crony capitalism.

I have asked the question is any of this money going to go to the

Lippo Group. Going back to my other incarnation, knowing what

I now know about the Lippo Group, I get very, very concerned

about that. Do the IMF people care about these kinds of things?

Can we address this whole general area?

Mr. GREENSPAN. Let me start off, Senator, but first with the very

important stipulation that this new, high tech international financial system is qualitatively different from what existed before we

had this huge proliferation of various different types of financial

products and extraordinary expansion in cross border finance and

trade.

We do not have enough in the way of observation to really fully

sense that we know exactly how it works—the dynamics of it. We

are beginning to get a sense, having enough examples and seeing

what happened in Mexico, Thailand, Indonesia, and Korea. We are

beginning to learn what the mechanisms are and, consequently, to

what extent an international organization with liquidity, which I

presume, Senator, is not browbeating the individual nations but is

merely saying if you want our help, you do X, Y, and Z. I presume
20

there is a voluntary aspect in there. Sometimes I grant you that

it does not appear that way.

The major issue is that we are all groping along our way to learn

as quickly as we can from these experiences, and I think the IMF

is, also. In other words, the IMF has been functioning in a manner

to try to understand what is going on, clearly more intensively

than we who have other things to do as well.

Are they fully successful? I think not. I think we are not fully

successful, either. Are we more positive than negative? I would say

yes to that. I think that the situation is improving, our knowledge

is improving, the techniques of handling these situations are improving. But there is a long way to go, and I do suspect that you

are probably right that resources are stretched thin.

I don’t know of any organization whose resources would not be

stretched thin confronting this size problem.

I would like to say to you that everything is in great shape, that

everyone knows exactly what they are doing, that nobody has made

any mistakes. That would be false.

Senator BENNETT. That would be false in any organization I can

think of.

Mr. GREENSPAN. It would be false of any organization and particularly when confronted with something as difficult to handle as

this particular problem.

Senator MCCONNELL. Senator Specter, we are having a 5-minute

round here because Chairman Greenspan needs to leave. You

lucked out. It looks to me like you may get the last 5 minutes.

Senator SPECTER. Thank you very much, Mr. Chairman.

Dr. Greenspan, when you were in the Republican caucus some

time ago, I had asked you about the U.S. contribution compared to

our voting shares and you commented that we had an 18-percent

voting interest and we would be contributing 18 percent of the

funding.

Secretary Rubin, although this is not your round of questions, I

had written to you on February 12 inquiring about that and a

number of other matters.

Secretary RUBIN. We have responded. I don’t know if you got the

letter yet, but I signed it, I think yesterday.

Senator SPECTER. When did you respond?

Secretary RUBIN. When?

Senator SPECTER. Yes.

Secretary RUBIN. Senator, it was in the last couple of days. I remember signing the letter.

Senator SPECTER. Well, the mails are slow, I guess.

Secretary RUBIN. The mails are slow or whatever.

Senator SPECTER. Are the contributions being made by others

proportionate to their shares so that we are contributing 18 percent, which is our voting interest, and others are carrying their

proportionate share of the burden?

Mr. GREENSPAN. That is my understanding.

NEW ARRANGEMENTS

Secretary RUBIN. I can give you a very quick answer, Senator.

We expect, my recollection is that in the new arrangements we

will have a 17.5 percent, or thereabouts, voting share, and we will
21

be contributing about 21 percent or something like that. So it is

roughly equivalent.

The reason for the differential is there is a whole host of member

countries who cannot afford to contribute funds and who yet have

a vote. There is a rough correspondence, though not exact.

Senator SPECTER. Well, there are a lot of dollars between 17.5

percent and 21 percent. Why isn’t it adjusted on the basis of what

people contribute financially?

Secretary RUBIN. Because the judgment was made when the IMF

was set up at Bretton Woods 50 years ago that there should be a

much broader membership than just those who could afford to contribute. There are estimated to be about 35 countries who can afford to contribute of the 182 members. So, as I say, the difference

is between—I won’t swear to these numbers—but I think it is

roughly 17.5 and 21 percent, something like that.

Mr. GREENSPAN. The crucial issue, Senator, is the fact that there

are a number of policy questions which come before the IMF which

require 85 percent majorities. We, therefore, have a veto, and the

veto would exist whether it were 17 or 20 percent.

Senator SPECTER. We would still have the veto at 17.5 percent

and might have to contribute less money if the proportions were

identical.

Mr. SUMMERS. Senator Specter?

Senator SPECTER. I only have 5 minutes. But I will let you comment on the chairman’s time.

There is an enormous problem, obviously, with markets being

closed to the United States, the issue of reciprocity, and that comes

up with a great many of the countries where the IMF is helping

them.

Dr. Greenspan, is it realistic to try to use this situation, which

might be to their benefit economically, to say that a condition is

that there is reciprocity on markets being opened where we are

helping to bail out these countries, that they should at least open

their markets to the extent our markets are open to them?

Mr. GREENSPAN. Well, I would not even say whether it reflects

the fact of whether our markets are open to them. It is a question

of whether it is to their advantage to have open markets. I would

say one of the important aspects of a full, free market system is

that the real beneficiaries of open markets are those who open

their own markets first.

But in answer to your question, I would prefer to let the Secretary answer that specifically because that gets into conditionality

questions with respect to this legislation.

Senator SPECTER. How about the Deputy Secretary.

Mr. GREENSPAN. Or the Deputy Secretary.

Senator SPECTER. I’ll give you some speaking room, Mr. Summers.

Mr. SUMMERS. On the trade question, I think there is no question

that it is appropriate, as the chairman’s reference to the Bretton

Woods legislation suggested, for the IMF to impose conditions directed at broad liberalization because that is very much in these

countries’ interests. It is very much in the interests of all the IMF

members to avoid, for example, the kind of distortion you have seen
22

of, to take two examples, the world’s semiconductor and the world’s

chemical markets because of subsidized credits in these countries.

Senator SPECTER. Could we use this occasion of the bailout to

have access to their markets one way or another?

Mr. SUMMERS. The Korean program, for example, involved significant reductions in Korean tariffs and also, and I think very significantly, involved a commitment by the Korean Government

which will be monitored closely by the IMF going forward to end

the practice of subsidized credits. Subsidized credits have led Korean firms to get cheap access to capital and build very large excess capacity which in steel, semiconductors, and a number of other

industries has quite significantly distorted world markets and put

our firms at a very substantial competitive disadvantage.

Senator SPECTER. But that does not go directly to the issue of our

having access to their markets. How about that issue head-on?

TARIFF REDUCTIONS

Mr. SUMMERS. Tariff reductions I think do go directly to that,

tariff reductions and reductions in quotas. For example, in Indonesia there were significant reductions in the quotas that were put

on a number of agricultural products, which I think goes very directly to the question of market access.

Senator SPECTER. My yellow light is still on, Mr. Summers.

Would you care to make a comment about our percentage of voting

compared to our percentage of contributions?

Mr. SUMMERS. Thank you. Thank you, Senator Specter.

I just wanted to make the point that countries can all contribute,

and they all do contribute their own currencies. Some countries’

currencies are more suitable to provide a loan in than other countries’ currencies.

For example, when we contribute dollars, those dollars can then

be lent. Other countries, who are not in the kind of strong financial

position we are, are not able to provide a currency which is suitable

for lending.

Senator SPECTER. Why not? Their currencies, whatever they are,

have some value, don’t they?

Mr. SUMMERS. Well, in many cases they are not freely convertible on international markets or those countries themselves are facing a balance of payments crisis.

Senator MCCONNELL. You need to wrap it up, Secretary Summers. We will be coming back on this I am sure.

Thank you, Senator Specter.

Thank you, Chairman Greenspan. We appreciate your being

here.

Mr. GREENSPAN. Thank you, Mr. Chairman, Senators.

Senator MCCONNELL. I think we all know what the real nub of

the issue is here in the Senate. I am unaware of anyone—there

may be someone, but I am unaware of anyone—at least on the Republican side of the aisle—who is not willing to go along with the

new arrangements to borrow, which passed the Senate last year

and was lost in the course of discussions between the House and

the administration toward the end of the year.
23

So, fundamentally, the question is what kind of conditions, if

any, would the Congress hope the administration could deliver as

a condition for the $14.5 billion quota.

Mr. Secretary, it is my understanding that important reforms

can be implemented at the IMF by a vote of the Executive Board

of the Board of Governors on a resolution. As we have discussed

over the last couple of months and as I have just said, I believe

the Congress expects explicit action like this, rather than, once

again, sort of bland policy statements urging the administration to

make its best effort to use the voice and vote to change policy.

The basic question affecting support for the quota is what reforms can you support and secure in the IMF and when can you

get them? In other words, what can you get and when can you get

it?

IMF

Secretary RUBIN. Well, as you and I have discussed, Mr. Chairman, I think that there are many reforms that people have focused

on. I know that transparency, transparency with respect to the

IMF operations themselves, has gotten a lot of focus. I might add

that there is a great deal more IMF transparency, I think, than

most people realize. They have an audited financial statement each

year of their financial condition. We are now encouraging countries

to put out their letters of intent. In the case of Korea, Thailand,

and Indonesia, they all did put out their letters of intent.

I think once a year now, the IMF puts out a statement on about

45 countries with respect to their economic conditions. These are

called PINS.

With respect to ESAF, the IMF has now agreed to have, and, in

fact, at the present time does have an outside board reviewing

their operations. So there has been a lot of progress in this area.

Having said that, we are clearly prepared to support additional

progress.

As you may know, the Senate Foreign Relations Committee has

raised the question of a possible GAO review with respect to the

IMF and we are in the process of seeing what can be arranged in

that regard right now.

I think the question is what mechanisms we can develop to try

to create measures that meet the various kinds of concerns that

people have as they talk about conditions. Many of those concerns

are concerns that we share, and many of those objectives are objectives that we share. But at the same time, they are practical to get

done in a very short, a reasonable period of time.

We have some thoughts on this. We are in the process of trying

to develop them to see whether they are practical or not. Whether

it is possible to get Executive Board votes or Board of Governors

votes in a relatively brief period of time I would tend to doubt. The

problem with that is that you have to work your way through the

countries that are members.

I will tell you, having worked in these international organizations, these international fora, is a very time consuming process because every country has its own parliament, has its own concerns,

its own interests, and its own views.
24

But, having said that, we are attempting to work with members

who have expressed these concerns and who are deeply involved in

these issues in trying to see what we can do to provide measures

responsive to these concerns in ways that are practical in the context of the organization we are dealing with.

Let me add, in fairness I think I should add one more thing.

Michel Camdessus, who is the Managing Director of the IMF, is

also very much committed, I think, to trying to work with us to see

what is the maximum that we can do to meet the kinds of concerns

that have been raised.

Senator MCCONNELL. Let me make another run at it.

Section 42 requires you to work with the IMF to establish procedures for the public dissemination of information. Do you believe

either board would support a resolution—and you were talking earlier about transparency—to create transparency by requiring that

a full-disclosure clause be included in all loan agreements?

What is your assessment of the prospects for a resolution that

would make it a matter of IMF policy not to lend to countries in

which governments have established trade and investment barriers

inconsistent with open markets and free competition? That is another question. Those are really two questions.

Secretary RUBIN. Well, every country has trade restrictions. The

United States, for example, although we have a very open market,

and I totally agree with Chairman Greenspan that the primary

beneficiary of having open markets is the country that has the

open market. But all countries have trade restrictions of one sort

or another.

So I think that, as you framed it, at least, would not be answerable.

Senator MCCONNELL. Well what about the full-disclosure clause

being required in all loan agreements?

Secretary RUBIN. And that is full disclosure of what?

Senator MCCONNELL. Of the loan agreement.

Secretary RUBIN. Oh, do you mean disclosure of the letter of intent?

Senator MCCONNELL. Yes; my understanding is that this happens now only if the recipient agrees to public disclosure. Is that

right?

Secretary RUBIN. Yes; and in the case of the three—we are in

favor of disclosing letters of intent. I think you are going to see

that become more and more the practice.

Now what you are asking me is can we get an Executive Board

or Board of Governors approval within some reasonable period of

time.

Larry, do you have a view on that?

Mr. SUMMERS. I don’t know whether it is possible.

Secretary RUBIN. I’ll tell you where you might run into trouble.

Senator MCCONNELL. You know, there are a lot of us who really

would like to help you on this.

Secretary RUBIN. Oh, Mr. Chairman, you are not helping us. We

all agree the United States has some very substantial economic interests at stake here. This is not helping us. I think the problem,

though, is like anything else. The question is what is practical in

the context of the organization you are dealing with.
25

If somebody comes to the United States and says we want you

to do certain things, they have to deal with the context of the realities of our administration, our Congress, and all the other ways in

which we function. We have exactly the same problem with respect

to the IMF. What is the most that we can accomplish in the context

of an organization of 182 member countries, each of which has its

own parliament, its own administration, and all the rest?

I think you are going to find that we will do everything possible

to try to accomplish these purposes within those limits.

Larry, do you have anything to add to that?

Mr. SUMMERS. I think it is the right thing to do. I think we have

achieved very substantial increases in transparency with many of

the letters of intent now being published, with many countries

making available the IMF’s annual surveillance report with much

freer dissemination of IMF views on countries.

We would support publication of letters of intent. Whether it is

possible that there is an international consensus on that, given

that the content of letters of intent in many cases goes to questions

about executive branch strategies for seeking to pass legislation, for

example, or subsequent activities of central banks, or possible future changes in exchange rate regimes, whether we could get a vote

in favor of full transparency with respect to letters of intent I am

not entirely certain. I am not certain whether that could happen.

Senator MCCONNELL. Let me come at it another way.

What kind of latitude does Mr. Camdessus have? I am just thinking that consistency may be the hobgoblin of little minds. We have

heard that all of our lives. But I think, for example, of the approach in Russia.

Some 2 weeks ago, Yeltsin urged the Duma to pass his budget

or face suspension of the IMF loans. They did not pass the budget.

Mr. Camdessus arrived and announced the terms would be relaxed

and the length of the loan extended by at least a year.

Some would argue that this might have been a largely political

decision. But it illustrates what I am trying to get at. How much

latitude does he have? Could he just unilaterally adopt, as a practical matter, an operational matter, the kinds of reforms that we

are suggesting here? Then that would short-circuit this 18 months,

2 years, all of this other elaborate procedure that you are suggesting we would have to go through in order to—I mean, could he just

say that henceforth this is the way we are going to operate?

RUSSIA

Secretary RUBIN. One of the issues we are exploring, Mr. Chairman—I would like, if I may, to have Larry Summers respond on

Russia because I think it is a very important issue—but one of the

issues we are exploring is how much the managing director can do

on his own volition within the context of the bylaws and the founding agreement of the IMF. That is an issue that we are exploring

right now.

Larry, do you want to respond on Russia?

Mr. SUMMERS. Mr. Chairman, in Russia, the Russians had not

met the conditions for the disbursement of a tranche at the end of

the fourth quarter, and the managing director did not indicate that
26

those conditions had been met or authorize a disbursement of that

tranche.

That would depend upon a subsequent, thorough review by the

IMF staff of the situation in Russia which, in turn, would require

board approval before any action could be taken; nor was he able

to make any absolute commitment to the Fund because that also

depends on board approval.

What he did indicate was, assuming Russia comes back into compliance—a judgment he did not make as to whether they had come

back into compliance or not—he would be prepared to call for Russia to be in an IMF program continuing into 1999. He didn’t indicate that any money that was owed could be deferred in its repayment. He only held open the prospect of an IMF program being

continued into 1999.

Senator MCCONNELL. So he didn’t have the authority to say what

he said? Or he was misquoted? Or what?

Mr. SUMMERS. Of course he had the authority to say what he

said. But I think what he said in each case referenced the recommendations he would make to the board, the suggestions he

would make to the board. But it was all contingent upon board approval.

Senator MCCONNELL. All right. I am about to run out of time on

this round. But I will get back to this question. Would it be possible to get certain kinds of unilateral assurances, Mr. Secretary?

If so, how enforceable are those if they are from the Director himself?

Secretary RUBIN. I understand. I think the answer to the question, Mr. Chairman, is, given the enormous influence that we have,

which we do have, and given the managing director’s position, and

I don’t know what the managing director would be prepared to do

in these areas because he has 182 members—we are not the only

members and we have about 18 percent of the votes, as indicated

before—I think we could probably create a situation that is not legally binding but that practically has a very substantial effect, that

is, if the managing director felt comfortable—and I don’t know

whether he would or would not because he has a lot of other constituencies to worry about—but if he felt comfortable in certain

areas—and whether this area would be one of them or not, I don’t

know—if he felt comfortable issuing a policy statement.

Senator MCCONNELL. We need to keep exploring, as you and I

have been before today, ways in which we might raise the comfort

level of the Senate——

Secretary RUBIN. Correct.

Senator MCCONNELL [continuing]. As a precondition for us supporting the quota.

Secretary RUBIN. As I say, I have tried to be very careful in the

way I have responded. We are exploring this and as we get greater

definition, we will obviously share that with you. We will try to get

the greatest comfort that we can within the practicalities that we

have.

Senator MCCONNELL. The ranking member of the subcommittee

has arrived.
27

I would just say, Senator Leahy, that we are having 10 minute

rounds. You are welcome to do your 10 minutes and then we will

come back to the Republican side.

Senator LEAHY. Thank you, Mr. Chairman. I appreciate that

offer. Unfortunately, as often happens, I am in another hearing upstairs with members of the computer industry from Microsoft,

Netscape, and so on.

I did want to come here to say that I know what the Secretary

and Mr. Summers are speaking about is primarily the IMF. There

are a lot of other things, and I will submit my questions for the

record, from the global environment facility to the World Bank’s

support for family planning and health.

I have discussed the IMF situation with the Secretary and with

Mr. Summers. I do feel, with the Asian financial crisis threatening

to spread to China, Russia, and even this hemisphere, these are

two people in the government that we need to hear from I am sorry

I missed Mr. Greenspan. The $3.5 billion request for the new arrangements to borrow will

be in the supplemental. The real question, of course, is the IMF

quota increase.

In a perfect world, I would say let’s just put it in right now. In

fact, that is what I would like to see. I think the difficulty is going

to be what happens with the IMF and people there who are seen

as being too stuck in their ways, who seem to feel what we don’t

know won’t hurt us. I know that the Secretary and the Deputy Secretary have been working hard to get them to open up.

I also know that there is a limit to what kind of conditionality

we can impose on a multilateral institution. But I think we are

going to have to work a lot closer both in the Congress and with

the administration to find out what is possible—policy directives on

the environment, on information disclosure, rights of workers, and

so on. These are already in U.S. law. We have to see how they get

adopted by the IMF Board.

One part of me, I must admit, finds it very easy to say the heck

with them, we’ll hold back the money, just straighten it out—to

make sure they know we are serious. But I have come to the conclusion that is not the responsible way. It would be gratifying but

it is not the responsible thing to do.

I would like to see us go with the full amount of money now with

a very, very strong message about what changes we expect to see.

I take that position, Mr. Chairman, partly as an ad hominem because of my respect for the Secretary and the Deputy Secretary,

and knowing that they will work hard to get some of the changes

made.

I think the IMF is important. I think that we have to have the

ability to move far more quickly than sometimes we can move here

with congressional actions in a world where trillions of dollars can

be literally moved around over a weekend just by keystrokes.

So that is where I am, Mr. Chairman. It is not so much to ask

questions. I know that you have taken one of the most responsible

views on these issues of anyone I have worked with and I would

suggest that perhaps prior to the markup we may want to meet together, as we always do anyway, perhaps to discuss these issues

further with the Secretary.
28

That is not a question. [Laughter.]

Secretary RUBIN. I wasn’t going to respond to it.

Senator LEAHY. But feel free if you want to say anything.

Secretary RUBIN. Oh, no. Senator, we had a little discussion before you came in and Chairman Greenspan was here as well. We

all feel that there are changes that could be made.

I happen to think the IMF does a very good job in a very difficult

situation. And, as Chairman Greenspan said, this is a new world.

This is a new era. I have been, as you know, in investment banking

for 26 years. The issues that we are dealing with now are not

issues that I saw back then. I think they actually do a very good

job.

Having said that, these are new issues. This is a pioneering

world that we are in right now. I think all of us can look to areas

where we wished, or thought that the IMF should perhaps function

differently. I think transparency, for example, Mr. Chairman, is

one place where I think the more the better up to the point where

it perhaps has its disfunctionalities.

But we will need to work with this committee and with others

to see what we can accomplish in these areas.

Senator LEAHY. The IMF can try the patience of a saint, and,

with the exception of the chairman, there are not many saints in

the Senate. [Laughter.]

Senator MCCONNELL. Thank you, Senator Leahy. I will certainly

agree with that observation.

Secretary RUBIN. We will stipulate as to the chairman. [Laughter.]

Senator MCCONNELL. Senator Faircloth.

Senator FAIRCLOTH. Thank you, Mr. Chairman and also, Mr. Secretary, thank you. I have not been, to put it mildly, supportive of

the IMF. But in no way does that lessen the admiration I have for

the job you have done and that you do. We don’t agree on everything, but I have the greatest respect for the job that you have

done and the position you have.

Let me ask you this. As has been mentioned here, we all have

very good hindsight. But in the bailout in Mexico, if we had left it

alone and allowed the private sector to function, which we really

did, would it not have worked itself out? No. 2, right after going

into Mexico as quickly as we did, and then almost immediately

coming with the new arrangements to borrow, did that send the

wrong signal to the lenders around the world that we will, to get

with it, boys, we are going to jump in?

Secretary RUBIN. Let me try to answer the questions in the order

you posed them.

My view on Mexico, Senator, and reasonable people can disagree

on this, is I feel very strongly, and I think this is, far and away,

the predominant view, that Mexico was probably days away from

default when we announced our support plan with the IMF. I

think, had we not gotten involved, Mexico almost surely would

have gone into some form of default, whether technical default I

am not sure, but some form of default.

Senator FAIRCLOTH. I’m sorry. What was that?

Secretary RUBIN. That if we had not gotten involved with a support plan, I think Mexico almost surely would have gone into a de-
29

fault. Whether it would have been technical default or not, I don’t

know, but it would have been at least a de facto default. I think,

had they done that, not only would they have been mired in a far

deeper recession for a vastly longer period of time than they wound

up being involved in, but, as you may remember, at the time, the

Argentinean markets, the Brazilian markets, even markets in central Europe were being affected by what was happening in Mexico.

So I think for a brief period of time there, there was a real risk.

That is what animated a lot of the work that the chairman, that

Larry Summers and I did. There was a real risk that this could

have spread around the globe and had enormous impacts on other

countries and on us.

Senator FAIRCLOTH. I think we encouraged more risky lending.

I have heard the term and words get flipped around, but would you

tell me what ‘‘moral hazard’’ means?

Secretary RUBIN. Sure. Moral hazard is a concern—and it is a

concern we share. I might add this. Could I just say one thing before that, though, on moral hazard?

I speak to an awful lot of people involved in credit markets, investors, and the like, and I have heard the chairman say the same

thing, but I do not believe what we did in Mexico had an effect

when creditors and investors decided to function in Asia. I do think

people over-invested and over-extended credit in Asia, but I don’t

think it was affected by what happened in Mexico. I think it was

affected by the kinds of things that always affect markets when

they go to extremes, and in my judgment they always do.

Moral hazard is, basically, the notion that if undesirable behavior, one way of looking at it is if undesirable behavior is not punished, or, to put it differently, is rewarded, then it is likely to repeat itself.

Senator FAIRCLOTH. I’m sorry. Say that again.

Secretary RUBIN. If creditors lend into a country, as an example,

and those credits would have gone bad but for, say, the help of the

IMF, then, because of the help of the IMF and the fact the people

were made whole on loans that otherwise would not otherwise been

made whole on, they will be encouraged to worry less about risk

than they should in the future.

ASIAN SITUATION

Mr. FISHER. All right.

Secretary RUBIN. I don’t think in the Asian situation, however—

as I say, I speak to an awful lot of people and I don’t believe that

what happened in Mexico did influence people in Asia. But, having

said that, we share the moral hazard concern. I think one can feel,

if one wants to feel good about losses, I think—not I think—there

have been huge losses in Asia and I think an awful lot of creditors

and investors found out what it means not to take appropriate cognizance of risk when they lend.

Senator FAIRCLOTH. It’s what we used to call cold comfort.

We have been talking about opening the trade doors. I have been

hearing it for 50-good odd years, and we have scarcely cracked

more than one or two.

The IMF and Mr. Camdessus talk about changing the government, the problems that were created by the collusion and crony-
30

ism between government and the opaqueness of any sort of financial institution and our inabilities, and the trade problems just simply mount. They go on and on.

Mr. Camdessus tells us what is going to happen, and if the company does not do this, it changes. In Peru, he has changed it 17

times; in Russia, 2 or 3 times. If you don’t do this—in other words,

whatever they do, he moves to it.

Take Suharto. What are his options? You cannot spank him.

[Laughter.]

You cannot take his dating privileges away. I mean, what do you

do if he does not comply? What do we do?

Secretary RUBIN. Leaving aside those two possibilities—which I

think I will leave to the chairman or others—Indonesia is a very

complicated situation. I think in South Korea to a far greater degree it has been the key country in this whole thing. It is the 11th

largest country in the world. I will tell you that around Christmastime it was very troubling. It really was for reasons I said in my

remarks.

Had South Korea gone into default in the private banking sector,

we might have had a crisis on our hands of a dimension far greater

than anything we have ever seen. Fortunately, South Korea is back

on a constructive path and, hopefully, the probability of that sort

of thing is very low now.

Indonesia is a very complicated situation. The reason I contrast

it is in South Korea I think there are a lot of reasons to feel good

about what is happening. This is not to say that there are not a

lot of problems ahead, though. But I think Indonesia is a very troubling and very complicated situation. I do not have great wisdom

for you at this moment, Senator, about that. We are waiting for

Mr. Mondale to come back. I have seen his report from his visit,

obviously, but we have not had a chance to speak to him yet.

I do think that Deputy Secretary Summers spoke to Under Secretary Lipton, who was with Mr. Mondale and he may have something to add to this. But the general principle is that the IMF provides resources to countries that implement the kinds of strong reform programs that the IMF and the rest of us working together

construct. I think that the IMF is going to have to make a very difficult judgment when it comes to the middle of March. I do not

want to try to foretell what that might be. But I think Indonesia

is a very difficult situation. But it is one that is of great consequence both economically and sort of geopolitically, if you will. It

is the reason, or it is one of the reasons that Secretary Cohen went

and briefed the Republican House leadership on these issues and

testified before the House Banking Committee.

We have enormous stakes there. But having said that, I think it

is a very difficult and very complicated situation.

You are very right to raise it as a focus of concern.

Larry.

Mr. SUMMERS. Senator Faircloth, I think you do raise the critical

question of is there really conditionality or does the IMF just follow

what the countries do.

My own reading is that there are a number of examples in which

IMF conditionality has been quite effective.

Senator FAIRCLOTH. Give them to me.
31

Mr. SUMMERS. I will give you a couple. In Russia, at several

points in the last 4 years the IMF has cut Russia off and has said

that until they come back on track, there would be no further disbursements. There is a great deal of problems that remain in Russia. The fact is in a way that looked extraordinarily unlikely 3

years ago Russia has now achieved a stable currency.

Senator FAIRCLOTH. Excuse me. You say Russia is safe and stable now?

Mr. SUMMERS. No, Senator.

Senator FAIRCLOTH. What did you say?

Mr. SUMMERS. I said that Russia has had a stable currency for

the last 2 years and I think that is in substantial part because of

the kick they received from conditionality.

Senator FAIRCLOTH. One quick question while we are on Russia.

What would you say the likelihood of a financial problem is there—

I mean like big time?

Mr. SUMMERS. Those kinds of questions are awkward to answer

in this kind of session about any country.

Senator FAIRCLOTH. All right. But I want to talk to you further

about that.

Mr. SUMMERS. Senator Faircloth, may I just make two other

points very quickly?

One is that I think the IMF’s conditions and the possibly of a

withdrawal of IMF funds had a great deal to do with a rather

sharp turn in the direction of Thai policy that took place in late

October that has brought about a situation with the new government in Thailand where Thailand is moving back toward making

very substantial progress. I think it is also important to emphasize,

as the Secretary did, that the IMF has not made any disbursement

to Indonesia since the first disbursement that was made at the

time the program was agreed nearly 4 months ago. And any subsequent disbursement would be based on a very careful review.

There are other examples in Kenya, in Egypt, where you have

seen countries that have fallen off IMF programs. The IMF has recognized that until they, the country, wanted to do what it had to

do, there was no way in which financial support could be useful

and that served as an important spur to reform.

Senator MCCONNELL. Senator Bennett.

Senator BENNETT. Thank you, Mr. Chairman.

Mr. Rubin, I am sure you have seen the Wall Street Journal editorial about you and the rupiah.

Secretary RUBIN. I noticed it.

MEXICAN ISSUE

Senator BENNETT. We have been through this before in the Mexican issue. I disagree with my friend from North Carolina and agree

more with you that the Mexican experience was a productive one.

It was, for me, a very instructive one.

As the leader, Senator Dole, for whatever reason, gave me the assignment to handle that on his behalf. I found out more about

tesobonos and pesos than I ever thought I wanted to know.

I find that this is a similar kind of experience. And yet, there are

significant differences. I want to outline some of both of those to
32

help you understand why I am having some trouble going beyond

the $3.5 billion that the chairman referred to.

In the difference category, with Mexico we knew who was going

to get the money. We knew where it was going to go and we knew

what Mexico was going to do. Mexican officials were here often. I

remember meetings in Senate Dole’s office with the Finance Minister, with the Foreign Minister, meetings in Speaker Gingrich’s office with Mexican officials—not once but several times. We could

tell them directly how we felt about the reforms that had to take

place in Mexico before we would get involved with American

money.

When I finally recommended to the Speaker and the leader that

they move ahead in the direction in which we all ultimately moved,

it was from that basis of direct information, not necessarily just to

me but to the other participants in the meeting—I do not want to

imply in any sense that I was alone on that. There were members

of the House Banking Committee, Chairman Leach and others,

heavily involved in all of those discussions.

Necessarily in this situation we do not have that. I have never

met anybody from the Indonesian Government other than when

Senator Specter and I were with President Suharto down there and

that was in the period when everything was going wonderfully well

and they were instructing us as to how we should handle our economy.

I do not have a sense of where the money is going to go. I get

questions. Secretary Summers, you and I talked about this in my

office. I get questions from constituents who are saying we don’t

want American money to bail out our competitors. We have been

facing a tough competitive situation in the international market

with people who have been State subsidized. Now they have gone

under and you are going to take our tax money and spend it to put

our competitors back on their feet. We absolutely are not going to

stand for that.

That is a simplified and perhaps erroneous view, but it is certainly out there because we don’t know where the money is going

to go.

I have raised the question here: Is the Lippo Group going to get

any of this money? This comes out of my experience in the Governmental Affairs Committee of who the Lippo Group is and what they

do.

So the thing of concern about the IMF in this situation, as with

respect to the Mexican situation, is that they stand almost as a

shield between American policymakers and the people who are

going to get the money whereas in Mexico that was not the case.

There was no shield. The IMF was off to the side. We were dealing

directly with the Mexicans and we knew exactly what we were getting when we took the steps that we took.

So until that greater sense of comfort that we really know what

is going on and that it is not being filtered through a shield can

take place, you are going to have problems up here with the request.

Now, over on the side of similarities, the reference that you

made, Secretary Summers, to Senator Faircloth about Russia and
33

the stable currency there is the best touchpoint to talk about similarities.

One thing that I was very, very insistent on in the Mexican situation—and you will recall all of the telephone conversations we had

about this plus some face to face meetings—was that the Mexicans

focus on a stable currency; that the Mexican Central Bank should

do whatever they could to see to it that there was a stable currency. That comes back to the Wall Street Journal piece, Mr. Secretary. They are in favor of a Currency Board. I am perfectly willing to suggest that the Currency Board may not be the best way

to get a stable currency and give you the benefit of the doubt that

there are other ways to do that.

But I think the issue of saying that we have to fix the money

at the same time as we concentrate on fixing the banking system

is an issue we have to address. If the Currency Board is not the

way to do it—and it was not in Mexico; we used the Central Bank

and our power to get at them directly to make that point—it is,

nonetheless, for me an overriding factor here.

My experience with the IMF is that they are not as dedicated to

a stable currency as certainly I am. They didn’t seem to be in Mexico, but it didn’t matter in Mexico because we were able to make

our points directly.

They do not seem to be here. They seem to put the stable currency far down the list of things that they are after. They pay lip

service to it, but they have a bunch of other things that they want

first.

With that background of the differences and the similarities, can

you give an old Mexican warrior a little bit of comfort as to where

we are going here because at the moment, I do not have it?

Secretary RUBIN. Let me, if I may, Senator, take a first shot at

this. Then, if I could, I would ask Deputy Secretary Summers to

do the same.

There are differences and similarities, as you say, and we have

been struck a little bit by the same thing. We are dealing now with

a number of countries, not just one country. We are dealing even

beyond the numbers that are involved in the crisis because we have

been very concerned about the possibility of contagion, about the

possibility of this becoming a worldwide problem. So we actually

have been focused on and involved with the countries way beyond

the ones that are just involved here.

I do not think, though—at least I will speak for myself—I do not

feel as if we are shielded by the IMF. We at Treasury and the people at the Federal Reserve Board as well have a constant interaction with the troubled countries, certainly with South Korea and

Thailand, though to a somewhat lesser extent with Indonesia, but

with South Korea and Thailand.

I spoke to the Finance Minister of Thailand at 9 o’clock last night

our time. So I would say that we have a great deal of interaction

and also have a great deal of impact on the IMF, although they

have many other members and we are only one, as I mentioned before.

In terms of where the money goes and all the rest, I think——

Senator BENNETT. Let’s focus on Indonesia because that is one I

am very concerned about.
34

Secretary RUBIN. It is worth both focusing on but also distinguishing Indonesia.

We are very troubled about Indonesia as well, Senator. I would

say that with South Korea and Thailand, at least in our view, you

have governments—and it so happens in both cases new governments—that, in our judgment, are very carefully focused on the

structural issues, on the crony capitalism, on a lot of the issues

that have created the subsidized trade problems that you are worried about.

On Indonesia, I think we have a very complicated situation. As

I say, I would like to wait for Mr. Mondale to come back to have

a more fully developed view. But as Larry Summers said, the IMF

has not disbursed to them since, I guess it was early November.

I think on the money, so far you can feel comfortable.

My recollection—you can check me, but I think I am right on

this—is that we disbursed, the IMF disbursed a little over $3 billion and Indonesia spent well over $5 billion on interventions. So

they spent more than was disbursed. In fact, I remember you and

I discussed this before. They spent far more than was disbursed.

Money is fungible. But I would say that in excess of what has

been disbursed has been used on intervention.

CENTRAL BANK

The money does go to the Central Bank. Then it is supposed to

be used from the Central Bank in ways that are consistent with

the IMF program.

I think with Korea and Thailand, although we do not have the

constant interaction there that we had with the Mexican Government, the IMF has resident people certainly in South Korea and

I think they have them in both countries. We have a lot of contact

with both the officials of the countries and the IMF.

In terms of stability of currency, you have an interesting thing

here. We are very focused on stability of currency and I think it

would be fair to say that the IMF is very focused. The idea, the

notion is that as long as these countries are suffering financial instability, the currencies are going to continue to depreciate and

that affects us around the world. It is very bad for them and it is

very bad for us. So if we could reestablish financial stability, we

could reestablish stable currencies, and you can see that the baht

and some of these other currencies have come back a fair bit.

There is a conflict, though, in this Congress between the kinds

of monetary policy that we believe in and that you need if you are

going to provide support to the currency and the criticism that

these are austerity programs. I do not believe they are austerity

programs. I think they are structural programs. But they are very

much focused on reestablishing financial stability, and, by reestablishing financial stability, establishing stable currencies and having

associated with them a disciplined monetary and fiscal regime.

Is there time, Mr. Chairman, for Deputy Secretary Summers to

respond as well?

Senator MCCONNELL. Yes; go ahead.

Mr. SUMMERS. Thank you. Thank you very much.

Senator Bennett, let me focus on the situation in Indonesia.
35

The first keystone Secretary Rubin laid down with respect to our

policy with respect to all of these countries is we cannot want them

to reform their economies more than they want to reform their

economies, and support cannot flow unless they are doing the right

things.

Obviously, since we were putting up a large part of the money

in the Mexican thing, the situation was different than it is in Indonesia. But, as I speak to you, there are a number of people from

the Treasury who are in Indonesia right now who have been there

speaking with Indonesian economic officials and reporting back to

us with great frequency.

My children have been awakened often enough at 1 a.m., to provide testament to the fact that we do speak very frequently with

senior Indonesian economic officials and that takes place at all levels within our Government.

I do not think there is any disagreement on the question of a stable currency just as in Mexico. There is no possible success in Indonesia without a stable currency.

But what I think is also true, is that, in order to achieve a stable

currency, it is necessary to credibly attack some of the problems of

crony capitalism that Senator Faircloth referred to in his question.

So, as we speak about the approach, the approach is an approach

that has a number of elements. But the other elements can all be

thought of as necessary preconditions for achieving a currency that

is stable in the same sense that currency stability was achieved in

Mexico.

But what is ultimately decisive and what we are watching for

very carefully, and what will determine our response is the kind of

policy commitment there is to doing the things that are necessary

to make a stable currency possible. At a certain stage, that commitment became very clear in Mexico. It was on the basis of that commitment that we were in a position to provide support.

There were periods when that commitment was not there, frankly, at the very beginning in Mexico. But when that commitment

was there and when we could monitor it, that is when support was

able to flow.

There has not been, as I mentioned, a flow of support since November and what will happen going forward depends on what happens in Indonesia.

Senator MCCONNELL. Let me, if I may, just pick right up on

where we are.

It is my understanding that $3 billion is scheduled for release

March 15. What criteria are you looking to be met, or is IMF looking to be met? Even though there has been no disbursement since

November, there is supposed to be one next week. So, the question

is, ‘‘What are you looking for? What is IMF looking for? What do

you expect to hear from Vice President Mondale that is going to

make you comfortable about releasing this $3 billion next week?’’

BUDGET POLICIES

Mr. SUMMERS. The IMF will review compliance with the program. That will include at least four areas, Mr. Chairman. First,

it will include compliance with certain key provisions having to do
36

with structural policy, monopolies of various kinds, where there

was a commitment that those monopolies would be broken up.

Second is budget policies. A number of indications suggested

that, for example, certain off-budget funds were being used in ways

that were hidden and were not part of the budget. They will be

looking for clear evidence that all of those funds have been fully

accounted for.

Senator MCCONNELL. Could I interrupt you?

What I suspect will happen is that, having raised the straw man

of the Currency Board, Suharto just gives up on the Currency

Board and IMF says gee, that’s great, and just goes ahead.

What do you think is the likelihood of that?

Mr. SUMMERS. It will not go ahead with American support, support of the American executive branch, unless it is possible to demonstrate much more than that the Currency Board is not there, but

that it is also possible to demonstrate a satisfactory position with

respect to the issues that I was outlining—monopolies, subsidies,

monetary policies and approach to the financial system. Appropriate progress in those things would be prerequisite for our support.

This is not different in Indonesia, by the way, than in other

countries where the IMF completes a review. It has to make a report on the progress under the program and that forms the basis

for judgments about what will happen.

Senator MCCONNELL. So the release of funds is not going to be

in any way connected to the Currency Board decision?

Secretary RUBIN. Let me just comment. Maybe this is adding too

much or repeating. I am not sure which.

The Currency Board issue is one issue. That is here. Then there

are the criteria which the Deputy Secretary outlined and the IMF

is going to make a very difficult judgment.

Mr. Mondale’s coming back is yet a third factor. But he is not

going to be able to give us, I don’t think—well, we will see what

he says when he comes back. I just saw a cable this morning. But,

basically, it is the IMF that is going to have to try to make a judgment on what is going on there.

It is an interesting problem, Mr. Chairman. The IMF faces a

very difficult issue. On the one hand, it seems to me that you do

have to have compliance with their conditions if they are going to

release. On the other hand, I don’t think any of us should have illusions about the seriousness of this decision because Indonesia is in

a very difficult situation and there are all sorts of very serious consequences that can come from that situation.

So this is a very complex situation, a very great moment in terms

of its possible consequences. But, having said that, I will go back

to what I said before. The Currency Board is one issue and then

the criteria they need to meet is a separate issue.

Had they done the Currency Board on their own—this was not

a U.S. situation. Theo Waigel, the Finance Minister of West Germany, now Germany, said that that was not something they should

do and many other countries have similar views.

Senator BENNETT. Mr. Chairman?

Senator MCCONNELL. Yes, Senator Bennett.

Senator BENNETT. I have just one summary point here.
37

The Currency Board to me is not the issue because the Currency

Board is simply a means to an end. I am perfectly willing to reach

that end by some other means. But I do not want us to lose sight

of the end, which is fix the currency.

I think you have to fix the currency now. I don’t think you can

wait for a stable currency being a by-product of other things because, if you don’t fix the currency, the riots, the killings that occurred the last time the currency went crazy, will happen again.

I made this point to the Mexican minister who said: ‘‘Oh, with

our devaluation, we are now more competitive in the world.’’ I said

you have never run a business because when your employees cannot pay their bills, they come home to wives who are upset because

they are going to lose their homes because they cannot pay their

mortgages. The middle class is wiped out because the money is

worthless. Such workers are not automatically more productive.

That is the human toll here if we don’t get the currency stable.

That is the only point I want to make. Forget whether it is a Currency Board or anything else. A stable currency is the end that we

should be focusing on as one of our major, first, up-front kind of

challenges in Indonesia.

I hope you tell the IMF that.

Secretary RUBIN. Senator, we agree with that. I still think Indonesia is a very special case because of all the problems. But it is

worth talking about. I know we have had this discussion many

times in the Mexican context and others.

There are only two ways—no, three ways—to try to create a stable currency. I think there are three. Maybe there are others, but

three come to my mind, forgetting the Currency Board for a moment. One is to reestablish financial stability. Another is to intervene, but I, at least, think that has its limits because the global

market is going to overwhelm your intervention. The third is to

have very tight money and extremely high interest rates.

As you know, we were very strong proponents in the Mexican

context of high interest rates. But as you also remember, there was

always the threat that if you had them too high for too long, they

could overwhelm the economy.

So, we agree with your purpose. But these are very complicated

balances we all have to make.

Senator BENNETT. I just wanted to make the point one more

time.

Senator MCCONNELL. Secretary Summers mentioned four things:

structural, budgetary, monetary, and financial. They are not anywhere near in compliance on any of these yet, right? Are they on

any of the four?

Mr. SUMMERS. I would not, until the IMF team has completed its

review, want to pass judgment on this. I don’t think it would be

appropriate for me to pass judgment on where they are with respect to each of those issues.

Certainly there have been a number of troubling reports and we

are concerned about the situation.

Senator MCCONNELL. And so, what you are saying, I gather, is

that you do not expect this $3 billion release to go forward unless

all four of these are met? In a week?
38

Mr. SUMMERS. I think, Mr. Chairman, what I said was that, unless there was adequate progress with respect to each of those——

Senator MCCONNELL. Is that one of them, two of them, three of

them? How many?

Mr. SUMMERS [continuing]. Adequate progress with respect to

each of, within each of the four areas. I could not imagine a program going forward with a totally unsuitable structural policy, or

a totally unsuitable banking policy.

Senator MCCONNELL. So a little bit of progress in each of the

four categories?

Mr. SUMMERS. Adequate progress.

Secretary RUBIN. Mr. Chairman, let me say that I think the IMF

is going to have to make a judgment as to what constitutes adequate progress with respect to the totality and each individually.

That is the what they are working, will be doing between now and

March 15.

Senator MCCONNELL. That gets back to the point we were discussing earlier about the latitude of the Director. He seems to have

been rather flexible, shall we say, in Russia.

Secretary RUBIN. Well, no.

Senator MCCONNELL. And should we anticipate the same degree

of flexibility here?

Secretary RUBIN. First, as Deputy Secretary Summers said, in a

number of instances he actually has discontinued a program in

Russia and I think with good effect.

Mr. SUMMERS. He did not disburse a penny on his recent trip to

Russia, Mr. Chairman.

Secretary RUBIN. I think in this situation, Mr. Chairman, he is

facing an extremely difficult judgment. We all remember the circumstances in the history of Indonesia that have occurred. I think

that he just has a very difficult set of judgments to make and that

is what he has to do.

Senator MCCONNELL. At the risk of being redundant, then, if he

has that kind of latitude, we may be looking forward to having a

number of our requirements for passing the quota addressed by the

Director himself. Is that something we are going to explore?

Secretary RUBIN. I think, as you suggested, and as——

Senator MCCONNELL. He seems to have a good deal more power

here.

Secretary RUBIN. Well, let me respond in two respects.

First, I think that, as you and I discussed yesterday, we have to

discuss this with the managing director because he has a lot of

other members, as I said before. But I think one possibility is to

work with him in terms of policy statements he would be prepared

to make.

Second, we have enormous influence at the IMF, Mr. Chairman,

and I think it would be fair to say that we and a number of other

countries, who are the principal providers of resource, will express

some views on these subjects.

Mr. SUMMERS. Mr. Chairman, may I be clear on one point?

Senator MCCONNELL. Yes.

Mr. SUMMERS. Any recommendation that the managing director

would make with respect to completion of a review or financial support to any country would, to be operative, require approval by the
39

Board. He has no capacity to make a unilateral commitment on his

own of financial resources. Any such commitment, or any judgment

about a review, or any waiver of a condition, all of that requires

the approval of the Board.

Senator MCCONNELL. I want to switch to one other country very

quickly and Senator Faircloth and Senator Bennett are still here.

Senator FAIRCLOTH. That’s all right. I’m in no hurry.

Senator MCCONNELL. I want to just switch to Burma for 1

minute. This has probably not been on your radar screen lately. It

is not on anybody’s radar screen except it is an outrageous military

junta that exploits its own people and nobody seems to care.

This week, Japan announced plans to restore bilateral aid to

Burma. I am concerned about bank assistance to the junta in Rangoon.

I see blank faces back there, so I am not sure anybody has been

following this.

Mr. SUMMERS. Not only is it not on our radar screen, it is not

in our briefing book.

Senator MCCONNELL. Oh, then you are in deep trouble. [Laughter.]

Well, let me just tell you the question I want to ask and you all

can get me an answer when you can.

We have just been spending an enormous amount of time talking

about the struggling economies in Asia. Aung San Suu Kyi, who

some of you may remember is the Nobel Prize winning duly elected

leader of Burma who was cooling her heels in jail for 6 years, is

more adamant than ever that now is not the time to relax pressure

on the regime in Burma. What I am seeking—and you don’t have

to answer this today since it is not in the briefing book, as you indicated—is your commitment to sustain the multilateral ban that

has been in existence on bank loans to the junta in Rangoon.

If you would take a look at that, I would appreciate it.

Senator Faircloth.

Senator FAIRCLOTH. Thank you, Mr. Chairman. I will be very

brief.

As we so often do, I have more of a statement than a question.

We have been talking about Mr. Camdessus and I have looked

at what the IMF and particularly under him how it has wavered

and vacillated around the world. I somewhat feel that to compare

him and Suharto is like putting a boa constrictor and a rabbit in

a battle. I think we are going to wind up with Suharto coming

right back to where we are. He will make some little minor change.

He is going to get the money and will move on.

That has somewhat been the history of many, many IMF bailouts

around the world. I read of 30 or 40 of them where they get the

money and then do not make the change. I think that is exactly

what we are looking at in Indonesia.

I don’t think there is any reason for us to think it is going to be

different. That is the problem that you are having, that the IMF

or whatever is having, the money. It is that we don’t have confidence in the IMF.

Now I saw that they had the French at the G–7 meeting.

Mr. Dominic Strauss-Kahn said, and the Japanese are saying the

same thing, that we need to increase international regulations of
40

cross border bank lending and slow the flow of capital into developing countries until they have the financial and regulatory structure

to handle it.

Now what we have done is flowed the money in and hoped that

the financial and regulatory structure would be put in place to handle it. Almost without exception, it has not. Some 40 countries that

IMF has loaned to, roughly one-half of the countries, are in worse

shape, in worse debt, than they were when they started.

Now the French Finance Minister says that: ‘‘It is our responsibility to invent a new system for international regulations.’’

Strauss-Kahn wrote that in a letter to the other ministers that provided a framework for the discussion.

As long as we keep sending the money first, the reforms are not

going to happen.

Secretary RUBIN. Senator, his comments with respect to the

money were not flows of IMF money. What he was saying was—

and this, I think, is an issue that needs to be very carefully discussed and analyzed; I am not sure what we think about it, frankly—his view was that there are vast flows in the global financial

markets—which is true—which are going into developing countries

that have immature financial sectors. What the IMF has been

doing is focusing on trying to make those financial sectors better

and stronger so that they can absorb these flows of capital.

What he was saying, and I think someone else said it as well—

it may have been the Japanese; I don’t remember—was that it may

be that we need to have some kind of restraints on these flows of

private sector capital until these systems become strong enough to

absorb them.

We happen to be great believers in freedom of flows of capital.

So we have, I would say, a rebuttal presumption against that. But,

nevertheless, we are not opposed to it dispositively. We have to

analyze it.

In terms of his comment with respect to the financial structure

and architecture and so forth, we are all—Chairman Greenspan,

Secretary Summers, and myself—all of us are convinced that there

have to be major steps forward. That is not going to happen quickly. These are enormously complex issues.

We are spending a tremendous amount of time on it and so is

the Fed, so is the group of countries called the G–10. We have a

meeting of finance ministers here sometime in the spring to attempt to carry this forward.

There is a tremendous focus on this and a tremendous energy

around it around the world.

Senator FAIRCLOTH. Mr. Secretary, I understand exactly what

you are saying. I know what you are saying. But the Congress

needs to hold the money until it is done. If we do not, it will never

be done.

We talk about it. We have been talking about better, you know,

access to foreign markets. A little here, a little there, but it’s all

very little. What we are saying here is—and the same thing the

IMF to the countries—is give us the money and then we’ll reform.

The IMF says to this country give us the money and we are going

to change the rules.
41

But once the money is gone, the countries go back to where they

were, and once we send the money to the IMF, it changes nothing,

just maybe something cosmetic.

That is the reason I am not for sending the money until reforms

are in place—at least a structure for them to be in place so we

know where we are going.

Thank you.

Senator MCCONNELL. Thank you, Senator Faircloth.

Secretary Rubin has already stayed a good deal beyond where he

indicated he was going to earlier.

Senator Bennett, do you have any sort of closing thoughts? Then

we will let the Secretary go.

Senator BENNETT. I have made my points, none of which will

surprise the Secretary.

Thank you.

Senator MCCONNELL. Mr. Secretary, we would like to figure out

a way to help you, and I think you now know what we are looking

for.

We thank you very much for coming up here and you, too, Secretary Summers.

Thank you very much.

SUBCOMMITTEE RECESS

The subcommittee will stand in recess until 3:30 p.m., on Tuesday March 31, when we will hear from Hon. Strobe Talbott, Deputy

Secretary of State and Hon. Stuart Eizenstat, Under Secretary For

Economic, Business, and Agricultural Affairs.

[Whereupon, at 12:35 p.m., Tuesday, March 3, the subcommittee

was recessed, to reconvene at 3:30 p.m., Tuesday, March 31.]

(43)

FOREIGN OPERATIONS, EXPORT FINANCING,

AND RELATED PROGRAMS APPROPRIATIONS FOR FISCAL YEAR 1999

TUESDAY, MARCH 31, 1998

U.S. SENATE,

SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS,

Washington, DC.

The subcommittee met at 3:30 p.m., in room SD–192, Dirksen

Senate Office Building, Hon. Mitch McConnell (chairman) presiding.

Present: Senators McConnell, Gregg, Campbell, and Leahy.

DEPARTMENT OF STATE

CAUCASUS AND CASPIAN: ECONOMIC AND POLITICAL SECURITY

STATEMENTS OF:

HON. STROBE TALBOTT, DEPUTY SECRETARY OF STATE

HON. STUART EIZENSTAT, UNDER SECRETARY FOR ECONOMIC,

BUSINESS, AND AGRICULTURAL AFFAIRS

OPENING REMARKS OF SENATOR MITCH MC CONNELL

Senator MCCONNELL. Good afternoon everyone. I want to thank

Secretary Talbott and Ambassador Eizenstat for accommodating a

problem we had this morning and for rescheduling to the afternoon. Welcome to you both.

Mr. Talbott, as cochair of the Minsk Group, I thought it would

be helpful to the subcommittee to hear your view on the status of

that effort as well as gain your sense of regional stability, particularly in light of the recent Armenian and Ukrainian elections—actually, you may be able to give us an update on those—the assassination attempt on President Shevardnadze, and the dramatic

shakeup of the Russian Government. In short, lots has been happening in your area of responsibility.

There is an old saying that the more things change, the more

they stay the same.

When you appeared before the committee in 1995 to offer the Department’s perspective on the New Independent States, NATO expansion was center stage and the disaster in Chechnya was causing considerable unease throughout the Caucasus, the Kremlin had

just experienced a personnel shakeup, leaving doubts about the

fate of reformers and reforms, the head of the Russian Security

Services was arguing against foreign ownership or access to oil

pipelines, and George Soros was accused of being a spy.
44

Here we are, 3 years later, and the debate over NATO expansion

is on the Senate’s agenda shortly. There is quiet, but not peace, in

the Caucasus. We have just witnessed an even more dramatic

shakeup at the Kremlin, and the question of pipeline routes, ownership, and access is the issue of the day.

I guess we can take comfort that Mr. Soros’ status has changed.

Russia’s role, for better or for worse, continues to dominate regional developments. Each leader in the area with whom I talk attached great significance to President Yeltsin’s statement, issued in

the wake of Ter-Petrossian’s resignation. He said:

New leaders will walk on to the scene which everyone must take into account.

They may be tough, but everyone understands that they must deal with and maintain friendly relations with Russia. Armenia is in the field of Russia’s strategic interest. It is an orthodox State and we cannot and will not lose it.

That is a quote from President Yeltsin.

I am not sure Georgia, Ukraine, Armenia, or any other nation believes that they should be cast as Russia’s to lose. To the extent

that this attitude plays out in the Minsk process, I question the

possibility of ever achieving a permanent and peaceful settlement

between Armenia and Azerbaijan.

With the elections behind Yerevan, there is obviously a new opportunity to settle issues surrounding the conflict. However, it is

my sense that a settlement and stability may not serve Russian interests of maintaining exclusive control over pipeline transportation of Caspian oil.

Uncertainty over Nagorno-Karabakh yields to Russian interests

and dominance, but it is a formula that also holds true in Georgia.

Although the assassins in the most recent attempt on President

Shevardnadze’s life claimed allegiance to his old rival, I understand

they carried Russian passports and those who managed to escape,

fled to a Russian base.

As we all know, the criminal guilty of the last attempt on his life

continues to live in Russia free from the fear of extradition.

As energy fields are developed and transportation routes negotiated, regional politics are bound to become more complex. It is

important for us to understand how you define United States interests separate and apart from Russian ambitions.

There is one other problem I want to address before turning to

your comments. The most troubling issue, which has implications

far beyond the region, is Iran’s aggressive plans to acquire a nuclear weapons capability. It took enormous courage for President

Kuchma to withstand the considerable pressure from Moscow to

provide a turbine for the Iranian reactor, especially in view of the

employment impact on the factory which lost its business.

Unfortunately, the Russian-Iranian relationship has expanded

substantially over the past several years. Press reports suggest

Iran may be able to conduct test flights on a missile launcher later

this year, thanks to extensive cooperation between Russian and

Iranian nuclear engineers as well as the transfer of equipment and

technology.

This program directly undermines American security interests.

While Ambassador Wisner succeeded in focusing Moscow’s attention on this problem, real, permanent results are slim.
45

It strikes me that the Gazprom/Total/Petronas investment in

Iran only serves to finance this lethal effort, which is precisely why

the sanctions legislation was passed. This is one of several areas

in which I hope you may be able to clarify the administration’s position.

We have a great deal of ground we want to cover here this afternoon. So why don’t we go to your statement, Mr. Talbott and to

yours as well, Mr. Eizenstat, if you have one.

SUMMARY STATEMENT OF HON. STROBE TALBOTT

Mr. TALBOTT. Thank you, Mr. Chairman. I hope it is in the spirit

of this event for me to begin by congratulating you for the second

time today on a great occurrence for the State of Kentucky last

night.

Senator MCCONNELL. Yes; it was a marvelous ballgame. It is getting to be something we are used to every year, being No. 1. I can’t

wait till next year. [Laughter.]

Mr. TALBOTT. Some of my colleagues will be distressed to hear

that. [Laughter.]

Mr. Chairman, I truly do welcome the opportunity to meet with

you and any of your colleagues who can be present this afternoon

for a chance to talk about the administration’s strategy toward the

Caucasus and the Caspian Basin. I am joined, as you have already

noted, by my friend and colleague, Stu Eizenstat, and in my opening statement, which will be, by the way, an abbreviation of what

I am submitting for the record, I will focus on the American determination to help bring peace to the South Caucasus and then Secretary Eizenstat will address American efforts to insure that the

vast energy resources of the Caspian Basin are developed and

transported in a way that conforms with U.S. strategic and commercial interests.

INTRODUCTION OF ASSOCIATES

Let me also, if I may, introduce two other colleagues who are

here today: Lynn Pascoe, who is the special negotiator for NagornoKarabakh and regional conflicts in the New Independent States,

and Bill Taylor, Deputy Coordinator for U.S. Assistance to the NIS.

They are available to answer in detail any questions that you, Senator Campbell, and any of your other colleagues may have about

our diplomatic and assistance efforts.

In our view, the South Caucasus, by which I mean the area covered by Armenia, Georgia, and Azerbaijan, has the potential to become one of the real success stories of the next century. As you

know, Mr. Chairman, from your own visit to the area last year—

and we talked about it immediately after your return—these countries are blessed with both human and natural resources. However,

history has not been so kind.

While the people of the region have gained, or in some cases regained, their freedom, they are struggling against what might be

called the opportunity cost of a lost century—that is, the inadequacy of the social, political, and economic institutions that they

inherited and the difficulty of building new ones that will allow

them to develop as modern states.
46

Seeing that the ranking member has joined the subcommittee,

Mr. Chairman, I had complimented the chairman, Senator Leahy,

on an event last night and I congratulate you on a great birthday

for your State today.

Senator LEAHY. Now that I have reached the ripe old age of 58,

Mr. Secretary, I want to be reminded of past birthdays not current

ones. But thank you, though. [Laughter.]

Mr. TALBOTT. The chairman has asked me to look to the future,

but I will certainly pay obeisance to the past, as well.

The United States has made it a priority to help these three

countries—Armenia, Azerbaijan, and Georgia—overcome the burdens that I just described. Our assistance programs support democratic institution building, economic reforms, and numerous programs that are aimed at strengthening the rule of law and civil society.

It is against that backdrop that, with the leadership of Stu

Eizenstat and also the extensive work and participation of the Departments of Commerce and Energy, the United States is promoting an East-West Eurasian Transportation Corridor for the export

of Caspian energy resources.

Azerbaijan, a Caspian littoral State, will profit from development

of its oil reserves. Georgia and Armenia, even though they are not,

as the journalistic cliche would have it, ‘‘oil rich,’’ do stand to benefit from being part of a robust economic hub fueled by the petroleum of their neighbors.

But none of those objectives stands a chance if the people of the

Caucasus are living and, too often, dying in a state of hostility.

That is why our efforts on behalf of regional peace are so essential.

Let me concentrate on the enterprise to which we have devoted

the most energy, Nagorno-Karabakh. This is not just a dangerous

and potentially contagious conflict in its own right. It is also emblematic of one of the most vexing challenges of the post-cold-war

world. From Slovenia, on the border of Italy, to Kyrgyzstan on the

border of China, the 1990’s have seen the eruption of ethnic and

religious animosities that had been mostly dormant during the ice

age of Communist rule.

Another manifestation of this threat to international peace requires the presence today of approximately 8,000 American troops

helping to keep the peace in Bosnia and another threat still imperils Europe anew in Kosovo.

We have been involved in the quest for a negotiated settlement

to the Nagorno-Karabakh conflict since 1992. Today, the United

States is working with France and Russia, under the auspices of

the Organization for Security and Cooperation in Europe to help

the parties negotiate a settlement.

I serve as the American cochair of the so-called Minsk Conference and I rely heavily on Ambassador Pascoe, who works fulltime on this immensely thorny and important problem.

He and his Russian and French partners worked especially hard

last summer and fall to develop a sound and promising approach

that concentrated on the security aspects of ending the armed conflict in the first place with talks on status issues to follow.

President Aliyev of Azerbaijan and then President Ter-Petrossian

of Armenia agreed to this approach. But the Nagorno-Karabakh
47

authorities refused to participate in negotiations on the basis of

this proposal.

The resignation of President Ter-Petrossian on February 3 and

the Armenian presidential elections, the second round of which

were held yesterday, have forced a pause in the peace process. But

a pause does not mean a halt. We are not giving up. We owe it to

ourselves and to the parties to persist.

We have made clear that we hope and expect the new Armenian

Government to take a serious approach to negotiations aimed at

achieving real progress toward a lasting, fair settlement.

We are also actively engaged in the quest for a solution to another nearby dispute, and that is the one in Georgia—the simmering on again/off again conflict in Abkhazia. The effort is under the

auspices of the United Nations and Ambassador Pascoe is hard at

work on this project as well.

Mr. Chairman, Senators, I would like to stress that our assistance programs are an important component of our diplomacy in the

Caucasus. The $12.5 million earmarked by Congress for the victims

of the Nagorno-Karabakh conflict and the $5 million appropriated

for the relief of victims of the Abkhazia conflict are both welcome

and useful.

United States assistance also contributed to the monitoring of

yesterday’s elections in Armenia. There is, however, one congressionally imposed obstacle to our diplomacy and that is section 907

of the Freedom Support Act, which prohibits certain assistance to

the Government of Azerbaijan.

I would only reiterate Secretary Albright’s urging before the Foreign Relations Committee on February 10 to lift legal restrictions

on nonmilitary assistance to Azerbaijan while maintaining support

for aid to Armenia. But I would also say that, thanks to the further

loosening of 907 restrictions contained in the fiscal year 1998 Foreign Operations Appropriations legislation, we will have the means

to work with the Azerbaijanis to make sure that this fall’s presidential elections are as free and fair as possible.

Let me now turn to the question that you stressed in your opening comments, Mr. Chairman, about other States that have an active interest in the region.

We believe that the zero-sum rivalries among large powers trying

to impose their will on smaller States are or at least should be a

relic of history. There is more than enough wealth and economic

opportunity in the Caspian Basin to go around if all the States of

the region, large and small, cooperate in an open, mutually beneficial and mutually respectful manner, and if they play by today’s

rules of international life. That principle applies particularly to

Russia.

We believe it is in everyone’s interest for Russia to build strong

relations with its neighbors so long as those relations are founded

on respect for the rights, the sovereignty, and the independence of

all concerned.

Since the breakup of the U.S.S.R. 7 years ago, Russia has demonstrated what I would call strategic ambivalence about the region

that we are discussing here today. Some forces in that country are

nostalgic for the Soviet and Russian empires. But there are also

other forces at play in the great drama of Russian politics today—
48

and, as you noted, they have been particularly dramatic in recent

days—that want to see their country adapt itself to the challenges

and opportunities of the 21st century rather than replaying the

‘‘Great Game’’ of the 19th.

In our own policy toward the Caucasus and Central Asia, as well

as in every other aspect of our policy toward the former Soviet

Union, we are doing what we can to create conditions in which

those committed to Russia’s transformation into a normal, modern

State will prevail over those that are bucking the tide of history.

With respect to the conflicts that are roiling in the South

Caucasus, Russia has, over the past several years, been both part

of the problem and, more recently, part of the solution. Earlier

Russian attempts to exploit the indigenous trouble in the region

not only failed to enhance Russia’s security along its southern

flank, they may even have contributed to the outbreak of Russia’s

single greatest trauma within its own borders—the devastating

war in Chechnya.

Today, as I indicated earlier, Russia is working cooperatively

with the OSCE on Nagorno-Karabakh and with the U.N. in Georgia.

Let me say a final word, if I could, about another regional power,

Iran.

We continue to caution nations throughout the region about the

development of close relations with Iran. We will continue to work

with all the States of the Caucasus to thwart the growth of Iran’s

influence in the region while those States strengthen their ties to

Europe and the transAtlantic community.

PREPARED STATEMENT

Secretary Eizenstat has been the administration’s point man in

maximizing cooperation between the United States and its friends

and allies with regard to Iran. So I think this would be a good

point for me to turn the microphone over to him.

[The statement follows:]

PREPARED STATEMENT OF STROBE TALBOTT

Thank you, Mr. Chairman, for the opportunity to discuss with you and your subcommittee the Administration’s strategy toward the Caucasus and the Caspian

Basin. I am joined by my friend and colleague, Stuart Eizenstat, Under Secretary

of State for Economic, Business, and Agricultural Affairs.

In my opening statement, I will focus on the American determination to help

bring peace to the Caucasus; then Secretary Eizenstat will address American efforts

to ensure that the vast energy resources of the Caspian Basin are developed and

transported in ways that serve U.S. strategic and commercial interests.

Let me first introduce two other colleagues with us here today: Lynn Pascoe, Special Negotiator for Nagorno-Karabakh and Regional Conflicts in the New Independent States; and Bill Taylor, Deputy Coordinator for U.S. Assistance to the NIS. They

are available to answer in detail any questions you may have about our diplomatic

and assistance efforts.

Since the collapse of the U.S.S.R. 7 years ago and the birth of independent states

where before there had been Soviet republics, the U.S. has worked aggressively to

foster peace, prosperity, democracy, and respect for human rights.

In 1992, within months of the Soviet Union’s collapse, the United States, under

the Bush Administration, opened embassies in all 11 non-Russian New Independent

States, including the eight of Central Asia and the Caucasus. Since then, under

President Clinton, our engagement in the region has intensified.

Let me concentrate on three of those states in particular: Armenia, Georgia, and

Azerbaijan. In our view, the South Caucasus has the potential to become one of the
49

real success stories of the next century. The area is blessed with both human and

natural resources. History, however, has not been so kind. In the 19th century, the

region was a battleground for Great Powers encroaching from all points of the compass. And, of course, for most of the 20th century, Armenians, Georgians, and

Azerbaijanis labored under a stultifying and repressive Soviet Communist system

imposed by Moscow. Today, while they have gained—or in some cases, regained—

their freedom, they are struggling against what might be called the opportunity cost

of a lost century—the inadequacy of the social, political, and economic institutions

they inherited and the difficulty of building new ones that will allow them to develop as modern states.

The United States has made it a priority to help these three countries overcome

those burdens. Our assistance programs support democratic institution-building,

economic reforms, and numerous programs aimed at strengthening the rule of law

and civil society.

It is against this backdrop that, with leadership from Stu Eizenstat and the Departments of Commerce and Energy, the U.S. is also promoting an east-west Eurasian transportation corridor for the export of Caspian energy resources. This commitment is a vital element in promoting the prosperity of the Caucasus, as it is for

central Asia. Azerbaijan, a Caspian littoral state, will profit from development of its

oil reserves. Georgia and Armenia, while not, in the journalistic cliche, ‘‘oil-rich,’’

will benefit from being part of a robust economic hub fueled by the petroleum of

their neighbors.

The political and economic dimensions of our policy are mutually reinforcing; they

are integral to a single strategy. The nations of the South Caucasus can achieve

their potential only if democracy and civil society thrive and only if their physical

and economic infrastructures—that is, their pipelines and their markets, their oil

fields and their legal and regulatory structures—open them to the outside world.

But none of those objectives stands a chance if the people of the Caucasus are

living and too often dying in a state of hostility. That’s why our efforts on behalf

of regional peace are so essential.

Let me concentrate on the enterprise to which we have devoted the most energy:

Nagorno-Karabakh. This is not just a dangerous, potentially contagious conflict in

its own right. It is also emblematic of one of the most vexing challenges of the postCold War world: From Slovenia on the border of Italy to Kyrgyzstan on the border

of China, the 1990’s have seen the eruption of ethnic and religious animosities that

had been mostly dormant during the ice age of communist rule. Another manifestation of this threat to international peace requires the presence of approximately

8,000 American troops to help keep the peace in Bosnia today, and another still imperils Europe anew in Kosovo.

We have been involved in the quest for a negotiated settlement to the NagornoKarabakh conflict since 1992, when the Organization for Security and Cooperation

in Europe (then known as the CSCE) called for a peace conference to take place in

Minsk. The conference never took place, but the Minsk Group has become a standing body, including the U.S., seeking a negotiated peace in the conflict.

In early 1997, we strengthened our direct involvement by becoming a co-chair of

the OSCE process, along with Russia and France. I serve as the American co-chair

of the Minsk Conference, and Ambassador Pascoe is co-chair of the Minsk Group,

which works full-time on this immensely thorny and important problem. He and his

Russian and French partners worked especially hard last summer and fall to develop a sound and promising approach that concentrated on the security aspects of

ending the armed conflict in the first phase, with talks on status issues to follow.

The rationale was this: At present, there is no status for Nagorno-Karabakh that

would be acceptable to all sides. Short of imposing a solution on one side or another—something we have vowed not to do—discussion of status could take many

years. During that time, the life of the region would be disrupted and the threat

of war ever-present. The stunted economic development, especially of Armenia,

would continue to deprive the people of the Caucasus of the well-being and stability

we seek and they deserve.

President Aliyev of Azerbaijan and then-President Ter-Petrossian of Armenia had

hoped to sign a first-phase agreement that would have done the following: Ended

the threat of renewed fighting and allowed hundreds of thousands of refugees to go

home; returned to each side much of the territory occupied by the other; opened up

borders and lines of communication and trade; lifted all embargoes; left the land

connection between Nagorno-Karabakh and Armenia intact and secure; and provided international peacekeeping forces and security guarantees.

This security would allow Azerbaijan and Nagorno-Karabakh to discuss status

issues without preconditions, free of any military, political, or economic pressure to

sign a deal until both sides found a settlement on which they could agree.
50

Unfortunately, the Nagorno-Karabakh authorities refused to participate in negotiations on this proposal. They insist on discussing status from the beginning. Our

concern is that concentrating on status first would return the talks to the endless

exchanges of maximalist positions that characterized the negotiations before we became co-chairs. Meanwhile, the vast number of displaced persons would remain in

camps, miserable and increasingly radicalized. Neither Russia, France, nor the U.S.

is willing to sponsor such negotiations. This is not out of impatience—we are prepared to be patient. But we are only prepared to sponsor negotiations seriously

aimed at achieving a settlement, not an exercise in futility.

As I said, Presidents Aliyev and Ter-Petrossian were prepared to proceed on what

we regarded as a constructive and promising basis. The Nagorno-Karabakh authorities were not.

The resignation of President Ter-Petrossian on February 3 and the Armenian

presidential elections—the second round was held yesterday—have forced a pause

in the peace process.

But a pause does not mean a halt. We are not giving up. We owe it to ourselves

and to the parties to persist. The co-chairs plan to return to the region in April.

We have made clear that we hope and expect the new Armenian Government to

take a serious approach to negotiations aimed at achieving real progress toward a

lasting, fair settlement.

The quest for a solution to another dispute nearby, in Georgia, also has our active

support and participation. This is the simmering, on-again/off-again conflict in

Abkhazia. In the last year we have worked hard to open up the negotiating process

so that U.N.-sponsored talks might be more successful than the stalled Russian-led

effort. Frustrated by lack of progress, Russia has also recently welcomed an increased role for the U.N. in peace negotiations. Ambassador Pascoe is hard at work

on this project as well.

The U.S., as one of the so-called Friends of the Secretary General on this issue,

has become more directly involved in efforts toward an international settlement, led

by the U.N. Secretary General’s Special Representative, Liviu Bota. The most recent

round of negotiations, in Geneva last November, produced a series of working

groups that have begun to address the pressing problems of economic and humanitarian cooperation, refugee return and security issues. Ambassador Bota and the

Friends are meeting today in Sukhumi with representatives of the parties to assess

the progress of the working groups and to set concrete goals for another Geneva

meeting later this spring.

The U.S. also contributes observers to the U.N. peacekeeping mission in

Abkhazia—UNOMIG. In the wake of recent violence, including the attempted assassination of President Shevardnadze on February 9, we have decided to pull back our

presence from Abkhazia itself. We now have two U.S. military observers in Tbilisi.

Two other American military observers will be redeployed to Abkhazia once we are

confident that the security arrangements for UNOMIG are adequate. The U.N. is

currently working on a proposal to provide adequate force protection for the U.N.

observers that would allow the United States to resume full participation in

UNOMIG.

Mr. Chairman, I would like to stress that our assistance programs are an important component of our diplomacy in the Caucasus. We are moving forthwith to utilize the $12.5 million earmarked by Congress for the victims of the NagornoKarabakh conflict and the $5 million Congress has appropriated for the relief of victims of the Abkhazia conflict.

This contribution on the part of the U.S. has been a key tool in inducing the

Abkhaz to participate in a broader, multilateral effort on peace negotiations. USAID

and our embassy in Tbilisi have sent an assessment team to Abkhazia to determine

how best to use this assistance. Spurred on by our efforts, the U.N. and international financial institutions have sent teams of their own in to work on post-conflict reconstruction.

In addition to these high-profile humanitarian assistance programs, American

funds have helped make it possible for reformers in Armenia and Georgia to institute judicial reform and to draft economic legislation and electoral laws. U.S. assistance contributed to the monitoring of yesterday’s election in Armenia. Overall, U.S.

assistance to Armenia and Georgia is among the highest in the world on a per capita basis.

There is, however, one congressionally imposed obstacle to our diplomacy. That

is Section 907 of the FREEDOM Support Act, which prohibits certain assistance to

the Government of Azerbaijan. I would only reiterate Secretary Albright’s urging before the Foreign Relations Committee on February 10 to lift legal restrictions on

non-military assistance to Azerbaijan while maintaining support for aid to Armenia.

But I would also say that, thanks to the further loosening of Section 907 restrictions
51

contained in the fiscal year 1998 foreign operations appropriations legislation, we

will have the means to work with the Azerbaijanis to make sure that this fall’s presidential elections there are free and fair.

Let me now turn to the question of other states that have an active interest in

the region. We believe that the zero-sum rivalries among large powers trying to impose their will on smaller states are—or at least should be—a relic of history. There

is more than enough wealth and economic opportunity in the Caspian Basin to go

around if all the states of the region, large and small, cooperate in an open, mutually beneficial and mutually respectful manner and if they play by today’s rules of

international life.

That principle particularly applies to Russia. We believe it is in everyone’s interest for Russia to build strong relations with its neighbors—so long as those relations

are founded on respect for the rights of sovereignty and independence of all concerned.

Since the breakup of the U.S.S.R. 7 years ago, Russia has demonstrated what I

would call strategic ambivalence about the region we are discussing. Some forces in

that country are nostalgic for the Soviet and Russian empires. But there are also

other forces at play in the great drama of Russian politics today that want to see

their country adapt itself to the challenges and opportunities of the 21st century

rather than replay the ‘‘Great Game’’ of the 19th.

In our own policy toward the Caucasus and Central Asia, as well as in every other

respect of our policy toward the former Soviet Union, we are doing what we can to

create conditions in which those committed to Russia’s transformation into a normal, modern state prevail over those that are bucking the tide of history.

With respect to the conflicts roiling in the South Caucasus, Russia has, over the

past several years, been both part of the problem and part of the solution. Earlier

Russian attempts to exploit the indigenous trouble in the region not only failed to

enhance Russia’s security along its southern flank, they may even have contributed

to the outbreak of Russia’s single greatest trauma within its own borders—the devastating war in Chechnya.

Today, as I indicated earlier, Russia is working cooperatively with the OSCE on

Nagorno-Karabakh and with the U.N. in Georgia.

A final word, if I might, about another regional power: Iran. We continue to caution nations throughout the region about the development of close relations with

Iran. As a state-sponsor of terrorism and a nation bent on the development of weapons of mass destruction, Iran still poses a threat to all its neighbors.

Moreover, we are against any state in the region being allowed to dominate the

region, politically or economically. We will continue to work with all the states of

the Caucasus to thwart the growth of Iran’s influence in the region while those

states strengthen their ties to Europe and the Trans-Atlantic Community.

Secretary Eizenstat has been the Administration’s point man in maximizing cooperation between the United States and its friends and Allies with regard to Iran.

So this, I think, is a good point to turn the microphone over to him.

Thank you.

SUMMARY STATEMENT OF HON. STUART EIZENSTAT

Senator MCCONNELL. Go right ahead, Secretary Eizenstat.

Ambassador EIZENSTAT. Thank you, Mr. Chairman, members of

the committee. With your permission, I would like to concentrate

my testimony on energy issues in the Caspian region that have a

profound impact on the long-term economic development and political stability of the States in the region.

As a key element of our broader foreign policy objectives in the

Caucasus and Central Asia, the United States is actively promoting

the establishment of an East-West or Eurasian transit corridor for

the export of oil and gas resources from the Caspian region.

Realization of such a corridor will support our strategic and economic interests. We have three strategic concerns. First, it is essential to the independence and sovereignty of the New Independent

States to avoid a monopoly on export routes from the region. We

have supported a policy of multiple pipelines from the region so

that Caspian oil and gas resources can enjoy unfettered access to
52

world markets, not subject to undue influence by other exporters

or any other country.

Second, we want Caspian energy to diversify world energy supplies. The United States, as a matter of policy, strongly opposes

any pipeline across Iran due to Iran’s support for terrorism and its

drive to acquire weapons of mass destruction and missile technology.

Third, we want to avoid creating a bottleneck in the Bosporus in

terms of getting Caspian energy out. We share Turkey’s concerns

about the environmental and safety impact of putting large volumes of oil through the Bosporus Straits. It is, therefore, important

to find long-term solutions that avoid the Bosporus.

To address these three concerns, the United States has supported

the development of an east-west, or Eurasian, energy transportation corridor for export of the region’s oil and gas. A key element

of this corridor is an oil pipeline from Baku, in Azerbaijan, to

Ceyhan, on Turkey’s Mediterranean coast. A Baku-Ceyhan pipeline

will promote a diversification of export routes, will allow Caspian

oil to get to world markets without transiting Iran, and will avoid

putting more oil through the Bosporus.

A second key element of our strategy is Trans-Caspian gas and

oil pipelines, which will link together the states on both sides of the

Caspian. In particular, we believe that a gas pipeline across the

Caspian Sea and through the Caucasus to Turkey will provide a

much needed outlet for Turkmenistan’s energy. Ultimately, it could

also accommodate gas from Uzbekistan, Kazakhstan, Azerbaijan,

and Russia.

In recent months, with the very strong leadership of the Vice

President’s office and an interagency group, we have made significant progress in promoting this east-west corridor. We have been

working with Turkey, for example, to make this Baku-Ceyhan pipeline a commercially attractive option for private companies. Turkey

has embraced taking a leading role in promoting this pipeline. It

is finishing its own feasibility study and our own Export-Import

Bank and OPIC are actively considering their appropriate role in

financing such a pipeline.

We have also urged the countries of the region to increase their

levels of regional cooperation. We are very pleased that recently

the foreign ministers of Turkey, Kazakhstan, Azerbaijan,

Turkmenistan, and Georgia met in Istanbul and issued a communique supporting an east-west corridor.

We also have urged the littoral States surrounding the Caspian

to adopt a legal regime conducive to the investment which will be

required for energy development. Our efforts to help resolve the

Turkmenistan-Azerbaijan border dispute, including sending a team

of experts to the region, is beginning to bear fruit. We are also encouraged by efforts between Kazakhstan and Russia to delimit

their Caspian boundary.

We are also continuing to work with Russia to find common

ground on Caspian energy development. Our strategy is not intended to exclude Russia. We support, for example, the Caspian

Pipeline Consortium project through Russia.

Finally, we have had a number of discussions with our allies in

Europe and Japan regarding the Caspian and, based on these dis-
53

cussions, I believe that our allies understand our shared interests

in this important part of the world to insure Caspian resources

which will enhance world energy security.

PREPARED STATEMENT

In closing, Mr. Chairman and members of the committee, we appreciate the support Congress has provided to us in this region. We

welcome the fact that congressional delegations are scheduled to

visit the region over the Easter recess, and we look forward to

working with you.

Senator MCCONNELL. Thank you, Mr. Secretary.

[The statement follows:]

PREPARED STATEMENT OF STUART EIZENSTAT

Thank you, Mr. Chairman, for inviting me to testify before the Subcommittee.

Secretary Talbott has laid out the Administration’s broad views on political developments in the Caucasus and Central Asia. I thought it might be helpful to concentrate my testimony on energy issues in the Caspian region since they have such

a profound impact on the long-term economic development and political stability of

these states—and will thus directly affect important American interests that Secretary Talbott just discussed.

As a key element of our broader foreign policy objectives in the Caucasus and

Central Asia, the United States is actively promoting the establishment of an EastWest, or Eurasian, transit corridor for the export of oil and gas resources from the

Caspian region. We believe that the realization of such a corridor will support our

strategic and economic interests in the region if it is done in the right way. In this

regard, while we do not want to intervene in the commercial decisions of private

companies, we have three strategic concerns with respect to the routing of pipelines.

First, it is essential to the independence and sovereignty of the newly independent

states of the Caucasus and Central Asia to avoid a monopoly on export routes from

the region. For several years now, we have supported a policy of multiple pipelines

from the region so that Caspian oil and gas resources can enjoy unfettered access

to world markets, not subject to undue influence from or commercial vulnerabilities

to other exporters.

Second, we want Caspian energy to diversify world energy supplies. The United

States, as a matter of policy, strongly opposes any pipelines across Iran due to Iran’s

support for terrorism and drive to acquire weapons of mass destruction and missile

technology. It would be important to avoid pipelines across Iran from an energy security standpoint—we simply do not need a greater share of the world’s oil to transit the Straits of Hormuz.

Third, we want to avoid creating a bottleneck in the Bosporus. Moving Caspian

oil to the Black Sea and then by tanker through the Turkish Straits is a commercially attractive option. We share Turkey’s concern, however, about the environmental and safety impact of putting large volumes of oil through the Bosporus

Straits. We think it is important, therefore, to find long-term solutions that avoid

the Bosporus altogether.

In order to address these three concerns, the United States has supported the development of an East-West, or Eurasian, energy transportation corridor for export

of the region’s oil and gas. A key element of this corridor is an oil pipeline from

Baku, Azerbaijan, to Ceyhan, on Turkey’s Mediterranean coast. A Baku-Ceyhan

pipeline will provide a diversification of export routes, will allow Caspian oil to get

to world markets without transiting Iran and will avoid putting more oil through

the Bosporus.

A second key element of our strategy are Trans-Caspian gas and oil pipelines,

which can link together the states on both sides of the Caspian. We believe, in particular, that a gas pipeline across the Caspian and through the Caucasus to Turkey

would provide a much-needed outlet for Turkmenistan’s energy. Ultimately, it could

also accommodate gas from Uzbekistan, Kazakhstan, Azerbaijan and Russia. Moving Caspian and Russian gas through the Caucasus could help address the energy

shortages that have plagued Georgia and Armenia and give all the states in the region a stake in pipeline security, for both oil and gas pipelines.

The State Department has been working, in a coordinated effort with several

other agencies led by the Vice President’s Office, to implement this strategy. In recent months, we have made significant progress.
54

—We have been working with Turkey to make a Baku-Ceyhan pipeline a commercially attractive option for private companies. Turkey has embraced taking a

leading role in promoting this pipeline. Turkey is finishing a comprehensive feasibility study for this pipeline and EXIM and OPIC are actively considering

what role they might play in financing such a pipeline.

—We have urged the countries of the region to increase their levels of regional

cooperation with one another. We were pleased to see that the foreign ministers

of Turkey, Kazakhstan, Azerbaijan, Turkmenistan and Georgia met earlier this

month in Istanbul and issued a communique supporting an east-west corridor.

They also scheduled a follow-on meeting to be held in Tbilisi in May.

—We have urged the littoral states surrounding the Caspian to adopt a legal regime that is conducive to the investment, which will be required for energy development. Our efforts to help resolve the Turkmenistan-Azerbaijan border dispute, including sending a team of experts to the region, is beginning to bear

fruit. We have seen some signs that Azerbaijan and Turkmenistan are moving

toward resolution of their boundary dispute and are also encouraged by efforts

between Kazakhstan and Russia to delimit their Caspian boundary.

—We are continuing to work with Russia to find common ground on Caspian energy development. Let me emphasize that our strategy is not intended to exclude Russia. We support the Caspian Pipeline Consortium project through Russia, and USAID has even funded a study that looks at ways to move more Caspian oil through Russia’s existing pipeline network. Caspian issues were discussed at the most recent Gore-Chernomyrdin Commission meetings and the G–

8 energy ministerial, which is currently taking place in Moscow, will provide

other opportunities for dialogue.

—Finally, we have had a number of discussions with our allies in Europe and

Japan regarding the Caspian and, based on those discussions, I believe our allies understand our shared interests in this important part of the world, including a desire for peace and stability in the region and ensuring that Caspian resources enhance world energy security.

In closing, we appreciate the support that Congress has provided the Administration’s policy in this region; we welcome the congressional delegations that are scheduled to visit the region over the Easter recess.

Finally, let me reiterate the point made by Secretary Talbott regarding Section

907 of the Freedom Support Act. We need your help in lifting legal restrictions on

non-military assistance to Azerbaijan so that we can continue to make progress in

this region.

REMARKS OF SENATOR PATRICK LEAHY

Senator MCCONNELL. Senator Leahy has an opening statement

and then we have two votes beginning at 4 o’clock. What I think

we will do is try to catch them at the end of the first 15 minutes

and at the beginning of the second, which would require just a

brief recess, sometime like around 4:10 to 4:20 p.m.

Senator Leahy.

Senator LEAHY. Thank you, Mr. Chairman. Most Americans have

not heard of the countries that surround the Caspian Sea and I

don’t think too many are aware of the conflict in NagornoKarabakh. But, as you both said, the Caucasus region is an area

of rapidly growing economic and strategic importance. We see this

in all of our briefings.

Mr. Secretary, you have done as much as anyone to shape policy

in the administration, but, Mr. Chairman, you have done an enormous amount to shape our policy here in the Congress in a way

that emphasizes our national interests. I commend you for that.

Senator MCCONNELL. Thank you.

Senator LEAHY. The problem we have is these newly independent

countries face every kind of problem there is. The situation changes

so rapidly that nobody in this room is going to try to predict where

it is going to be a year or two year from now.
55

We have strong ties to Armenia. We have broad interests in promoting prosperity and democracy throughout the Caucasus and

Central Asia. We obviously have an interest in the cooperative development of the vast oil and gas reserves in the area.

But look at the obstacles. There are unresolved conflicts in

Nagorno-Karabakh, Abkhazia, and Tajikistan. These threaten the

stability of the entire region.

Last year, Ambassador Eizenstat described how in another century Central Asia and the Caucasus were the subject of the ‘‘Great

Game,’’ where, as I recall you saying, Russia and Great Britain

vied to see who could have the most control over some weak, local

regimes.

I think that kind of external manipulation and dominance is still

a threat. There are maybe different parties, but it is still a threat.

Russia still continues to meddle in the affairs of former territories. Perhaps that is predictable, but, unfortunately, it is a reality.

There is the proximity of Iran and I suspect their motives. We

continue to have very serious concerns about Russia’s support for

Iran’s nuclear and ballistic missile progress. At the same time, as

Secretary Talbott knows, there are examples of how we are working cooperatively with Russia, sometimes in ways that we probably

had not foreseen but are very happy to have.

But you see corruption and organized crime flourishing throughout the region. That makes it very difficult for our own companies

to compete fairly. There is a history of environmental neglect. In

fact, if you want to increase oil production, you could almost guarantee if the past is any prologue, it could be an environmental disaster that is going to happen. It is going to be worse than our own

gold rush of a century ago.

Section 907 you have already talked about. It has become a rallying cry for people on both sides of the Armenia-Azerbaijan debate.

I am sympathetic to the arguments of the Armenians, but we have

been very generous in our aid to them. I think it is the second

highest per capita aid we give to any country, even though elections there have been marred by fraud.

I also strongly support helping the victims of the NagornoKarabakh conflict, although it does not appear the situation there

amounts to the humanitarian emergency that some have described.

But I also know that section 907 has impeded our ability to pursue our own interests in the region.

The administration’s goals are such that you could not disagree

with them: to support market economies, democratic reform, resolve regional conflicts, cooperative development of Caspian energy

resources, strengthening the stakes for Russia and Turkey to cooperate. Less obvious is how effective we are in pursuing these

goals.

I don’t think the Minsk Group negotiation on Nagorno-Karabakh

is really going much of anywhere. The Caucasus are a turning

point. They have weak, authoritarian, corrupt governments. They

seem quite capable of squandering what could be a great opportunity to those who show more enlightened views.
56

I think we have to treat them with a lot more attention and assertiveness because, unfortunately, some of the people there are

not doing it.

Thank you, Mr. Chairman.

Senator MCCONNELL. Thank you, Senator Leahy.

It has been the policy of the subcommittee to have opening statements only from the chairman and the ranking member. I see Senator Gregg here as well. But in order to try to accommodate those

who have questions, we will limit our questions to 10 minutes each

and, hopefully, that will give everybody a chance to ask both of you

questions.

We all referred to the elections. I gather in Armenia Kocharian

won roughly 59 to 41 percent. Is that accurate? If it is, do we have

any early reports from the international monitors as to whether or

not this election is going to, shall we say, pass the smell test?

ELECTIONS IN ARMENIA

Mr. TALBOTT. The vote counting does continue. The results I

have show 72 percent of the precincts counted with Mr. Kocharian

at 60 percent, as you say, and Mr. Demergian at 40 percent.

The elections are being very thoroughly monitored by the international community. There are 160 OSCE monitors there, and 90

of those are Americans, by the way.

I would be loath, Mr. Chairman, to prejudge or predict the ruling

that the monitors will make. I think it is fair to say, though, that

we have seen an improvement in Armenia’s ability to carry out

elections since the 1996 presidential elections where there were

some serious troubles. There were still some difficulties in the first

round of this election. But let’s hope that the trend continues in the

right direction.

Senator MCCONNELL. And over in Ukraine, can you give us an

evaluation of the Rada elections?

Mr. TALBOTT. Well, again, the results are still coming in. Here

one has to be particularly careful. But there are some preliminary

indications that those parties which the Ukrainians themselves describe as leftist are doing somewhat better than in the last election,

which is to say in 1994.

But it is certainly impossible to predict at this point what kind

of a new Rada the executive branch of the Ukrainian Government

will be dealing with.

The turn-out, by the way, so far has been 70 percent. That is

down a bit from 1994, when it was 74 percent.

Once again, the Ukrainian authorities are to be congratulated for

allowing a very high and intense degree of international monitoring. The OSCE, once again, which had the largest number of international observers on the ground, has issued a positive preliminary

assessment of the conduct of the voting while, at the same time,

noting that there were some fairly serious shortcomings and deficiencies in the conduct of the campaign itself.

But once again, I think we need to watch and wait.

SECTION 907

Senator MCCONNELL. Shifting back to Armenia, you mentioned

section 907 and Senator Leahy did as well.
57

Administration officials have always come up to the Hill and

complained about 907, and you did not disappoint me today by failing to do that. I am curious as to how much of a handicap it really

is. Why haven’t you just simply waived the restrictions?

What would you think would amount to demonstrable steps by

Baku to qualify to lift the blockade?

Mr. TALBOTT. We never complain, of course, Mr. Chairman. We

suggest and consult with you and work together to bring our positions as close together as possible.

Senator MCCONNELL. Well, whining is actually the word I would

have used. [Laughter.]

Mr. TALBOTT. Never that. Never that. [Laughter.]

As somebody who has been involved, myself, in the diplomacy

there, I can tell you that the continuation of 907 is something of

a handicap for us. It undercuts us, by no means devastatingly, but

nonetheless in a way that is discernible as Ambassador Pascoe and

I go about our business in that part of the world. It undercuts our

claim and conviction that we are using our good offices and we are

doing so in a way that is fair to all parties.

Senator MCCONNELL. That is my question: why have you not

waived it? Could it not be argued that Aliyev’s willingness to sign

an agreement last year was a demonstrable step under the bill that

would have given you the ability to waive 907 had you wished to?

Mr. TALBOTT. Our feeling is that the right thing to do is to repeal

it and to take it off of the books altogether.

Now the most trenchant issue here, of course, is the continuation

of the Azerbaijani embargo against Armenia. We have made some

progress in that regard, which is to say when President Aliyev was

in Washington last year, he did indicate, as he put it, that his government would be prepared to normalize all relations, including

commerce, with Armenia, with the successful conclusion of the first

stage of the Nagorno-Karabakh negotiations that we are now trying to get started again once the Armenian elections are behind us.

But let me, in a spirit of comity here, say that the alleviation of

the stringency in 907, which has now taken place 2 years in a row,

has definitely helped, not least in that it has allowed us to address

the problem of humanitarian needs within Azerbaijan and also to

provide assistance to nongovernmental organizations that are

working within Azerbaijan to promote democracy. That I think will

be particularly useful to us as we approach an election in Azerbaijan itself.

Senator MCCONNELL. I listened to your answer, but it seems to

me that 907 must be useful to you or you would have waived it because of the efforts by Aliyev to enter into the peace agreement last

year.

Mr. TALBOTT. The Azerbaijanis, quite simply, under the terms of

the legislation, have not met the conditions for a waiver.

Senator MCCONNELL. So, obviously, the answer to my question

is you don’t think Aliyev’s step in the direction of peace last year

was a demonstrable step under the legislation?

Mr. TALBOTT. We think 907 is a mistake and is not a useful tool

for trying to move the parties forward. We feel that, until the

pause that I mentioned earlier, because of the workings of Armenian democracy, we were making some progress toward a com-
58

prehensive settlement of the Nagorno-Karabakh conflict. Both

President Aliyev and former President Ter-Petrossian had agreed

to proceed on the basis of the proposal that the Minsk Group had

put forward.

Now we have to see if we can’t get back to that now that there

is a new leadership in Yerevan.

Senator MCCONNELL. So is this a sort of general reluctance to

use waivers? Is that what you are suggesting?

Mr. TALBOTT. I think it is a preference on our part to persuade

you and your colleagues of the lack of wisdom of this particular

piece of legislation and to take it off the books.

Senator MCCONNELL. So you don’t have any problem between

your decision not to waive here and your decision to waive restrictions we had on Russia regarding nuclear cooperation with Iran?

Mr. TALBOTT. Are you referring to the issue of sanctionability?

Senator MCCONNELL. Yes.

Mr. TALBOTT. Could you be a little more specific with your question?

Senator MCCONNELL. Well, you did exercise a waiver to override

restrictions we have had in previous bills on Russian assistance if

they continued nuclear cooperation with Iran. I gather that must

have been a 614 waiver that you used in that situation?

Mr. TALBOTT. I’m sorry, Senator.

Senator MCCONNELL. We have had in this bill in previous years

restrictions against aid to Russia related to Russia’s cooperation

with Iran in the area of nuclear power. You have exercised a waiver to get around that restriction so that Russian aid could continue

to flow.

Admittedly, a 614 waiver may be different from a waiver of 907.

But I am just trying to get a sense of what is waivable here and

what is not. In that particular instance, you did not seem to be

troubled by exercising the waiver.

Mr. TALBOTT. We felt in that particular instance that the activity, the pattern of activity, the direction of Russian behavior met

the terms of a waiver, which we do not feel is the case under the

terms of 907 with respect to Azerbaijan.

Senator MCCONNELL. So in that particular instance, you used a

614 national interest waiver, is that right?

[Pause.]

Senator MCCONNELL. I am told by staff that it was actually built

into the legislation.

Ambassador EIZENSTAT. May I just mention——

Senator MCCONNELL. Yes.

Ambassador EIZENSTAT [continuing]. On the 907 that there are

two conditions that Azerbaijan has to meet. They have to take demonstrable steps to cease offensive uses of force and lift their embargoes. While they have made significant strides in the first condition, that is not the case with the second.

So, as Secretary Talbott was saying, it is a question of simply not

meeting the statutory requirements.

Senator MCCONNELL. We are getting close to when Senator

Leahy and I need to run to cast two votes. But let me try to get

in one more question.
59

In a recent staff briefing, Ambassador Pascoe could not recall

whether we had suggested, encouraged, or agreed formally or informally to a Russian leadership role in a peacekeeping force related

to settlement of the Nagorno-Karabakh dispute.

How do you envision this peacekeeping force? What do you envision the composition of this peacekeeping force should we get a

deal on the Nagorno-Karabakh between the Azeris and the Armenians?

PEACEKEEPING FORCE

Mr. TALBOTT. Well, first, it will have to be a genuine peacekeeping force, which is to say there must be a peace to keep.

Senator MCCONNELL. Obviously I am assuming there is a peace

to keep. I am asking you about the composition of some peacekeeping force in the wake of such an agreement——

Mr. TALBOTT. I understand.

Senator MCCONNELL [continuing]. That would be mutually comforting to the Azeris and the Armenians.

Mr. TALBOTT. From my own dealings with the three parties to

this conflict, I think one of the requirements would be that it be

genuinely international. This is to say that the composition of the

peacekeeping force include representatives of significant diversity

of countries.

Senator MCCONNELL. Would it be a majority Russian?

Mr. TALBOTT. I would think not because that would raise concerns on the part of those in the area who are worried about excessive Russian influence.

Senator MCCONNELL. Would it include Americans?

Mr. TALBOTT. We do not foresee that it would involve any American combat forces.

Senator MCCONNELL. Combat forces.

Mr. TALBOTT. In Georgia, for example, in Abkhazia, we have a

strong number of American officers there in a monitoring capacity.

We are nowhere near the point of deciding on the composition of

a peacekeeping force for Nagorno-Karabakh. But soldiers, I think,

would not be envisioned.

Senator MCCONNELL. Senator Leahy, I think I am going to go

and vote. I don’t know whether you would like to go now and come

back.

Senator LEAHY. I will stay for a couple of minutes and then will

leave, too.

Senator MCCONNELL. I am going to let Senator Leahy take over

for a while.

Senator LEAHY. Do you want me to just recess the hearing when

I am through if you have not returned?

Senator MCCONNELL. Yes; and I will then come right back.

Senator LEAHY [presiding]. Let me follow up a little bit on this

because I know on the law, in the 1998 foreign operations bill we

withheld 50 percent of the assistance to the Government of Russia

unless the President certified that they had terminated their support for the development of Iran’s nuclear ballistic missile program.

You also had some other ways you could do that.

I assume Russia has not ended its support completely for these

programs. I now see that the Minsk Group made a proposal for an
60

interim settlement for Nagorno-Karabakh. The Azerbaijan and Armenian Governments, at least their former governments, said they

would accept it, but Nagorno-Karabakh has not. So I am wondering

if that means it is not settled and, if it is not, our law provides up

to $43 million in assistance for the Caucasus region may be shifted

to other areas in the former Soviet Union if the settlement proposed is not agreed to by May 1998.

It appears that will not happen. Do we shift the money?

Mr. TALBOTT. You ask would we shift the money elsewhere in the

NIS?

Senator LEAHY. Yes.

Mr. TALBOTT. I think the short answer is that would probably be

the best use of the money. We have until the end of May. The Secretary of State specifically has until the end of May.

Senator LEAHY. That is just 2 months away.

Mr. TALBOTT. Pardon?

Senator LEAHY. That’s 2 months away.

Mr. TALBOTT. Well, the Armenians have now had their election

and soon we will know who the next President of Armenia is going

to be. Ambassador Pascoe and his colleagues from the Minsk Group

will be returning to the area quite soon—I would guess probably

after the inauguration of the new president. They will make the

case, which we find to be very compelling, that we should get these

negotiations going again.

So I would certainly not rule out that the Secretary might be in

a position to decide that this earmarked money could go forward.

Senator LEAHY. Well we say that you have to agree to it by May

1998. Can Nagorno-Karabakh block a settlement? They are not a

country, but can they block a settlement?

Mr. TALBOTT. It is difficult to see how there can be progress in

these negotiations if all three parties are not agreed on the basis

for the ongoing negotiations. The essence of the problem to date

has been that two of the parties, the Governments of Armenia and

Azerbaijan, have been prepared to negotiate on the basis of the

suggestions that the Minsk Group made. But the NagornoKarabakh authorities were not.

We think that this is contrary to their own interests and now we

have to see how the equation will change with a new president in

Armenia and without wanting to prejudge.

Senator LEAHY. But Kocharian has already said that there is no

compromise on Nagorno-Karabakh.

Mr. TALBOTT. But, Senator, the last votes are not in. So pardon

me if I do more than just stand on a formality here.

Senator LEAHY. I understand. I am just thinking out loud.

Mr. TALBOTT. As a general rule, as you know from our past conversations, I try to avoid hypotheticals. But I think it is safe to say

if the next President of Armenia is Mr. Kocharian, he knows the

Nagorno-Karabakh issue very, very well. He was, of course, the

principal leader in Nagorno-Karabakh.

Senator LEAHY. We will wait for those elections.

I have only saved in 30 years in office three items from the press

about me. I actually liked them enough to frame them. Two are a

pair of headlines that appeared 5 days apart, the first time I ran

for the Senate. The first one said, in huge type—it was the State’s
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largest newspaper—‘‘Poll Dooms Leahy.’’ The next one, 5 days

later, same sized type, same placement, said, ‘‘Leahy Wins Senate

Seat.’’ The other article is a family item. Everything else got

trashed, which is probably just as well.

So I always wait until the final results are in.

I am going to recess and go to vote. The chairman or I will return very briefly.

It is good to have you both here.

[A brief recess was taken.]

Senator MCCONNELL [presiding]. The hearing will resume. I

apologize for the delay, but these things do happen. We have to

vote once in a while.

Let me go back, if I could—not to keep you all much longer—to

the possibility of a peacekeeping force. Let me just say, as someone

you might expect to be unalterably opposed to any kind of American participation in a peacekeeping force of some size in that area,

I am not opposed to that, assuming, as you indicated, Secretary

Talbott, that there was a peace agreement worth keeping.

On that assumption, if a small complement of Americans in the

multinational force were sufficiently reassuring to the parties, I, for

one, would not object to that. This comes from somebody who is,

frankly, a little bit jaded at this point about the Bosnia deployment

given how expensive it is and the fact that it may seem to last into

the next millennium.

I do not envision the size deployment in and around NagornoKarabakh that we have had in Bosnia. Therefore, from a cost point

of view, presumably this would be a smaller force.

Let me ask you about cost. What would be sufficient, do you

think, to reassure both sides in terms of the numbers of personnel

involved?

Mr. TALBOTT. In conferring, I am cheating ever so slightly.

Senator MCCONNELL. That’s fine. I confer occasionally myself.

Mr. TALBOTT. Ambassador Pascoe says that it is notional at this

stage, as you have already made very clear, Senator. It is no more

than 1,000 troops, a maximum of 1,500 observers on the ground.

But may I respond a bit to the general proposition you have put

forward?

Senator MCCONNELL. Yes.

Mr. TALBOTT. First of all, when I started to answer your question

earlier, I didn’t mean to seem to be belaboring the obvious. We

have had cases where peacekeeping missions, and the environment

of the circumstances of the peacekeeping missions have deteriorated so that peacekeepers are in harm’s way.

Senator MCCONNELL. Yes.

Mr. TALBOTT. We have had that in Georgia.

Now the situation in Georgia has returned to a condition of normal and calm. But as I indicated earlier, we have an over-arching

responsibility to the protection of our own forces, whether it is four

officers or considerably more than that. Therefore, one of the points

that we are making to the parties in the Nagorno-Karabakh conflict is that they must undertake steps that will insure the international community that they, the parties, are committed to a

peaceful environment into which the peacekeeping force will then

go.
62

This sounds self-evident as an abstraction, but in practice it can

be one of the toughest issues facing us in the period ahead.

I am very interested, obviously, to hear what you say, Senator,

on the subject of your own willingness to consider American participation. We have simply come nowhere near that point.

Senator MCCONNELL. Yes; I understand that. We can stipulate

that we are not to that point.

Mr. TALBOTT. But one of the reasons that Secretary Eizenstat

and I welcomed your invitation to appear here today is that it is

very important for everybody who hears the proceedings here today

to understand that the United States does have a very real stake

in peace and security in that region. This is a case that we need

to make over time, and we do not want to introduce the subject of

Nagorno-Karabakh for the first time to the attention of the American people some point down the road. That is one of the reasons

we are glad to have a chance to talk about it today.

Senator MCCONNELL. As you know or may recall, because we

have had this conversation before though it has been some months,

my own personal view is that we have considerably more interest

in the Caucasus than we do in Bosnia, for example. Certainly our

NATO allies have a consuming interest in Bosnia, and, now we do

as a result of the administration’s commitment to it.

But, when I think of the Caucasus and the economic impact on

the world of that region developing successfully and, hopefully,

independently, it seems to me that the United States has a good

deal more interest in that, than it does in Bosnia. So, therefore, I

wanted to make sure that you knew that there were at least some

of us who were open to some kind of American participation, particularly now that we are talking about the size of the force being

about what I had anticipated. This is not, I would think, a hugely

expensive proposition.

I understand, as you indicated, that any time you use American

troops in any deployment anywhere, we are all equally concerned

about their wellbeing. But we have a significant number still in

Bosnia.

How many do we have in Bosnia now?

Mr. TALBOTT. It’s 8,000, I think.

Senator MCCONNELL. Yes, 8,000. And here we would be talking

about some percentage of that, roughly 1,500.

Finally, let me say with regard to such a peacekeeping force, am

I correct in saying that the United States would not be interested—

I asked this earlier but I don’t think I asked it the way I want to

ask it now—that it is not envisioned that a majority of that force

would be Russian? Is that correct?

Mr. TALBOTT. That is correct. Our strong feeling is that it would

be to the wishes and in the interests of the parties that it be a

genuinely international force and that it not be like any other aspect of policy or events in this region, monopolized by one country.

Senator MCCONNELL. Let me shift in our remaining moments to

Iran.

Over the past several months, the administration has been reviewing Total’s investment in Iran’s oilfields to determine if it

should be subject to the Iran/Libya Sanctions Act [ILSA], typically

referred to as ILSA.
63

Given ILSA requirements, why is there any question about

whether this investment is sanctionable and when can we expect

a decision?

SANCTIONS

Ambassador EIZENSTAT. We have done a very thorough investigation according to both the spirit and the letter of the law, and within the next couple of weeks, Deputy Assistant Secretary of State

Ramsey will be going back to Asia to look at the issue of how far

the Asian partners in two deals, Mr. Chairman—the Bow ValleyBakrie deal, which involves an Indonesian company and a Canadian company, and the Malaysian company Petronas, which is involved in the Gazprom/Total deal—the extent to which the Asian

financial crisis may have affected the terms of that contract and

their capacity to go forward.

We think it is prudent to do that before any decisions are made.

We continue to make progress on this. It is a difficult decision

and we would expect that there will be decisions made sometime

in the near future.

Senator MCCONNELL. News accounts last week quoted the Deputy National Security Advisor as stating you are rethinking sanctions on Iran, which I gather is what you are saying right now.

I noticed on the maps that you provided there is an Iranian oil

pipeline route. Yet your statement, Secretary Eizenstat, appears to

oppose such an option.

I understand you are now considering waiving the sanctions on

Russia and may leave open the question of sanctions on other partners. There seems to be a lot of confusion with the perverse impact

of such a kind of half-sanctions decision being that hard currency

would flow to a terrorist State and the only penalty would fall on

American companies keeping them out of the region.

Maybe you feel like you have said all you can say on this issue,

but I guess I am groping for more.

Ambassador EIZENSTAT. No, sir; I would be glad to address that.

First, I have talked to Mr. Steinberg, the Deputy National Security Adviser. The headline in the paper said that we were rethinking sanctions, not Mr. Steinberg. He made it very clear that we

were continuing to hold out sanctions as a very real option.

Under the statute as Congress passed it, if a particular transaction is viewed as covered by the act, the Secretary of State then

has three options. She can either sanction immediately, waive immediately, or begin a 90-day consultative period.

Since we have not made a decision about whether these transactions are subject to the act and will go forward, we have obviously not made a decision with respect to which of those options.

But I can tell you, Senator, that sanctions remain as they have

from the beginning, a very real option under the statute and as a

practical matter, and Mr. Steinberg said nothing to the contrary.

Senator MCCONNELL. And you expect a decision when?

Ambassador EIZENSTAT. Well, we first have to make a decision

about whether or not this is covered and that will be made as

quickly as we can.

Senator MCCONNELL. A recent Post article, datelined Moscow, indicated Russian intelligence agents have recruited scientists to go
64

to Iran to teach missile technology. Moscow denies any formal role,

suggesting government funded engineers are freelancing.

I frankly share the view expressed by a diplomat in a Post article

that, if it was not government policy before, how can they stop it,

and if it was a government effort, someone is not telling the truth.

So why should we now believe they would really stop this program?

Ambassador EIZENSTAT. First, may I say that the Iran/Libya

Sanctions Act is not only an act imposing sanctions. It specifically

and directly admonishes the administration to do precisely what

we are now doing and have been doing for some many months, and

that is to try to build a multilateral regime which will deny Iran

the capacity to develop weapons of mass destruction and the missile systems to deliver those weapons of mass destruction. That is

built into the statute and that is what we are trying to do both

with respect to Russia and the European Union.

With respect to Russia, there have been, obviously, concerns that

private scientists or institutes may have been engaged in that kind

of activity. That is why Secretary Talbott, the Secretary of State,

Vice President Gore in his meetings with former Prime Minister

Chernomyrdin, the President in direct contacts with President

Yeltsin, the Wisner-Koptev and now the Gallucci-Koptev follow-up

meetings—all of these have been directed toward making sure that

the Russian Government took additional steps.

Now a very important step forward was made on January 22,

and that is when the Prime Minister signed an executive order at

the direction of President Yeltsin which will require Russian exporters to seek an export license before exporting any goods or

technology which they have reason to believe could be transferred

to a ballistic missile program or a program involving weapons of

mass destruction.

This decree is similar to catch-all legislation which this country

has had in place since 1991 and is precisely what we wanted the

Russian Government to do.

Now what is key now, Mr. Chairman, is clearly the implementation of that. We now have a legally binding obligation and, even

with the change in government in terms of the prime minister, we

have had a reassurance by Foreign Minister Primakov to the Secretary of State and at other very high levels. This was something

that was specifically endorsed by the President, who very much remains in office, that this policy will continue.

So what we want to see now is effective implementation. But this

catch-all decree is a very significant step forward, a very real

breakthrough, and if it is implemented, as we have been assured

it will be, we will have been following precisely what ILSA requires, that is, building this multilateral regime and making it

much more difficult for Iran to acquire weapons of mass destruction.

Senator MCCONNELL. Has the Russian Government directly or

indirectly supported the Iranian nuclear and ballistic missile program?

Ambassador EIZENSTAT. We do not believe that the Russian Government is directly doing so, that these are private interests. There

is a question of the enforcement by the Russian Government. We

believe now, as a result of the decree, which came from very inten-
65

sive discussions that our administration had—and, if I may say so,

also interventions by the European Union, which was very helpful,

at very senior levels in European Governments—they have turned

a corner in terms of their willingness to enforce a law that will

make it more difficult.

Senator MCCONNELL. How many Russian scientists are involved

in this undertaking, do you think?

Ambassador EIZENSTAT. Well, I think that if we wanted to get

into those details, perhaps we ought to have a private briefing.

Senator MCCONNELL. In concluding, I want to go back to the

pipeline issue for a minute.

When I was in the Caucasus last summer—and Secretary Talbott

and I talked about this, I think, after I got back—of course there

is the very real danger that Armenia will be left out entirely if

there is not some peace agreement sometime in the near future. I

think that would be clearly a step back for the Armenian people,

to miss out on whatever prosperity might be forthcoming as a result of having a pipeline come through your country.

This raises the question: how many pipelines are there going to

be? I gather there is one that will go into Russia through

Chechnya—is that correct; one that will go from Azerbaijan

through Georgia to the Black Sea; and then there is a third, which

is the one I think you were speaking about, Secretary

Eizenstat——

Ambassador EIZENSTAT. Yes, sir.

Senator MCCONNELL [continuing]. That I gather would end up at

Ceyhan. But as to how it gets there is an open question. That actually would be a shorter route, to go through Armenia, wouldn’t it,

to come out in the Mediterranean at Ceyhan? And how do you pronounce that?

PIPELINE

Ambassador EIZENSTAT. It’s ‘‘jay-han.’’

There are several planned, and ultimately the number of pipelines will depend purely on market driven demand. The more oil

and gas that can be produced from the Caspian region which, in

turn, will increase the independence and viability of the Caucasus

and Central Asian States, the more oil and gas that can be produced, the more pipelines there will be.

Senator MCCONNELL. I understand that. But assuming there is

enough demand and the Turks are certainly correct in that they do

not want even more tankers going through the Bosporus than they

are going to have in any event——

Ambassador EIZENSTAT. That is correct.

Senator MCCONNELL [continuing]. And that it is desirable from

an environmental point of view to have one of those come out in

the Mediterranean across Turkey, is it not actually closer to go

through Armenia?

Ambassador EIZENSTAT. On technical grounds, a pipeline from

Azerbaijan to the West that transits Armenia could be a viable option. There are other routes, as well.

You could go, for example, through Azerbaijan and Georgia, and

then down, but also going through Armenia to Ceyhan is certainly

a very real possibility.
66

This is one of the reasons why it is so important to resolve this

conflict, because, as you say so accurately, this would give Armenia

the capacity to get transit fees and it would be a very important

part of their own economic viability.

Senator MCCONNELL. That is certainly the message that I tried

to carry and that I hope you are carrying as well, that peace brings

not only the absence of loss of life——

Ambassador EIZENSTAT. Absolutely.

Senator MCCONNELL [continuing]. But more widely disbursed

prosperity for everyone. And, hopefully, the new President in Armenia will have the authority and the legitimacy as a result of the

election, which we hope will be certified by international observers

as at least as clean as elections in Eastern Kentucky. [Laughter.]

Ambassador EIZENSTAT. But the other thing we are trying to

avoid, of course, is not only to be able to help countries like this

but to avoid the alternative of a pipeline which transits through

Iran and gives Iran greater control.

Senator MCCONNELL. Yes; of course.

Finally, in conclusion, if I could, I will ask Secretary Talbott to

just give us a few of his thoughts on the recent shakeup in the

Kremlin. We don’t expect too high a level of candor here. [Laughter.]

Mr. TALBOTT. Oh, you know what the most candid of all answers

would be, I think.

Senator MCCONNELL. That you don’t know. [Laughter.]

Mr. TALBOTT. In your opening remarks, you recalled our conversations back in 1995 and how much things change and yet how

much they stay the same.

You could have recalled our conversations back in 1993, at the

beginning of our association.

The evolution of Russian democracy is full of surprises. Obviously, we have seen one of those recently. I think the key point

here, that is, what can be said on the basis of what has already

happened, is that the Russian President and the Russian body politic are playing by constitutional rules.

That is quite something given where that country was not that

long ago.

As for what happens next, all parties to this, again, seem to be

committed to following the construction and the rules of the checks

and balances relationship between the executive branch and the

legislative branch.

As you know, President Yeltsin has decided to submit Acting

Prime Minister Kiriyenko’s name to the parliament. There is, as

there always is with the Russian Parliament, a lot of vigorous debate and quite open criticism. It is, basically, a three strikes and

the Parliament is out ruled.

We have no such mechanism, of course, in our own system.

Senator MCCONNELL. It does have some appeal to you, doesn’t it?

Mr. TALBOTT. It is interesting to ponder, though. [Laughter.]

Senator MCCONNELL. From time to time you have thought, no

doubt, what a great idea. [Laughter.]

Mr. TALBOTT. Obviously, it is not appropriate for any official of

the American Government to get too deep into commenting on per-
67

sonalities or, indeed, on the dynamics of Russian politics. But I will

make an observation.

Mr. Kiriyenko is not totally unknown to us, even though he is,

as has been pointed out, a relative newcomer to the power structure in Moscow. He was in Washington not long ago as an important part of the Russian delegation to the most recent GoreChernomyrdin Commission meetings—I guess it is the last of the

Gore-Chernomyrdin Commission meetings, by definition. But we

hope the institution will certainly continue.

He is somebody of very real and proven reformist credentials. I

would point out something else.

He is young and that has been much commented on, not always

favorably, either in Russia or abroad. But going back to some of the

conversations you and I have had, Senator, I have felt for a very

long time that a key factor in the continuing transformation of

Russia is the changing of generations.

I do think it is of some significance that President Yeltsin would

turn for this critical job to somebody who was a very young man,

indeed, when the Soviet Union and the Communist Party of the Soviet Union ceased to exist. Yes, he is not, obviously, objectively anywhere near as seasoned as many of the more familiar figures. But

in the context of Russia as it tries to put behind it the past and

move on to the future, I am not sure that is entirely a bad thing.

SUBCOMMITTEE RECESS

Senator MCCONNELL. Thank you both very much for your time.

The subcommittee will stand in recess until 3:30 p.m., on Tuesday,

April 21, when we will hear from Hon. Louis Freeh, Director, Federal Bureau of Investigation, and Gen. Ihor Smeshko, director,

Center for Strategic Studies and Analysis, Ukrainian National Security and Defense Council.

[Whereupon, at 4:58 p.m., Tuesday, March 31, the subcommittee

was recessed, to reconvene at 3:30 p.m., Tuesday, April 21.]

(69)

FOREIGN OPERATIONS, EXPORT FINANCING,

AND RELATED PROGRAMS APPROPRIATIONS FOR FISCAL YEAR 1999

TUESDAY, APRIL 21, 1998

U.S. SENATE,

SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS,

Washington, DC.

The subcommittee met at 3:38 p.m., in room SD–116, Dirksen

Senate Office Building, Hon. Mitch McConnell (chairman) presiding.

Present: Senators McConnell and Leahy.

DEPARTMENT OF JUSTICE

FEDERAL BUREAU OF INVESTIGATION

STATEMENT OF LOUIS J. FREEH, DIRECTOR

ACCOMPANIED BY:

IHOR SMESHKO, DIRECTOR, CENTER FOR STRATEGIC STUDIES

AND ANALYSIS, UKRAINIAN NATIONAL SECURITY AND DEFENSE

COUNCIL

EVGEN KOSTYUCHENCKO, COUNCIL MEMBER

MICHAEL PYSZCZYMUKA, SPECIAL AGENT

OPENING STATEMENT OF SENATOR MITCH MC CONNELL

Senator MCCONNELL. I want to apologize not only to the witnesses but to the others who may be interested in today’s topic. We

were originally going to have the hearing this morning, and all of

a sudden we had votes at precisely the time we were going to go.

And then, this afternoon, we shifted it only to end up with votes

scheduled for that time, too. So I apologize, particularly to our outof-town guests, for the delay.

Judge Freeh, we welcome you and General Smeshko before the

subcommittee today to discuss the coordination of efforts to combat

international crime. Judge Freeh, you have appeared twice before

this subcommittee, and always have been frank in your assessment

of the threat our Nation faces as criminal enterprises, largely based

in Russia, have expanded their lethal reach. Your testimony has

prompted an increase in support for law enforcement initiatives

around the world, most notably the International Law Enforcement

Academy in Budapest, which I have had the pleasure to visit and

found very impressive.

One of the hallmarks of your tenure as Director is a commitment

to improve and expand the working relationships between the FBI
70

and its foreign counterpart agencies. Today Judge Freeh is joined

by one of his partners, General Smeshko, Ukraine’s director for

both the military intelligence agency and for strategic planning and

analysis on the National Security Council.

General, we are glad to have you. Your reputation and your portfolio of responsibilities are impressive. I appreciate your participation today and want to note how remarkable it is that you are here

to discuss your concerns about international crime and joint law

enforcement efforts.

Who could have imagined such a session a mere 10 years ago?

It is a tribute to the strength of the relationship between the FBI

and your agency, and, for that matter, the United States and

Ukraine. Your efforts are vital to Ukraine’s future, as well as to

U.S. interests.

Judge, over the past 2 years, you have drawn attention to the

growing threat of Russian criminal organizations operating here in

the United States, which are engaged in fraud and money laundering, murder, extortion, drug trafficking, and related offenses. What

we have not focused as much time on is the fact that these enterprises have developed regional partners and networks, which pose

a direct threat to the survival of the fragile new democracies.

It is my sense that the explosion of criminal enterprises has

given democracy in the New Independent States a bad name. The

fear of corruption, harassment and extortion, which characterized

life under Communist regimes, has new masters, but the experience for the average citizen unfortunately remains largely the

same. Little else that we do matters as much as combating crime

and supporting the legal, judicial and law enforcement reform efforts which are the lifeblood of democracy. If these criminal enterprises are allowed to expand and take greater control, every other

development initiative we have invested in will have been a waste

of resources.

Privatization of State-owned enterprises is pointless if the Mafia

is buying up the nation’s assets. Agricultural programs, transferring land ownership to individuals makes no sense if corrupt officials are seizing harvests and profits. Tackling these problems now

is the only way to give supporters of democratic and free market

principles the opportunity to build nations which share our values

and our goals.

To address these issues, we must deepen and strengthen ties

with law enforcement agencies in the New Independent States. Cooperation and coordination clearly serves our interests and theirs.

It is obviously in our interest to have the strongest first line of defense deployed in countries where these criminal organizations are

based. If we can work with agencies in the NIS to destroy the root

of these enterprises, the branches here hopefully will wither.

The New Independent States have a great deal at stake, as well.

Democracy is under siege from ruthless, well financed, well organized criminal organizations. To sustain support for crucial political and economic reforms, individuals and communities must be

convinced that their government works well and can protect their

property, their assets and their families from crime and from the

Mafia.
71

I hope today’s session gives us a better sense of how we are coordinating this important international effort and, more specifically, what we can do to help support key friends and allies, such

as Ukraine, in carrying out its law enforcement activities. General

Smeshko, your work is vital to Ukraine’s security and United

States interests, and we are looking forward to what you have to

say.

We have been joined by my good friend and colleague, the ranking member of the subcommittee, Senator Leahy. And I would like

to call on him now for whatever observations he would like to

make, and then, Judge Freeh, we will go to you.

OPENING REMARKS OF SENATOR PATRICK J. LEAHY

Senator LEAHY. I thank you, Mr. Chairman. I will make a brief

statement and put my full statement in the record.

You are to be commended, Mr. Chairman, for using the subcommittee to discuss the problem issues of organized crime in the

former Soviet Union. Obviously we are not going to see real democratic development in any of these countries if bribery and intimidation are the rule rather than courts and the rule of law. We

know what can happen when organized crime corrupts governments. And here we are talking about even lapses of security at civilian nuclear facilities.

Director Freeh and General Smeshko, I am delighted to have you

here.

PREPARED STATEMENT

Rather than go on at length, as I said, I will put my statement

in the record. I think it is important that we are having this hearing and important to see how we can help, and how the dollars that

we have set aside for this are being spent.

Thank you.

Senator MCCONNELL. Thank you, Senator Leahy.

[The statement follows:]

PREPARED STATEMENT OF SENATOR PATRICK LEAHY

Mr. Chairman, I want to commend you for consistently using this subcommittee

to focus attention and resources on the extremely serious problem of organized

crime in the former Soviet republics.

These are issues that go to the heart of the development of democratic government and the rule of law. They also bear enormously on the ability of American

companies to do business in these countries, where bribery and intimidation are

rampant. Frankly, if this subcommittee had not made these issues a priority I am

not sure anyone would have.

We know a lot about international criminal organizations. They have huge

amounts of cash, sophisticated weapons, state-of-the art communications technology,

and a global workforce. Corruption of government officials, money laundering, counterfeiting, and drug trafficking are all commonplace. The possibility of nuclear material falling into the hands of terrorists strikes me as one of the most frightening

threats we face, especially when we hear of the lapses in security at civilian nuclear

facilities.

Hundreds of foreign gangs are operating in this country. It is staggering to think

of the amount of resources, manpower and ingenuity it will take to counter this

threat.

It has been two years since our last hearing on this subject, and I am very pleased

to see Director Freeh and General Ihor Smeshko here together. We do not stand

a chance of solving problems as serious and complicated as this unless we cooperate

closely. I was a prosecutor for eight years and I know how difficult it can be to work
72

together with law enforcement officers of another state, not to mention another

country with different languages, different laws and traditions. The United States

has a lot to offer, but we also have a lot to learn from countries like Ukraine. This

needs to be a partnership. We both have everything to gain by working together.

In our Fiscal 1998 legislation, we directed that not less than $9 million be made

available for law enforcement training, and not less than $20 million be made available for anti-crime programs. We also earmarked $5 million for the Western Hemisphere Law Enforcement Academy. These are small amounts, but we count on you

to make the most of it.

Mr. Chairman, I will wait until it is my time to ask questions to get into the specifics about what we have accomplished in the past two years and where we go from

here.

SUMMARY STATEMENT OF HON. LOUIS J. FREEH

Senator MCCONNELL. Judge, do you want to lead off?

Judge FREEH. Thank you, Mr. Chairman and Senator Leahy. It

is always a pleasure to be back before this committee. Let me also

commend you, Mr. Chairman, on your leadership with respect to

the work that has been done in this area, but particularly the oversight and the support that we have received from you, Senator

Leahy, and many others. I think it is really significant and needs

to be highlighted.

I am very honored to be with my friend and colleague, General

Smeshko, whom I have known for several years. I would like to

talk a little bit, if I might, about some of the progress that has

been made with respect to this very important bilateral relationship. I would also like to introduce, on my left, Mike Pyszczymuka,

who is the FBI legal attache ́ in Kiev. He spends much of his time

doing the things that I am going to talk about and certainly not

take credit for.

The significance of the relationship established by Agent

Pyszczymuka, who speaks fluent Ukraine, with not only General

Smeshko, but his colleagues, is that it has given us the basic building blocks for a law enforcement structure not just to help General

Smeshko, which is important, as you both noted, for the protection

of democratic institutions in the Ukraine, but the impact that this

has on the United States.

Most of the cases that Agent Pyszczymuka works have a direct

impact here in the United States. About 80 percent of his work is

in direct support of cases which are in FBI offices around the country. Captain Kostyuchencko is also a critical part of that relationship. After he leaves the hearing today he is on his way to Los Angeles, to participate further in what we have developed as practical

case training initiatives. These are actual joint case working assignments by FBI agents here in the United States and their counterparts, such as Captain Kostyuchencko, in the Ukraine, where we

work on cases that have significance in both countries, which includes agents working in the Ukraine; it includes our colleagues

coming here, interviewing witnesses and testifying in the grand

jury.

These are the kinds of relationships that not only help to solve

our cases, but build the relationships that will enable our partners

to be more successful. We also want to note, as we begin the appreciation we have for our Department of State colleagues. Ambassador Pieffer, for instance, and his staff, in our Embassy in Kiev

have been critical, including the regional security officer, the chief
73

of station, the military attache ́s, in allowing Agent Pyszczymuka

and General Smeshko’s colleagues to do the work that needs to be

done.

Just to give you a quick example and an overview, we have got

about 95 pending investigations relating to the Ukraine at this

time in our Kiev office. Many of these cases directly affect U.S. investigations—approximately 65 pending investigations in the

United States—encompassing organized crime, white collar crime,

violent crime, and one case of a weapons of mass destruction, they

are directly supported by the assistance we receive from General

Smeshko.

To give you a couple of examples of that relationship, we have

been working a case out of our Newark office called the Red Daisy case. It involves approximately $500 million of oil and gas reserves

and proceeds being diverted illegally from Russia. One of the main

defendants in that case, an individual named Broner, was a fugitive in the United States since 1993. Through General Smeshko

and Agent Pyszczymuka’s efforts, he was not only identified and located in the Ukraine, but he surrendered to Agent Pyszczymuka in

the Ukraine and made arrangements to come back here to the

United States.

The Scherban case is another example. It deals with not only the

assassination of a People’s Deputy in the Ukraine, but allegations

of $50 million of government fraud. Our cooperatioin gives us the

ability to investigate in a way which we do not have without that.

We do not want to underestimate the significance of the Russian

organized crime groups and, their relationships to, as you pointed

out, Mr. Chairman, the regional governments. There are approximately 54 countries around the world that now have active Russian

organized crime presences, including of course the United States

where approximately 25 of these groups operate. Thirty-four of our

field offices are actively conducting cases that involve Russian organized crime groups; about 70 percent of the groups operating in

the United States have connections to the Ukraine, which makes

this relationship so critically important.

The diversity of these cases is very sophisticated. They are not

all doing what some of the earlier, traditional organized crime

groups were known to do in the United States. Although 71 percent

of them are organized crime-type cases, 20 percent of them are

white collar-type cases. Not only the case that I mentioned, but

other cases—for instance, $250 million in diamonds taken illegally

from Russia to the United States—are part of the portfolio of cases

on which our Legal Attache ́ Office in Moscow regularly works.

Some 55 percent of the violations have to do with fraud cases;

22 percent money laundering cases. And the remainder murder, extortion and drug trafficking-type cases. As I mentioned before, we

are directly affected in the United States by these cases, which is

why the relationships are so important.

There are approximately 8,000 Russian/Eastern European groups

that have been identified by the Russia Minister of the Interior.

Many of them involve very powerful and high-ranking organized

crime members. As you know, Mr. Chairman, one of them, a man

named Ivankov, was arrested, convicted and sentenced here in the

United States. But without the support and the cooperation of the
74

Russian MVD authorities, that case, like many others, might not

have been possible.

The FBI, as you well know, has three general tools that we use

to not only support these relationships, but work these cases. The

first one is our Legal Attache ́ Program. We have got approximately

32 offices now open around the world, including Kiev and Moscow.

We have new offices in Tallinn, Warsaw, and many of the other

countries where, as you noted before, we formerly had no relationships whatsoever. Again, 80 percent of the work of these legal

attache ́s is in direct support of FBI field cases back in the United

States. The significance of the relationship controls the success of

the case.

About 1 month ago, two 20-year-old American Mormon missionaries in Russia were kidnapped. We had to respond very quickly

in what was a life-threatening situation to see if we could resolve

that matter. Four years ago, we would not have had any capability

to effect the successful outcome of that case.

In this particular case, which occurred in a town south of Moscow named Sorotov, an FBI instructor had recently instructed the

police on hostage negotiations and kidnapping. He was on a plane

within hours, on the ground in Moscow, and our MVD counterparts

brought him and his colleagues right down to the command post.

There, they gave input into what in this case was a fortunate rescue and apprehension of the subjects by the Russian MVD.

That would have been impossible a short time ago. But those are

the relationships upon which we now depend. We have such a relationship in the Ukraine, particularly with General Smeshko, which

means not only United States lives, but United States interests,

can quickly be protected in a manner that would have been impossible even a very short time ago.

The other methodology which we use is the training programs

that have been very successful, including as you mentioned, Mr.

Chairman, the International Training Academy in Budapest, which

you visited in January 1997. The success is not only the 630 police

officers from 20 countries who have trained there, it is the bilateral

relationships which that academy is now fostering.

For instance, the Ukraine and Hungary have established a close

working relationship on their border as a result of student participation in the Budapest Academy. An other example in the Baltic

region is between the Hungarians and the Rumanians. These are

relationships which are being fostered because of the importance of

that particular academy.

In terms of international training, very briefly I alluded earlier

to practical case training. We have done about 40 of these sessions

since 1996. These are cases where our colleagues, not just in the

Ukraine but other countries, work hand-in-hand with the FBI to

investigate and solve cases. We have examples of cases from Russia, from Kazakstan, from Uzbekistan, from the Ukraine, and from

the Czech Republic. These are very, very important and, we believe, successful endeavors that not only enhance our relationships,

but actually solve cases and, in many cases, save lives.

With respect to the overall international training, during the

past 3 years the FBI has been directly involved in training over

18,000 foreign law enforcement officers in 60 different countries.
75

This is an enormous network, not only for training purposes, but

for the liaison that we need to perform our job. Many of the cases

which are now regularly worked with our foreign police partners

are done only by virtue of the training which your committee has

supported through the SEED funding, through the FSA funding,

through the antiterrorism training, and certainly the academy in

Budapest.

These are the building blocks of relationships that not only help

preserve democracy, particularly in the Newly Independent States,

but protect Americans and American interests. It is a very well and

wise investment of resources for which we are very thankful to you

both, and particularly to the committee here.

I think I will just rely on the rest of my statement, Mr. Chairman, which I will submit for the record. Let me make just one final

point, if I may. And that is the appreciation that we have here for

the leadership and the dedication of our foreign partners and, in

particular, since he is with me, today, General Smeshko. The leadership and the courage which he has shown—and he is a very modest man—but the leadership and the courage that he has shown in

dealing with a very difficult and life-threatening set of circumstances—not just for him and his colleagues, but his family—

is really a noteworthy achievement.

The circumstances under which he operates we would not even

contemplate operating under here in the United States. He has

shown, through very, very difficult times, and very dangerous

times, incredible courage and leadership. We are very proud to be

his partner and we look for many, many ways to support him.

PREPARED STATEMENT

He has dedicated himself to the things that we believe in here

in the United States. He is practicing those techniques and leadership and protocols in the Ukraine at great sacrifice, and we are

very thankful to him for that.

Senator MCCONNELL. Well, thank you, Judge. We will make your

full statement a part of the record.

[The statement follows:]

PREPARED STATEMENT OF HON. LOUIS J. FREEH

Good morning, Chairman McConnell and members of the Subcommittee. I am

honored to appear before you this morning and to be accompanied by General Ihor

Smeshko who leads the Center for Strategic Studies and Analysis of the Ukrainian

National Security and Defense Council and Captain Evgen Kostyuchencko, also of

the Council. General Smeshko and his agency are one of the several organizations

in Ukraine that are direct beneficiaries of the training and institution building programs that are the focus of this hearing and which the FBI is proud to present on

behalf of the United States Government. Their presence here today stands as a testimony to the commitment by the Government of Ukraine to develop modern law

enforcement agencies that are based upon the rule of law. These two individuals are

representative of the partnerships that the FBI is developing through its international crime, international training, and overseas expansion initiatives, partnerships that are of enormous benefit to the FBI and other U.S. law enforcement in

our collective effort to enforce U.S. law and protect American citizens.

Mr. Chairman, I would like to thank you and the members of the Subcommittee

for the opportunity to discuss the threat posed to the United States by international

crime, including that from Russian and Eastern European crime groups, and the

international law enforcement initiative and programs developed by the FBI. I

would also like to thank you for your long-standing interest and support of law enforcement training world-wide, especially in Eastern Europe and the countries of the
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former Soviet Union. I know you have taken a personal interest in Ukraine, and

I am pleased to tell you about the continued cooperation we have received from

Ukrainian officials through our Legal Attache ́ office in Kiev.

Through our office in Kiev, the FBI has a number of ongoing money laundering

and financial fraud cases. In addition, this joint cooperation led to the extradition

of a United States Federal fugitive, despite the absence of an Extradition Treaty.

Jeffrey Broner, a fugitive since 1993, was the only remaining defendant originally

charged in a New York gasoline bootlegging investigation who had not been convicted in Federal Court. Broner is alleged to have played a part in a significant tax

evasion scam from the late 1980s and early 1990s. He fled the United States shortly

after a warrant was issued for his arrest and had remained in Ukraine since that

time. Thanks to the developing relationships with Ukrainian officials, we were able

to bring Broner back to the United States to face this charge.

THE NEED FOR INTERNATIONAL COOPERATION

In recent years, the FBI’s domestic law enforcement and national security missions have expanded and changed. In the first half of this century, the FBI earned

its reputation as a preeminent law enforcement agency because of our success in

response to the advent of interstate crime that swept the United States. As we approach the beginning of the 21st Century, the United States now faces the increasing globalization of crime and criminal organizations. This growth of transnational

crimes has been aided by the explosion in computer and telecommunications technology.

In a global economy, the United States is increasingly affected by crime originating in other countries. Criminal activities ranging from telemarketing fraud and financial institution fraud, to the more traditional drug and organized crime, come

regularly to our shores. Sadly, terrorism has come as well. The international exporters of crime and terrorism, who seek to capitalize on vulnerabilities in free societies

and open markets, include South American drug cartels, terrorists from the Middle

East, and an array of organized crime groups from Europe, the former Soviet Republics and Asia. Regardless of origin, these and other international crimes impact

directly on our citizens, often violently, and on our economy.

One of the most difficult challenges facing law enforcement is how rapidly criminals and terrorists—both domestic and international—adopt advanced technologies

to thwart the ability of law enforcement to investigate those who wish to do harm

to our Nation and its citizens. That is why encryption has become the most important technology issue confronting law enforcement.

Widespread use of robust non-recoverable encryption is beginning to devastate our

ability to fight crime and terrorism. Uncrackable encryption allows drug lords, terrorists, and even violent gangs to communicate about their criminal intentions without fear of outside intrusion. This type of encryption also allows these same people

to maintain electronically stored evidence of their crimes beyond the reach of law

enforcement.

For example, convicted spy Aldrich Ames was instructed by his Soviet handlers

to encrypt computer file information that was to be passed to them. Ramzi Yousef,

convicted with others for plotting to blow up between five and twelve United States

owned commercial airliners in the far east, used encryption to protect criminal information on his laptop computer. Major international drug traffickers are increasingly

using telephone encryption devices to frustrate court-authorized electronic surveillance. Unfortunately, these types of situations will occur with more frequency as inexpensive encryption becomes more readily available to the public.

Developing a balanced approach to robust encryption is an extremely serious public policy issue. The Administration has launched a focused initiative to work closely

with the information technology industry to develop technical and policy solutions

that represent balanced approaches to strong encryption. However, we need the cooperation of all affected parties—law enforcement, private industry, government officials, members of Congress, and the American public—to create a solution which

can protect individual privacy rights and permit law enforcement to fulfill its duties

to protect the people from illegal and unlawful activities.

INTERNATIONAL ORGANIZED CRIME THREAT

International organized crime is an immediate and increasing concern not only for

United States law enforcement, but also for the worldwide law enforcement community. International organized crime groups are engaged in a myriad of criminal activities that include: murder; extortion; corruption of public officials; bribery; drug

trafficking; money laundering; financial fraud; kidnaping; prostitution; arms smuggling; and alien smuggling.
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The widespread political, economic, social and technological changes and advances

occurring within the last two decades have allowed these groups to become increasingly active worldwide. These criminal organizations are exploiting the increased

ease of international travel, liberalization of emigration policies, expansion of free

trade, high technology communications and sophisticated money laundering techniques to further their criminal efforts. The ability of international organized crime

groups to adapt to these changes has hindered law enforcement efforts against

them.

Russian, Eastern European, and Eurasian criminal groups will pose a significant

domestic problem for the U.S. in the future if they are not checked by law enforcement efforts. Russian Federation Ministry of Interior (MVD), Organized Crime Control Department officials report the existence of over 8,000 Russian/Eastern European/Eurasian criminal groups. There are allegedly over 150 ethnic-oriented criminal groups, including the Chechens, Georgians, Armenians and Russian-ethnic Koreans, of which 25 are active in the United States. Russian authorities also report

the existence of some 750–800 so-called ‘‘Thieves-in-law’’, the Godfathers of the

‘‘Russian Mafia.’’

To date, Russian/Eastern European/Eurasian criminal groups in the U.S. have

shown an ability to work closely with established American criminal elements, including the American La Cosa Nostra (LCN), Italian organized crime groups, and

drug trafficking organizations. For instance, ties with the LCN date to at least 1983,

when the head of the Organizatsiya in New York forged an agreement with the

Colombo, Gambino, Luchese, and Genovese New York LCN families. The business

relationship was centered on gasoline excise tax schemes and a payment by these

groups of a per-gallon ‘‘mob tax’’ for gasoline sold in LCN-controlled areas. In return, LCN families would settle disputes, provide protection, and provide stability

to the ‘‘bootleg’’ fuel market. As law enforcement efforts against established organized crime groups in the U.S. has become increasingly successful, Russian/Eastern

European/Eurasian criminal elements are moving to fill the voids left by the other

criminal groups.

Unlike some of the other ethnically-oriented organized crime groups in this country, the Russian/Eastern European/Eurasian criminal groups appear to gravitate at

an earlier stage toward complex criminal activities, such as gasoline tax frauds,

cyber security, bankruptcy fraud, insurance frauds, and health care industry frauds.

That level of sophistication, coupled with a documented tendency toward violence,

indicates that these criminal groups are becoming a significant criminal elements

in the U.S.

Russian/Eastern European/Eurasian criminal groups in the United States are

most visibly organized in the major metropolitan areas of Los Angeles, San Francisco, Philadelphia, New York, Newark, Boston and Miami. Factions of these criminal groups have aligned themselves with the New York La Cosa Nostra families in

certain criminal activities. While the so-called ‘‘Russian Mafia’’ appears to prefer

economic crimes such as credit card, insurance, and gas excise and other tax fraud

for larger schemes, they also engage in extortion, robbery, theft, murder, and drug

trafficking.

Vyacheslav Kirillovich Ivankov is a high-level Russian organized crime leader

known to have taken up residence in the United States. Ivankov arrived in the

United States in March 1992, reportedly to establish control of and direct Russian/

Eurasian organized crime activities in this country. In 1995, Ivankov and five of his

associates were arrested by the FBI in New York on federal charges of conspiracy

to commit extortion. Much of the predication for this investigation was provided by

the Russian MVD and the Canadian RCMP. In 1996, Ivankov was convicted and

sentenced to a 9-year and 7-month term of incarceration. Ivankov was clearly one

of the most notorious Russian organized crime figures operating at that time. Although he was based in New York, his criminal enterprise was truly global and

posed serious threats to a number of countries.

ELEMENTS OF THE FBI’S RESPONSE TO INTERNATIONAL CRIME

There are three key elements to the FBI’s international law enforcement initiative. First, the FBI must have an active overseas presence that fosters the establishment of effective working relationships with foreign law enforcement agencies.

There is already a well-documented history of our Legal Attache ́s who have drawn

upon their investigative experiences and backgrounds and enlisted the cooperation

of foreign law enforcement on innumerable cases enabling the arrest of many U.S.

fugitives and solving serious U.S. crimes.

Second, training foreign law enforcement officers in both basic and advanced investigative techniques and principles is a powerful tool for promoting cooperation.
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We use the FBI’s National Academy program as our model. For decades it has fostered comity with state and local law enforcement agencies.

Finally, institution building is necessary to help establish and foster the rule of

law in newly democratic republics. Establishing rule of law will promote greater

confidence and stability in these new governments by their citizens. Fostering the

development of democratic principles in these countries will not only protect United

States’ interests and citizens in those countries, but also bring stability to a region

which has been fraught with strife throughout its history.

These three elements draw upon my own experiences with the Italian-American

Working Group (IAWG) when I served as an agent and a federal prosecutor. This

group continues to show how effective the cooperative effort between United States

and Italian law enforcement is. The IAWG mounted a coordinated and sustained attack against the Sicilian mafia. The success of the IAWG framework resulted from

developing cop-to-cop partnerships and focusing upon a common and agreed upon

strategy.

We are working with our law enforcement partners in Central Europe and elsewhere to replicate this framework. The Central European Working Group, sponsored by the FBI, consists of 13 nations focused on the identification of common law

enforcement threats and the establishment of lines of communication among partners. Through the working group, we are strengthening working relationships and

leveraging resources against organized crime groups and individuals involved in

transnational criminal activities.

I firmly believe the FBI’s initiatives in response to the problem of international

crime are based upon sound and proven approaches that have been successfully

used here and abroad. This approach must now be extended to other partners in

the international arena.

LEGAL ATTACHE ́ PROGRAM

The first element of the FBI’s international law enforcement initiative is our

Legal Attache ́ program. The FBI has long recognized the need for assigning personnel to American embassies abroad, and first began assigning personnel abroad during World War II. Agents who serve as Legal Attache ́s are among our most experienced investigators. They possess appropriate security clearances, and, with very

few exceptions, are fluent in the language of the country to which they are posted.

Legal Attache ́s are the FBI’s first line of defense beyond our borders. They are

part of a permanent presence that is alert to the potential perils around the world.

Their goals are simple—to keep foreign crime as far from American shores as possible and to help solve as rapidly as possible those international crimes that do

occur.

Finally, it is important to emphasize that FBI Agents stationed overseas are not

intelligence officers or shadow intelligence officers. They do not engage in espionage.

FBI Legal Attache ́s are in place to facilitate the international battle against crime

and terrorism by establishing operational links with foreign law enforcement and

security agencies.

At the present time, the FBI operates 32 Legal Attache ́ offices around the world,

staffed by 82 agents and 61 support employees. During 1997, these employees handled over 19,200 investigative matters, ranging from kidnaping to drug trafficking,

from terrorism to money laundering, from financial fraud to extortion. These agents

and support staff serve as the conduit through which law enforcement information

and cooperation flow between the United States and its foreign partners.

All FBI field offices have sought Legal Attache ́ assistance in covering leads, with

the largest portion coming from major metropolitan offices. More than 80 percent

of the current case load handled by Legal Attache ́ offices is in direct support of domestic FBI investigation not only covering leads, but organizing the arrest and extradition to the United States of wanted criminals.

The Legal Attache ́ office in Moscow—opened in July 1994 as part of our expansion

plan—provides an excellent example of the success of our overseas program. When

our office in Moscow opened, it started with a caseload of approximately 35 cases;

three years later, that caseload has grown to 185, covering some 660 leads from domestic FBI investigations. We opened the Moscow office after we found Russian-related crimes were increasing in certain United States cities. We quickly learned, as

a result of increased inquiries from FBI field offices and growing cooperation with

Russian authorities, that the problem was more extensive than we had thought.

The cooperative professional relationships which we have worked to develop recently proved their worth. On March 18, two twenty-year old Americans serving as

missionaries for the Mormon Church in Saratov, Russia, were assaulted and kidnaped. The victims were lured to an apartment by individuals posing as potential
79

converts. After being assaulted, the victims were bound, gagged and blindfolded.

They were held hostage for five days while their captors demanded $300,000 ransom

from the Mormon Church. The Moscow Legal Attache ́ office, in conjunction with the

Regional Security Office of the U.S. Embassy, began coordinating with Russian law

enforcement officials immediately. The FBI dispatched a Russian speaking Special

Agent who was trained in hostage negotiations and was familiar with the Saratov

area and local Russian law enforcement personnel to Moscow. Within hours after

his arrival, the victims were released without any ransom being paid. Three days

later, the Russian Federal Security Service arrested the kidnappers.

In 1997, an employee of a Jacksonville, Florida, armored car company perpetrated

a robbery of almost $19 million in cash. This individual was arrested crossing the

Mexican border back into the United States. Investigation conducted by our Legal

Attache ́ in Mexico City identified the hiding place for the stolen money in North

Carolina. As a direct result of the Legal Attache ́s efforts, 99.4 percent of the stolen

money was recovered. In this one case alone, an FBI Legal Attache ́ contributed to

a recovery of $19 million, almost two-thirds of the FBI’s 1997 operating budget of

$28.7 million for its overseas offices.

This past December, FBI Top Ten Fugitive Thang Thanh Nguyen was arrested

by the People’s Police of Vietnam. After his arrest, Nguyen was transported to

Bangkok, Thailand, by the People’s Police, where he was turned over to a team of

FBI Agents and then escorted back to the United States. Nguyen was being sought

on murder charges stemming from a 1992 New York home invasion robbery during

which he allegedly shot a victim in the stomach and the head.

This arrest came about as a result of close cooperation between the Government

of Vietnam, the United States Ambassador to Vietnam, the United States Ambassador to Thailand, the Diplomatic Security Service of the Department of State, the

FBI Legal Attache ́ in Bangkok, the Monroe County District Attorney’s Office and

Irondequoit Police Department in New York, and the FBI’s Buffalo Field Division.

These case examples, of which there are many more, represent a very sound return on Congress’ confidence and investment in our Legal Attache ́ Expansion Program. Legal Attache ́s need to be stationed where they can have access to information in a timely fashion, where other foreign law enforcement colleagues can provide

this information in an arms-length fashion. Even if we cannot prevent a Khobar

Towers bombing, we need the capability to respond without delay. The FBI is currently completing a threat-based assessment for existing and proposed Legal

Attache ́ offices. We hope to submit our findings to the Congress in the next few

months.

INTERNATIONAL TRAINING PROGRAMS

The second element of the FBI’s international law enforcement initiative is training. Training of foreign law enforcement officers is particularly critical to combating

international crime. In addition, citizen confidence in law enforcement agencies depends upon the development of professional law enforcement officers who understand and operate under the rule of law. In return for this investment in training

programs, the FBI is able to work cooperatively with foreign law enforcement agencies that share a common perspective and understanding of investigative procedures. During the past three years, the FBI has provided training for over 13,000

foreign law enforcement personnel from over 60 countries.

Through a program of in-country training, the FBI conducts one and two-week

schools which are designed to meet a country’s particular training needs. The

schools concentrate on subjects such as basic and advanced police operations, technical skills, ethics, and internal police controls. Senior FBI agents serve as instructors, bringing their knowledge and expertise to these programs. Their credibility is

not only essential for effective instruction, but also very effective for building the

cop-to-cop bridges that we so critically need.

Practical Case Training (PCT) is also an important part of the FBI’s international

training program. Practical Case Training is an on-the-job training program that enables foreign police entities and FBI agents to work together on actual investigations of mutual interest, such as money laundering, bombings, bank fraud, fugitives,

drug trafficking, and crime scene investigation. In 1997, the FBI conducted 14 Practical Case Training initiatives.

This program has resulted in a number of successful investigations. For example,

under this program, Russian Federation Ministry of the Interior (MVD) officers

traveled to the FBI’s New York field office to participate in an unprecedented cooperative investigation targeting the aforementioned Russian organized crime figure

Yvacheslov Kirillovich Ivankov. Russian MVD officers working side-by-side with FBI

Agents were able to recognize and decipher codes used by the Ivankov organized
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crime group. This cooperation immeasurably aided the investigation and directly led

to the conviction of Ivankov and his associates.

Under the auspices of the Department of State’s Antiterrorism Training Assistance program, and working with the Department of Defense, the FBI has also developed three training courses which attempt to counter threats of concern to the

United States. These three courses include: Major Case Management, Terrorism

Crime Scene Management, and the Criminal Justice Executive Forum. Each twoweek course provides senior level law enforcement officials with leadership, management, and organizational concepts and experiences that are critical to the direction

of national law enforcement agencies and to the coordination of multi-agency crisis

management policy and strategy. In 1997, the FBI taught six courses for six countries under this program. We plan to conduct eight courses for eight countries during 1998.

INTERNATIONAL LAW ENFORCEMENT ACADEMY

The third element of the FBI’s international law enforcement initiative is the

International Law Enforcement Academy, or ILEA, in Budapest, Hungary, which

opened in April 1995. The FBI serves as the lead agency for coordinating activities

at the ILEA in Budapest. Operating funds for the Academy are provided by the Department of State.

The ILEA in Budapest serves as a law enforcement training center for officers

from Eastern Europe, Russia, Ukraine and the Baltic states. The Academy is currently hosting its fifteenth session. After that class graduates in May 1998, 632 students from 20 countries will have completed the eight-week program at ILEA.

Instructors at the Academy represent a true cross-section of federal law enforcement agencies, including subject experts from the FBI, Drug Enforcement Administration, Bureau of Alcohol, Tobacco, and Firearms, United States Customs Service,

and the Federal Law Enforcement Training Center. We have also used law enforcement instructors from other countries and the European Law Enforcement College.

Training at the Academy can also be customized to meet the needs of participating countries. In 1997, 19 specialized courses were conducted by 6 different United

States Government Agencies. For example,

—The FBI and the Department of Defense provided counter-proliferation training

to law enforcement officers from the nations of Kazakhstan and Kyrgyzstan.

This training is of international importance in preventing hostile nations from

obtaining nuclear weapons capabilities and in preventing terrorist groups from

obtaining nuclear materials that could be used against the United States.

—An FBI course on organized crime was attended by 22 students from Austria,

England, Hungary, Israel, Romania, Slovenia, and the United States; and,

—The United States Secret Service taught a counterfeiting course for 53 students

from Belarus, Ukraine, Russia, the Czech Republic, Slovakia, and Estonia.

Through the Academy we are building cop-to-cop relationships not only between

law enforcement from the United States and participating countries, but also between officers from participating countries themselves. For example,

—Hungarians and Romanians have executed various memorandums of understanding (MOU’s) because of their introduction to various officials while attending ILEA. These law enforcement MOU’s were the foundation for national treaties between the countries regarding human rights and minority issues;

—Ukraine and Hungary have established a close working relationship on their

border as a result of their students attending the Academy. Together, they have

apprehended organized crime members that have ties to the United States;

—Baltic countries have sought FBI assistance on organized crime matters that directly affect United States national security. It was former ILEA graduates who

spearheaded the contacts with United States law enforcement; and,

—Polish students used techniques learned at the Academy to detect and subsequently dismantle a clandestine drug laboratory. Some of these drugs were destined for the United States.

The immense success of the ILEA in Budapest demonstrates the need for additional training academies. For example, the establishment of an ILEA to serve Asia

is being negotiated with the Royal Thai Government. The FBI looks forward to joining the Drug Enforcement Administration in the leadership of ILEA Asia.

SUMMARY

We are confronted on a daily basis with the reality that the safety and security

of American citizens is increasingly threatened here and abroad by criminals who

know no boundaries. The only way to reduce that threat is to create and develop

substantive international links—personal networks of law enforcement professionals
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dedicated to bringing these criminals to justice. The FBI is addressing the threat

of international organized crime and terrorism through the international law enforcement initiatives that I have just described. The overseas program of the FBI

is the most effective tool available in protecting our Nation from the threat of international organized crime and global terrorism. Increasingly, crime in the United

States is influenced from outside our borders. It is essential that we have experienced FBI personnel posted in foreign countries to enable us to get the information

we need to accomplish our domestic mission.

The funding that Congress provides under the auspices of the Department of

State’s International Narcotics and Law Enforcement, the Freedom Support Act, the

Support for Eastern European Democracies, and the Antiterrorism Training Assistance programs is absolutely critical for the FBI and other federal law enforcement

agencies to provide necessary training and institution building support to our colleagues from Eastern Europe and around the world. These programs allow United

States law enforcement to build bridges of cooperation and understanding with their

foreign counterparts at the investigator level. Such bridges and relationships are

among the most positive steps the United States Government can take to keep foreign crime problems from reaching the shores of America.

In just a few, short months from today—in July—the FBI will celebrate its 90th

birthday. Since its beginning in 1908, the FBI has built a distinguished record of

serving the American people by effectively recognizing and responding to the crime

and national security challenges of our times. As I look ahead toward the challenges

that will face the FBI as it approaches the 21st Century, I am confident that the

FBI’s international perspective and the support of this Committee and Congress

have given our international efforts will serve as major factors in our Country’s ability to address the globalization of crime and terrorism.

SUMMARY STATEMENT OF GEN. IHOR SMESHKO

Senator MCCONNELL. General, do you have some opening observations you would like to share with us?

General SMESHKO. Thank you, Mr. Chairman.

Dear Mr. Chairman, Senator Leahy, ladies and gentlemen, first

of all, I would like to express my appreciation to thank you very

much for this kind opportunity to be together with one of the most

respected professionals in his area in the world, Director Freeh,

and to participate in the discussion.

The subject of the discussion has a great deal of importance for

my country. My country earned its newly independent position only

6 years ago. And the country, of course, right now is in a very difficult situation of transition to a free market economy and to democracy. This is integration in a civilized world. And all this is in

the situation with change in the system of property, converting

state property into private property, with an enormous explosion

unfortunately of organized crime and corruption activity.

My President described organized crime and corruption as one of

the main national security issues. Right now Ukraine does not face

any kind of military threat abroad. The main threat is right inside

the country. If we will fulfill the task for transition, the country

will be a free market. And if we will raise the level of life of our

people, we will have our independence, and we will find at last our

place with the civilized world.

But to achieve this result without inviting international organized crime and corruption, it is impossible. I remember when I

first heard the words mentioned by Director Freeh in 1995 in

Washington, that one of the national security priorities of the

United States is also to combat international organized crime. I

was struck, and right now, being in my position, I would say that

Director Freeh was one of the first in the United States, one of the

first who really recognized this new situation in the world.
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Free democracy, I would say was not prepared for the development in this area after the end of the cold war. All benefits of democracy, the possibility to freely travel around the country, possess

a great deal of danger because crooked people with enormous resources of money and the criminal mentality can penetrate free,

democratic societies. This is just like a cancer which might really

infect, in many cases, the capability to expand democracy and prosperity all around the world.

Unfortunately, by my experience I would say that right now the

main organized crime group in the Ukraine and their leaders already have the ability to receive very easily green cards or citizenship in some Western countries. This is my personal opinion, but

I think it is not very wise to have laws in which individuals who

have made an investment in a country can get a green card. It only costs $500,000 for some mobsters. This is just like having

lunch downtown in Washington, DC.

Senator MCCONNELL. Well, that is true. I have been in some of

those restaurants. That is just about what the bill is, too. [Laughter.]

General SMESHKO. And unfortunately they are much faster than

us. They have more resources. And they do not have the restriction

of the parliaments to change information. Facing this threat is possible only with the international cooperation of the law enforcement and intelligence communities. And I am very proud and glad

that the FBI, with Director Freeh, was the first service which basically gave us a hand in this area.

Once again, I would like to thank you very much for this kind

opportunity. This is a great honor for me to be with you. And I

would like to assure you that my country will do its best to be not

only a recipient of the security which is from the West, but a contributor to the security.

Thank you so much, Mr. Chairman.

COUNTERTERRORISM ACTIVITIES

Senator MCCONNELL. Thank you, General Smeshko. Again, we

are really pleased that you are here today.

Let me lead off, Judge Freeh, before turning to the working relationship with Ukraine, I wanted to ask your thoughts on news accounts which suggest that the National Security Council will have

greater operational and budgetary control over counterterrorism activities. While I see some merit in improving coordination, I am

troubled by the notion that White House staffers may become involved in decisions best left to law enforcement professionals.

As we have discussed in this subcommittee before, the White

House staff already has a questionable track record on personnel

file searches and inappropriate requests for information on current

FBI investigations. I for one would strongly oppose expanding the

staff’s involvement or control over activities such as wiretapping.

So I am just wondering if you have any reaction to these news

accounts?

Judge FREEH. Senator, with respect to the issue at large, we

have been in discussions, not only myself but the Attorney General,

with the NSC, as well as the Department of the Treasury, to improve what would be the appropriate coordinating role that the
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NSC should certainly play in matters of national security. I have

taken the position that under the existing authorities, particularly

PDD–39—in which the FBI is designated as the lead U.S. agency

for counterterrorism, in terms of operational control and decisionmaking—ought to be maintained because of the importance of

keeping that kind of responsibility on an operational level as opposed to a policy level.

We have some other matters that need to be resolved. We are,

I can assure you, pursuing those matters with the National Security Advisor, as well as the other departments that are affected.

And we are hopeful that the end result will be more coordination

without diluting the operational responsibilities that I believe

should stay where they are under PDD–39.

Senator MCCONNELL. OK, well, thank you for your observations

about that. Now, let us turn to the subject at hand.

General Smeshko, what kinds of crime are you seeing emerge

today in Ukraine compared with, for example, 5 years ago? Are we

seeing more violent crime, for example, compared with fraud? Or,

is there growth in every area? Also, have you seen an increase in

cases involving illegal smuggling of conventional or nuclear weapons or material?

General SMESHKO. Thank you, Mr. Chairman. As my best knowledge, really, the level of crime in Ukraine is increasing, unfortunately. Mostly this is connected with the money laundering issue.

This is just like a vacuum cleaner, which is taking the money from

the country. Some people have access to the privatization of the

state enterprises, using this possibility to get the energy and other

resources for much less than world prices and resell them for much

higher prices abroad.

CRIMINAL ACTIVITIES

All this combined together with unfortunately the criminal activities of just average criminals. This mixture together gives quite

a lot of problem to the country, in which there is not established

proper legislation to combat this crime. And the level of corruption

in some government bodies is very high.

Senator MCCONNELL. This includes, I assume, the judiciary? In

other words, even if you were able to apprehend these people, what

are the chances of your getting a conviction and a sentence of some

consequence?

General SMESHKO. In my country, there was not a revolution,

which is just great. We are very proud that Ukraine had not a single drop of blood. And we are evolutionary. From 1991, we have developed a democratic society. We peacefully adopted the constitution. We peacefully changed the second president. We have now the

third parliament. But still it gives us a great deal of burden on establishing a real democratic tradition.

And the struggle for power in the country between the left and

right side, I would say, combined together with the struggle and access to privatization of the hugest enterprises, creates a very difficult situation. We have the problem with the proper training on

the personnel side, especially the youngest generation of law enforcement. The judicial system also is not prepared properly for act-
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ing in the free market economy, and with the many cases which

simply were not even predictable in previous years.

All this together results in a very, very difficult transition and

distrust. For example, the National Bureau of Investigation was

created in my country by the executive order of the President.

Right now, the Parliament thinks that this is not a constitutional

body. We have the second chairman, but a National Bureau of Investigation has not been adopted by the Parliament into law. And

it is very difficult right now for many even to understand who is

right. Because by the Constitution, the President has the right to

create the governmental body, fulfilling the national security priority for the President.

The Parliament thinks that this is supposed to be adopted by the

Parliament. And in the Parliament you have one-half of the Parliament on the left side, which simply thinks about the new state.

It is all very painful and reflects the struggle with organized crime

and corruption.

Senator MCCONNELL. Is crime and corruption worse now than it

was under the Soviet system, or is it just more apparent now?

General SMESHKO. During the Soviet period, there was corruption also. But it was not in the media. It is very difficult to compare. Who knows? Maybe in those days it was even more huge.

I think right now the level of corruption in the government is

really high. But I would not say that this is the red line under

which it just might be the crisis for all governmental bodies.

Senator MCCONNELL. It certainly runs the risk of giving democracy a bad name, does it not?

General SMESHKO. Yes; exactly. It is very difficult to maintain a

democratic way of development of the country, and at the same

time to have the hard hand to fight these things. But right now my

President is really very committed to proceeding with the democratic, evolutionary way of developing this. And, by the way, that

is why he thinks that the creation of the National Bureau of Investigation, which would be the new organization taking the best professionals from other law enforcement and, on the new base, struggle with this evil, might be very beneficial to the country.

We hope that the next Parliament, which will be elected in

March, will adopt the law of the National Bureau of Investigation

and will proceed with the jurisdictional reform in the country.

ILLEGAL SMUGGLING

Senator MCCONNELL. Let me just turn to some specific areas of

crime. What about illegal smuggling of conventional or nuclear

weapons?

General SMESHKO. Sir, with the smuggling of, let us say, fissionable material, I would assure that Ukraine right now has a very

good record on this. First of all, right now in the territory of

Ukraine, there is not a single nuclear charge. We have fulfilled all

our obligations of the START I treaty, and we did get rid of the

third nuclear arsenal in the world.

Right now it might deal only with fissionable material in the nuclear reactors. But protection is very good. And we had a single

case in the country in which it might be a real threat. We had information, criminal intelligence information, that there was nego-
85

tiations with some organized crime group just to know the price

and possibility of distributing these fissionable materials to some

foreign organized crime group.

But our investigation did show that it was not originated with

the Ukrainian fissionable materials. And until now I would not say

that it would be the biggest problem or the real problem.

Senator MCCONNELL. How about conventional weapons?

General SMESHKO. Conventional weapons, this is really the question of a great deal of concern for all law enforcement and intelligence agencies of my country. Ukraine used to have a huge stockpile of the armaments which was left after the collapse of the

former Soviet Union. And a few days ago there was a change of the

chairman of the Opraspetz Export, the state enterprise which run

the selling of these arms. I would say this is one of my priorities

in my job, to check those people who did not have authorization to

sell conventional arms to foreign countries.

Right now we have had a single case in which we would prosecute crooked people who did a great deal of business in this area.

But we have stopped a lot of attention by some businessmen, by

some persons, which had negotiations in this area. But I can assure you, sir, that this is one of the highest priorities for the intelligence community and law enforcement. And right now, the export

control system in my country, with the help, by the way, of the

United States, I would say has a very good level of protection.

Senator MCCONNELL. At various times in this country, auto theft

has been a big problem. What about auto theft in Ukraine, is that

a big problem?

General SMESHKO. Yes; unfortunately, yes. You see, Ukraine is

in the center of Europe. And we are a transit point for cars which

might be stolen in Germany, Poland and other countries.

Our Minister of Interior Affairs made a great deal of efforts right

now to track the things. And, by the way, we have good cooperation

in this area with the German police, with the Polish police. We recognize this problem and are trying to work hard. I think in the last

5 to 6 months especially, there is improvement in combating this

kind of crime.

SOPHISTICATION OF CRIMINALS

Senator MCCONNELL. One final question before turning it over to

Senator Leahy. And that is, how would you describe the criminals

themselves these days in Ukraine? How sophisticated are they? Are

these people talking in phone booths, using passwords, or do they

have encryption devices for telecommunications and computers?

Just how sophisticated are the criminals you are dealing with in

Ukraine these days?

General SMESHKO. I see, sir. I see. You see, right now the criminals are becoming richer, wiser, and especially the first level of the

real criminals which are right now, I would say, the mobs of the

organized crime groups. They are trying to be more engaged not in

the criminal activities just like the murder of other real villains,

they try to buy state enterprises. They try to be engaged in investment in profitable enterprises. They are using very sophisticated

equipment.
86

Senator MCCONNELL. Are they connected to organizations in

Russia? Is there an interconnectivity between these people?

General SMESHKO. In Ukraine we have an organized crime group

which is connected with all our neighbors and even with your country. And I could not right now name a single real organized crime

group in my country which did not have a connection with your

country or just simply did not travel here and have negotiations

with your gangsters.

Senator MCCONNELL. So they are not connected with the United

States or they are connected with the United States?

General SMESHKO. They are connected, yes.

Senator MCCONNELL. And with Russia?

General SMESHKO. Yes, sir; of course. There are clear connections

between them.

And, last, they are using more and more sophisticated equipment. I am personally a doctor of cybernetics. And I would tell you

this is a great deal of danger additionally, because we have a very

highly trained population, especially in the technical area. We had

some information a few months ago that two students of the highest 5-year term at university were requested to make a quite sophisticated encryption device for the laptop. And they made this

encryption program on a CD–ROM, a very sophisticated program,

which was requested from one of the chiefs of the organized crime

groups.

And that is a real threat. I think in this case your country also

was supposed to have the lead to fight this area. Because in the

future, if they will start to use the real encryption devices, it would

be very difficult to track and to prosecute this activity. They have

enormous money. For them $100,000 is nothing to buy equipment

from Motorola and Matra, Sejam, satellite communication, good

laptop computers, or equipment for encryption or good-brained

guys who might just do for them things like an encryption program.

Senator MCCONNELL. Senator Leahy.

NUCLEAR MATERIALS

Senator LEAHY. Thank you, Mr. Chairman. I may want to follow

up on that, too, but first I will follow up on another question of

Chairman McConnell’s on the issue of nuclear material. I understand the situation in your country. And incidentally I have been

to Kiev and I have traveled in that area. I worry about the lack

of safeguards on nuclear material.

As I understand it, you could make a fairly crude nuclear bomb

with only this much plutonium. It would be hundreds of times

more powerful than the bomb that destroyed our Federal building

in Oklahoma City, which caused tremendous loss of life. And Senator Nunn, a former member of this body, called this the No. 1 national security challenge we face, the fact that terrorists might get

nuclear material.

I wonder if I could ask you both, General, both you and Director

Freeh, which of the former Soviet Republics, besides Russia, currently possess highly enriched uranium and how much are we talking about?
87

Judge FREEH. Yes; there are a number of countries, Senator. And

I think most of that material, as far as we are privy to it, is confirmed by the Department of Energy as well as other U.S. program

identification. I can harken back to your reference to Senator

Nunn. The Nunn-Lugar funding, which the Senate and the House

have provided, has been directed toward the countries where the

material is available and also where security controls are issues to

be resolved and hardened.

For instance, that funding has been used to train police officers

in Kazakhstan, Uzbekistan and Kyrgyzstan. In fact, Uzbekistan police officials are in the United States this week to receive NunnLugar nonproliferation training. This is law enforcement/securitytype training to not only harden and solidify the storage of these

materials, but also to develop intelligence networks and protocols

for investigating what I am sure General Smeshko could tell you

about in great detail, which is the offering for sale of what sometimes purports to be fissionable material and which in most cases

thankfully has been bogus material.

The counterproliferation assistance program, which has been

funded under the Nunn-Lugar program, has been made available

to the countries, as I mentioned, where we think there is some

jointly agreed upon need and vulnerability. As to the particular

materials in the various countries, I would have to get back to you

with the amounts.

Senator LEAHY. Well, in fact, one of the things to be concerned

about is some of the lower-grade material in civilian nuclear

plants. Some of the reports I have read describe very limited

amount of security, perimeter defenses and checking. In fact, somebody suggested that some of the nightclubs in Moscow have stronger security than some of the places where the nuclear material is,

some of the civilian nuclear powerplants.

If you have got a bank in Moscow or a nightclub in Moscow that

is better protected than a nuclear powerplant, you have to worry.

Is it a problem? Maybe a better way of putting it, one of the biggest

threats we could face would be nuclear blackmail or nuclear terrorism. And my concern is how vulnerable we are.

Now, you have mentioned, Director Freeh, sometimes there are

bogus sales being made, and we have heard of those. But do we

have the kind of cooperation necessary that if any one of these

countries gets a report that real nuclear material, fissionable material, is missing, can we start tracking it from the highest levels

from country to country?

SHARING INTELLIGENCE INFORMATION

Judge FREEH. Well, that is a very poignant question. And those

are exactly the relationships that everything we have discussed

here are designed to foster. And I met with the head of the Federal

Security Service [FSB] in November in Moscow, Director Kovalev.

One of the things we discussed over a series of meetings was the

cooperation that would be required if somewhere in Russia, for instance, we developed information or they developed information

that fissionable was going to be sold or smuggled not only into the

United States but into some other country. And we talked about

some structures and some cooperative meetings by which we could
88

react to that jointly and share information, particularly intelligence.

The relationships that have been established here are stronger in

some places than others. Part of the Nunn-Lugar training is to

reach those countries where we do not have the relationship that

we have, for instance, with General Smeshko, and even the MVD

in Russia. I think, to answer your question precisely, the relationship is really critical in ensuring any kind of cooperation in those

matters.

In some countries we have developed it to a finer point. In other

countries it is much more fluid at this point. And that is the whole

purpose of this training initiative and the liaison and the extensions of cooperation that we have made here.

Senator LEAHY. General Smeshko, do you fear that some of this

material might get stolen, for example, in Russia and then that it

might be taken through your country and on to other areas?

General SMESHKO. Mr. Senator, first of all, I would completely

agree with you that in the future it might be a real for the world.

Because sooner or later—but unfortunately, with all our efforts to

protect the proliferation of the knowledge, this is really the threat

which we can face only with international exchange, international

cooperation between the intelligence services and law enforcement.

First of all, I would like to answer your question. You asked how

many countries might have the nuclear materials. Every country of

the former Soviet Union which has a nuclear civilian plant basically has materials which might be used in some way as a base for

the development of a device.

In my country, the Security Service of Ukraine has the main priority to work to protect any kind of leaking of any possible materials from these plants. That is one of the priorities. Of course, I

could not argue with you about the protection of, let us say, the

banks and nightclubs. Unfortunately, on payment, we have a severe budget problem. I think many banks are protected better.

Senator LEAHY. They have got more money to pay for the protection.

General SMESHKO. Yes; exactly. Exactly.

But a crucial thing is cooperation and the fast exchange especially with the intelligence information. By my experience, we had

twice with our foreign Western intelligence services the cases in

which we, in a very fast manner, checked the information in this

area. And this is very crucial to fast reaction on the possible threat.

Thank you.

Senator LEAHY. And, General, my last question to you, and if I

have questions for Director Freeh, I will submit them. I am told by

some companies that want to go into Ukraine that they face so

many problems—bribery, corruption, redtape, bureaucracy—that if

they want to invest somewhere, they go to a different country to

invest their money.

On the other hand, when I talk to some of the leaders from

Ukraine, they say they want investment to come to Ukraine, to create jobs, to help. Are we at an impasse here?

Because I know most American companies are not going to go

and put significant investment in a country where they face that.
89

Among other things, our laws are so strict that they are going to

get into trouble back here in the United States if they do.

BRIBES

General SMESHKO. Yes, sure, sir, you are right. American businessmen, in some way, are not in an equal position. There are several countries in which you just give a bribe. Even if we would pass

this information to the friendly service abroad, he would not be

prosecuted. In that country, this is a violation. In my country this

is not a violation. For the American businessman, this is another

case. And we are very fortunate.

This problem exists. And believe me, right now this administration is trying to do their best to improve the situation. Unfortunately, it is a 6-year-old democracy, which is only trying to establish itself.

I would like to just take a few seconds just to tell some good

words I had with Dr. Zbigniew Brzezinski in a conference, American, Polish, German, and Ukrainian in January 1997. My German

colleagues talked about a great deal of frustration with the speed

of the reform in Ukraine. And Dr. Brzezinski made this remark. He

said, ‘‘Listen, there is not another person who might be more frustrated if the Ukrainians did less than I would like in advancing the

reforms.’’

But I would like to defend them before you. Just remember after

1945 your country started the transition. But what would it be if

you did not have the Marshall plan, the strong American presence,

which helped enhance the democratic institutions. But, moreover,

what would it be if in all key positions there had been the old hardliners and the center of the capital was the mausoleum of Hitler.

This is not the case with Ukraine. But this is a transition, a

transition in which old and new live together. Ukraine is the second largest territory in Europe on state property. And the government and servicemen receive salaries which unfortunately are not

enough. All in transition, but in a democratic way.

We are supposed to live through this. And we are trying to do

our best. But sometimes, unfortunately, there is also fraud, believe

me, and from the American side, businessmen. Not in every case

is the fault of the bureaucrats and corruption only from the

Ukrainian side. But we are trying our best, believe me. And we are

facing this problem. We will do our best to improve the situation.

Thank you.

Judge FREEH. Senator, if I could just answer that very, very

briefly, with your permission. I think the notion really to emphasize is the idea of change and transition. A democracy which is not

only newly established but where everything is changing. The economy is changing. The notions of property are changing. A civil justice system is not quite in place, which would give not just foreign

but Ukrainian business people rights and protections.

One interesting note, again, just to emphasize the change. When

I was in Moscow in 1994, which was my first visit, we met a number of American business representatives who were talking about

whether they would invest in Russia or South Africa because of the

dangers and threats both propertywise and safetywise in Russia.

When I was there in November, the last meeting I had was with
90

50 members of the American Chamber of Commerce. And they said

two things.

One, the situation had dramatically improved, because the police,

the MVD, was much more responsive to threats, particularly extortion threats. They also felt that the presence of the FBI agents and

their liaison had facilitated that. I think the same situation is really developing in the Ukraine.

FOREIGN INVESTMENT

And to go back to my opening statement, which is why your support is so important. In a region such as the Ukraine, not just the

52 million people who live there, but the enormous resources in the

Caspian Basin, not just the ones that will transit there but the

ones that are deposited there, will bring the foreign investment,

particularly American investment. What we have to assure them,

and what this committee has supported, is a law enforcement network where the American business interests have General

Smeshko and myself to rely upon to deal with some of these

threats. And that is the key piece in this that I think we are putting in place.

Senator LEAHY. I may have some more questions for the Director.

Senator MCCONNELL. Those will be submitted.

I do think we have a tendency to be more impatient, and I am

sure you are more impatient, than we should be. I have been reading a marvelous history of the United States by Paul Johnson, basically called ‘‘A History of the American People.’’ And he points out

that, contrary to everything that we think, in many ways the

American Revolution did not bring about all that much of a change.

We had been evolving in this country for 150 years a system that

involved the rule of law and essentially democracy in every one of

the Colonies.

So even as we think of the American Revolution, and certainly

it was an important event—I do not mean to diminish the importance of it—it was not as big a change for us from the period before

the revolution until the period after it. Whereas what you all are

trying to achieve is a dramatic change in every way: economically

and in terms of the rule of law. So I just make that point, because

we all wish things were going faster, and I know you wish things

were going faster, but it is not as easy when you are trying to

change literally everything.

Judge, you mentioned practical case training in your statement,

in which you bring officers or agents over here to work side-by-side

on specific cases with U.S. law enforcement officers. Tell us a little

bit about how that works. How long are they typically here? What

do you do with them?

Judge FREEH. It depends on the case. I will give you one example

which was actually the first one that we did with the MVD in Russia. It was the Ivankov case. Ivankov was identified as a top thiefin-law, as the term would be, a Mafia-type godfather, Russian in

this case, who came to the United States to not only commit crimes

on an organized basis, but to organize some of the disparate organized crime figures, particularly in the New York City region.
91

He was identified to us by our Russian counterparts. And then,

in the course of the investigation, which resulted in his conviction

and sentencing, MVD officers from Russia came to the United

States. They assisted us in analyzing tape recordings, identifying

photographs. They went out into the street with FBI agents because they could recognize some of the associates and confederates

from Russia that we did not know—people who were here illegally

in some cases.

We have done very well with respect to the practical case initiatives with Russia. We are doing one now with our counterparts in

the Ukraine, which is the one that the Captain will work on later

this week in Los Angeles.

Senator MCCONNELL. Where does the funding come from for

this?

Judge FREEH. That funding has come primarily from the Department of State INL funds. We have expended approximately

$352,000 since 1996. That represents about 40 total sessions or

events where that initiative has been practiced.

Senator MCCONNELL. So are you all requesting an increase this

year in that?

Judge FREEH. We proposed, for 1998, 12 sessions, at a cost of about $120,000. It is not an increase over 1997. And, again, those

are funds that we think are put to very good use.

Senator MCCONNELL. Is that about all you can handle, then, the

request?

Judge FREEH. We would like to make sure that we have funding

left to do some of the other training that I alluded to. The proposed

training for the FBI courses, which are all of course approved by

the State Department and the Embassy, have been reduced in 1998

because of lack of State funding. Those are issues which we are

certainly concerned about, because we want to maintain at least

the level of training that we have already exercised.

Senator MCCONNELL. How many investigative leads generated in

the United States are pending in Ukraine? Is that a figure you

might have?

Judge FREEH. With respect to the actual cases, we have a total

of 95—we call them pending investigations; 30 of those are investigations where General Smeshko and his colleagues have asked for

our assistance. The other 65 are pending investigations around the

United States, and they involve organized crime, violent crime,

white collar crime. And those are just the actual cases. I may ask

Agent Pyszczymuka if he wants to comment on the leads, because

he has got the personal experience.

LAW ENFORCEMENT LIAISON

Senator MCCONNELL. Right. And also how many agents do we

have in Ukraine? And are they covering other countries as well as

Ukraine?

Mr. PYSZCZYMUKA. There are two agents assigned to the Legal

Attache ́ Office in Kiev, Ukraine. The office is a regional office and,

in addition to Ukraine, we also provide coverage and law enforcement liaison with Georgia, Azerbaijan and Armenia.

In regard to the caseload, there are approximately 60 to 65 leads

still pending in all the critical violations: organized crime, white
92

collar crime, violent crimes. For example, I have two pending leads

out of the Los Angeles division in Armenia for homicide subjects

that local police officers in the Glendale Police Department believe

are now secreted in Yetevan, Armenia.

As the Director earlier mentioned in his testimony, we were instrumental—that is, myself and my partner in Kiev—in convincing

the surrender of Mr. Jeffrey Broner, who was a fugitive hiding out

in the Ukraine for approximately 4 years. We were able to engineer

that successful surrender, and he is facing prosecution now in New

Jersey.

In regard to organized crime, the Director has been very omniscient in predicting the problems years ago. We presently have, I

believe, four Russian organized crime squads in the continental

United States: New York, Miami, Los Angeles, San Francisco, I

might have missed something, because I have been out of the country for 14 months. But they have been extremely active in developing criminal intelligence.

This criminal intelligence that they develop on the different clans

that control Ukraine is passed to me and, in turn, I refer that information to people like General Smeshko, to individuals and contacts in the Security Service of Ukraine, which is the followup

agency to the KGB, to the Procuracy Office, border guards, Customs, and other interested entities.

Like I said, the cases cover the entire gamut of violations that

are worked out of the States. The investigation that Captain

Kostyuchencko will be heading out to is a significant money laundering investigation that was initiated by Los Angeles FBI agents

and men and women of the San Francisco division also. It has connections to high-level officials back in the Ukraine. We have been

able to track tremendous amounts of money being laundered

through countries such as Switzerland and offshore sites, into San

Francisco.

Senator MCCONNELL. I understand we have 600 leads pending in

Russia. Does that sound like a familiar number?

Judge FREEH. Yes, sir; in terms of leads and the explosion of the

caseload there from——

Senator MCCONNELL. So you have a manpower problem there,

too, I guess?

Judge FREEH. We have just added third agent, with the approval

of the Department of State. But that is just enough to meet what

is a growing caseload.

Senator MCCONNELL. Is the State Department generally open to

these larger legal attache ́ offices when the caseload appears to warrant it?

Judge FREEH. We have to go through a justifiable and important

authorization process, the NSDD–38 process as we call it. They are

generally supportive of it, particularly on the Ambassador level,

with rare exception. They understand the need and the importance

of having that law enforcement capability and liaison.

We have generally enjoyed very, very good support in terms of

expansion. It is a lengthy process. And the process has been further

lengthened by congressional requirements for an additional threat

assessment—the process which we are going through now, particularly with the House committee.
93

Senator MCCONNELL. Thinking back to the academy in Budapest, which I visited as you indicated, Judge Freeh, how many

Ukrainians have been through that program?

General SMESHKO. About 20, sir.

Senator MCCONNELL. Twenty.

General SMESHKO. Yes.

Senator MCCONNELL. And do we keep in contact with them after

they leave?

General SMESHKO. Yes.

Senator MCCONNELL. And when they graduate from there, do we

have an ongoing, sort of, alumni relations effort here?

Judge FREEH. Yes, sir; there is.

We have a National Academy Associates Program, but we also

have developed, through the academy in Budapest, an alumni

networker association. The purpose of that is to maintain the contacts because these young officers will become the commandants

and the generals 10, 20 years from now. And that is the benefit

that we all get from that.

PROSECUTIONS

Senator MCCONNELL. General Smeshko, my notes indicate that

we have a serious issue in your country with regard to prosecutions. I am told there has not been a single major case prosecuted

in the last few years involving corruption. Is that the case, not a

single one, or is that an exaggeration?

General SMESHKO. Right now we have adopted by the Parliament

a law on corruption. But, unfortunately, to the best of my knowledge, there was not a single case when this law was really used.

Senator MCCONNELL. So the law is not adequate or the will to

prosecute is not there, or both?

General SMESHKO. The law was adopted by the Parliament, a

special law on corruption. But the chapter which defines corruption

is very difficult to use for the prosecution. This is left with the law

and the real jurisdictional system which might use this law. Unfortunately, to the best of my knowledge, there were about 400 cases

when there was open charges on corruption, but I honestly do not

remember when there was a successful story in the court.

Judge FREEH. Mr. Chairman, I would mention just—and General

Smeshko is aware of this—there is a case that we are working with

the Ukrainians—in fact, it is part of the practical case initiative effort. It is called the Kirichenko case. And it does involve an individual who was a high-ranking Ministry of Foreign Affairs official in

the Ukraine, who is being investigated. He probably will be prosecuted for corruption charges. And it is a case we have worked

through our San Francisco office.

Senator MCCONNELL. Well, good luck. Because in the absence of

any prosecutions at all, that sends a discouraging message to foreign investors. Particularly, United States investors I think find

that very depressing.

That one bell that went off means that we are having a vote. I

think we are about to the end of the session anyway. I am going

to see if either of you would like to make kind of a final observation, rather briefly. Either of you have anything you want to add

here at the end of our hearing?
94

CORRUPTION

General SMESHKO. Thank you so much. Thank you, once again,

Mr. Chairman, for this kind opportunity, really, to be here for this

discussion and to present the point of view of my country. Really,

many things are not so encouraging right now. And it is a very difficult area for my country. We are combatting the corruption, especially at the highest level of the government and the organized

crime.

But, still, even if there was not a successful story in the court

against corruption in the government, there are already a lot of examples where corrupt persons were fired from their position, from

the highest level of positions. And every week you might see in the

newspapers that regional level, administration minister level, administration, are removed from their positions by executive order

of the President.

Unfortunately, the jurisdictional system is not robust enough

right now to face this new challenge—even to just enforce the law

which was already adopted by the Parliament. Still, believe me, the

leadership of my country does recognize this problem.

Senator MCCONNELL. Yes; I was in Ukraine last summer. I met

with President Kuchma down in Sevastopol and I went up to Kiev

briefly. My view is that we need to continue to try to do the very

best that we can. We need to stay engaged. We need to understand

what a difficult transition this is going to be.

And I particularly think that what you are doing, Judge Freeh,

is making an important contribution not only at the academy in

Budapest, which I think is a spectacular example of international

cooperation, but I think we all just need to stay the course. I know

you would agree, Judge Freeh, to find someone like General

Smeshko in an important position, that is encouraging in itself. I

think the United States has a longstanding and a long-range interest in the success of Ukraine. And as far as this subcommittee is

concerned, we are going to stick with you.

Thank you very much.

Judge FREEH. Thank you very much, Mr. Chairman.

SUBCOMMITTEE RECESS

Senator McConnell. The subcommittee will stand in recess until

10:30 a.m., on Thursday April 23, when we will hear testimony

from Dr. James Hughes, of the Centers for Disease Control; Dr.

David Heyman, World Health Organization; Dr. Nils Daulaire,

Agency for International Development; and Dr. Gail Cassell, Eli

Lilly, Inc.

[Whereupon, at 4:53 p.m., Tuesday, April 21, the subcommittee,

was recessed, to reconvene at 10:30 p.m., Thursday, April 23.]
(95)

FOREIGN OPERATIONS, EXPORT FINANCING,

AND RELATED PROGRAMS APPROPRIATIONS FOR FISCAL YEAR 1999

THURSDAY, APRIL 23, 1998

U.S. SENATE, SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS, Washington, DC.

The subcommittee met at 11:13 a.m., in room SD–192, Dirksen

Senate Office Building, Hon. Mitch McConnell (chairman) presiding.

Present: Senators McConnell, Campbell, and Leahy.

AGENCY FOR INTERNATIONAL DEVELOPMENT

STATEMENT OF HON. NILS M.P. DAULAIRE, M.D., M.P.H., SENIOR

HEALTH ADVISER

DEPARTMENT OF HEALTH AND HUMAN SERVICES

CENTERS FOR DISEASE CONTROL AND PREVENTION

STATEMENT OF HON. JAMES M. HUGHES, M.D., DIRECTOR, NATIONAL

CENTER FOR INFECTIOUS DISEASES

NONDEPARTMENTAL WITNESSES

STATEMENTS OF:

DAVID L. HEYMANN, M.D., DIRECTOR, EMERGING AND OTHER

COMMUNICABLE DISEASES, SURVEILLANCE AND CONTROL,

WORLD HEALTH ORGANIZATION

GAIL H. CASSELL, Ph.D., VICE PRESIDENT, INFECTIOUS DISEASE

DISCOVERY RESEARCH AND CLINICAL INVESTIGATION, ELI

LILLY CO.

OPENING REMARKS OF SENATOR MITCH MC CONNELL

Senator MCCONNELL. Good morning, everyone. Thank you for

being here.

This hearing is being held largely at the request of my senior colleague, Senator Leahy, who has been very active in the field over

the years.

Over the past couple of years, outbreaks of mad cow disease,

Ebola, Asian avian flu, and human monkeypox have captured headlines and raised the public interest in the global resurgence of lifethreatening infectious diseases. While these outbreaks have been

serious, they have been effectively contained by the rapid reaction

of the international health community.
96

Unfortunately, these exotic sounding, unusual incidents have

eclipsed the public’s concern or interest in the real killers; 17 million people die of common diseases, most of which could be prevented or effectively treated. Malaria, TB, cholera, and measles

still prematurely rob far too many people of life.

Lest anyone believe this is a threat confined to some remote island in a distant hemisphere, these diseases have come home to

kill. Potent new strains of TB have been detected in the Commonwealth of Kentucky; 10 years ago, I doubt five adults knew what

E. coli was. Today young parents are ever alert to symptoms, given

the toll it has taken on our children and the elderly.

Last year, the subcommittee recognized the time had come to invest in a serious and sustained global commitment to combat the

spread of infectious disease. To fulfill this commitment, there are

two tracks which are mutually reinforcing, which we must proceed

along.

First, we should set up monitoring and detection of disease to

contain outbreaks before they become epidemic. This requires developing and putting in place a comprehensive global information

system to afford specialists early warning and the opportunity to

respond quickly and effectively to problems. Although this has been

discussed for the last 2 years, I do not have the sense that a global,

or even regional, electronic network is up and operating. I will be

interested in hearing current and future plans to address this

issue.

Early warning and detection must be complemented by effective

treatment. The second track represents real challenges, as microbes have mutated and become resistant to the available drug

therapies. Fortunately, the revolution in technology and genetic research have opened new avenues for solving microbial medicine

mysteries. However, high-tech solutions must be enhanced by basic

education.

The international health community must develop a strategy to

educate and address the resistant problems, exacerbated by the

over-prescription of antibiotics and their extensive use to produce

animal growth. We need to be confident that what seems to be

modern medical miracles are not in fact sowing the seeds of our

own destruction.

I think everyone here will agree on the scope of the problem and

the general outlines of a solution. However, I am concerned that

current planning is not keeping pace with the explosive growth in

the problem. I think we would all agree on a strategy which improves information sharing, coordination of international response

mechanisms, and our understanding of drug-resistant viruses and

bacteria.

But I think we must also accelerate the process of testing and

introducing effective drugs and vaccines. My staff was recently on

a trip to the Thai-Burma border, visiting refugee camps where malaria is a serious problem. Virtually all cases—Thai, Burmese, and

American alike—were being treated with a wonder drug from

China, which everyone acknowledged was unlikely to see market

shelves anywhere outside the region. Clearly we must take public

safety into account when considering new products. But it seems
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we must increase emphasis on reducing barriers which have impeded the timely availability of successful drug therapies.

We have a number of witnesses and only an hour and a half to

cover the ground, so I am going to turn this over to Senator Leahy,

who will preside for the balance of the time. And I thank him very

much for his interest and commitment to this issue over the years.

And I welcome all of you to the committee today.

OPENING REMARKS OF SENATOR PATRICK J. LEAHY

Senator LEAHY [presiding]. I want to thank Senator McConnell

for scheduling this hearing. It is the second hearing he has scheduled this week. It has been a very busy week, and I do appreciate

it.

In a way, we are picking up where we left off almost 1 year ago

when we had a hearing on the same subject. The interest since

then on the threat posed by infectious disease has grown dramatically. Two months ago, the Centers for Disease Control and Prevention [CDC] held their first international conference on emerging

infectious diseases, and by all accounts it was a resounding success. And yesterday, the judiciary and the intelligence committees

held a joint hearing on biological terrorism, which pose many of the

same challenges.

Other committees have focused on other aspects of it. I do not

think we can take sole credit for the surge in interest. The Hong

Kong flu and Iraq’s biological warfare program both had something

to do with it. But there is no question that this subcommittee had

a part in this as have all of you here.

Last year, we wanted to call attention to the fact that despite numerous studies that have identified serious weaknesses in the way

we and other countries respond to infectious disease, and despite

many recommendations for strengthening and coordinating our response, little had been done. There are too few resources, too little

coordination and not nearly enough trained people in the developing countries, where epidemics often originate.

With the exception of childhood diseases and HIV/AIDS, the

Agency for International Development was spending a pittance to

combat other infectious diseases. The CDC has only a few million

dollars to spend on international activities. But all of you, and certainly our witnesses testifying here today, know that infectious diseases know no boundaries. The Hong Kong flu is just an airplane’s

flight away from Los Angeles or Burlington, VT.

The resurgence of tuberculosis a few years ago is a textbook example of how easily diseases, once thought to be under control, can

reemerge if public health systems deteriorate and if drug resistance

spreads. And as the latest confrontation with Iraq reminds us,

deadly microbes could be intentionally spread. If that were to happen the results could be catastrophic. At least nine other countries

are suspected of having biological warfare programs. A handful of

anthrax could wipe out a city of millions.

To make a long story short, we recognize the threat to the American public from microbes that are transported here from abroad.

We saw the need for stronger U.S. support for a global response.

And it was time to stop talking and do something.
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That is why we decided to appropriate an additional $50 million

as a first installment in a multiyear U.S. strategy to combat infectious disease. Now, that strategy, which was publicly released by

AID 6 weeks ago at the CDC conference in Atlanta, is why we are

having this hearing. We want to focus on building the human capacity and the public health infrastructure in the developing countries so they are capable of conducting proper surveillance. We

want them to be able to respond effectively to infectious disease.

The goal is an integrated set of global networks that work.

We recognize this is an immense task. We are not going to do

it this month or next month. It will take years. But at least we are

letting everybody know it is needed, and we are starting to do it.

So we are going to look at what we have done in the past year.

We want to know how the strategy was developed, what it consists

of, and then if each of you could tell us what you see as the greatest challenges and opportunities for your agencies.

There is only so much government can do. The private sector is

at least as important. That is why we have invited and we are privileged to have as one of our witnesses Dr. Gail Cassell. She is vice

president for infectious disease research at Eli Lilly. Dr. Cassell

will discuss some of the impediments to the development of new

drugs and vaccines for use in the developing countries. There may

some ways we can help get rid of those impediments.

We are also fortunate to have my good friend Dr. Nils Daulaire.

He is a fellow Vermonter. Nils is one of our Government’s most effective advocates for international health programs. And we have

Dr. David Heymann, from WHO, sitting beside him. He is responsible for surveillance and control of emerging and other communicable diseases anywhere WHO operates, which is just about everywhere. They have both been enormously helpful in advising the

subcommittee.

And Dr. Jim Hughes, of the CDC, who knows as much as anyone

in the world about infectious diseases.

What we know is this: 50,000 people die every day of infectious

diseases. Let me repeat that. Every day, 50,000 people die of infectious diseases. To put that in context, the largest city in my home

State of Vermont is about 40,000 people. That is 17 million people

each year. It is 1,500 times the number of people that were killed

by landmines last year—an issue that we have had great concern

about.

I have spent the past 8 years trying to ban landmines, and I do

not plan to stop. They are hideous. They are indiscriminate weapons. They maim and kill innocents. They disrupt whole societies.

But this number puts things in perspective. We have another landmine out there, only 1,500 times more lethal.

And the irony is that many of these infectious diseases could be

prevented or cured, often for as little as $1 per person. But millions

of people die because they cannot afford the cost of the drugs or

vaccines, or there is not the public health system to deliver them.

We want to change that. I want to end with a quote by Laurie

Garrett, the Pulitzer Prize-winning author of ‘‘The Coming Plague.’’

She wrote:

As the world approaches the millennium, it seems, from the microbes’ point of

view, as if the entire planet, occupied by nearly 6 billion mostly impoverished peo-
99

ple, is like Rome in 5 BC. Our tolerance of disease in any place in the world is at

our peril. While the human race battles itself—the advantage moves to the microbes’ court. They are our predators and they will be victorious if we do not learn

to live in a rational world that affords the microbes few opportunities. It’s either

that or we brace ourselves for the coming plague.

That probably says it as well as anyone could.

SUMMARY STATEMENT OF DR. NILS DAULAIRE

So if we might start, Dr. Daulaire, with you. I am delighted to

have you here. I would note for the record that you have advised

this subcommittee on many occasions, and I have appreciated it.

Dr. DAULAIRE. Thank you very much, Senator.

As you have asked, what I would like to do in a few minutes

today is to run through some of the major things that have developed since last year’s hearing, put a few things in context, and

then move to my colleagues, so that we can get into a useful exchange. My extended testimony is available at the back of the

room.

As this committee’s chairman is well aware, the United States,

four decades ago, led the world community in starting the process

to deal with a scourge of terrifying proportions here in the United

States and elsewhere, which was polio. And we are now only a few

short years away from the final eradication of the polio virus from

the face of the Earth. This is a case of real U.S. leadership, carried

out over the course of nearly half a century.

Today, thanks to the vision of this committee, particularly your

leadership, Senator Leahy, and the commitment of President Clinton’s administration, to addressing global problems, we are again

helping to lead the world in a struggle of enormous importance to

humanity—the war against infectious diseases—which, as Laurie

Garrett points out, is in fact the true biological war that we all

face.

Now, you made the decision in the appropriations process last

year that USAID would be the appropriate vehicle for this appropriation and that we would serve as a coordinating body, with

many other institutions, several of them seated here, particularly

my colleagues from WHO and CDC, who have been very active in

this.

We recognized from the beginning what you made note of. Every

2 seconds a man, woman or child dies of an infectious disease. And

for the most part, those who die are the young and the poor, the

hungry, the powerless, the people whom this committee has taken

as their special charge. But beyond those outside our borders who

are at risk, Americans themselves are at enormous risk. And we

will be talking about that this morning.

Now, USAID, as you well know, is an agency that has as its foremost task building sustainable development in the poorest countries of this world. And we have taken this initiative within the

context of this charge of sustainable development. What we see as

our fundamental task is to build the capacity of people and societies to address their own problems. We recognize the problems.

We have enormous expertise in this country.

But American physicians cannot treat every case of disease

around the world. American public health workers cannot immu-
100

nize every child, cannot run every health program. And the only

way that these issues are going to be resolved for the long term is

going to be by building the lasting capacity of the countries that

we assist to do this on their own.

You gave us the mandate. You gave us the funding, which was

of critical importance, back in the fall of last year. And I would like

to tell you what we did. Within a month of this appropriation being

signed into law, we had called together a meeting of the world’s

leading experts on infectious diseases, several of my colleagues

here at the table with me, but close to 100 others who came to

Washington for a remarkable 2-day conference, which you addressed, Senator Leahy, to look at what has been accomplished

and, more importantly, what is still needed to address the problem

of infectious diseases.

And I would like to address your attention to the chart over here.

We know that there are slightly over 17 million infectious disease

deaths in the world, the leading cause of death in the developing

world and a growing cause of death in this world. When we reviewed at this meeting what had been done and what needed to be

done, I would like to point out that this circle would have been considerably larger before USAID’s programs, particularly in child survival, began 15 years ago.

The pink triangle, for diarrhea, would have been between 4 million and 5 million deaths. The green triangle, for pneumonia, would

have been around 4.5 million deaths. The red triangle, for

immunizable diseases, would have been between 3 million and 4

million deaths. So even with past activities, what we can point to

with considerable pride is the fact that there are probably 4 million

or more fewer deaths today, each year, from infectious diseases

than there would have been without these very effective and important programs.

But, obviously, we are left with some enormous problems. And 4

million lives saved is one thing, the 17 million lives that are still

being lost are our major concern.

Now, as you well know, we continue our programs in diarrheal

disease and pneumonia, for childhood illness, in immunizable diseases and of course in HIV/AIDS prevention. But as we reviewed,

as a group, these major causes of illness and death, some big pieces

are obvious: Tuberculosis, which currently kills 3 million people a

year and infects one-third of the world’s population; malaria, which

kills over 2 million people a year and is the single largest cause

of death and disability in Africa. Those are enormous issues.

ANTIMICROBIAL RESISTANCE

On top of that, we recognize that even within the programs and

activities that we already have underway for pneumonia and for

certain kinds of diarrheal diseases, we are facing a major new

problem, which is the growth of antimicrobial resistance. The tools

that we have had for the last 30 years to deal with these enormous

problems are gradually wearing away. And so the focus on antimicrobial resistance, in addition to tuberculosis and malaria, was

judged by this expert group to be a very important part of an

USAID strategy.
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The fourth part which was decided on is one which you have already cited, which is the importance of surveillance, and particularly for USAID, with our work at country level, improving the capacity of countries to obtain and use good information to understand and respond to the spread of disease.

Now, these are important issues. The numbers are huge. But

they are not abstract. And I would like to just address some of the

pictures that we have here, some of which I have taken myself.

This first picture of the young child, that is Lakmi. She is a 3-yearold girl, or she was a 3-year-old girl when I met her in a remote,

rural village of Nepal. She had had pneumonia for the past 10

days.

We had an effective program going on to treat these children

with antibiotics in the community, but she lived 18 hours’ walk

from the nearest hospital or clinic. And the antibiotic just was not

working. She was a case of antimicrobial resistance. Everything

was done right. And when I came and found her, I made sure that

she was getting everything that we had on hand in terms of appropriate drugs at that level. Yet 2 hours after I took this picture, she

died.

These are real problems, with real people.

TUBERCULOSIS

Next to her are two photographs concerning tuberculosis.

Amadou is a young man from Mali. He has what is called scrofula,

which is a TB infection in the nodes of his neck, which eventually

erode and continue to ooze out into the open. These people are virtually unable to work or carry out productive lives.

To his right is Meena, from the Bihar District of India, a woman

who has had TB for a number of years, has infected every single

member of her family and is herself unable to work or carry on because of the severity of her illness.

And, finally, at the very end there, the black-and-white picture

is a picture of Leah, from Kenya, who suffers from malaria, who

has lost two children in pregnancy because of the consequences of

malarial infection, and who is again totally devastated in terms of

her ability to work.

These are real people and real problems.

Now, we recognize that USAID and our $50 million is a small

piece of a very large puzzle and that we cannot do this alone. We

do not expect to do it alone. There are key partners. And particularly I would like to highlight, and we will be hearing more from,

the World Health Organization and the Centers for Disease Control. And I would like to point out the growing role of the private

sector in this area.

We are in a world of a global economy. And we have seen an

enormous growth of interest and capacity on the part of the private

sector, in part, out of enlightened self-interest, recognizing that a

majority of the world’s consumers and economies will be in the developing world over the next 20 to 30 years, and also that a large

proportion of the world’s work force will be there. A healthy work

force is a far more productive work force. So we very much welcome

them to this effort.
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We have, over the past 6 months, since the appropriation, already moved very rapidly. After the consultation we held, we were

able—have been able as of today—to program almost $45 million

of the $50 million that you appropriated, Senator. And we will have

the remaining $5 million wrapped up over the next several weeks.

So we feel that we are in very good shape. It is quite unusual for

a Government agency to be able to move this quickly, but we have

gotten good prodding from the Hill, and we are very interested in

this ourselves.

Let me just say what we can expect, with a sustained commitment over the next 10 years. We do not intend to throw money at

this problem. We intend to build capacity in a thoughtful way. We

intend to have a global strategy for dealing with antimicrobial resistance and an armory of effective interventions in place. We expect to have a set of centers of excellence in TB, and effective programs in a small number of key countries for TB.

We expect to have programs in a number of African countries

dealing with malaria, both in prevention and treatment at the

household level and at the health facility level. And we expect to

have assisted our colleagues here in laying the basis for a global

surveillance system, with our focus being on local capacity. I compare this to the phone system. These colleagues are building the

fiber optic network to tie the whole thing together. We are working

on installing the jacks and the telephones in the individual countries.

Now, I know that there has been concern about our budget request, the administration’s budget request, for fiscal year 1999.

And it is slightly lower than the 1998 appropriated levels.

Senator LEAHY. Slightly? It has gone from $50 million to $30 million.

Dr. DAULAIRE. Well, I would like to lay that out in a broader context, if I may, Senator.

We also note that the Senate mark for the 150 account, the for- eign affairs account, was $800 million less than what the administration has requested. And as you know, we have a difficult task

always in balancing the needs of a variety of development activities. As you well know, it is not just our health programs, but a

whole series of interventions that are important for infectious diseases. And we had to look for increased funding for the environment, for poverty reduction and for agriculture, which were a key

issue in terms of this broad-based approach.

I would also point out, Senator, that we have not used a penny

of this special appropriation for work in the former Soviet Union

and the New Independent States. But this year we are devoting $9

million beyond the $50 million to that. And next year we are expecting to devote $22 million. So the figure that you see in the

budget is not the full story.

PREPARED STATEMENT

Mr. Chairman, this initiative, I believe, represents the best of

America. It represents enlightened self-interest, as you have very

eloquently laid out over many occasions in the past. It represents

an American know-how tradition and a can-do approach. We are

taking this from a very practical standpoint and trying to move for-
103

ward. And it also represents our commitment to helping people to

help themselves. This is where we are headed in the long run, and

we are very pleased with the assistance, support and encouragement that you have given us.

Thank you.

Senator LEAHY. Thank you.

[The statement follows:]

PREPARED STATEMENT OF NILS M.P. DAULAIRE, M.D., M.P.H.

Thank you Mr. Chairman for giving me an opportunity to present to this committee an update on the progress the U.S. Agency for International Development

(USAID) has made in launching a new initiative aimed at reducing the global threat

of infectious diseases. This new initiative reflects and furthers the Administration’s

1996 policy on Emerging Infectious Diseases. I would like to describe our new strategy, including how our key partners have participated in its development; summarize how we see this vital initiative fitting in with our on-going activities in infectious diseases and the important connections to overall development efforts; and

outline our key next steps, including accelerating the engagement of new partners,

including the private sector, foundations, and other important actors.

We at USAID would also like to thank you, Mr. Chairman and this subcommittee

for your leadership in providing the funding to USAID last year which enabled us

to launch this new initiative. This has given us the opportunity to address a huge

and growing problem that not only causes millions of deaths each year in the developing world, but threatens the health and safety of Americans as well. By following

the strategy I would like to describe to you today, and working closely with our

partners in this effort, we will reduce deaths due to infectious disease and strengthen public health systems that have broken down throughout the developing world,

giving these countries the capacity to protect their citizens from infectious diseases,

and stop the global spread of these diseases.

These are not quick and easy interventions, but over the next ten years, with concerted effort and effective collaboration with our partners, and commitments and resources from new partners, we can make a real difference and have a significant

impact on global health.

USAID’S STRATEGY AND PROGRESS TO DATE

Over the past six months, USAID has been heavily engaged in developing a strategy for this new initiative on infectious diseases. We have been very fortunate to

have benefitted from extensive consultations with many of USAID’s key partners,

including Dr. David Heymann and his colleagues at WHO; Dr. Jim Hughes and his

colleagues at CDC; the National Institutes of Health; the Department of Defense;

UNICEF; a number of universities and research institutions; private sector companies; and a wide range of organizations engaged in implementing programs in the

field.

As a result of these consultations, we have developed a consensus on the most

appropriate focus for USAID and the new resources with which you have provided

us, and a strategy that clearly articulates USAID’s role and how it fits with other

donors and actors. This strategy identifies specific results for each of the four components which have been agreed on.

As part of USAID’s ten year strategic plan, our objective in infectious diseases is

designed to reduce the threat of infectious diseases of major public health importance, contributing to a 10 percent decline in the number of deaths due to infectious

diseases (excluding AIDS) in the developing world by 2007.

USAID’s new initiative has four key components: Develop strategies and interventions to understand, contain and respond to the development and spread of antimicrobial resistance; reduce the spread of tuberculosis and morbidity and mortality

associated with the disease among key populations; decrease deaths due to malaria

and other infectious diseases of major public health importance in selected countries; and improve the capacity of countries to obtain and use good quality data for

surveillance and effective response to infectious diseases.

This strategy focuses on the primary infectious causes of mortality in the developing world: of the 17 million deaths due to infectious causes each year, 75 percent

(or about 13 million) are due to just five diseases: acute respiratory infections (most

commonly pneumonia), tuberculosis, diarrhea, malaria, and HIV/AIDS. Almost all

of these deaths are in the developing world. The high incidence and rapid spread

of these diseases is to a large degree due to the breakdown, or lack of, effective pri-
104

mary health care and limited or poor prevention measures. It is also due to increasing incidence of drug resistant strains of these diseases. These problems are exacerbated by poverty, poor nutrition, high rates of population growth and high population densities, poor water and sanitation systems, and low levels of literacy.

Prior to this new initiative, USAID had over the last several years invested more than $300 million annually in combatting infectious diseases through: our child survival programs, including significant efforts aimed at addressing acute respiratory

infections and diarrheal disease control, and some work in malaria; our HIV/AIDS

work, where USAID is the single largest bilateral donor for HIV/AIDS programs in

the developing world; and through our assistance in building robust health systems

in developing countries.

This initiative will be implemented in developing countries in Africa, Asia and the

Near East, and Latin America and the Caribbean, and in transition countries of the

Newly Independent States (NIS). USAID has been advised to avoid spreading these

resources too thinly. Focus countries will be selected based on a combination of factors: impact on worldwide disease patterns, the severity of disease within particular

countries, potential for learning lessons which can be widely generalized, complementary programs of other partners and donors, and the capacity and opportunities at specific USAID missions.

Over the next ten years, we expect to put in place a coordinated global strategy

and action plan for slowing the spread of antimicrobial resistance and an armory

of effective interventions for addressing the problem. We will support several centers of excellence for controlling TB around the world, and effective intervention programs in some of the countries where the TB burden is greatest. We will build and

strengthen programs throughout Africa that manage and prevent malaria at the

health facility and in the home—where most of the deaths occur—and will help to

develop more powerful weapons in the fight against malaria, including, we hope, a

vaccine. Finally, we will be well on our way to having a global disease surveillance

system by establishing the capacity to collect, use, report and respond to appropriate

and accurate data at the country level. Until surveillance capacity is built at the

country level, we cannot have a global surveillance system, and we cannot have

global security from the threat of infectious diseases.

Antimicrobial resistance

Over the past half century, antimicrobial therapies (antibiotics and antiparasitics) have been our most important weapons against infectious microbes. However, the wide-spread, often indiscriminate, use of these drugs has contributed to

the emergence of drug resistant strains of infectious organisms.

Inappropriate use of antibiotics selects resistant strains for survival. In developing countries, such inappropriate use is often the result of poor access to appropriate

drugs, inadequate national drug policies and information, poorly trained pharmacists and doctors, and poor patient compliance with drug treatment. Changing

common practices among both providers and patients to decrease the inappropriate

use of antimicrobials is the principal challenge. Also essential is the capacity to

monitor antimicrobial resistance and susceptibility of the major human disease organisms. This requires well-trained laboratory personnel and clinicians, essential

supplies and equipment, and effective use of data.

USAID, in collaboration with WHO and other partners, has a unique opportunity

to help bring about a comprehensive global strategy on antimicrobial resistance. The

strategy will be used as a road map and advocacy tool, and serve to target resources.

We will give special attention to diseases for which antimicrobial resistance poses

a major threat in developing countries because of high mortality and incidence, and

for which antimicrobial treatment remains the most effective control strategy, including dysenteric diarrhea, pneumonia and gonorrhea.

In addition to working with our partners to establish a global strategy and action

plan for antimicrobial resistance, USAID will invest in improving the understanding

of and disseminate information about drug resistance, including the epidemiology,

public health impact and contributing risk factors. We will invest in research to develop methods to detect resistance, including, for example, laboratory assays; tools

for population based surveys; and clinical methodologies to detect resistance based

on treatment failure. We will also support behavioral research to increase the rational use of drugs, and support research on improved treatment regimens to prevent the spread of resistance. We will work with countries to strengthen the capacity to respond to drug use and drug resistance information to close the gap between

data collection and decision making. Lastly, USAID will promote the implementation of interventions to slow the spread of antimicrobial resistance, including activities such as improved management of pharmaceuticals, strengthening drug policy

analysis and regulatory mechanisms as well as improving the availability and use
105

of unbiased drug information, and curriculum reform for rational use of

antimicrobials.

Tuberculosis

After years of declining visibility, tuberculosis is again being recognized as a leading cause of adult deaths and illness. About three million TB-related deaths occurred in 1997, and one-third of the world’s people have been infected with the TB

bacillus. The debilitation caused by TB is a leading cause of work loss around the

world.

In the developing world, increasingly more crowded cities, inadequate health care,

and the complicated nature of managing TB have contributed to an ever-worsening

problem. Inadequate treatment and poor compliance have led to the emergence and

spread of multi-drug resistant strains of TB which are virtually untreatable, given

current resources. Furthermore, the decreased immune response resulting from HIV

infection has led to a rekindling of TB in its most infectious form among millions

in whom the disease had been dormant.

The success of a new strategy, Directly Observed Treatment, Short-Course

(DOTS), has created optimism that the disease can be more effectively controlled on

a much broader scale. However, DOTS requires multiple contacts between a treatment supervisor and TB patient over a period of six to eight months and can only

be carried out in situations where effective program management can be assured.

In the context of poorly-managed programs with frequent drug shortages, there is

considerable risk that poorly run TB control programs can lead to the emergence

of more widespread multi-drug resistance, which must be avoided at all cost.

Existing health service delivery systems in developing countries are generally not

well prepared to address TB on the scale which is required. In some transition countries, extensive systems are in place dedicated to TB, but are costly, inefficient and

ineffective.

One of USAID’s first priorities is to work with our partners, including WHO,

CDC, the International Union, and others to develop a comprehensive global TB

control plan and strategy to become the basis for coordinated action and for building

political consensus and support. USAID also plans to establish 3–5 major field sites

to serve as models for innovative wide-scale TB surveillance and control, and support the implementation of TB control programs in several other countries. We will

invest in research to investigate technologies for TB prophylaxis, diagnosis and

treatment, and support surveillance to monitor TB trends and to identify multi-drug

resistant TB strains before they become widespread.

Malaria and other infectious diseases

While malaria is a global problem, it poses a particular challenge to public health

and economic development in Africa, where 85 percent of the world’s total malaria

clinical cases and 90 percent of the malaria deaths occur. Infants, young children

and pregnant women are especially vulnerable. Each year malaria causes more than

two million deaths and half a billion debilitating cases, accounting for the single

largest cause of labor loss in Africa.

Latin America and southern and central Asia also have extensive areas with malaria transmission. Outbreaks of malaria of epidemic proportions have also occurred

in the southern part of the NIS and are spreading to surrounding countries in the

region.

USAID’s recent malaria activities have focused on the development of new technologies, including development of a malaria vaccine, and pilot testing options for

practical prevention and control of malaria in Africa. With the lessons learned from

these programs, we will scale-up from earlier pilot studies in Africa and extend our

malaria efforts into selected countries of Latin America, south Asia, and possibly the

NIS. A package of health interventions which focus on improved management and

prevention of malaria at the health facility and community levels is at the core of

our expanded malaria program. USAID will also support an Africa regional insecticide treated bed net program. Research to improve the understanding of the immunology, epidemiology and transmission of malaria and to develop improved approaches and technologies for prevention and control of malaria will also be supported, as well as further investments in developing and field testing malaria vaccines. Finally, USAID will support activities to address the development and spread

of parasite resistance to existing antimalarial drugs, including strengthening country-level capacity to conduct routine mapping of antimalarial drug sensitivity; promoting national level adoption and implementation of drug policies consistent with

effective treatment and promoting the development of alternative malaria drug

therapies.
106

Other infectious diseases, such as dengue, yellow fever, meningitis, and chagas

are also re-emerging as public health threats. These are often epidemic in nature,

and many are transmitted by insect vectors. Even though their global burden is less

than our priority diseases, investments in their prevention and control in a particular country may sometimes be warranted due to high case fatality, the potential for

rapid spread, economic disruption, impact on highly vulnerable populations, and

cross-border transmission.

Surveillance and response

The ability to detect disease and to access data is essential for establishing timely

responses to infectious diseases. However, health systems in many developing countries lack the necessary capacity for routine and sentinel disease monitoring. Surveillance and response capability is impeded by decision-making divorced from accurate information, incompatibility of disease reporting with information systems, lack

of commitment, limited expertise, insufficient laboratory capacity, and poor coordination. We cannot have an effective, reliable global disease surveillance system unless there is adequate capacity at the country level.

For countries with difficulties in implementing routine basic surveillance, the

challenge of detecting and responding to the appearance of new organisms, disease

outbreaks, and antimicrobial resistance often presents an impossible challenge. To

be effective, surveillance and response must be an accepted national and local responsibility. International response to all but the most dramatic outbreaks relies on

this local capacity.

USAID will focus our resources primarily on building improved national capacity

in the countries we assist for surveillance and response. Emphasis will be on using

data for action and ensuring that there are feedback loops throughout the data system. As has been done in the Americas for polio and measles, disease-specific surveillance activities can help create a foundation for more sensitive and sustainable

systems to track a broad range of infectious diseases of public health importance.

USAID’s efforts in this area will be targeted at improving the ability of public and

private health system staff to obtain and use good quality data for the surveillance

of, and response to, infectious diseases. We will support the development of improved technical and laboratory capacity. We will explore innovative technologies

such as geographic information systems mapping, and help to improve laboratory

management and basic epidemiological training. Success of this effort will be judged

not by the collection of data, but by its routine and appropriate use to control disease.

INFECTIOUS DISEASES IN THE DEVELOPMENT CONTEXT

We are also grateful to this subcommittee for helping to stem the downward spiral

of development assistance funding. Funding for development assistance has declined

significantly in recent years, most dramatically in fiscal year 1996 which saw a $400

million decline over the fiscal year 1995 level of $2.1 billion. This decline was

stopped last year with the fiscal year 1998 appropriation, in large part thanks to

this Subcommittee. As this subcommittee is well aware, addressing infectious diseases effectively is not only a health issue, but also requires investments in education, poverty reduction, food and nutrition, environment, and family planning.

At USAID, we have become increasingly concerned about scarcity of resources

available for important other areas, such as agriculture and food security, and reductions in population funding. As a result, our fiscal year 1999 budget request includes more funding for environment, economic growth and agriculture over the fiscal year 1998 enacted levels. Increases in these areas will help fund two initiatives

that have great potential. The $30 million Africa Trade and Investment Policy Initiative is designed to reinforce and give practical assistance to the growing number

of countries in Africa interested in reducing barriers to foreign trade investment.

The $20 million Latin America Summit Initiative is designed to eradicate poverty

and discrimination through trade reforms and increased economic integration as

well as improve education in the region.

These unique opportunities have forced us to make some difficult choices. As a

result, we have requested fewer resources for infectious diseases and child survival

than the Agency received in fiscal year 1998.

I want to underscore that this in no way reflects a reduced priority for infectious

diseases or child survival. As Administrator Atwood has stated, we have learned

that our efforts to combat infant and child mortality and the spread of infectious

diseases are more effective when we are also able to address some of the underlying

social and economic conditions that allow these diseases to flourish, including poverty, malnutrition, illiteracy, poor sanitation, overcrowding, and environmental degradation. Addressing these underlying conditions is also critical for making sure
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that our investments in building effective health systems are sustainable for the

long run.

Another resource constraint is the Agency’s operating expense resources, which

overall, are decreasing, rather than increasing. USAID is exploring options for restructuring the portfolio of existing staff to effectively implement this new infectious

disease initiative, without jeopardizing our ability to adequately manage on-going

programs. We are exploring options to bring into the Agency specialized technical

expertise in areas such as tuberculosis. We also hope to work with other U.S. government agencies and private partners to bring their technical expertise to bear on

the strategy I have outlined today.

The problems of infectious diseases are much greater than what the U.S. government can take on entirely by itself. We will need to work with our public and private sector partners to leverage and increase resources targeted at these issues.

NEW PARTNERSHIPS

USAID has chosen to focus on a relatively few areas in infectious diseases, but

even within these areas the task before us is enormous, and far exceeds the resources the U.S. can put forward. We must work together to identify new partners

and bring them to the table. I am very pleased to see the private sector represented

here today; it is clear that effectively addressing infectious diseases is very much

in the interests of all of us, including the private sector.

We have the obvious representatives here—the drug companies and those who

deal directly with health issues. But there are many more companies that for philanthropic and other reasons may be willing to participate. For example, Coca Cola

helped support a National Immunization Days campaign for polio in Zambia, providing transport for health workers and volunteers. USAID is working closely with the

U.S. food industry to expand the intake of vitamin A for children at risk in developing countries, employing this powerful new weapon for child survival. Decreasing vitamin A deficiency through fortified foods and supplements, and increased use of vitamin A rich foods, can reduce child deaths by as much as a quarter, by directly

enhancing children’s resistance to the infections we are discussing today. While

USAID’s vitamin A initiative is separate from our infectious disease initiative, it is

a critical complementary strategy.

When asked, U.S. private sector companies and international corporations have

again and again demonstrated a willingness to engage in programs that do good

works. We all need to move much more proactively to engage the private sector in

the fight to address infectious diseases. I invite my partners here today to join with

USAID in more aggressively bringing the private sector to the table and help bring

their tremendous resources to bear on this immense problem.

Foundations are also a significant resource. Some foundations such as Rockefeller,

Ford, Thrasher, and Pew have been heavily engaged in international health issues

and we have all seen the remarkable and ground-breaking programs they have supported. However, there are other foundations that are not working in international

health as yet. We need to join with our foundation colleagues and others to encourage wider participation from others in efforts to improve international health.

Civic organizations are already involved in a variety of international programs.

When polio is eradicated in the next several years, Rotary International can rightly

take a great deal of credit for making it happen. The Lions Club’s support for International Sight and Life has made a tremendous difference in the lives of children

all over the world. Here too, we can work together to encourage further participation from other civic organizations. As we have seen with Rotary, civic organizations

cannot only help mobilize financial resources, but they often have member networks

in countries all over the world that can be tremendously powerful partners in mobilizing local resources, getting work done, and building sustainable systems.

The World Bank is devoting enormous resources to bear on infectious diseases,

notably TB and malaria. While coordination often occurs at the country level, we

need to be much more systematic about collaborating closely with our World Bank

colleagues to get the most out of our investments.

The President has proposed an increase for the NIH budget, including increased

support for vaccine research. Investments in research now cannot be oversold, and

will be critical for our success in fighting infectious diseases for the long run. Vaccines are tremendously powerful weapons in the fight against infectious diseases,

and must be supported. We hope to closely coordinate with NIH, to make the most

of our combined resources.

The Centers for Disease Control and Prevention (CDC) continues to be an important partner in international health in areas such as developing methods to monitor

antimicrobial resistance, especially pneumonia and malaria, as well as providing ex-
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pertise in field epidemiology. We have been in discussions with CDC about the important role they will play in USAID’s strategy, and are jointly seeking ways that

we can maximize the impact not only of the resources USAID gives CDC for work

in developing countries, but look for opportunities for combining our resources for

greater impact.

The World Health Organization (WHO) is already one of our major partners; this

partnership will be enhanced through our infectious disease initiative as we engage

multiple divisions within that organization. We are very enthusiastic about the

nomination of Dr. Gro Brundtland as Director General of WHO. Dr. Brundtland’s

stated priorities of strengthening health systems and health and development will

help to maximize the synergy and effectiveness of our combined resources.

UNICEF has also been an important partner for USAID for many years in child

survival and health programs. Because so much of the infectious disease work I

have described today dovetails with these programs, we will be working with

UNICEF to look for more opportunities to collaborate.

USAID’s programs have been working successfully to engage local private and

public sector resources. Given the scarcity of resources at the local levels, this is

often a great challenge, but it has tremendous payoffs by making programs more

effective, more acceptable and accountable to local people, and more sustainable for

the long term. For example, in India, 10 million volunteers helped make the 1997

and 1998 National Immunization Days for polio a remarkable success. Thanks in

no small measure to these volunteers, 130 million children were immunized in one

day. This kind of effort will make polio eradication happen.

CONCLUSION

The burden and growing threat of infectious diseases is enormous. Millions of people die every year from these diseases, and most of these deaths are preventable.

As we near the end of the century, there is a deepening collaboration and growing

consensus among political leaders, international organizations, health agencies and

communities that by working together, we can curb the threat of infectious diseases.

Building the systems to prevent, control and detect diseases is possible.

Thanks in large part to the vision of this subcommittee, the U.S. has now taken

a leadership position. By maintaining our course, encouraging the participation of

new actors and bringing new resources to the table from other quarters, we can over

the next decade make even greater headway in addressing this problem.

FOREIGN POLICY

Senator LEAHY. I look at the fact that we can spend millions of

dollars, for example, as part of our foreign policy, to send an aircraft carrier task force into an area, just to show the flag. And here

we are talking about saving lives for the cost of $1 a person, or $2

a person. When you are a nation with 5 percent of the world’s population using one-quarter of the world’s resources, the humanitarian obligation is there to do more.

But also, if you want to just look at it as a matter of pure selfinterest, we have a great interest here. These diseases come to our

shores. We are not isolated from them.

My wife is a nurse and she sees more and more patients with

TB. And I also understand that is not unusual around the country.

When you only know about faraway countries by reading National Geographic as I did as a child, today people leave here on

Monday for a conference on the other side of the world, and they

are back at their desk by late in the week.

But I state the obvious here, and I do want to hear from Dr.

Heymann.

It is good to have you with us again.

SUMMARY STATEMENT OF DR. DAVID L. HEYMANN

Dr. HEYMANN. Thank you very much, Senator Leahy.
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I am very pleased to represent the World Health Organization at

this second hearing that you are conducting on infectious diseases.

And I would like to call your attention to some charts which we

will be showing at my right.

This first chart follows up on what Nils has said previously. If

you focus on the purple wedge, that is the 17 million infectious diseases which are occurring in 1995, and a similar number is occurring—slightly more—this year. If you look at this in comparison to

the total number of deaths in the world in 1995, you will see that

that represents a third of all deaths.

This is unacceptable today, in a world where the tools are there

to control infectious diseases. And as is true with infectious diseases, it affects mainly the poor in developing countries.

The next overhead shows the infectious diseases which have been

recently imported into the United States. And these diseases are

imported in food, such as cyclospora. They are imported in laboratory animals, such as Ebola. And they are imported in people, as

is shown with cholera, yellow fever, dengue, malaria, and polio.

Now, I would like you to focus, Senator, if you would, on the

three diseases on the right: yellow fever, malaria, and dengue.

These diseases are all carried by mosquitoes. And on the next chart

you will see the States in the United States which were reporting

malaria in 1949. These States had the mosquito vectors which

would transport or transmit malaria. These States also had the disease mosquitoes which would transmit yellow fever.

Today those mosquitoes are still present in these States. And it

suffices for a letdown in vigilance—which CDC will never do—but

if a letdown in vigilance occurs, there will be an increase in transmission of these diseases, yellow fever, dengue, and malaria, in the

United States.

Senator LEAHY. What you are saying is if you were to look for

where the mosquitoes are, and to change that from 1949 to 1999,

for example, it would be basically the same?

Dr. HEYMANN. That is correct. They are the same. But in the

summertime, they can spread up to the metropolitan areas of New

York and Boston.

The next shows the concerns in globalization and health, which

you have alluded to, this rapid transportation of commerce and also

of people. In the North, the issue and the concern is one of international public health security, making sure that these organisms

do not come in, in food, or that they do not come in, in people, either returning tourists or immigrants.

In the South, the issue is early detection and containment, being

sure that these diseases are detected early and stopped, so that

they do not cause high mortality, and so that they do not decrease

trade and tourism, which is always a result of an infectious disease

in developing countries.

But there is hope, because there is a common concern for both

the North and the South, a common interest. And that is to

strengthen both global detection systems for infectious diseases and

also national surveillance and control in countries, including developing countries.

Now, this overhead, this chart, shows a disease called monkeypox. Human monkeypox is a disease which occasionally occurs in
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humans, and it comes from animals living in the rain forest in

West and Central Africa. This disease, in the past, has not spread

further than five people within the same outbreak. And it is a disease which does not kill to the same extent as smallpox, but does

kill 10 percent of those infected. Smallpox vaccination protected

against human monkeypox. Today, smallpox vaccination is no

longer given anywhere in the world, so it is a concern when a disease such as this strikes the human population.

And I would like to just show you how a response is mounted to

a disease such as monkeypox, to show you, first of all, the sequence

of events, and then some of the problems. Now, the first case of

monkeypox in this outbreak, which at that time already numbered

90 cases, came to WHO through its global network of disease detection. This is a system which receives rumors of infectious, unconfirmed infectious diseases, from NGO’s, from governments and

from technical agencies such as CDC and USAID.

The report came to WHO. WHO mounted an investigation locally, with its local WHO epidemiologist, Medicine sans Frontiere,

which is Doctors Without Borders, and the national investigation

team, and specimens were obtained and sent to CDC. CDC, in September, diagnosed human monkeypox, confirmed the diagnosis. It

took us from September until January to get an investigation started, because we had to stop and raise the funds necessary. We had

to raise funds to transport the team into a remote area of the

former Zaire. We had to set up the logistics. And it took us 3

months before we could send a team from Geneva, from CDC, from

the European Epidemiology Training Program, and nationals into

the site.

They got to the site at very heavy expense, but 10 days later,

civil war came through, the investigation was interrupted, and we

had to start over again in September. But, by September, we had

been able to broaden the response to the PHLS, which is the Public

Health Laboratory in London. So we broadened the response, so

that no one country had to bear all the burden.

And now we are in the process of developing strong surveillance

in the area, to make sure that the disease does not occur again, because the outbreak was successfully investigated. Over 300 cases

have occurred. Analysis is now being done, and an expert group

will be formed, to see what the implications of this are. But we now

have a system in place to make sure that if more monkeypox occurs, it will be detected.

But, again, there was a gap from September to January. That

gap was again due to the need to go out and raise more resources.

We need a fund of money available internationally when these outbreaks occur.

Senator LEAHY. Doctor, could we stop there for a moment.

I understand the delays when there is a war going on. But what

you are saying is that everything is in place but you do not have

the fare, you do not have the money?

Dr. HEYMANN. That is right. It has been a major effort of ours

to broaden the response, to include groups like EPIET, the European Field Epidemiology Training Program, and the Public Health

Laboratory in London. Through talks with their governments, their
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governments have put more funding into these programs, so that

they can respond at no cost to us.

Previously, it was only CDC which could do this. So we have to

broaden the response. But no one person can support the logistics,

an airplane charter to take the teams in. This must be an international fund of some type.

Now, it is not enough just to strengthen disease surveillance, detection and control, we also must have the products necessary to

prevent disease and to cure them. This shows you the vaccines

which have been licensed since 1900, a total of 42 of them. And you

can see that there were 12 licensed between 1900 and 1950. And

since 1951, there have been 30 licensed, which is quite impressive.

The problem remains, however, that the major killers, which Nils

has shown on his overhead, many of those still do not have a vaccine: AIDS. Tuberculosis has no effective vaccine. A vaccine for

other infectious diseases do not exist. And those that do exist,

many times, are too expensive.

Right now there is a safe and effective vaccine for yellow fever,

and another safe and effective vaccine for other diseases in Africa,

yet the countries cannot afford to put these vaccines into their programs, and international donors do not buy them. So, as a result,

populations are remaining unvaccinated, with products which are

already available. So that we have made progress in development

of vaccines, there remain many diseases elusive to vaccination, and

at the same time we are seeing that they are unaffordable in many

countries.

The next shows you the discovery of antibiotics. And you can see

that from 1940 to 1950, it was the golden age of antibiotic development. There were 10 antibiotics developed or discovered. If you

look progressively, you will see that in 1961 to 1970, that had decreased to 10. And if you look from 1971 to 1990, that still remained at five. So a decrease from 10 to 5 to 5. And in 1990, there

are only three.

Now, resistance is developing very rapidly to these antibiotics,

and it is a risk to develop a new antibiotic because of that. But I

would just like to signal some of the problems now, in the next,

with developing new vaccines and new drugs for use in developing

countries.

Now, this is not only an issue of scientific research and development, it is also an issue of economics and patents. Industry has to

recoup the cost that they spend on research and development of

new product. It is a justifiable need. They also have to recoup the

costs on all the other investments they made on products which

never made it to market. So they need to get a profit. And they

need to get that profit rapidly because they have a patent limitation of a maximum 20 years.

Now, some of the obstacles along the way to develop products for

developing countries are that there is a variation in the industry’s

distribution. The rich markets which could buy many of the products do not have many of the diseases. So developing countries,

which have a soft currency market and a limited affordability of

new vaccines and drugs, are not a target of industry, and rightfully

so.
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There is also a long interval to licensing many times. The patent

may be 10 years down the way before a drug is already licensed.

And then that 10 years is the only time they have to recoup the

money on a guaranteed basis. So there are many obstacles to developing products for developing countries. And what is needed is a

better environment in industrialized countries, so that pharmaceutical companies will be willing to invest in development of vaccines and drugs for developing countries to sustain all the efforts

that WHO, USAID, CDC, and others are doing in making an infrastructure to support disease detection and control.

So, finally, I would just show you a list of the WHO, or a map

of the WHO collaborating laboratories, which are one of our global

surveillance systems. These are being hooked up electronically. But

as you can see, there are gaps in the South, in Africa, in Latin

America and in Asia, there are a decreased number of centers. And

these must be strengthen, and Nils alluded to that, in the activities

that USAID will be doing bilaterally.

PREPARED STATEMENT

So I would like to just close by saying that the funding has been

very crucial to USAID to strengthen global surveillance and monitoring and control of infectious diseases, and it is very important

that those products continue to be produced, which will permit successful disease control and prevention. So a new environment for

the pharmaceutical industry, to encourage that, and increased or

sustained funding to USAID will move us greatly ahead in solving

the problem of infectious diseases in the world.

Thank you very much.

Senator LEAHY. Thank you, Doctor.

[The statement follows:]

PREPARED STATEMENT OF DR. DAVID L. HEYMANN

INFECTIOUS DISEASES: THE CONTINUING CHALLENGE

Infectious diseases are dynamic, resilient and remarkably persistent over time.

They have caused fear and horror for millennia. The suffering and losses they have

inflicted have been described throughout recorded history and have dramatically

shaped human destiny. Twentieth-century medicine has reduced their toll, but not

their number. The number of such diseases is actually growing, in part because microbes that live in animals increasingly find conditions right to jump the species

barrier and infect humans. The list of threatening diseases is longer now than it

was 75 or 50 or even 25 years ago. Some infectious diseases, quiet for decades, are

nonetheless still with us and roar back with a vengeance wherever public health,

sanitation and other control measures fall into decay. And increasingly there is a

fear of intentional use and spread of microbes, including genetically-modified versions, as weapons of war or terrorism.

One-third of the 52 million deaths which occurred in the world in 1995 were due

to infectious diseases, and this ratio has remained the same in 1996 and 1997.

These diseases killed 17 million persons in 1995 and disabled hundreds of millions

of others. The majority of these diseases, including tuberculosis, pneumonia, hepatitis, measles and AIDS, are transmitted directly from person to person. Others are

spread by food, water or soil and include diarrheal diseases, cholera, neonatal tetanus, and intestinal parasites. Some are insect-borne such as malaria and dengue

fever. Others, such as rabies, are spread directly from animals to humans.

Advances in public health and medicine, sanitation and pest control have led to

the prevention and control of infectious diseases in many countries but have had

minimal impact in others. Worldwide, centuries of progress have been undermined

to various degrees by deteriorating public health infrastructure, inadequate resources for health care services, and the rise of new and multi-drug-resistant orga-
113

nisms. There continue to be enormous disparities in mortality, disability and exposure to infectious diseases among social classes, with the poor still suffering extremes of ill health in all societies. When adequate financial and human resources

are not devoted to infectious disease control, whether due to poverty or to competing

priorities, the result is a predictable increase in infectious disease.

In spite of huge steps forward in controlling infectious diseases, from the research

laboratory to the hospital bedside to the village health center, there have been huge

setbacks too. The resurgence of diseases once thought conquered is taking a rising

toll in human lives. The assumption that antibiotics would forever cure many infectious diseases has been proved disastrously false by the evolution in the last few

decades of drug-resistant bacteria, viruses and parasites. And in the late twentieth

century, expanding global travel and trade have made an infectious disease in one

country become a concern for all. As we enter the 21st century no country in the

world is safe from infectious diseases.

INFECTIOUS DISEASES: RECENT EXPERIENCE

During 1997 the world experienced over 60 internationally-significant infectious

disease outbreaks of both ‘‘classic’’ infectious diseases and new, unfamiliar diseases.

Other familiar infectious diseases continued to gain ground in new and often disadvantaged populations. Many of these disease have crossed, or threatened to cross,

international borders, menacing international public health security. Though none

of these outbreaks appear to have been intentionally caused, the fear of intentional

use of infectious agents remains. For example, during 1997:

Major cholera epidemics spread throughout eastern Africa, affecting hundreds of

thousands of people in more than ten countries over several months. Trade sanctions were unnecessarily placed on fish exports from these countries resulting in severe economic impact on their fragile economies.

Yellow fever fatalities were reported in seven countries in Africa and South America.

Meningitis caused major epidemics in Africa, with over 70,000 cases reported in

the 1996–97 season, over half of which are feared to have resulted in permanent

brain damage or death.

Over 15,000 cases of typhoid fever with resistance to first-line antibiotics occurred

in Tadjikistan.

Epidemic typhus resurged in Burundi with over 30,000 cases and untold deaths.

An avian influenza virus emerged in humans in Hong Kong, killing 6 out of the

18 people who became ill. It is being carefully monitored for its potential to become

the next worldwide pandemic influenza threat.

Rift Valley fever afflicted thousands of people, killing hundreds of people and

many livestock in Kenya and Somalia.

The prevalence of hepatitis C continued to increase in countries where blood is

not screened prior to use and sterilization of medical equipment is faulty.

Lassa fever, with high mortality, re-emerged in Sierra Leone.

An outbreak of dengue fever occurred in Cuba for the first time since the 1981

epidemic.

The investigation of an unexpectedly large human monkeypox outbreak in the

former Zaire raised troubling new issues about this disease and about the safety of

smallpox vaccination in the era of AIDS.

The number of cases of new variant Creutzfeldt-Jakob Disease reached 24 in the

United Kingdom and France, combined with the continuing threat of bovine

spongiform encephalopathy (BSE or mad cow disease). The United Kingdom’s economic loss from BSE was estimated to have reached $5.7 billion U.S. dollars.

Escherichia coli 0157 continued to surface in industrialized countries including

Japan and the United States.

Vancomycin-resistant Staphylococcus aureus was identified in Japan for the first

time, and later in the United States.

Sporadic infectious disease outbreaks and epidemics such as these are costly to

the economies of countries in which they occur. Epidemics often divert resources

from the ongoing control of important endemic infectious diseases such as tuberculosis, AIDS, malaria, pneumonia and diarrheal diseases. As a result endemic diseases continue to increase. For example, the number of new HIV infections in Eastern Europe tripled during 1997, and with it there was an increase in tuberculosis,

while funding for control efforts failed to keep pace.
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INFECTIOUS DISEASES: BUILDING A GLOBAL FRAMEWORK TO STRENGTHEN

SURVEILLANCE AND CONTROL

During the 50 years since the World Health Organization (WHO) was created we

have learned that there is a complex network of ecological, social, political and economic factors that must be addressed to solve most public health problems. We

must be alert to and fashion our response to infectious diseases to reflect the diversity of experience as well as inequities within and between populations. Despite the

existence of vaccines, drugs, and laboratory tests which have helped to decrease infectious diseases to low levels in many countries, success in the control of infectious

diseases in other countries remains elusive. Poor progress is partly due to lack of

appropriate technologies that can easily be applied to overcome disease in developing countries, and partly to the inability of those parts of the world with the most

infectious disease to finance the necessary interventions on a sustainable basis. The

experience of WHO during this half a century has shown over and over again that

controlling infectious diseases is a global challenge requiring a sustained, committed

effort and partnerships among and between governments, non-governmental, and

multinational organizations.

The concern of industrialized countries such as the United States, where prevention and control efforts have dramatically decreased infectious disease mortality, is

international public health security: ensuring that infectious diseases which are occurring elsewhere do not spread internationally across their borders. The concern

of developing countries is to detect and stop infectious diseases early: avoiding high

mortality and negative impacts on tourism and trade. Peru estimates that when

cholera re-surfaced there in 1991 over 3,000 persons died, and that the national

economy lost over $770 million U.S. dollars because of decreased tourism and embargoes on seafood trade. The estimated loss because of mad cow disease in the

United Kingdom is $5.7 billion U.S. dollars.

Both industrialized and developing countries can address their concerns by working together to strengthen detection and control of infectious diseases. The WHO

framework for the surveillance and control of emerging and other infectious diseases

takes this common interest into account. This framework has been developed together with Member States and other partners, including the EU-US Task Force on

Emerging Infectious Diseases and the US-Japan Common Agenda, and has been

cited as an area of collaboration by the G–8 Member Countries at both the Lyon

(1996) and the Denver (1997) Summit meetings.

There are three major components to the WHO global framework for the prevention and control of infectious diseases:

1. Strong global and national epidemiological surveillance and public health laboratories to detect infectious diseases, to provide data for analyzing and prioritizing

health services, and to monitor and evaluate the impact of control efforts.

2. Sustainable and well-managed infectious disease control programs which effectively diagnose infectious diseases and administer vaccines and curative drugs

where and when they are needed.

3. Continuing research and development of simple-to-use and robust vaccines,

antimicrobial drugs, and laboratory tests for surveillance, prevention and control.

Surveillance and control of infectious diseases are being strengthened by WHO

and its partners, including USAID and CDC. During the 1998 fiscal year the U.S.

Congress provided $50 million to USAID for timely participation in this global effort. This has permitted USAID to add an objective to its strategic framework for

population, health and nutrition to reduce the threat of infectious diseases of major

public health importance. USAID consulted with many partners, including WHO, in

the process of developing this strategy and its four principal areas of programmatic

emphasis: anti-microbial resistance, tuberculosis, malaria, and surveillance and response capabilities. WHO believes USAID’s activities will make a major contribution

to putting in place cost-effective and non-duplicative investments to rebuild and

strengthen capacity to detect and control infectious diseases, particularly in developing countries. WHO is collaborating very closely with USAID and other partners in

all four of the programmatic areas. Active discussions are underway and field activities will be expanded as fast as final funding decisions are made.

Continued funding to USAID at this level or higher, targeted at strengthening

surveillance and control, will permit the U.S. Government through USAID to continue its support to this important global partnership. The long-term result will be

that developing countries are able to detect and contain infectious diseases where

they are occurring. This will minimize their impact locally and ensure that they do

not become threats to international public health security.

During the past twelve months, in part supported by funding and technical support made available through CDC and USAID, WHO has reinforced global labora-
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tory-based surveillance by providing training and support to existing WHO Collaborating Centers and laboratories, by giving seed funding for development and distribution of diagnostic reagents, and by designating new centers and laboratories to

fill geographical gaps. Fifty-two additional national laboratories, for example, have

been strengthened through training and provision of supplies to participate in the

WHO antibiotic resistance monitoring networks. Plans are underway, in collaboration with USAID, for intensification of this work and additional initiatives directed

specifically at understanding the magnitude and causes of antimicrobial resistance,

and developing and applying containment strategies. Other laboratory networks to

monitor viral, bacterial and zoonotic (human infections of animal origin) diseases

have similarly been strengthened. Sustained or increased funding to USAID would

permit the pace of these activities to increase.

WHO has improved global epidemiological surveillance through the revision of the

International Health Regulations to facilitate rapid reporting of and response to infectious diseases of international public health importance. Revision has specifically

focused on developing a system which is sensitive enough to detect both naturally

occurring and intentionally caused infectious disease outbreaks. The revised system

emphasizes communication through electronic links between WHO Member States

and WHO’s network of regional offices, country representatives, and technical partners such as USAID and CDC for verification and response. The response mechanism permits rapid and coordinated international investigation and containment of

infectious disease outbreaks of international importance. Examples during 1997 include investigation and containment of outbreaks of human monkeypox in the

Democratic Republic of Congo, avian influenza in Hong Kong, and Rift Valley fever

in Kenya. In each instance the WHO-coordinated international response, in which

CDC played a major role, broadened international cooperation so that no one country was required to shoulder the entire burden. Without such a coordinated international response each of these outbreaks could have resulted in extensive international spread.

At the same time WHO has also expanded its priority routine surveillance systems for diseases such as influenza, HIV/AIDS, hepatitis C, rabies, hemorrhagic fevers, and Creutzfeldt-Jakob Disease. Furthermore, to ensure an international environment which facilitates effective global surveillance and response, WHO has continued to develop standards and strategies for infectious disease surveillance and

control, promoted and conducted basic and operational research, and evaluated laboratory diagnostic tests and epidemiological approaches to surveillance. For these

activities as well, intensified collaboration with USAID would permit WHO to increase the pace of implementation, enabling WHO to continue to provide clear, reliable and 24-hour-accessible information on infectious diseases to public health professionals and the general public throughout the world.

With continued or increased support for the WHO–USAID partnership, the rate

at which CDC, USAID, and WHO are strengthening and reinforcing developing

country infrastructure and networks in national surveillance and control activities

would be increased, permitting those countries to have a clear picture of the infectious disease situation in the country as a whole and in populations at special risk.

Activities include assessment of existing systems with refocusing and replanning as

necessary, technical assistance, and training of trainers in infectious disease surveillance and control. Continued and increased effort in these activities will permit developing countries to detect and contain unusual diseases or outbreaks when and

where they occur.

INFECTIOUS DISEASES: NEED FOR NEW VACCINES, DRUGS AND LABORATORY TESTS FOR

DEVELOPING COUNTRIES

Strong surveillance and disease control without the necessary tools for diagnosis,

treatment and prevention are futile goals. Continued research and development are

required to produce simple-to-use and robust vaccines, drugs and laboratory tests.

There is a particular need for continued development of vaccines, drugs, and laboratory tests for developing country markets.

At the same time these tools for surveillance and control must be widely available

and used. We are regularly reminded that infectious diseases require constant and

sustained attention. Two recent examples are the resurgence of diphtheria in the

newly independent states of eastern Europe and the Russian Federation when vaccination programs became underfunded, and the continued mortality from influenza

in the United States where each year the influenza virus infects and often kills

those elderly persons who have not been vaccinated.

On the surface, vaccine development appears to be satisfying the needs. From

1900 to 1950, 12 vaccines were licensed for human use, and 30 new vaccines have
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been developed and licensed since 1950. Many of these newer vaccines are more stable under tropical conditions. But vaccines continue to require vigilant and uninterrupted cold storage until use, and development of vaccines for major killer infectious

diseases—tuberculosis, AIDS and malaria—has been elusive. Those new vaccines

which have been licensed have proven costly and not immediately available in many

developing countries. For example, there is an effective vaccine for hepatitis B and

another for yellow fever, but inclusion of these vaccines in childhood immunization

programs in countries where the diseases are most prevalent has too often not been

a national budgetary priority, and donors have not been willing to pay the price necessary to ensure their availability.

At the same time, development of new classes of antibiotics has slowed partly due

to the costs and risks associated with their development. In fact, since the early

1960’s no new class of antibiotics has been developed, and resistance of microbes

to existing drugs continues to increase relentlessly within antibiotic classes. As is

true for vaccines, new antimicrobial drugs, which are a necessity since resistance

makes older ones ineffective, are not affordable by many developing countries. The

cost of treating gonorrhea—a sexually transmitted infection which if left untreated

facilitates the transmission of HIV—has increased from approximately 40 U.S. cents

20 years ago (cost-adjusted figures to 1998) when penicillin was 100 percent effective, to over $5 U.S. dollars today when penicillin and other less costly antibiotics

are no longer effective. Such costs are prohibitive in most countries where the problem of HIV is greatest.

The development of simple-to-use and robust laboratory tests has also lagged.

Tests of a type which can be used and sustained in developing countries do not exist

for most infectious diseases, and for all but a minority of diseases many developing

countries are required to depend on regional or international laboratories for final

diagnosis. The delays thus caused often result in inappropriate and unnecessary

treatment and increased cost for patient management.

The issue of continued research and development and widespread availability of

vaccines, drugs, and laboratory tests for surveillance and control involves not just

research and development, but also economics and patents. New vaccines, antibiotics, and diagnostic tests come from the research-based pharmaceutical and

diagnostics industry. Development is costly, and patents are involved. Industry depends on sales to recoup its high investments in research and development, both

for successful products and those that never make it to the market. Sometimes it

takes 10 years of the product’s twenty year patent life before a new drug or vaccine

is licensed and on the market. With limited guaranteed time to recover large investments, high-profit, hard-currency markets are sought to maximize cost recovery. Industry points to these economic and patent issues as reasons that they are not able

to develop products for high volume, low profit developing country markets where

affordability for the general population would require a longer time to recover costs.

Furthermore, the profits earned in soft currencies may be small when converted into

dollars.

Compounding the risk of investing in development of a new antibiotic is the risk

that the product will become ineffective due to antibiotic resistance. For laboratory

tests one of the major risks is that of liability. Whereas simpler and more robust

tests may be useful in developing countries where other tests are not available,

there may be a liability risk associated with use in industrialized countries where

other available tests may be more sensitive.

An environment which favors research and development of vaccines, drugs and

laboratory tests suitable for developing countries must be created to ensure strong

and sustainable surveillance and control. Measures which have been tried in the

past include.

1. Two-tiered pricing. This provides a public sector price in parallel to the price

on the open market. Problems with this policy have been that it often affords an

opportunity for black market sales and parallel export of products which impact

negatively on the large, hard-currency industrialized country markets.

2. Donation of drugs and vaccines by industry. This has been especially important

for the success of such programs as the control of onchocerciasis (river blindness)

in western Africa, and the current efforts to eliminate lymphatic filariasis (elephantiasis). Problems are that sustainability depends on the continued ability of the industry which produces these products to provide them at no cost.

3. Co-development of a drug or vaccine with WHO and guaranteed preferential

pricing to WHO once development is complete. Co-development permits more rapid

testing of new products in areas where disease is highly prevalent, but it requires

a guarantee that studies are conducted with the standards required for licensing by

regulatory authorities, which is sometimes difficult to accomplish in the countries

with high prevalence.
117

4. Donation of patents to WHO. This makes it possible for many manufacturers

to produce the same product, thus creating competition which will eventually lead

to lower pricing. (Albert Sabin chose this measure to develop the oral polio vaccine.)

Potential problems include ensuring uniform quality of the final product.

5. Government regulation to enable licensing of products aimed at low volume, or

low profit/high volume markets. The United States has pioneered a system through

its Orphan Drug Act (1983) aimed at drugs which are scientifically but not economically viable (either because the number of patients who might benefit is too small

or because the populations concerned are too poor to afford the drugs). Under this

act, industry is entitled to a tax credit for the cost of clinical trials conducted with

the ‘‘orphan’’ drug and other substantial benefits.

6. Creative financing mechanisms to provide increased funding to the pharmaceutical and diagnostics industry for research and development of products for developing country markets. The AIDS Vaccine Initiative, supported initially by the

Rockefeller Foundation is an example of this type of mechanism which provides

grants to the research-based pharmaceutical industry for research and development

of AIDS vaccines.

These examples of measures to improve availability of existing products, and research and development of new ones aimed at low profit, high volume developing

country markets each results in an increase in the availability of products in developing countries, but they vary in their sustainability. Consideration of how these

and other mechanisms might be advantageously used in the United States to promote development and/or availability of vaccines, antimicrobial drugs and laboratory

tests for developing countries deserves further investigation and action. Coupled

with continued and increased funding to USAID, CDC and WHO for strengthening

surveillance and control, a creative environment which permits the research-based

pharmaceutical and diagnostics industry to develop new products for developing

country markets could provide the synergy needed for long-term and sustainable

success.

SUMMARY COMMENTS

The $50 million provided by Congress to USAID in fiscal year 1998 will permit

a more rapid pace of strengthening international and developing country infrastructure for surveillance and control of infectious diseases that threaten us all. Sustained funding in fiscal year 1999 and beyond would permit USAID to continue to

support valuable partnerships among USAID, CDC, and WHO and lead to more

timely detection and containment of infectious diseases when and where they occur.

An increase in funding to USAID would permit this to be done more rapidly. At the

same time a creative environment which would permit research-based pharmaceutical and diagnostics companies to afford to develop new vaccines, drugs, and

diagnostics for developing country markets could dramatically speed up the rate of

progress in combating infectious diseases worldwide.

Deaths due to infectious diseases, 1995 estimates

Millions

Infectious diseases (33 percent) ............................................................................ 17.3

Other causes (67 percent) ...................................................................................... 34.6

Total deaths ................................................................................................. 51.9

INFECTIOUS DISEASES RECENTLY IMPORTED TO THE UNITED STATES

Cyclospora, Montana.

Ebola, Arkansas, and West Virginia.

Cholera, Florida, and Arkansas.

Yellow fever, Texas.

Polio, West Virginia.

Malaria, Georgia, and Connecticut.

Dengue, Pennsylvania, and Texas.

STATES REPORTING MALARIA, 1949, UNITED STATES OF AMERICA

Texas, Oklahoma, Missouri, Arkansas, Louisiana, Mississippi, Tennessee, Kentucky, Alabama, Georgia, Florida, South Carolina, and North Carolina.

GLOBALIZATION AND HEALTH: THE CONCERNS

North: International public health security.

South: Early detection and containment.
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Common interest: Strong global and national surveillance and control.

HUMAN MONKEYPOX: DEMOCRATIC REPUBLIC OF CONGO 1996–98

August 1996—Report to WHO (MSF).

September 1996—WHO/MSF/National Investigation.

January 1997—WHO/National/CDC/EPIET Investigation.

September 1997—WHO/National/CDC/EPIET/PHLS Investigation.

January 1998 to present—WHO/National Intensified training in surveillance and

control.

Vaccines licensed since 1900 (n = 42)—number of new vaccines licensed

Years:

1900–50 ............................................................................................................ 12

1951–60 ............................................................................................................ 4

1961–70 ............................................................................................................ 6

1971–80 ............................................................................................................ 8

1981–90 ............................................................................................................ 7

1991–98 ............................................................................................................ 5

Source: Mandell, Principals and Practice of Infectious Diseases.

DISCOVERY OF ANTIBIOTICS

1940–50 1951–60 1961–70 1971–90 >1990

Sulphonamide Erythromycin Spectinomycin Trimethoprim Macrolides

Penicillin Spiramycin Lincomycin Clindamycin Quinolones

Streptomycin Novobiocin Gentamicin Aztreonam Beta-lactams

Bacitracin Cycloserine Tobramycin Ciprofloxacin

Chloramphemicol Vancomycin Nalidixic acid Imipenem

Polymyxin Rifampicin

Framycetin Kanamycin

Tetracycline Fusidic acid

Cephalosporin

Neomycin

DEVELOPMENT OF VACCINES AND DRUGS FOR USE IN DEVELOPING COUNTRIES—SOME

HURDLES ALONG THE ROAD

Research-based pharmaceutical industry.

Variation in disease distribution.

Long interval to licensing.

High costs of research and development.

Limited patent duration.

Soft currency markets.

Market size limited by affordability.

SUMMARY STATEMENT OF HON. JAMES M. HUGHES

Senator LEAHY. Dr. Hughes, before you begin—you may have

heard those buzzers in the background—I have got about 6 minutes to get to the floor to cast a vote. I will do that and come back.

We will not start without you—or me either, for that matter.

[Laughter.]

[A brief recess was taken.]

Senator LEAHY. I apologize for that delay. There was a rollcall

vote. Then I thought we were going to have a second one, and so

I was staying for that, and it turned out we did not. One of the

problems here is that there are always 10 things going on at once.

Dr. Hughes, I am delighted to have you here, and please go

ahead, sir.

Dr. HUGHES. Good afternoon, Senator. It is a pleasure to be here

to represent the Centers for Disease Control and Prevention, our
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Nation’s prevention agency. And it is a particular pleasure to be

here with Dr. Daulaire, Dr. Heymann, and Dr. Cassell.

I would like to briefly discuss CDC capabilities as they relate to

surveillance, applied research and diagnostics, and illustrate some

ways that we can assist USAID and WHO in addressing these urgent threats to health in our global village. I would like to share

with you one brief quotation from a recent Institute of Medicine report, ‘‘America’s Vital Interest in Global Health.’’

‘‘Distinctions between domestic and international health problems are losing their usefulness and often are misleading.’’

Another point to emphasize is how critically important partnerships are in addressing these issues. I think that has already been

a recurring theme.

By way of background, CDC issued an emerging infections plan

in 1994. This plan has primarily a domestic focus. It contains four

goals that are relevant: surveillance and response, meeting applied

research needs, strengthening prevention and control programs,

and meeting infrastructure development and training needs.

CDC and USAID participated with nearly 20 other Federal agencies in the development of the CISET report on emerging infections

that was published in 1995. This report found that the national

and global capacity were inadequate to address these threats. It

identified ways in which Federal agencies could collaborate more

effectively and work together. This report, as you know, served as

the basis of the Presidential decision directive on emerging infections.

Historically, we have a long history of collaboration with USAID,

particularly in malaria and AIDS and in tuberculosis.

Senator LEAHY. Is that collaboration from Atlanta or do you also

go out into the field?

Dr. HUGHES. Well, as one specific example, we have a field station in Kenya that is focused on malaria. USAID has provided

some of the funding support for that over the years. So we actually

have had a very close collaboration.

Senator LEAHY. And you would be in contact with people from

Dr. Heymann’s organization, too?

Dr. HUGHES. Frequent contact, yes.

And recently, we have experienced an increase in requests to assist ministries of health and WHO in investigating outbreaks in

many settings, particularly outbreaks with high mortality rates

and those that have the potential to spread across national boundaries, and even globally.

Now, in addition, we are often asked to assist in dealing with

problems in countries in which USAID does not have missions.

China is an example of that. We have worked with WHO to increase the number of influenza surveillance sites in China that

have been key in monitoring influenza strains circulating, and

came into play in assessing the extent of the avian influenza outbreak that occurred in Hong Kong. We deployed a large team of

CDC staff to work with WHO and others to investigate and control

that problem.

In terms of the USAID strategy, I would like to congratulate the

agency for developing this global strategy. CDC has consulted extensively with USAID in development of this strategy. CDC has
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unique expertise in surveillance epidemiology, diagnostics, strain

fingerprinting, and training that we can apply to its implementation.

In terms of challenges, we have recently received a number of

very prominent wakeup calls. Several have been mentioned. One is

the problem with drug resistance in staphylococcus aureus, this

strain that was reported from Japan last year, with partial resistance to a drug called vancomycin, which is often the last available

drug to treat staphylococcal infections. Within a few weeks of that

case being reported, we identified two cases in the United States,

one in Michigan and one in New Jersey, caused by similar strains.

It shows how problems far away are directly relevant to problems

here.

Other examples, in terms of the critical importance of surveillance and rapid epidemiologic investigation, are of the outbreaks of

viral hemorrhagic fevers in central Africa, and the national and

international food-borne disease outbreaks that we seem to be encountering with increasing frequency. One recent example is salmonella agona outbreak related to a product produced in Israel

that caused infections in Israel, in England, and in the United

States. Additionally, an organism that is a problem even closer to

home, of course, is the E. coli. 0157, which caused the enormous

outbreak in Japan, and more recently, last year, the outbreak in

Colorado that led to a nationwide recall.

That particular outbreak illustrates the critical importance of

public health laboratory capacity. Other recent episodes that emphasize that are the outbreak of plague in India and the Rift Valley fever outbreak in Kenya and Somalia.

In terms of opportunities and how we can help increase capacity,

the CDC plan that I mentioned called for the establishment of

emerging infections programs. And I think there are some principles on which these programs are based that can be applied to

help USAID build national and regional center networks. These

programs exist now in seven States.

They stimulate partnerships between the public health system,

academic institutions, and other local organizations and agencies.

They focus on some core projects that deal with high-priority

emerging infections, including drug resistance, the causes of severe

unexplained illnesses and deaths, and then, finally and importantly, food-borne diseases. They also give the State health departments the flexibility to deal with problems of local priority, which

vary considerably across the country, and they provide the flexibility to assess new problems.

For example, when questions were raised about, are we seeing

cases of new variant Creutzfeldt-Jakob disease in the United

States, this mad cow disease that has been such a problem in England, the emerging infections programs conducted surveillance activities.

But other opportunities relate to some of the networks that we

have been talking about. For example, we have been working with

PAHO and with WHO, involving countries in the Amazon basin,

another in the southern cone, and another in Africa, in the meningitis belt. There are opportunities to strengthen partnerships

with the field epidemiology training programs located in 17 coun-
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tries around the world that are modeled to some extent on the CDC

Epidemic Intelligence Service Program. Those programs need to be

more closely linked, I think, to local laboratory capacity, which

would make them even more effective.

We are committed to assisting WHO in strengthening existing

collaborating centers that Dr. Heymann mentioned, and also helping them to develop new ones. And then, finally, this issue of training. We have developed an Emerging Infectious Diseases Laboratory Fellowship Program, which we instituted 2 years ago in the

United States. Recently, we have been able to expand that, with

some financial support from Eli Lilly, to develop an international

track, so that we will be able to bring people from other countries

in for training in public health laboratory science.

Communications, we cannot underestimate the importance of

that. CDC has a journal, Emerging Infectious Diseases, that can be

used to help to get the word out to the scientific community around

the world.

And, finally, the importance of public education is absolutely critical, particularly in the area of antimicrobial resistance and how

drugs can be more appropriately used.

Senator LEAHY. To go back to something that was said earlier,

let me make sure I understand it so we will have it for the record.

What is your budget for international activities as opposed to domestic programs? And is there a portion of it that comes from

USAID?

Dr. HUGHES. Yes; any money that we would get from USAID

would be used internationally.

For implementation of the CDC emerging infections plan, we have received appropriations totaling $59 million; $3.5 million of

that, or about 6 percent, goes for international projects and in part

to support one of our people who is assigned to Dr. Heymann’s

group in Geneva, and another person assigned with PAHO in

Washington. In addition, we put $2.5 million into strengthening

our own WHO collaborative centers. So that total is $6 million. It

is roughly 10 percent of the emerging infections budget.

I was asked to speak for just a moment about what does the future hold. This is hard to predict, but we can be pretty sure we are

going to see more problems with drug resistance. We are overdue

for the next influenza pandemic. We may have escaped the Hong

Kong threat, although the jury is still a bit out on that.

The thing that I worry most about is when the next pandemic

occurs, not only will we be dealing with influenza, but we will be

dealing with bacterial pneumonias and other complications that

will be caused by multiple drug resistant bacteria. So, in some

ways, we will not be too far from where we were in 1918 and 1919.

Senator LEAHY. Yes; and that $6 million or so you have for the

world out there is not an awful lot of money. I can say that. You

might not be able to say it. I can say it. [Laughter.]

Go ahead.

Dr. HUGHES. I will not argue. [Laughter.]

Senator LEAHY. I did not think you would.

Dr. HUGHES. We are going to see more of these international

food-borne disease outbreaks. We are going to continue to be surprised at the role that microbes play in causing chronic diseases,
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peptic ulcer disease being an excellent recent example. And we

know we are going to continue to have to confront the unexpected.

These microbes are going to continue to evolve in response to selective pressures. And then we are all concerned about the threats

posed by bioterrorism.

PREPARED STATEMENT

So, in conclusion, I am confident that the funds that USAID has

received will be used to strengthen this global capacity. I think it

is urgent that we all work together to do that. We need full partnerships and long-term collaboration and commitment.

Thank you very much for your attention.

Senator LEAHY. Thank you very much, Doctor. And I am delighted you are here.

[The statement follows:]

PREPARED STATEMENT OF JAMES M. HUGHES, M.D.

Good morning. I am Dr. James Hughes, Director, National Center for Infectious

Diseases, Centers for Disease Control and Prevention. I am pleased to be here with

my colleagues from the U.S. Agency for International Development (USAID), the

World Health Organization (WHO), and Eli Lilly and Company to discuss an important issue: the need to strengthen U.S. support for global infectious disease surveillance and response capacity. I will review the current situation and consider how

CDC can use its unique capabilities in epidemiology, outbreak investigations, and

diagnostics to assist USAID in making the best possible use of foreign assistance

funds appropriated for this purpose.

The Global Implications of Emerging Infectious Diseases

For fiscal year 1998, USAID has received $50 million to strengthen global surveillance and control of infectious diseases. This appropriation reflects a recognition on

the part of Congress and the public of the urgency and global implications of the

emerging infectious disease issue.

The urgency of the situation is illustrated by the long list of unforeseen infectious

disease problems that have emerged in recent years. To give a few examples: in

1997, an avian strain of influenza that had never before attacked humans began to

kill previously healthy people in Hong Kong. This crisis raised the specter of an influenza pandemic similar to the one that killed more than 20 million people worldwide in 1918–1919. In 1997, we learned that vancomycin an antibiotic of last resort—has begun to lose its power to cure infections caused by Staphylococcus

aureus, a common bacterium that can cause life-threatening illness. This is a frightening example of how the emergence of drug resistance is reversing the miracles

of the last fifty years. In addition, there is increasing concern that an infectious

agent may be released deliberately in a U.S. city by a terrorist group or as a weapon

of war.

There can also be disastrous consequences when two infectious disease epidemics

afflict the same population. For example, the resurgence of tuberculosis in U.S. cities during the late 1980’s and early 1990’s was exacerbated by the presence of a

large population of people whose immune systems had been impaired by infection

with HIV/AIDS. Another example concerns influenza patients, who are especially

vulnerable to bacterial pneumonia, a disease that in the past has been treatable by

certain antibiotics. By the time the next flu pandemic hits, those antibiotics may

no longer be effective, and pneumonia may again become a serious health complication.

The global dimensions of infectious disease problems are evident. Infectious microbes can quickly travel from country to country within hours, and new diseases

like HIV/AIDS and new forms of old diseases—like multi-drug-resistant tuberculosis—can emerge in one region and spread throughout the world. Today, when

an outbreak of plague occurs in India, or an outbreak of Ebola hemorrhagic fever

is reported in central Africa, the whole world takes notice. An outbreak is no longer

viewed as a local tragedy that cannot affect us here in the United States, because

the world has truly become a global village.

The challenge to the United States, and specifically to CDC as the nation’s prevention agency, is to contain these outbreaks before they become international cri-
123

ses. When HIV/AIDS first emerged, there was no international disease surveillance

and response system to detect it. Similarly, when a cluster of cases of Ebola hemorrhagic fever occurred in the city of Kikwit, in the Democratic Republic of the Congo

(then Zaire) in 1995, it was months before the disease was identified and control

measures were put in place. By that time, the already fragile health care infrastructure in Kikwit had deteriorated even further, numerous health care workers had

died, and hospitals had become places of contagion.

Foreign Assistance to Address Emerging Infectious Diseases

It is imperative that emerging infectious disease issues be considered when making decisions about providing foreign aid to underdeveloped countries. It is in the

best interest of the United States to help developing countries participate in national and international surveillance and response efforts. While the primary gains

will be in health, secondary benefits will include improved economic productivity

and increased political stability. A recent report from the Institute of Medicine,

America’s Vital Interests in Public Health: Protecting Our People, Enhancing our

Economy, and Advancing our International Interests, stated that ‘‘the direct interests of the American people are best served when the U.S. acts decisively to promote

health around the world.’’ In the area of emerging infectious diseases, the United

States can lead from its strengths in science and technology to protect American and

global health while projecting U.S. influence internationally.

Collaboration and Partnerships

The challenge ahead outstrips the means available to any one agency, organization, or country. U.S. agencies like CDC and USAID are making every effort to

maximize their resources by pooling their ideas and talents and by linking and

strengthening existing programs and institutions. The principles of interagency coordination and collaboration are being applied both at home, where U.S. agencies

are addressing emerging infectious diseases at state and local levels, and overseas,

where U.S. agencies are working with the WHO and other international partners

to improve global health communications, set standards for global surveillance of

antimicrobial resistance, and share experience and training on disease prevention

and control on a regional basis. An excellent example of a successful global partnership is the collaboration among CDC, USAID, Rotary International, WHO, UNICEF,

and other international groups to eradicate polio worldwide.

The importance of partnerships cannot be over-emphasized. This idea was

stressed in CDC’s 1994 plan, Addressing Emerging Infectious Disease Threats: a

Prevention Strategy for the United States, which launched a major domestic effort

to rebuild the component of the U.S. public health infrastructure that protects U.S.

citizens against infectious diseases. Copies of the plan have been provided to the

Subcommittee. CDC is preparing an updated version which has been reviewed by

many partners, including colleagues from USAID, WHO, and the U.S. pharmaceutical industry. We anticipate that the plan will be finalized in a few months and

will include a strong global emphasis.

The theme of partnerships was also stressed at last month’s International Conference on Emerging Diseases in Atlanta, which was sponsored by CDC. Approximately 2,650 representatives from various scientific and public health disciplines—

from government, academia, non-profit agencies, and the private sector and from all

50 states and 96 countries—participated in sessions that covered such topics as

antimicrobial resistance; tuberculosis; international cooperation; perinatal transmission of HIV/AIDS; the detection of novel disease agents; traveler’s health; bioterrorism; and the formal release of USAID’s strategy on infectious diseases.

CDC and USAID are longstanding partners in the effort to combat emerging diseases overseas. CDC is the lead domestic agency for disease surveillance and prevention and has a strong scientific focus in areas that have useful applications overseas as well as at home. In many cases, CDC serves as a technical consultant to

USAID, WHO, and ministries of health on overseas projects that involve epidemiological or diagnostic research or the investigation and control of infectious disease

problems related to wars, famines, or other disasters.

Twenty years ago, CDC and USAID collaborated with WHO and other partners

to eradicate smallpox. They are now working together to achieve the goals of polio

and Guinea worm eradication. In recent years, CDC has extended U.S. assistance

overseas by pursuing U.S. interests in countries that do not host USAID missions,

such as China, where CDC supports twelve influenza surveillance sites; Hong Kong,

where CDC assisted the Ministry of Health and WHO to contain the recent outbreak of avian influenza; the Sudan, where CDC has helped document epidemic levels of African trypanosomiasis (African sleeping sickness) and design control pro-
124

grams, as well as eliminate Guinea worm disease; and Vietnam, where CDC is initiating a variety of joint programs.

USAID and CDC have worked as partners to develop U.S. policy on emerging infectious diseases. In 1995, the two agencies participated in a government-wide review of our nation’s ability to protect our citizens from emerging infectious diseases.

The review concluded that existing mechanisms for surveillance, response, and prevention of outbreaks of emerging infectious diseases were inadequate, both at home

and abroad. Copies of the report (Infectious Disease A Global Health Threat, Working Group on Emerging and Re-emerging Infectious Diseases, Committee on International Science, Engineering, and Technology (CISET), National Science and Technology Council (NSTC)) have been provided to the Subcommittee.

The recommendations derived from this report became the basis of a 1996 Presidential Decision Directive that established a new national policy to address the

growing health and national security threat posed by infectious diseases, including

the potential threat posed by bioterrorism. This directive calls for action in four key

areas: strengthening the global surveillance and response system; supporting research and training as the key to the prevention and control of outbreaks; creating

partnerships with the private sector to ensure the availability of drugs, vaccines,

and emergency medical supplies; and encouraging other nations to make infectious

disease control a national priority. NSTC has created an interagency task force to

implement this policy. CDC and USAID are among the lead agency members.

CDC’s Role in International Infectious Disease Issues

CDC’s role in international health has become more prominent in recent years,

as CDC has received an increasing number of requests for assistance from foreign

governments and WHO. CDC is often asked for help when local health authorities

respond to outbreaks that have high fatality rates or the potential to spread internationally. CDC’s assistance may also be requested when the cause of an outbreak

is unknown, or when it involves a highly dangerous microbe that must be handled

under the most stringent laboratory biocontainment conditions. In 1997, CDC sent

personnel to 145 countries for scientific exchange and technical assistance and provided diagnostic support for hundreds of local investigations around the globe.

Over the past few years, CDC has responded to several extraordinarily serious situations that required large numbers of personnel over extended periods of time.

These included the 1995 outbreak of Ebola hemorrhagic fever in the Democratic Republic of the Congo; the 1997 outbreak of avian influenza in Hong Kong; and the

1998 outbreak of Rift Valley Fever in Kenya.

After an outbreak has been contained, part of CDC’s overseas job is to provide

the affected population with tools to prevent or control recurrences of the disease.

For example, since the 1995 Ebola fever outbreak, CDC staff have helped the local

community maintain improvements in hospital infrastructure and hospital nursing

practices. In coordination with WHO, CDC has also remained involved in on-going

efforts to develop long-term surveillance of hemorrhagic fever outbreaks in the region.

CDC’s increasing presence in overseas investigations and research and training

activities is due in part to the re-emergence of infectious diseases as a major health

threat in developed as well as developing countries. It is also partly due to changing

expectations at home and abroad.

Factors that Favor the Emergence and Spread of Emerging Infectious Diseases

Although we usually think of modern advances as helping to reduce the incidence

of infectious illnesses, some modern demographic and environmental trends actually

favor the emergence and spread of certain diseases. These factors include the ease

and frequency of modern travel, the globalization of the food supply, and dramatic

population growth causing sanitation problems and overcrowding in cities all over

the world. Other concerns are population movements due to economic factors, and

migrations caused by civil wars, famines, and other man-made or natural disasters.

There has also been an increase in development projects involving irrigation, deforestation, and reforestation, which can alter the habitats of disease-carrying insects

and animals. Finally, our increased use of antibiotics and other antimicrobial drugs

has hastened the evolution of drug-resistant microbes.

New Expectations

At the same time, there are new expectations, both domestic and international,

that favor increased CDC participation in international outbreak investigations.

During the last few years, the issue of emerging infectious diseases has moved beyond the public health community to engage the community at large. The American

public has become better informed on the dangers of microbial epidemics, and there

is widespread understanding that a disease which originates in one continent can
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easily spread to another. The national and international press has educated the

public by focusing on some of the more dramatic outbreaks. Furthermore, because

of modern communications and international public health reporting, diseases that

emerge in remote areas are less commonly overlooked.

Internationally, there has been an outpouring of interest in emerging infectious

disease issues both in the developed and the developing world. In 1997, at the Denver Summit, the Group of Eight industrialized nations, including the United States,

pledged to protect the health of the international community by developing a global

disease surveillance network; coordinating international response to outbreaks of infectious disease; and helping to build worldwide capacity to prevent, detect, and control emerging infectious diseases. International projects to improve global surveillance and response to infectious diseases have been initiated through several major

bilateral meetings, including the Common Agenda with Japan, the Transatlantic

Agenda with the European Union, the U.S.-South Africa Binational Commission,

and the U.S.-Russia Commission on Economic and Technological Cooperation.

Emerging infections are also on the agenda of the Asian-Pacific Economic Cooperation (APEC), which includes eighteen developed and developing countries.

WHO has made a major effort to provide international leadership in this area, especially among developing countries. In association with its Division of Emergency

and Humanitarian Action, WHO’s new Division of Emerging and Other Communicable Diseases Surveillance and Control is focusing on the containment of

epidemics all over the world. CDC is prepared to assist WHO in accomplishing this

goal.

USAID’s Strategic Plan

The increased interest in emerging infectious diseases among other nations presents us with an important opportunity for building a global network for disease

surveillance and response and bodes well for the success of USAID’s new initiative

on emerging infectious diseases.

CDC applauds USAID’s effort to develop a global strategy for strengthening national and regional capacities for addressing emerging diseases, and we concur with

their key priority areas: antimicrobial resistance, tuberculosis, malaria, and surveillance and response. These are critical areas that developing countries must address

in their efforts to monitor and contain emerging diseases. The spread of antimicrobial resistance presents a particularly difficult challenge. Tuberculosis is the

leading cause of infectious disease deaths in the world and is the most common opportunistic infection among HIV-infected persons. Malaria kills more than one million African children every year, and there is still no vaccine to prevent it. Surveillance systems and response capabilities need to be strengthened throughout the

world so that known diseases can be identified and treated and new diseases can

be recognized and contained. Success in each of these areas over the next 5 to 10

years will be crucial to improving global health.

Implementation

In response to language in the fiscal year 1998 Senate Foreign Operations Subcommittee report, CDC has been pleased to consult with USAID on the development

of the strategy and has outlined approaches for working with USAID and other

partners to help ensure its implementation. CDC is eager to make contributions in

each of the priority areas, particularly in the fourth—enhancing surveillance and response capacity—an area in which CDC has unique expertise.

CDC can help build surveillance and response capacity in two related areas: epidemiology and laboratory diagnostics, the two basic and interdependent components

of an effective surveillance and response system. Epidemiologic capacity includes the

ability to monitor the occurrence of infectious diseases and to conduct outbreak investigations, using modern analytic tools. Laboratory capacity involves the ability

to diagnose diseases and track the source of epidemics, using a variety of approaches, including molecular ‘‘fingerprinting.’’ Research on emerging pathogens is

also critical for the invention of better tools to diagnose, monitor, and prevent

emerging infectious diseases.

Building Regional Capacity in Epidemiology

First, I will use a successful domestic program as a model to illustrate the principles on which CDC might help USAID build regional centers for epidemiological

research and outbreak investigations. I refer to CDC’s Emerging Infections Programs, or EIP’s, which provide a regional resource on infectious diseases within the

United States.

The seven current EIP sites conduct population-based surveillance and research

that go beyond the routine functions of state and local health departments to address important issues in infectious diseases and public health. They invest in cut-
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ting edge research, assist state and local health departments in emergency outbreak

responses, and provide a flexible infrastructure for responding to new problems

whenever they arise. (For example, the EIP’s established population-based surveillance for new variant Creutzfeldt-Jakob Disease, an invariably fatal neurological

disease, immediately after this disease was reported in the United Kingdom as a

possible consequence of eating beef from animals afflicted with ‘‘mad-cow disease.’’)

Moreover, the EIP sites are the backbone of the Active Surveillance Network for

Foodborne Diseases, or FoodNet, which is a collaborative effort involving the Food

and Drug Administration, the Department of Agriculture, and CDC.

The EIP’s, which are based in state health departments, demonstrate the importance of institutionalized, on-going epidemiological research that fills both regional

and national needs. They also illustrate the benefits of maintaining a regional resource for providing technical and financial assistance during infectious disease

emergencies. Finally, they demonstrate the importance of partnerships between

public health authorities and other agencies. Each EIP involves collaborations

among state and local health departments, academic medical centers, and other

local organizations and institutions.

These general principles can be applied by CDC and USAID in building an international network of regional centers that integrate surveillance, applied research,

and prevention activities. Like the domestic EIP Program, such a network could incorporate pre-existing sites (e.g., public health agencies, research institutions, private companies, and non-governmental organizations); use the sites in an integrated

fashion; and establish an international steering committee to provide assistance for

specific projects conducted at one or more sites. Some sites could partner with, or

build upon, existing Field Epidemiology Training Programs, which CDC has helped

established in 14 foreign countries. Areas in which these sites might play an especially important role are in surveillance for drug-resistant forms of malaria, tuberculosis, pneumonia, and dysentery. All of the sites would be linked by electronic

communications to keep health experts around the world in close contact with one

another.

Building Regional Capacity for Laboratory Diagnostics

CDC and USAID could also help develop a complementary network of regional diagnostic laboratories. This might be accomplished most readily by building on

WHO’s existing network of more than 200 Collaborating Centres and Reference Laboratories worldwide. The laboratories specialize in particular areas of diagnostics

and laboratory research, including foodborne diseases, respiratory diseases, diarrheal diseases, drug-resistant diseases, and many others. They are an important

source of high quality diagnostic reagents, and they can provide international training opportunities in their specialty areas. For example, after the 1994 plague outbreak in India, the CDC-based WHO Collaborating Centre for Reference and Research on Plague Control provided diagnostic reagents and educational materials to

Indian health authorities.

Wherever there are gaps in global capacity to recognize certain diseases, CDC

could help USAID improve the diagnostic capacity of appropriate WHO Collaborating Centres. In some cases, CDC would work with WHO to evaluate and strengthen

local laboratories for eventual designation as new Collaborating Centres. This

project would be in good accord with WHO’s plan to expand the number of Collaborating Centres in developing countries, and it would further USAID’s strategy for

developing in-country expertise in specific disease areas.

A recent example illustrates the potential benefits of expanding the Collaborating

Centre network to fill gaps in regional capacity. During the winter of 1996–97,

WHO and CDC spearheaded a successful international effort to help prevent a seasonal recurrence of meningitis in sub-Saharan Africa. The winter before, the disease

burden had been unusually high, with over 200,000 cases and 20,000 deaths. Three

WHO Collaborating Centres—one in Marseilles, one in Oslo, and one at CDC in Atlanta—supplied diagnostic reagents, laboratory assessments, and diagnostic training

in the affected countries. After the outbreak was over, the three Centres worked together to continue training activities in the affected countries and to strengthen regional facilities that might become permanent reference laboratories for meningitis.

At the present time, laboratories in Ghana and in Mali have been recommended for

possible designation as new WHO Collaborating Centre reference laboratories.

Training in Disease Surveillance, Outbreak Response, and Laboratory Diagnostics

The success of the regional networks I have described ultimately depends on the

efforts and abilities of the people who operate them. A major component of the effort

to implement USAID’s strategy will be to train an international cadre of epidemiolo-
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gists and laboratorians who are prepared to respond to emerging infectious disease

threats, whenever and wherever they arise.

This year, CDC is expanding its Laboratory Fellowship Program in Emerging Infectious Diseases to include a track for foreign students. The Laboratory Fellowship

Program trains medical microbiologists in public health approaches to diagnosis and

molecular epidemiology. Its graduates are qualified to operate and lead public

health laboratories. CDC also trains foreign students to become epidemiologists

(‘‘disease detectives’’) through its Epidemic Intelligence Service, which has served as

the model for Field Epidemiology Training Programs in many countries throughout

the world. It is interesting to remember that EIS was founded with global problems

in mind; in fact, it was established during the cold war in response to the threat

of biological warfare.

Conclusions

CDC is proud of its accomplishments in the area of global health. We are confident that the funds provided by Congress will be used effectively to strengthen

global capacity to combat emerging diseases. We appreciate the efforts USAID has

made to involve CDC scientists in discussions and decision-making related to developing its strategy for addressing emerging infections. CDC strongly supports

USAID’s expanded activities on emerging infectious diseases, and we look forward

to working in full partnership on this important endeavor.

Thank you very much for your time and attention. I will be happy to answer any

questions you may have.

SUMMARY STATEMENT OF GAIL H. CASSELL

Senator LEAHY. Dr. Cassell, I am very happy that you are here,

because I know, among other things, you are going to talk about

the impediments to the research and development of drugs for use

in high volume, low profit developing countries that Dr. Daulaire

and Dr. Heymann and Dr. Hughes have mentioned at one point or

another. So I am delighted to have you here.

Dr. CASSELL. Well, thank you. I really appreciate the opportunity

to be here.

I have to tell you that I am here today not only on behalf of Eli

Lilly, but also as a past president and the current chairman of the

Board of Public and Scientific Affairs of the American Society for

Microbiology. This is an organization of over 42,000 members, 20

percent of whom are international. Our organization, I think, has

a strong history in being very concerned about issues related to

emerging infections and trying to bring this to the attention of policymakers like yourself.

And I would just like to thank you on behalf of ASM, and all of

us actually, for your having taken the initiative to provide for this

$50 million appropriation last year, through USAID, for WHO, and

CDC.

I would also like to say that we very much were encouraged by

your language, which also stated that USAID should work closely

in collaboration with NIH with respect to these initiatives, not necessarily because NIH is directly funded by your committee, but

rather because NIH, as you know, is the Nation’s leading institute

with regard to biomedical research. And because of legislation in

the sixties, they do provide funding for international research. And

we think research plays a critical role in these issues that we are

trying to address related to emerging infections.

Now, I would like to turn your attention to the issue that I was

asked to address. And that is the issue of antimicrobial resistance.

You obviously have a good appreciation for the magnitude of the

problem.
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Senator LEAHY. I am getting a better one. I have a long way to

go, but I am getting a better one.

Dr. CASSELL. Well, I am sure your wife has helped educate you

a lot in that regard. She probably is confronted by it.

I would just like to point out something that I am not sure that

we have made clear, and the real problem with respect to antimicrobial resistance is that the problem is the greatest in the four

biggest categories, or killers, with respect to infectious diseases.

One of the chief organisms causing pneumonia, for example, the

pneumococcus resistance, multidrug resistant malaria, multidrug

resistant TB, and also with respect to the diarrheal diseases, many

of these organisms that cause the food-borne diseases that you

have mentioned are resistant to multiple antibiotics.

And then last, of course, the hospital environment, both in this

country and other countries is a major source of antibiotic resistant

organisms.

We believe, as I think others do, that we need new classes of

antibiotics, as you have heard Dr. Heymann discuss this morning.

We believe the only way to accomplish that is through true innovative research. And I think that it is very exciting that because of

the new technologies that you mentioned this morning, particularly

our ability to sequence the entire genome of these disease-producing organisms, there is a lot of hope and optimism that new drug

targets can be developed.

But, unfortunately, as is often the case, the new technology is expensive. Due to this expense, the cost of registering new drugs,

plus the lack of what we believe to be adequate protection of intellectual property in many countries, U.S. pharmaceutical companies

and other pharmaceutical companies have reduced their investment in the area of infectious diseases overall, at a time when, in

fact, we should be increasing that investment.

I think few people realize that it is estimated that to develop a new anti-infective today would cost over approximately $500 million. And what really is behind the scenes is that you do not appreciate that, in fact, millions may have been spent on compounds, investigating compounds that never make it into humans. In fact, it

is estimated that only 1 out of 5,000 to 10,000 drugs actually are

a commercial success.

This past summer, I was fortunate to participate in an Institute

of Medicine forum. Dr. Hughes has referred to other important

IOM forums related to emerging infections. But this particular

forum, actually composed of representatives from academic institutions, scientific societies, including ASM and the pharmaceutical

companies and the Federal agencies, was asked to specifically address what are the barriers to development of products, vaccines,

and antibiotics, to address the problem of emerging infections.

Now, I will not take time to summarize each of those that were

outlined by that forum, although there was a high degree of consensus, I have provided you with a copy of the IOM forum report,

and also provided copies for each of the members of your subcommittee.

I would just like to highlight three areas, in fact, in which we

felt there was agreement as far as needs. One was the need for better information to identify and characterize potential markets. This
129

information actually will come from the epidemiological and surveillance data gathered by the infrastructure that USAID, WHO,

and CDC are putting in place, this global surveillance network. So

this is an extremely important component of being able to more

predictably define the market for a new product in some of these

countries.

We believe that harmonization of international regulatory issues

would be a big step in the right direction, in terms of more predictability, greater predictability, with regard to development of drugs

to be used worldwide.

And last and perhaps most importantly is the area of the need

for more sharing of costs and risks, or greater partnerships. One

of these would be illustrated by bulk procurement, or guaranteed

procurement, that often comes with either governments and/or

agencies. And I will not take time to detail those, but we can discuss them in questions if you like.

Other initiatives would be related to the ability to perform clinical trials much more efficiently in these developing countries by

having the adequate infrastructure in place, much of which will be

accomplished by putting the infrastructure in place that Dr.

Hughes and Dr. Heymann have alluded to this morning, plus by

increased training.

I would like to just very quickly mention one other area that has

been highlighted to some extent this morning, but I think needs

maybe greater attention, especially from the drug and vaccine development standpoint. And that is that within these countries, it

is critical that you have the appropriate infrastructure in place so

that new drugs can be appropriately used. It is not often a matter

of not having drugs available in these countries, but even in countries where they are available, they are misused or abused, often,

in fact, being taken or being available over the counter, not being

subscribed, and, therefore, not under medical supervision in terms

of insuring that the appropriate dosage as well as completion of

therapy.

We know that these conditions actually can rapidly lead to antibiotic resistance. Therefore, one is hesitant to put a new product

in that kind of environment, where you get rapid development of

resistance, because, therefore, it would have a much shorter halflife and the reduced ability then to recuperate the investment in

the development of that new product.

Mr. Chairman, I think that if you will look, and certainly I am

sure others would agree, that the pharmaceutical sciences and scientists have a long history of being innovative in addressing the

challenges that we face in medicine, both today and in the past.

And one such example is the new drug that has been recently discussed with respect to the potential ability to protect, actually protect against, breast cancer, which may actually revolutionize our

management of the devastating diseases of cancer.

But I have to tell you that in order to put that kind of innovative

effort toward development of new compounds for treatment of infectious diseases and prevention of new infectious diseases, we must

protect intellectual property worldwide. And, in fact, I can promise

you that without adequate protection of intellectual property, there

will probably be no innovation.
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Completion of TRIPS, or the trade-related intellectual property

issues associated with GATT, certainly was a step in the right direction. But as you well know, implementation of these has been

rather slow. You probably are also aware that in developing countries and least developed countries, in fact, they have an extension

of 5 to 10 years to put these TRIPS in place. We believe the United

States should be very vigilant in terms of trying to provide technical cooperation and advice, so that, in fact, we can accelerate that

implementation of TRIPS in those countries.

In the end, if this is not accomplished, it will be the patients who

suffer, because the new drugs will not get to those patients the innovation that is needed. Microorganisms, as you have said and as

others have said this morning, are a lot more innovative than humans. And they very rapidly develop resistance. We do not have

time to waste. It is urgent that we try to get this protection of intellectual property in place so that we can begin to get the new

drugs to these areas where they are desperately needed, including

the United States.

In closing, again, I would just like to thank you for your personal

efforts on behalf of infectious diseases, and to say that we certainly

believe in partnerships. And I would just say that the pharmaceutical industry has contributed and will continue to contribute financially to the antibiotic resistance monitoring and surveillance,

because this is an area of great need and concern to us. I would

also say that we believe that industry should be a partner, as far

as training, and helping to provide the infrastructure that I have

alluded to this morning.

PREPARED STATEMENT

And as Dr. Hughes has mentioned, I am pleased to say that Eli

Lilly has funded the newly established International Training Program for Laboratories in the area of emerging infections.

Again, thank you.

Senator LEAHY. Thank you.

[The statement follows:]

PREPARED STATEMENT OF GAIL H. CASSELL, PH.D.

Mr. Chairman, members of the Subcommittee, I am grateful for the opportunity

to appear before you today to present my views regarding a U.S. strategy for combating infectious diseases and the impediments to the development, marketing and

distribution of drugs for the treatment of infectious diseases in developing countries.

I appear before you today wearing at least three hats. As of November 1, 1997 I

am the Vice President for Infectious Disease Drug Discovery and Clinical Investigation for Eli Lilly and Company, a world wide pharmaceutical company with a very

rich and important history in the development of products related to the treatment

and prevention of infectious disease. Prior to joining this company I had spent 30

years in basic and clinical research in infectious diseases at the University of Alabama of Birmingham where I continue to maintain my faculty appointment. I am

also appearing before you today as a past president and as a current chair of the

Board of Public and Scientific Affairs of the American Society for Microbiology

(ASM). The ASM is the largest single life sciences organization composed of over

42,000 academic and industrial scientists, physicians, and health professionals. Our

membership is greatly concerned about the increased threat from emerging infections.

This morning I would like to begin by making some general statements concerning the U.S. Strategy for addressing emerging infections. First and foremost, a

strong public health infrastructure provided by the Centers for Disease Control and

Prevention with regards to both its domestic and international programs is abso-
131

lutely essential to address the threat of infectious diseases. Because infectious diseases respect no borders, international collaboration and coordination of efforts are

essential. The World Health Organization can play an important role in this regard.

We applaud this Subcommittee’s support for the Communicable Disease Initiative last year and the provision of $50 million additional funds to strengthen global surveillance and control of infectious diseases. We also strongly supported your recommendation that the U.S. Agency for International Development (USAID) work

closely with, the World Health Organization (WHO), the Centers for Disease Control

and Prevention (CDC), the National Institutes of Health (NIH), and the National

Institute of Allergy and Infectious Disease (NIAID). As emphasized and delineated

in the recent report of the Committee on International Science, Engineering, and

Technology (CISET) of the President’s National Science and Technology Council,

each of these has a unique and vital role to play in surveillance and response to

infectious diseases. Therefore, we would urge you to continue your support of the

CDC’s Field Epidemiology Training Program and the WHO/Division of Emerging

and other Communicable Diseases Surveillance and Control. While direct funding

for NIH comes from another Subcommittee, close consultations with NIAID and

NIH should remain a high priority for international programs for control of infectious diseases. NIAID is the Federal government’s lead agency for funding for scientific research on infectious diseases. In 1960, passage of the International Health

Act gave the NIAID the authority to conduct research outside the United States.

NIAID provides major support for scientists conducting research to control emerging

infectious diseases worldwide. The role of research cannot be overemphasized. In

view of both the critical role of research and infectious disease surveillance and the

unique expertise of the NIH and the CDC, respectively, in these areas, we recommend that these agencies be considered as full partners with USAID in the U.S.

strategy to address emerging infections.

Now I would like to turn your attention to the greatest challenge related to

emerging infections—that is the rapid increase in drug resistant pathogens. Unfortunately, increases in resistance is greatest in those organisms responsible for the

four leading causes of death worldwide including: acute respiratory infections, tuberculosis, diarrheal diseases, and malaria. New products are desperately needed. Innovative drug discovery is the only solution which will lead to completely new classes

of antibiotics. The explosion of new technology and the ability to determine the entire genetic code of infectious agents offer great promise. Unfortunately, because of

the new technology drug discovery is more costly than ever before in history. For

example, it is now estimated that development of a single anti-infective will cost in

excess of a half billion dollars. What is not apparent is that prior to achieving one

success millions are invested in discovery of compounds that never make it into humans. Only one in 5,000 to 10,000 compounds are a commercial success. The increased costs of developing and registering pharmaceutical products, coupled with

the lack of adequate intellectual property protection in many countries, has resulted

in substantial dimunition of R and D investment in this area. In the summer of

1997 I was a member of the National Academy of Sciences, Institute of Medicine

(IOM) Forum which thoughtfully considered these issues.

The deliberations and recommendations of the IOM forum have been published

in a report titled ‘‘Orphans and Incentives: Developing Technologies to Address

Emerging Infections.’’ I have elected to spend most of my allocated time this morning summarizing the highlights of this report. In so doing it is important for you

to note that this body was composed of representatives from the federal government

(including the FDA, NIH, and CDC), relevant scientific societies, academic institutions, and the pharmaceutical industry, including representation from PhRMA.

The purpose of the forum was to learn from experience what has been done and

what is needed for the public and private sectors to collaborate effectively and productively for the health of the public. The emphasis was on cooperation in those

product areas where returns from the market might be perceived as too complicated

by other factors to compete in industrial portfolios with other demands for investment. If the requirements for products for emerging infectious diseases are to be

satisfied, there was agreement with regards to the need for: (1) more information;

(2) more predictability; and (3) more sharing of costs and risks. Actions which were

viewed as critical for advancing the infectious disease enterprise as a whole are

summarized in the attached Table which is taken directly from the IOM Report.

Exact reproduction was felt to be important because of the wide input sought in its

development and because of the widespread consensus of the barriers and incentives

related to product development. With permission from the IOM I have provided each

of the members of the Subcommittee with a full copy of the IOM report. To my

knowledge this provides one of the most comprehensive and up-to-date analyses. A

synopsis of the recommendations follows.
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More information is needed on market identification based upon comprehensive

and accessible surveillance data and well-articulated, consensus-based public health

agendas. There should be clear portrayals of specific disease priorities. More predictability is needed in market assessment (early forecasting of demand based on epidemiologic criteria; segmentation by size, ability to pay, disease profile). There is

need for more predictability which can be brought about by international regulatory

harmonization.

There is need for more cost-risk-sharing which can be brought about by market

creation (i.e. procurement guarantees via: high-volume bulk orders, extended contracts, product ‘‘bundling’’ subsidies for poorest countries; revolving funds for national and/or regional purchasing and official development assistance for health infrastructure and education and drug logistics). Accelerated regulatory approval

could be achieved by accelerated enrollment in trials with aggregation of efficacy

data from multiple sources. Clinical trials of new drugs could also be greatly facilitated by building of contract research organization capability in developing countries

to reduce costs and enhance infrastructure for clinical trials. The international clinical research centers of NIAID could serve as a model. An incentive could be provided by provision of a financial subsidy for phase II/III clinical trials with a potential payback on success, if and when it is appropriate.

There are several other considerations related to antimicrobial resistance and

drug development that I would like to bring to the attention of this Subcommittee.

As we all know, the availability of necessary antibiotics is limited in many developing countries. An important issue not often addressed is that where they are available, their use is often inappropriate and poorly controlled, which only contributes

to development of antimicrobial resistance. We know many of the causes of early

resistance-use in trivial conditions with or without medical supervision, inadequate

treatment, especially failure to take the full therapeutic or preventive course, substandard products sold without adequate controls by unqualified vendors, and so on.

Thus, irresponsible use of every new antibiotic which comes along may also lead

rapidly to resistance with little possibility of developing further new products as

quickly as they are needed.

Part of the problem is the lack of skilled professionals—physicians, pharmacists,

laboratorians who determine antibiotic susceptibility of the disease causing organisms—in developing world, along with a poor distribution system. This results in

failure to take maximum advantage of effective therapies, which in turn promotes

growth of antibiotic resistance in a shorter period of time.

The necessary drugs should be made available but, in addition, a system should

be put in place for getting the best therapies in the hands of professionals who will

be able to utilize them appropriately. A percentage of money spent in this way can

help ensure that the overall investment is effective, and that it does not simply exacerbate the problem of resistance. This is precisely why the international training

programs of the CDC, WHO, and NIH are so critical. Industry should be an active

partner in training. Informed consumers would help prolong the life newly developed antibiotics.

Pharmaceutical science and innovation has a tremendous track record of coming

up with solutions for today’s disease challenges. For example, we have all seen recently news on compounds that may prevent breast cancer. This same innovation

can be applied to the challenges of infectious diseases that have been highlighted

in this hearing. Of all the barriers to U.S. pharmaceutical companies related to drug

development and marketing in other nations, inadequate intellectual property protection may be the greatest. Without protection of intellectual property there will

be no innovation.

Completion of the Agreement on Trade-Related Aspects of Intellectual Property

(TRIPS) as part of the General Agreement on Tariffs and Trade (GATT) marked a

positive step forward in reinforcing the importance of intellectual property rights.

For some countries, however, implementation progress has been slow. While developing and least developed countries have the option to extend five or ten years their

full TRIPS compliance deadline, the U.S. government must remain vigilant in providing technical assistance and cooperation to move these countries toward this goal

and in encouraging them to accelerate their implementation whenever possible. The

United States should take action against those countries that do not implement

their immediate obligations to protect patents, confidential data and trade secrets.

Ultimately, it would be the patients that suffer as the innovations that are so sorely

needed to fight infectious disease would not be turned into useful products that are

developed and marketed. Infectious agents are far more innovative than humans.

They have the capacity to develop resistance at alarming rates. New drugs are urgently needed in all countries.
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In closing, I would like to emphasize that the ASM has played an active role in

communicating the need for a rapid and appropriate response to emerging infections

to policy makers and the public. The pharmaceutical industry has also played an

active role in responding to the threat by financial support of the antibiotic resistance surveillance network of the WHO. With the strong belief that we need to provide more resources to train the leadership in health in developing countries to enable the development of public health infrastructure, I am pleased to say that

through an educational grant to the Centers for Disease Control Foundation Eli

Lilly has provided sponsorship for the newly established laboratory fellowship training program in emerging infections. We would pleased to continue to work with you

Mr. Chairman and this Subcommittee in your efforts to address the threats from

emerging infections.

ORPHAN DRUG ACT

Senator LEAHY. Doctor, when you talk about intellectual property

you preach to the converted. I wear another hat as ranking member of the Judiciary Committee. I have handled a lot of the intellectual property issues over the years. In fact, we are dealing—I was

dividing my time earlier today with WIPO there. I agree with you.

It is important.

It made me think of another issue. We have the Orphan Drug

Act, as you know, with the tax incentives to spur development of

drugs. It might be for a very rare disease when obviously you are

never going to recoup your costs by selling the drug, but I think

the law may have helped.

What about an orphan drug designation that might deal with

emerging infections in developing countries?

Dr. CASSELL. I think that would be fantastic. And as a matter

of fact, as you probably know, a step in the right direction was

taken recently, I think in association with FDA reform, where, in

fact, the tax credits associated with that Orphan Drug Act were

put in place so that they would be permanent rather than being

approved only at short intervals or for short intervals. So I think

that this was also a step in the right direction.

And if, in fact, reagents, drugs, vaccines, perhaps diagnostic reagents, could be incorporated into something like an Orphan Drug

Act, I think that this would actually provide a great incentive.

Senator LEAHY. You have talked about clinical trials and what

could be done there. What about extended patent protection for

drugs aimed at not here but aimed at particular areas? It may be

an infectious disease that is mostly found in another part of the

world, but a part of the world that may have a per capita income

of only $300 a year.

Dr. CASSELL. Yes; I think that that certainly would help to provide an incentive. I think there is somewhat of a delicate balance

that one would have to play there. Because what you would hope

would not happen is that people would become complacent, because

you have this extended patent, so that you prevent innovation,

competition, and discovery of new and better products.

Senator LEAHY. And we also have the Institute of Medicine report that discusses multitiered pricing. We hear that the problem

with multitiered pricing is that some of these drugs come back into

the United States via the black market. I do not know the answer

to that one.

Dr. CASSELL. I think that is very unfortunate. Because I believe,

in fact, the IOM report pointed out that—and I do not know, David,
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you probably know a lot more about this than I—but that actually,

in many cases, it has been an incentive and has been beneficial,

particularly in the area of vaccines, I believe. But clearly these latest incidents provided a disincentive for companies to participate in

that multitier pricing.

Senator LEAHY. You know, I look at some of the things coming

here and I—and anybody who wants to can jump in here—but

when I was a kid, growing up in Vermont—and for the record, I

just turned 58 last month, so that will put it in the proper time

period—but when I was a youngster, the municipal swimming pool

would close at certain times in the summer because of polio scares.

My wife and I had our first grandchild a couple of months ago.

He will never have to worry about polio. Our kids never faced it.

They just got a polio vaccine and that is the way it goes. Although

we see that it is not yet eradicated. I visited a place where we use

the Leahy war victims fund, in an African country where one of the

people in the clinic was a badly crippled little boy. My wife was

there, and she was helping somebody bathe and dress this child,

and she asked what kind of an injury, because she saw no scars

or marks or anything on him. They said polio.

And in that particular case the polio vaccine could not get to the

village because of the threat of landmines. And I know you all

agree with me on the issue of landmines. I am not trying to make

converts here. But when you think of something like polio, it

should be relatively easy to eradicate. We did it with smallpox. Is

this what we should be doing? Look at guinea worm. Should we

target these diseases, one by one, and eradicate them if they can

be?

Dr. DAULAIRE. Let me start with that, Senator.

There are some diseases—and you have touched on a number of

the key diseases—that are actually potentially eradicable.

Senator LEAHY. Measles is another one.

Dr. DAULAIRE. Yes, measles, that is right. But one of the things

we have learned in the smallpox eradication effort and in the guinea worm eradication effort, which is still going on, is that there is

a curve. And controlling the disease and bringing it down to fairly

low levels can be done generally fairly cost effectively. But when

you are searching out those last cases, when you are trying to wipe

out the disease from the face of the Earth, at that point you are

in a very steep part of the curve.

And we are at that stage right now in polio and in guinea worm

eradication. So our problem in the world of global health is—it is

like when I used to be an emergency room physician, we were

trained in triage.

Senator LEAHY. Triage, yes.

Dr. DAULAIRE. And you have to figure out, with very limited resources and limited time, how you are going to get your best overall effect in health. In some cases it is going to be eradication. In

some cases it is going to be just bringing the level of an important

disease down to manageable levels. Because then your next dollar

is probably better spent on turning to another disease rather than

trying to wipe out that very last vestige.

Senator LEAHY. And it is not a case where you are being inhumane by saying that. I mean you are being more humane actually
135

by saying OK, we can only go so far in here, but are we going to

take money away from river blindness?

Dr. DAULAIRE. That is right.

If you can save 10 lives for the cost of one more disease prevented, then maybe that is not a good tradeoff.

Senator LEAHY. Dr. Heymann, did you want to comment?

Dr. HEYMANN. Yes; I think elimination and eradication programs

are very important, because they develop an international solidarity and they develop an infrastructure to make sure that those diseases are eradicated.

But if you look at the graph over on the side there, with 17.3 million deaths due to infectious diseases, if you eradicate or eliminate

the seven diseases that are targeted now, infectious diseases will

only decrease from 33 percent of all deaths to 31 percent of all

deaths.

Senator LEAHY. I see.

Dr. HEYMANN. So the major diseases remain: tuberculosis, AIDS,

and other diseases.

But what is important about elimination and eradication is that

this solidarity can be used to build the infrastructure for all infectious disease detection and control. Detection is very important in

elimination and eradication. We must find that last case.

So those systems in place can then be used for other diseases,

and will strengthen overall infectious disease control.

Senator LEAHY. This solidarity—for example, take an area like

Africa, where you have countries that may be contiguous but greatly different in their social, political or economic circumstances—if

you can develop a regional program in an area like that you have

accomplished something.

Dr. HEYMANN. Yes. Rotary International, for example, in all

countries, including African countries, has been a very active supporter, financially and advocacywise, for polio eradication.

Those countries are now developing laboratory networks among

themselves for polio virus, which can be expanded to many other

viral diseases. So, yes, what is being done with polio, as an example in Africa, will strengthen the infrastructure for all viral diseases, detection, and control.

Dr. DAULAIRE. Let me stress that also, Senator. When we started

to engage in this last phase of the polio eradication effort, we took

as a prime cause making sure that on the day that polio was finally eradicated that the countries that we had helped would have

workable health systems left behind so that we would not have to

start from scratch again on day two.

There are different ways of going about eradication. And doing

it through a developmentally oriented approach may sometimes

take a bit longer, but ultimately it leaves far more behind.

Senator LEAHY. Dr. Hughes, did you want to comment?

Dr. HUGHES. Yes, just briefly. I think the polio experience does

show what is possible for some infectious diseases, when you have

the tools, the resources, the commitment, and the public/private

sector partnership, which have been really important. As Dr.

Heymann also said, the public health laboratory has played a critically important role, particularly as we move closer and closer to

true eradication. The molecular techniques that are really needed
136

to characterize polio virus isolates are absolutely critical, and will

be able to be applied to measles, which looks to be one of the next

best candidates.

Senator LEAHY. Yes; measles I find amazing. I mean, the same

with our kids. One would just get over measles and the next one

would start. And then as soon as that one is over the next one. And

you knew, with three children, you are in for a long, long siege of

measles.

Now, when my grandson gets inoculated for measles it is kind of

impressive. But we also have—it is interesting, Dr. D.A. Henderson, who led the campaign on smallpox, he said recently that we

ought to start making the smallpox vaccine again because of the

threat of biological warfare or terrorism. And yesterday the Judiciary Committee and the Intelligence Committee had a hearing with

Director Freeh and Attorney General Reno there, about what happens if terrorists do that.

You know, if smallpox were spread through the U.S. population,

it could be sometime before you detected it, if I am understanding

this correctly. And by the time it was detected, we would not necessarily have the ability to get the vaccinations out.

Dr. Hughes, you must look at threats like that.

Dr. HUGHES. Well, this is certainly one of the issues that we

worry considerably about. We feel that it is part of the rationale

for strengthening infectious disease surveillance and response capacity nationally and internationally.

And an episode, were it to occur, that was not associated with

a threat could be very insidious, could be very difficult to recognize.

Exposed people could be widely dispersed nationally or even internationally before they become ill because of the concept of the incubation period, which, as you know, is the time from exposure to the

microbe until the disease develops. And that is why you can, as you

mention, get on a plane in Hong Kong and arrive in the United

States perfectly well, and a day later perhaps develop an illness acquired in a faraway place.

So we have concerns about it. There is a broad range of diseases

that are candidates for use by terrorists. As you know, many of

them are not important clinical or public health problems in this

country, so there is often very limited epidemiological, clinical, and

laboratory capacity available to deal with them. In addition, some

of the tools you need to either treat or prevent these diseases are

not widely available. So this is a legitimate concern.

Senator LEAHY. Well, smallpox is not available, is it?

Dr. HUGHES. Well, there is smallpox vaccine in storage. It is a

vaccinia virus. It is available.

Senator LEAHY. Yes, but very much?

Dr. HUGHES. Well, there are roughly 15 million doses in the

United States that are available. But that is obviously not enough

to reach the whole population.

Senator LEAHY. I love having these hearings, so everybody can

go home and be terrified. [Laughter.]

But maybe that is what is needed.

Nils, did you want to comment?

Dr. DAULAIRE. I think one of the issues that we have talked

about in this is the importance not only of dealing with the well-
137

recognized threats—the anthrax, the smallpox—but also the recognition that with the evolution of biotechnology we cannot stockpile everything against everything. Part of this has got to be an

ability to identify and react quickly, because chances are, if there

is an attack, chances are it is going to be something we are not expecting.

Senator LEAHY. Yes; you know, I do not envy you, any of the four

of you or those you work with, trying to look at this on an international scale. Look what happens in our own hospitals. We pride

ourselves on having the best medical care in the world, but 2 million Americans pick up infections in hospitals; 70 percent of them

I am told are from drug-resistant microbes. Now, the cost is anywhere from $4 to $5 billion just from that

alone. Better hygiene by hospital personnel would help with a lot

of that. And yet it happens.

What do you do when you are dealing in impoverished Third

World countries? You have got one heck of a job ahead of you.

I mention that only to suggest that I will probably be in favor

of increasing the budget over what the administration has asked

for.

I have to go back to another hearing. We have kept you here

longer than we said we would.

Would any of you like to add anything else?

Dr. Cassell.

Dr. CASSELL. Yes; I would just like to close again by thanking

you and your staff, who I think did an excellent job in putting together a very thoughtful hearing, and certainly for you for taking

time to take the interest.

Senator LEAHY. Well, it is a real interest. I mean this is not the

sort of thing that makes headlines, but it could saves lives.

Dr. Hughes.

Dr. HUGHES. Yes; in our experience, actually press interest in a

lot of these issues is often inversely proportional to the true magnitude of the problem.

Senator LEAHY. Yes.

Dr. HUGHES. I think it is important to keep that in mind.

I would just leave you with the thoughts that surveillance capacity, epidemiologic capacity, laboratory capacity, communications

systems, and partnerships are critical elements that we worry

about. And Dr. Cassell was whispering very importantly training.

Training to maintain that epidemiologic capacity, the laboratory capacity and to educate people, frankly, about some of these uncommon illnesses that might be threats associated with bioterrorism.

Senator LEAHY. NIH has the Fogarty International Center. How

does that vary from—you have your own training, of course, your

own training programs—are these complementary?

Dr. HUGHES. Yes; I would say that they are complementary. And

Dr. Cassell may want to elaborate on this. But the Fogarty is interested in increasing research capacity, which is the other thing that

is absolutely critical to addressing these issues.

Senator LEAHY. Yes.

Dr. HUGHES. They are working to expand training internationally in research related to emerging infectious diseases.

Senator LEAHY. But they are also small.
138

Dr. HUGHES. Quite small.

Senator LEAHY. Yes.

And, Dr. Heymann, I would think that—I mean you have to go

across borders and you have to deal with so many different countries and political systems and all that, would it be naive to think

that the more we get these kinds of systems in place the more we

get the research capacity, the treatment capacity and all, the more

that may at least help to break down, in that area, break down

some of the political barriers?

Dr. HEYMANN. I think it already is doing that, Senator. I think,

in one country recently, on the national immunization day for polio,

which is when every child was to be vaccinated, there was actually

a temporary cease fire in a civil fire in order that that could be

done. And I think that what you have done in providing funding

to USAID has helped our groups—CDC and USAID—form a very

strong partnership, which will continue to work above politics, to

try to straighten the infectious disease situation in the world.

And what is even more important is that this has been an example to other donor countries. The United Kingdom and Japan have

both increased dramatically their funding for infectious disease activities in support of international response and detection of

epidemics. So I think what you have done has not only been good

for the United States, but good for the world. And I thank you very

much.

Senator LEAHY. Well, thank you. No; you are the ones who are

out doing the work. We can try to get you money, but you are the

ones doing the work.

Dr. Daulaire, you get the last word.

Dr. DAULAIRE. Well, Senator, as we know in Vermont, there are

a lot of clouds that pass by, but not all of them produce rain.

[Laughter.]

And we also know that it takes a certain nucleus to pull that

supersaturated water together to produce droplets. What you did

last year, in holding your hearing and in working through the appropriation with your colleague, Senator McConnell and the rest of

the committee, has really produced that nucleus.

As we heard from Dr. Heymann and Dr. Hughes, we have had

a collaboration over the past 7 months that we have never seen before. And having the money and the mandate was key to doing

that. I see a very important business going on, and it would not

have happened without your leadership. And we are very grateful.

Senator LEAHY. Well, I have often said that the Senators are

merely constitutional pediments of their staff. And with Tim Rieser

and Robin Cleveland sitting here, I am delighted that they are here

and keep moving us forward, too. Some of the reports that Tim has

brought me back from some of the places he has visited keeps me

going.

I thank you all for being here, and we will keep in touch. And

you should feel free to pass on ideas. I will also raise the intellectual property question in the Judiciary Committee, Dr. Cassell.

Thank you very much.
139

SUBCOMMITTEE RECESS

The subcommittee will stand in recess until 2:30 p.m., Tuesday,

June 9 when we will receive testimony from Brian Atwood, Administrator, U.S. Agency for International Development.

[Whereupon, at 1 p.m., Thursday, April 23, the subcommittee

was recessed, to reconvene at 2:30 p.m., Tuesday, June 9.]

(141)

FOREIGN OPERATIONS, EXPORT FINANCING,

AND RELATED PROGRAMS APPROPRIATIONS FOR FISCAL YEAR 1999

TUESDAY, JUNE 9, 1998

U.S. SENATE, SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS, Washington, DC.

The subcommittee met at 2:45 p.m., in room SD–192, Dirksen

Senate Office Building, Hon. Mitch McConnell (chairman) presiding.

Present: Senators McConnell, Bennett, Campbell, Stevens,

Leahy, and Lautenberg.

AGENCY FOR INTERNATIONAL DEVELOPMENT

STATEMENT OF J. BRIAN ATWOOD, ADMINISTRATOR

OPENING REMARKS OF SENATOR MC CONNELL

Senator MCCONNELL. The hearing will come to order. I want to

welcome, Mr. Atwood. I appreciate your being here, Brian.

In fiscal year 1998, the 150 account enjoyed a unique increase of nearly $1 billion. This year, unfortunately, we face exactly the opposite situation. For 1999, the subcommittee will need to meet our

global commitments in the context of an allocation that is nearly

$1 billion below the request. I am confident that Senator Stevens

has been fair and done the best he could with all the subcommittee

allocations including ours. He had a very difficult set of choices to

make, and now we have to function within that allocation.

Before we suffer a great deal of hand wringing about this allocation, I want to make two points. First, we met our international obligations in fiscal year 1996 with a similar allocation. Second, this

task should be considered an opportunity to cut programs which do

not meet standards for performance or relevance to our national interests. We do not have the option to finance failures or finance interminable, ambiguous programs which have a marginal impact on

a minority of people.

During my tenure as chairman, I have seen little improvement

in the definition of concrete goals nor have I observed reforms, revisions, or progress in measuring success. Over the past 6 months,

either my subcommittee staff or I have visited six countries reviewing your administration of programs. With the exception of projects

or activities which we earmarked or pushed the Agency to fund,

the representatives of nongovernment organizations and grant recipients were uniformly critical of the AID’s management of foreign
142

assistance resources. At best, they would give AID a C minus, and

I must admit that is a somewhat generous observation.

Let me relate some of what I learned. In Asia, one of the largest

most effective global refugee support organizations understood I

was considering shifting administration of a program from the

State Department to AID. A seasoned professional warned that as

slow as State was, AID was worse—he characterized your agency

as overwhelmed by bureaucratic, incompetent managers who were

so slow that by the time funds were available, the problems had

either been solved or changed so dramatically that new proposals

needed to be drafted.

In Latin America, I met with representatives of an environmental group who had been approached by AID to support an important conservation program. AID told them they would be provided $300,000, but first they had to hire an Agency-designated

participatory management consultant. They reluctantly hired the

consultant then spent months negotiating over the terms of the

$300,000 contract. After more than 1 year, they were told only

$170,000 would be made available, but even those resources had

been suspended because they had improperly retained a

participatory management consultant.

In central Europe, one of our Ambassadors asked for NGO help

and training for parliamentary elections. AID asked the organization to use internal funds for 1 month until a funding stream could

be worked out. The group agreed with the understanding they

could only carry the burden for 1 month. Needless to say, 1 month

passed, then 2 months and the NGO had to suspend the program

for lack of resources. AID had offered no reimbursement, no plan,

and no explanation.

Finally, and perhaps most disappointing is the Agency’s failure

in Indonesia. Just before the Government removed key subsidies in

April, AID deployed a team to conduct a national needs assessment. I had hoped that this would be a forward-leaning, comprehensive exercise designed to deal with the unraveling crisis of

a country of tremendous importance to the United States.

In early May, the AID team briefed the committee. Their report

was shortsighted, uninformed, and off target. They were able to

speak only in vague terms about food implications of drought-afflicted areas in the eastern islands. They did not anticipate and

had no strategy prepared to assist with acute nationwide requirements resulting from the ongoing economic implosion and the IMFmandated price hikes. They could not forecast the number of communities, let alone individuals, crushed by this emerging humanitarian crisis. They had no thoughts on how to expand the means

to deliver assistance. They had not met with nor taken advantage

of the offer by the two largest Moslem organizations to deliver food

and medical relief. In a country of 200 million Moslems, they indicated they would use a Catholic organization with very limited access to communities in need of aid.

Riots and demonstrations and even Suharto’s departure has produced no change in AID’s approach or thinking. In the May briefing, the mission director and the deputy director for the Asian bureau echoed a briefing paper sent to the subcommittee yesterday—

other than drought victims, there is no plan to increase assistance
143

for Indonesia. The only new requirement will be with existing resources and will fund support for technical consultants to work

with the IMF on economic, financial, and banking reform.

In sum, at a time when the United States could have, indeed,

should have sent a strong signal of support to Indonesia, AID was

unprepared, unwilling, or unable to develop a relevant rapid response and deliver crucial relief.

This crisis did not erupt overnight. It was as predictable as the

IMF’s public schedule for the implementation of key reforms. Failure to prepare for the consequences of a 70-percent rise in the price

of commodities is incomprehensible, a problem only compounded by

the fact that we still have no strategy to help Indonesians address

the immediate and future impact of reforms.

Mr. Atwood, these examples illustrate that the problems AID suffers are not just incidental or anecdotal, but they are systemic and

widespread, afflicting virtually every sector and every geographic

corner of AID’s world. In 6 months, in six countries, I have heard

appalling accounts of mismanagement and ineptitude in the administration of the Agency’s humanitarian, democracy, economic, and

environmental programs.

You have had 5 years to fix these problems and I see little

progress. Your computers do not work, your contracting system is

a mess, your goals continue to be vague, so your results are fuzzy.

The problems are grave and demand your immediate personal attention. There are many hard working, dedicated professionals who

work at AID who are as discouraged as I am about the weak leadership they are being offered. They deserve your full attention and

commitment. I urge you to take this criticism of one of your supporters seriously, because with or without the State Department

reorganization bill, I want you to know we cannot continue with

business as usual.

I now turn to my friend and colleague Senator Leahy.

OPENING REMARKS OF SENATOR PATRICK J. LEAHY

Senator LEAHY. Thank you, Mr. Chairman.

Mr. Atwood, I know you are delighted to be here. We are glad

to have you here. I have been a member of this subcommittee for

close to 20 years now, and I have never been as concerned about

our budget situation as I am today. Last month, we received a

budget authority allocation of $12.6 billion for fiscal year 1999.

That is $200 million below the current level and would require cuts

in many programs that have bipartisan support in the Congress.

But that is only part of the problem.

Our outlay allocation is $12.4 billion. The effect of that I am told

is that we will be able to use at most $11.8 billion in budget authority. Since some programs cannot be cut under any circumstances, our budget authority could probably be closer to $11.4 billion with AID absorbing some of the deepest cuts. That would

mean cutting a lot of programs Congress supports. Any cut below

the current level, which is already far below what our budget was

just a few years ago, makes no sense. I have not even mentioned

the President’s request. He asked for a $1 billion increase for foreign operations, and we are talking about as much as a $2 billion

cut from the request.
144

Now, Mr. Chairman, you have been one of the strongest voices

for support for foreign operations and for what we do abroad. You

have expressed a true internationalist attitude in this. But I look

at where we are. The situation today is a lot different than when

we reached the budget agreement. We have a surplus, not a deficit.

The United States today is by far the world’s strongest, largest

economy, the stock market is booming and unemployment is the

lowest in years. Yet, while one-quarter of the population of the

world lives in squalor, we are cutting foreign aid even though it accounts for only 1 percent of our budget or one-tenth of 1 percent

of GNP. We spend a lot less per capita than most other countries

do, even though with about 5 percent of the world’s population we

are consuming as much as 25 percent of the world’s resources.

I know of no explanation for this. Maybe it is that people do not

think our foreign aid programs matter. The irony is that the American people support foreign aid and key members on this committee

on both sides of the aisle understand the real need for foreign aid.

They understand that the United States needs to play a major role

in protecting the environment and public health, combating poverty, helping refugees, supporting democracy and free markets if

for no other reason than a selfish one. It helps us in the long run.

The problem is the American people have been led to believe that

foreign aid accounts for about 20 percent of the Federal budget

when it actually accounts for only 1 percent and too many Members go back home and say, ‘‘If we just do away with foreign aid,

why we would have plenty of money for,’’ and then just fill in the

blank.

When Members think they are doing voters a favor by cutting

foreign aid, we are hurting ourselves and our future. It is self-defeating. I too have concerns about the way AID is doing its job. I

know how difficult it is to get results in many of the places around

the world where you work. But sometimes AID can be its own

worst enemy. There are some very talented and dedicated people

at AID, but the Agency itself remains a cautious bureaucracy.

Too many times here in Congress we feel it is more concerned

about appearances than results. And then when things go wrong,

instead of just saying, ‘‘Look, they went wrong, it didn’t work,’’ AID

often says things are better than they are. You have lost some of

your best people because they have been passed over by political

appointees, although I know that is outside of your control. Having

said that, I cannot think of anything that is going to hurt more

than to cut AID’s budget, which translates into real lives and opportunities lost.

The chairman and I have tried hard to protect this budget in the

past. We have not always agreed with the administration on how

to spend it, but I think we both recognize, as does Chairman Stevens, that the United States has a wide range of interests around

the world. It is a global economy.

PREPARED STATEMENT

With all the instability from Nigeria to Indonesia to Colombia,

these interests are growing, not shrinking. We can afford to do

more. It would be money well spent. If it means adjusting our

budget agreement, then we should do that. The United States is
145

the only superpower left in the world. We are the leader of the

democratic world, and we ought to act like we are the leader of the

democratic world and not act like we are an isolationist, uncaring

Nation.

Mr. Chairman, I appreciate what you have done on this and I

look forward to working with you on this budget.

Thank you, Mr. Chairman.

[The statement follows:]

PREPARED STATEMENT OF SENATOR PATRICK J. LEAHY

Brian, it is good to have you here.

I have been a member of this subcommittee for a long time. Never have I been

as concerned about our budget situation as I am today.

Last month, we received a budget authority allocation of $12.6 billion for fiscal

year 1999. That is $200 million below the current level. It would require cuts in

many programs that have strong, bipartisan support in the Congress. But that is

only part of the problem.

Our outlay allocation is $12.4 billion. The effect of that, I am told, is that we will

be able to use at most $11.8 billion in budget authority. Since some programs would

not be cut under any circumstances, our budget authority would probably be closer

to $11.4 billion, with AID absorbing some of the deepest cuts.

That would be devastating for many programs the Congress supports. Any cut

below the current level, which is already far below what our budget was just a few

years ago, makes absolutely no sense.

I have not even mentioned the President’s request. He asked for a billion dollar

increase for Foreign Operations. So we are talking about as much as a two and a

half billion cut from the request.

Mr. Chairman, I am not blaming anyone for this, but the situation today is different from when we reached the budget agreement. We have a surplus, not a deficit. The United States today has by far the world’s strongest, biggest economy. The

stock market is booming. Unemployment is the lowest in years. Yet while a quarter

of the population of the world lives in squalor, we are cutting foreign aid even

though it only accounts for 1 percent of our budget, or one-tenth of one percent of

GNP.

Can someone explain this to me? Is it that people don’t think our foreign aid programs matter?

The irony is that the American people support foreign aid. They understand that

the United States needs to play a major role in protecting the environment and public health, combating poverty, helping refugees, supporting democracy and free markets, because it helps us.

The problem is the American people have been led to believe that foreign aid accounts for about 20 percent of the federal budget, when it actually accounts for only

1 percent. So Members of Congress think they are doing the voters a favor by cutting foreign aid.

It is self-defeating. We are hurting ourselves, and our future.

Frankly, I am not satisfied with the way AID is doing its job. I know how difficult

it is to get results in the places you work. But like Chairman McConnell I sometimes see AID as its own worst enemy.

You have some very talented, dedicated people, but AID remains a cautious bureaucracy, often more concerned about appearances than results. Then when things

go wrong, AID says things are better than they are.

You have also lost some of your best people, because they have been passed over

by political appointees.

Having said that, I can think of nothing worse than to cut AID’s budget. That

translates into real lives and opportunities lost.

Mr. Chairman, you and I have tried hard to protect this budget in the past. We

have not always agreed with the Administration on how to spend it, but I think we

both recognize—as does Chairman Stevens—that the United States has a wide

range of interests around the world. In a global economy, and with so much instability from Nigeria to Indonesia to Colombia, those interests are growing, not shrinking.

We can afford to do more and it would be money well spent. If it means adjusting

the budget agreement, then that is what we should do.
146

SUMMARY STATEMENT OF HON. BRIAN ATWOOD

Senator MCCONNELL. Mr. Atwood, it is time for you to have your

say. Go right ahead.

Mr. ATWOOD. Thank you, Mr. Chairman. I detect that the honeymoon may be over based on your statement.

Let me say in response to the chairman’s opening statement, I

really do believe it was an overly harsh statement. I believe it was

unfair. As a matter of fact, I can even agree with some aspects of

what you say. I am just as frustrated when I run across some of

the situations that you point out, and we try to deal with them, of

course, but you know it is difficult in any country to run a development agency. I have certainly detected that.

I do not know that anyone could do the job and be void of enemies. Just think about every time you put out a competitive contract bid you are probably going to make one contractor happy and

two or three very unhappy. Many of them choose to go through the

process of challenging the choice itself, and we end up either in

court or at the GAO. Certainly, the same thing is true in terms of

our grant process itself. People are not happy.

I would imagine, Mr. Chairman, that given where you sit you

probably hear a lot of those complaints because there is the perception and the reality that you can have a lot of influence over the

Agency. I am not trying to make excuses, but I think that if there

are negative things that are heard about USAID you probably hear

more of them than anyone other than myself.

What I think is ironic is that we just have been through our peer

review by the other donor agencies, all 21 of the other donors that

sit on the Development Assistance Committee of the OECD. I sat

for a full day in a hearing in Paris, where the OECD is, and heard

people ask questions about our program and basically the peer review came out saying that the United States continues to have the

best development program in the world. The most efficient, the one

that is struggling more with the cutting edge in terms of reforms

and the like, I might add. With respect to some of the complaints

that you hear and that I hear as well, they relate to the reform

process that you have underway now.

We never did measure results very well. We are trying to do that

now, and we have a lot of people who think that we are trying to

put them in a little box or that we are trying to somehow force

them to give us results that they were not asked to report on previously. It seems to me that we have an obligation under the Government Performance Results Act but also a general obligation to

the American taxpayers to report those results and to develop indicators that would indicate whether or not we are successful in

what we are doing.

I think there are a lot of legitimate complaints. There are a lot

of frustrations in working with the Government bureaucracy that

has to operate under rules, but I honestly believe that no one does

it better, no other organization in the world does it better. I think

that has been indicated as we have responded in particular to contingencies that have arisen such as Bosnia. Every development

agency in the world, whether it is the World Bank or the European

Union, knows that USAID has been out ahead of everyone. The
147

same is true in the West Bank and Gaza and the same is true in

a lot of other transitional situations.

I do not want to be overly defensive. There is no way that I am

going to reach nirvana or perfection in this job, but I do believe,

Mr. Chairman, that given your general support over the years—

and it has been very strong and I have appreciated it very much—

that your statement today was a bit harsh. But we can debate that.

You and Senator Leahy have been leaders in the Senate in calling for a higher level of funding for the 150 account, and I have

very much appreciated that as well. You have understood the connection between the programs that are funded in that account and

our U.S. national interests. You have understood, for example, that

U.S. exports, which have been on the rise in recent years, have

been partially the result of past investments in economic development. You have understood that American farmers benefit directly

from agricultural research in the development of the farm sectors

of developing countries. You have understood that our efforts to

preserve the world’s biodiversity helps Americans find cures for

diseases and the importance of family planning programs in terms

of improving the lives of children and saving mothers’ lives and in

reducing abortions. You have understood that infectious diseases

must be countered at the source if we are going to protect Americans.

Most importantly, Mr. Chairman, you and Senator Leahy understand the connection between this budget and American foreign

policy. This budget funds the mitigation of the world’s crises, the

transition from postconflict situations and the prevention of future

crises. You know that; that is why you fought for more resources

in the 150 account.

In that regard, Mr. Chairman, with respect to your comments

about Indonesia, I have been very proud of the way we have responded in a very difficult situation. Obviously, when you get into

an immediate crisis that has occurred in a place like Indonesia, it

is not simply USAID making decisions about what to do; it is the

entire Government. We have what we call principals meetings

where everyone sits around and attempts to develop a strategy.

But we have responded well in three different ways. We have responded through our humanitarian efforts. We have at the first

part of the crisis increased our title II food for peace resources by

$25 million. The assessment team, to which you referred, was there

to look out into the future to project what the needs would be if

this situation got worse, the economic situation. They did that limited job well. They were not going to do a survey of the fourth largest country in the world in just 1 week, but we needed the information that they gathered, and they gathered it well.

We have also tried to help the Indonesians set up a social safety

net. We negotiated immediately within 1 week after the IMF imposed its own criteria. We negotiated a framework agreement

wherein we could provide technical assistance to the Indonesian

Government, a $23 million program which was basically a reorientation of our original program, and now we are in a new situation,

where there seems to be a legitimate transition to a democracy, of

trying once again to take our program and reorient it to the needs

that apply there, which, of course, adds a third leg to this humani-
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tarian economic reform. Now we have a democracy governance

challenge that we have to meet. I think our people, in light of the

fact that all of them but one were evacuated from Indonesia, did

a good job in responding and I think they will continue to respond

now that we are putting our people back into Indonesia.

I have come here to defend the President’s fiscal 1999 request for $14.1 billion in the foreign operations budget. This is a modest increase of about $856 million over last year’s enacted level. Yet, because of the budget resolution passed in the House and proposed

in the Senate and because of the allocation your subcommittee has

received under the 302(b) procedure, we are looking at the possibility of a $960 million cut below the President’s request and a $200

million cut below last year’s spending level. This is, however, a

budget authority ceiling. The cap on outlays reduces this budget by

as much as an additional $1 billion. Frankly, Mr. Chairman, with

these caps the President’s request is dead on arrival.

I have now been in this job, as you have indicated, for 5 very

long years. For most of that time, I have been fighting for survival

here in Washington while trying to maintain American leadership

abroad in the development field. That leadership in a broad range

of technical areas has helped us to leverage funding from other donors and it has reduced the burden for the American taxpayer.

I have explained our reductions in these overseas meetings in official development assistance as necessary as we have sought to

balance our budget. I have argued that our defense expenditures

far surpass those of other countries. I have expressed optimism

that as soon as our budget was balanced we would begin to build

back our program. Last year, we took the first small step along

that path.

Mr. Chairman, I simply cannot explain the numbers you have

been given this year for foreign operations to a foreign audience.

This is nothing short of devastating. If this budget passes, we

might as well shut our doors—and we will in most of our overseas

missions. Our struggle to maintain American leadership and development will be over and our ability to preserve our national security through diplomacy and development will be severely damaged.

I know that you and Senator Leahy and Senator Stevens are familiar with the impact of past years’ budget cuts on our program,

but I have brought some charts here today to try to underscore our

problem. Now this first chart illustrates the staff reductions we

have taken since fiscal 1993. The total reduction is 30 percent. Our

staff is what made USAID the best development agency in the

world.

Now let me illustrate that point by quoting from this peer review

I mentioned before of the American aid program. This review is

done every 4 or 5 years by other donors, and we respect what they

say. This is what those donors said about our cutbacks overseas:

‘‘The extent of cutbacks of USAID’s overseas presence diminished

two of its most prized assets, an experienced strong field staff close

to the action and the unique scope of the U.S. program in line with

America’s global capabilities.’’

These reductions included a very painful reduction in force of

more than 160 employees in 1996. Fortunately, Senator Stevens

helped us by providing buyout authorities or these numbers would
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have been even higher. As these staffing levels have declined, we,

in turn, have been asked to take on new programs in the former

Soviet Union, Bosnia, and the West Bank and Gaza.

Now the second chart shows the reduction in our overseas missions since 1993. We have left 28 countries in the past 5 years and

we have 5 more we are planning to close by the end of this fiscal

year. Now what worries me is the extent to which we have had to

cut back in Africa, Asia, and Latin America. We have, in fact,

opened nine offices in Bosnia, the West Bank, in Gaza, and the

former Soviet Union. But we are in 19 fewer places than we were

in 1993, and most of these places are in the developing world.

Mr. Chairman, I don’t regret some of these closures. We should

not be working in countries where the government is not a good

partner. But overall these closures have hurt us. As our DAC, as

our Development Assistance Committee, peers have told us, they

have diminished our influence. And they have been driven mostly

by budget considerations.

A third chart shows the President’s budget request. This request

provided a modest increase in USAID managed funds of some $300

million. The request I would add fell within the parameters of the

balanced budget agreement as scored by the administration. However, as you see, the Senate 302(b) allocation was almost $1 billion

below the administration’s request and I am told that the outlay

makes the budget authority allocation also a dead letter. That outlay cap, depending on how it is calculated, would drive this appropriation down an additional $1 billion. These numbers mean a 9.4-

percent overall cut in our budget from fiscal 1998 levels, and that

is very severe.

The cuts in unprotected development assistance would be even

greater, assuming, for example, that Congress continues to protect

the ‘‘Child survival and diseases’’ account as would appear likely.

If that happens, we could be talking about a 20- to 30-percent cut

in our other development programs. Let me give you some indication of what that would mean.

These cuts would require shutting down any number of current

programs. We would be forced, for example, to take deep cuts in

agricultural research programs conducted by U.S. universities. We

would have to cut back sharply on microenterprise programs that

have a proven track record in giving poor people their first opportunity at starting their own business.

A cut of this size would mean the elimination of all new initiatives including those recently announced at the summit of the

Americas as well as the African trade and investment policy initiative, both programs aimed directly at improving the lives of the

poor. We would have to further reduce our family planning programs, our democracy efforts, and our environmental programs. In

effect, a 20- to 30-percent cut in the unprotected portions of our

‘‘Development assistance’’ account would be the equivalent of this

year’s DA budget for all of Latin America or all of Asia and the

Near East. It would mean eliminating an amount equal to all of

our global bureau—all that our global bureau spends out of Washington on agriculture, population, environment, and microenterprise.
150

PREPARED STATEMENT

Finally, Mr. Chairman, it is obvious that fast spending accounts

would be the hardest hit under the outlay cap. This chart shows

how we have reduced our operating expense budget over the years.

As you know, our operating expense budget is a fast spending account that would be very hard hit by the outlay cap. One calculation I saw indicated that under the cap our OE could be cut by almost $100 million. This is why I said we would have to shut down

our operations. Ironically, however, we would not even be able to

afford to shut down some of our overseas missions because it costs

money to buy out contracts and the like, and yet we would have

to. That is our dilemma, Mr. Chairman. I hope we can work together to fix this predicament. Somehow, I do not believe that Congress really intended these dire consequences.

Thank you, Mr. Chairman.

[The statement follows:]

PREPARED STATEMENT OF J. BRIAN ATWOOD

Chairman McConnell, Senator Leahy, and other members of the subcommittee, I

am pleased to be here today to present President Clinton’s budget request for foreign assistance programs for fiscal year 1999. Certainly, the last several weeks have

offered Americans a stark reminder of the importance of international affairs to this

nation.

From the testing of nuclear weapons on the sub-continent, to the still precarious

situation in Indonesia, to flaring ethnic violence in Kosovo, to the volatile situation

in the Middle East, we have seen powerful reminders that the United States has

a real stake in our ability to promote peace and stability. America’s continuing security, economic prosperity and public health clearly demand we exercise our international leadership on distant shores. The members of this committee have long understood the indispensable nature of America’s international engagement, and I applaud your efforts to support U.S. assistance programs.

However, as I appear before this committee today, I must say that I am gravely

concerned. The current allocations of budget authority and outlays to this subcommittee, and the low levels given to your counterparts in the House of Representatives, would have a devastating impact on our ability to keep the United States

engaged internationally during this perilous period.

As you are aware Mr. Chairman, unless budget allocations for Foreign Operations

are raised, the line items in the foreign operations bill will have to be cut significantly below this year’s funding levels. Moreover, if the programs protected under

last year’s legislation continue to be protected, the cuts in the rest of the bill will

be even more drastic.

These cuts would come at a time when our international affairs programs are operating at historically lean levels. If we continue to allow this downward slide in

our capacity to conduct diplomacy and development, we will be sacrificing our longterm national interests.

Few areas of government have already done more to downsize and more efficiently

conduct their operations. We have cut all the fat, now we are looking at bone. Between 1993 and 1998, the U.S. Agency for International Development (USAID) reduced its total staff by more than 3,300. This cut of more than 30 percent included

a painful 1996 reduction in force of more than 160 employees.

USAID’s number of field missions and offices has also shrunk, going down from

97 in 1993, to 78 currently. This overall reduction is even more pronounced when

one considers that it has occurred during a time when we opened a number of new

missions in Eastern Europe and the New Independent States at the end of the Cold

War. Mission closings would have to accelerate dramatically under the budget scenarios that we currently face. It has been field presence that has made USAID a

global leader in development. There is no substitute for on-the-ground presence in

designing and implementing effective assistance programs.

Ironically, the agency has been called on to do more and more, with less and less,

in a series of very high-profile foreign policy settings. We were the first on the

ground to get reconstruction programs up and running in Bosnia. In Guatemala, we

moved quickly to help secure that nation’s historic peace accords. In the New Inde-
151

pendent States, we have been on the cutting edge of helping secure a truly historic

transformation toward democracy and free markets. In Latin America we are translating the vision of the Summit of the Americas into a reality. In Africa we are helping that continent seize the opportunity of a new generation of leadership.

I am extremely proud that USAID and its excellent employees have risen to every

challenge that they have encountered. In the face of tremendous adversity and continual duress over the last several years, they have responded with professionalism

and an unflinching ability to get the job done. But now, we are again faced with

the prospect of a budget that will mean fewer vital programs, fewer overseas missions, fewer employees and a squandered opportunity for America to invest in her

own future.

The President requested $20.1 billion for programs in international affairs, of which the U.S. Agency for International Development (USAID) would manage $7.3

billion. That figure represents 36 percent of the international affairs account and

includes both USAID programs and programs which our agency administers in cooperation with other agencies. This request is within the parameters of the balanced

budget plan as agreed to by Congress and the Administration last year.

President Clinton’s request for fiscal year 1999 programs managed by USAID pro- vides a very modest $300 million increase over fiscal year 1998 funding. The funding requested, however, is critical to our future. It is crucial to promoting American

interests in developing countries, and in nations making the transition to democracy

and free markets around the globe. Highlights of this request include:

—Three new initiatives, the Africa Trade Reform and Growth Initiative and the Americas Summit Initiative, for which the Administration is requesting $30

million and $20 million respectively under the Development Assistance and

Child Survival accounts, and the African Great Lakes Justice Initiative, for

which the Administration is requesting $30 million under the Economic Support

Fund. In addition, we are asking for an additional $1 million to our food security initiative for Africa, bringing those funds to $31 million for fiscal year 1999. —An additional $155 million for programs in the New Independent States of the

former Soviet Union; —$94 million more for the Economic Support Fund, which includes the aforementioned Great Lakes Initiative; —A separate request of $503 million for the Child Survival and Disease Program;

—A $15 million increase in International Disaster Assistance for transition initiatives for countries coming out of crisis; and,

—Economic growth activities aimed at improving food security in Africa to help

feed the hungry and support for agricultural research through the agency’s central Global Bureau.

On balance, the USAID budget represents less than one-half of one percent of the

federal budget. This is a bare-boned and balanced approach to development and humanitarian programs that will significantly contribute to achieving the administration’s foreign policy objectives.

However, the initial budget numbers we have seen in the Senate would not allow

us to effectively carry out our development and humanitarian assistance programs.

The total budget allocation for Foreign Operations, as it currently stands for budget

authority, is nearly one billion dollars below the President’s request. Even worse,

because of subcommittee’s outlay cap, our preliminary estimates are that actual

budget authority permitted by the outlay ceiling could be on the order of $2 billion

below the President’s request in Foreign Operations alone. This is a nearly 15 percent cut across the board in Foreign Operations.

The impact of cuts of this magnitude would devastate any number of programs.

Because we expect that those accounts that enjoy wide Congressional support would

likely be held largely protected from cuts, the impact on non-protected accounts

would be even more severe, and I would find myself faced with the devil’s dilemma

of having to choose which vital programs to deeply cut.

To illustrate the severity of this dilemma, we need to appreciate the magnitude

of these cuts. A $2 billion cut is larger than our entire Development Assistance request for 1999. This figure is about 40 percent of all the activities managed by

USAID. This cut represents about a ten percent cut from the President’s entire request for all of international affairs. Such a cut alone could fund the entire Peace

Corps for more than seven years at current levels.

These deep cuts would devastate our international operations at the program

level. These cuts would also require shutting down current programs which address

poverty and hunger. We would be forced to make see deep cuts in agricultural research programs conducted by U.S. universities that are helping develop better crop

varieties to combat hunger abroad. Over the long term, this would mean losing

ground in the fight to battle malnutrition, and increased global tension over food
152

insecurity and increased needs for emergency assistance. This would also mean

American universities would lose much of their capacity to conduct this vital agricultural research.

We would have to cut back sharply on microenterprise programs that have a proven track record in giving poor people their first opportunity at starting their own

businesses and working their way out of poverty. More than a 100,000 people would

lose access to small loans because of these cuts.

Cuts in family planning would result in increasing numbers of unwanted pregnancies and fuel a dangerous spiral of additional deaths of both mothers and children. Cuts in disaster assistance would deny assistance to the most vulnerable victims of war, famine and other disasters. Efforts to prevent regional and civil conflicts through democracy programs would be delayed or terminated. Cuts in environmental programs would limit our ability to deal with the underlying causes of ecological crises such as the vast fires we have seen in Mexico in recent months.

Economic growth programs in Latin America and Asia, already severely limited,

would be cut further. Efforts to integrate Africa into the world economy would also

suffer funding cuts. America’s economy, American exporters and American consumers would ultimately pay the price for our collective failure to open new markets

and promote international trade.

Cuts in Economic Support Funds, an account already $1 billion less than 10 years

ago, would probably mean no funding for economic stabilization programs in Latin

America. Lower levels of funding for our programs in the New Independent States

and SEED countries would put at risk vital progress in strengthening democracy

and free markets in key strategic areas like Bosnia-Herzegovinia and Russia.

Such a large cut would mean the elimination of all new initiatives, including

those recently announced at the Summit of the Americas as well as the African

Trade and Investment Policy Initiative—both programs aimed directly at improving

the lives of the poor.

USAID operations worldwide would have to be scaled back, terminating the successful efforts of the United States to encourage other donor nations to share the

burden of development.

If the Operating Expense account is reduced below the President’s request, the

impact on overall agency operations and ability to provide oversight of foreign assistance programs would be severe, as that budget has already been cut severely

in past years. From fiscal year 1993 to fiscal year 1997, operating expense-funded

staff levels were cut by 34 percent, which included a very difficult reduction-in-force

of 164 U.S. direct hire staff, early-outs, and buy-outs. We were able to plan an orderly process to achieve much of these reductions, including orderly closing of missions. Such orderly processes would be impossible with sharp fiscal year 1999 operating expense reductions. In order to absorb the high costs of shutting down missions—including severance pay for foreign service nationals, contract termination

costs, relocation costs and other factors—the cuts would have to be completed very

early in fiscal year 1999. We are to far into the calendar year to make such reductions in an orderly way. Leading up to fiscal year 1997, the GAO confirmed that

the agency could not operate at a level of $465 million without immediate largescale cost-cutting early in the calendar year, including increasing the size of the Reduction in Force that had been planned at that time.

These cuts in operating expenses would come at a time when the costs of doing

business abroad are going up, not coming down. The agency is facing continuing cost

increases due to the impact of inflation on foreign national pay, office and residential rents, utilities, and other overseas costs as well as federal pay raises and the

impact of general inflation in the United States on Washington costs. Given that

the operating expense account is driven by workforce levels, sharp workforce reductions would become necessary. Fewer people would make it impossible to manage

existing programs, and would force the early termination of some activities. Operating expense cuts would also make it more difficult to keep the agency’s information

technology up and running, and would force us to sharply reduce many critical activities, such as training.

We need to remember that these are not abstract cuts we are talking about. Our

programs have a demonstrated track record in making a real difference around the

world—from saving lives to building more prosperous societies to creating jobs for

the American people. USAID emergency relief programs provided food and other assistance to more than 28 million disaster victims in 1996. Our health and child survival programs, which you have so strongly championed, helped to save more than

five million lives last year alone. Severe food shortages were averted in seven African countries, thanks to USAID efforts to establish regional capacities to anticipate

and prevent famine.
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Our programs in Eastern Europe and the New Independent States helped privatize more than 26,000 state-owned enterprises in 1996 alone. In addition, we supported free and fair elections in 14 countries around the globe and assisted in the

drafting and adoption of new constitutions in three countries. More than a million

people received USAID microenterprise loans last year, and more than half of those

clients were women. We helped farmers in Latin America choose alternatives to

growing drugs, and cut the acreage in Peru devoted to coca production by 27 percent. USAID also contributed significantly to improving conservation on over 21,000

square miles of land in 14 different countries.

We took a major step toward the worldwide eradication of polio with our support

for national immunization days in Africa and Asia. The agency continued to help

finance innovative public-private partnerships, such as the one that helped create

vaccine vial monitors—simple heat-sensitive tags that indicate when vaccines have

become unusable, resulting in health savings in excess of $10 million a year.

The Congress and the American taxpayer have every right to demand results for

the dollars they put into foreign assistance, and I feel USAID is doing a better job

than ever before in producing results that make a difference in today’s world. The

Administration is eager to work with you to improve this situation, and I hope that

we can do so in the weeks and months ahead. I would also like to point out some

particular issues from this year’s budget request that I know are of particular interest.

Account Structure

The fiscal year 1999 budget request brings with it a slightly different account

structure. USAID is requesting 1999 funding for a separate Child Survival and Diseases account at a level of $502.8 million, which reflects strong support both within

the Administration and this Subcommittee. The account includes $226 million for

child survival activities, $121 million to combat AIDS, $30 million for other infectious diseases and $27 million for related health activities that complement our activities in child survival and infectious disease. Also included is $98.2 million in

basic education programs. Education programs are one of the most powerful means

we possess to promote lasting social and economic progress in the developing world.

While this request of $502.8 million compares to a 1998 appropriated level of $550

million, I want to make one thing absolutely clear: this is not meant to signal a reduction in the importance USAID places on child survival programs. It has been our

experience that to effectively combat both infant mortality and the spread of disease, we also need to address the underlying social and economic conditions that

allow child mortality and infectious diseases to flourish, such as poverty, malnutrition, illiteracy, poor sanitation, overcrowding and environmental degradation. We

use other portions of our budget to attack these problems.

Just to cite one example, our urban programs that work in some of the worlds’

largest and increasingly crowded mega-cities are not considered part of the child

survival account. Yet these programs are helping to provide clean water and waste

treatment facilities to millions of poor families, an effort that clearly improves the

lives of children and reduces the spread of disease. Or consider education programs

that appear in this account but do not fall under a strict definition of child survival

programs: research shows that the child of a mother who has even a single year

of education, has a 9 percent better chance to live to the age of five. Gains increase

substantially with each additional year of schooling. So when you look at our programs in terms of child survival, I think we need to focus on their broad impact.

The Development Assistance Account: The Africa Trade and Investment Initiative

and the Summit of the Americas

President Clinton’s trip to Africa, in which I participated, was an excellent opportunity for the world to focus on the immense potential and considerable challenges

on the continent. I believe the trip will go a long way toward invigorating trade and

development in Africa. I know that USAID will have its work cut out in responding

and following up on the tremendous excitement generated by the trip. This trip offered ample evidence of what I have long argued—that Africa is the world’s last

great developing market. As part of the Partnership for Economic Growth and Opportunity in Africa, announced in June 1997, USAID will help Africa integrate into

the world markets through increased openness to international trade and investment. This type of reform and assistance program has already been proven to be

a major ingredient in the recipe for economic progress and growth in other parts

of the developing world. We hope the bill will pass the Senate and be enacted into

law as soon as possible.

The Partnership includes the following USAID components:
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—Technical assistance to help African governments liberalize trade and improve

the investment environment for the private sector;

—Assistance to catalyze relationships between U.S. and African firms through a

variety of business associations and networks; and,

—Funding of non-project assistance in conjunction with other bilateral and multilateral donors to help encourage aggressive economic reforms.

The second regional initiative included in the Development Assistance account focuses on Latin America. As part of our effort to capitalize on regional cooperation,

the budget proposal includes funds to support the initiatives and was endorsed at

the second Summit of the Americas. USAID helped to define the agenda for the

Summit, where the region’s 35 presidents focussed on regional challenges, including

economic integration, education, democratic institution building and poverty alleviation through microenterprise activities. USAID is requesting $20 million to support

initiatives aimed at achieving these goals which will help remove the barriers to the

participation of the poor in the national life of the 34 democracies represented at

the second Summit of the Americas.

An Increased Emphasis on Agriculture and Education

The Agency has intensified our strategic focus during the last year on two important areas of development: agriculture and education. Agriculture is now being pursued as a part of USAID’s economic growth goal by refocusing on the links between

agriculture, economic growth and food security. As part of this effort, USAID, at the

World Food Summit in November 1996, highlighted the continuing food security

issues of the over 800 million chronically undernourished people in the developing

world. The proposed budget allocations for food aid are part of this Administration

focus. Education has been promoted to the level of one of the agency’s primary goals.

USAID is working to improve basic education for both girls and boys, particularly

in the poorer countries of sub-Saharan Africa. An important part of this effort is

our continued focus on advocating that no children should be denied access to an

education because of their gender, ethnicity or social status.

Increased Transition Activities

Within USAID’s 1999 budget is a $15 million increase to the International Disaster Assistance Account for Office of Transition Initiatives (OTI) efforts. This will increase the U.S. government’s capacity to bring fast, direct, flexible assistance to priority countries in their transition from conflict, by addressing urgent needs. The

United States continues to face the challenge of responding to increasing numbers

of countries with complex emergencies. Many of these complex emergencies have

come to be high priority foreign policy concerns of this Administration, such as those

in Haiti, Bosnia, Congo, Liberia and Angola. Although relatively new and with limited resources to date, OTI has demonstrated a successful track record in assisting

transitional countries: disbanding 200,000 paramilitary troops in Guatemala and demobilizing and resettling nearly 3,000 guerrillas; reaching 1.9 million people with

mine awareness and helping create 590 projects in 270 villages in Angola; and implementing 650 grants in Bosnia to promote independent media and democratic reconciliation.

We have learned from experience how valuable it is to have the resources and the

flexibility of the International Disaster Assistance account in place to deal with

these crises. It is an invaluable, innovative and cost-effective means to advance U.S.

interests in these very dynamic settings. I also want to assure the Subcommittee

that by increasing the funding for OTI, we in no way, shape or form are lessening

the ability of our agency to provide immediate life-saving humanitarian relief

through our Office of Foreign Disaster Assistance—still one of the world’s premier

organizations for providing such assistance on the ground.

Infectious Diseases

For fiscal year 1998, Congress, under this subcommittee’s leadership, provided

funding for USAID to take part in a global initiative to combat infectious diseases,

joining with other U.S. Government agencies in this effort. USAID has developed

a strategy for the initiative as an important complement to the other four objectives

leading to USAID’s goal to stabilize world population and protect human health,

particularly efforts in child survival, maternal health and AIDS prevention.

USAID’s strategy has been developed in consultation with a wide cross section of

global health experts, including staff from other U.S. government agencies,

UNICEF, the World Health Organization, non-governmental organizations, academia and the private sector. In the spirit of true collaboration, these discussions

created a strong consensus as to the strategy we would adopt, and clarification

about USAID’s role.

USAID’s strategy has four technical elements:
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—Slowing the emergence and spread of antimicrobial resistance, targeted at the

principal microbial threats in the developing world: pneumonia, diarrhea, sexually transmitted diseases, tuberculosis and malaria.

—Testing, improving and implementing options for tuberculosis control.

—Implementing new and effective disease prevention and treatment strategies focused on malaria and other infectious diseases of major public health importance.

—Strengthening health surveillance systems by building capacity at the country

level to help create a global early warning system for disease.

Programming of the funds into specific activities will follow shortly. The Centers

for Disease Control and Prevention, the World Health Organization and UNICEF,

among others, will certainly play key roles in our program, and a new Infectious

Diseases objective has been included in the health portion of our request.

A Historic Transformation Continues

The historic transformations occurring in Central and Eastern Europe and the

former Soviet Union remain critical to U.S. national interests, and our requests for

the Support for East European Democracy (SEED) and FREEDOM Support Act accounts reflect this high priority. These nations with whom we were once in a dangerous, expensive and ever-escalating arms race, are now emerging partners in the

global economy. In Central Europe, we are seeing some of our allies successfully

make the transition toward membership in NATO and the European Union. Across

the region we are helping these nations create democratic societies and market

economies which are increasingly based on Western values, and linked to us

through trade and investment and through people-to-people, grassroots relationships.

I know the situation in Ukraine is of particular interest to you, Mr. Chairman.

As you know, Secretary Albright certified that Ukraine has made significant

progress toward resolving longstanding U.S. investor disputes, having determined

that seven of the twelve disputes in question had either been resolved or significant

progress had been made toward resolving them. The Secretary made that determination after close scrutiny of these cases, as well as numerous consultations with

the U.S. business community in Ukraine and with top Ukrainian Government officials.

Having made this certification, the Secretary remains seriously concerned about

the lack of improvement in Ukraine’s investment climate and limited progress toward economic reform. Therefore, she has decided to temporarily withhold funds

amounting to about $25 million for assistance in areas where lack of reform would

make U.S. assistance ineffective. These funds will be reprogrammed to more productive uses within Ukraine if after several months’ time the government does not implement the necessary reforms and take additional steps to resolve outstanding U.S.

business cases in Ukraine.

A great deal depends on the willingness of the Ukrainian government to move forward with reform. Our assistance can only be effective if there is real commitment

in a host country to embrace change. To date, we have seen a number of promising

steps toward comprehensive reform, including good progress in areas such as privatization, land titling and the means-testing of housing subsidies. The challenge now

is for Ukraine’s leadership to ensure that the momentum generated by these incremental reforms can be translated into widespread improvements in the lives of the

Ukrainian people.

In Central and Eastern Europe, the SEED request is focused on continuing our

commitment to support the Dayton Peace Accords in Bosnia and Croatia. We are

promoting reconciliation on the ground through economic revitalization efforts, job

creation and democracy building efforts. It will take time to deepen and solidify this

process. We are also supporting police monitors and police reform in Bosnia, a program critical to our ability to facilitate the return and reintegration of refugees and

displaced persons into their communities. The U.S. military presence and economic

assistance programs have been highly complementary, with peacekeeping troops assuring a sufficiently stable environment for recovery to take root. In turn, economic

recovery is helping to bring about conditions that will make it possible for American

troops to come home.

In partnership with a number of pre-eminent American foundations, we are proposing to begin in the next fiscal year a $100 million trust—with half, or $50 million, to be funded over four years by the U.S. government—to promote deeper and

more enduring civil societies in Eastern and Central Europe. We are joining with

Rockefeller Brothers, Ford, Soros, Mott and others to create an evenly matched public-private endowment to encourage a range of economic think tanks, professional

societies, chambers of commerce, interest groups and the like to be focussed and
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self-sustaining. Our goal ultimately is to stimulate an educated, activist citizenry

that demands accountability and value from its government. Also, by breathing life

and vibrancy into these new democracies, we can more readily count on their durability. With Congressional concurrence, our initial contribution would be $12.5 million from SEED funds, and we will be consulting with you on the best mechanisms

for Congressional oversight of this process.

In the New Independent States, we are requesting an increase in FREEDOM Sup- port Act funds of $155 million above the 1998 level to expand the Partnership for

Freedom initiative in Russia and across the New Independent States. In the 1998

budget, Congress endorsed the Partnership for Freedom’s new focus on economic

growth, civil society, and partnerships which create bonds between non-governmental organizations, businesses, universities, hospitals, professional associations

and a myriad of grassroots organizations in the United States and in the region.

FREEDOM Support Act funds will also help us redouble our efforts in Central

Asia to further develop the business, legal and regulatory environment necessary to

underpin the massive oil and gas investment which is likely over the next decade.

As this Subcommittee saw during its trip to the Caucasus last summer, Central

Asia and the Caucasus are critical to U.S. strategic interests and world energy supplies. We will continue supporting the Administration’s TransCaspian initiative to

facilitate East-West transport routes and environmentally sustainable approaches to

energy development through bilateral and regional technical assistance.

An important part of our work throughout Central and Eastern Europe and the

New Independent States will be our anti-corruption efforts. USAID’s assistance in

the area of crime and corruption addresses the underlying causes of corruption, and

complements the efforts of U.S. law enforcement agencies—the Federal Bureau of

Investigation and the Departments of State, Treasury and Justice—to address specific crime and law enforcement needs. USAID helps set the rules of the road for

business, and opens up to public scrutiny government’s regulatory processes and

businesses’ decision-making. This means reducing inappropriate discretion exercised

by government, so that opportunities for arbitrary, capricious or corrupt government

actions are reduced. This also means improving the transparency of commercial

transactions so corporate decisions are open to stockholder and public oversight and

helping to foster an independent media to inform public decision-making.

USAID Management

The Government Performance and Results Act directed that the foreign assistance

program be driven by strategic focus and by results. At USAID, we have embraced

this emphasis on results. USAID continues to introduce management reforms designed to deliver assistance faster and achieve results more cost-effectively. I want

to underscore the importance that USAID has been placing on managing for results

and improving program effectiveness. We were committed to this performance-based

budgeting long before Congress passed the Government Performance and Results

Act (GPRA) in 1993, reflecting our belief that Congress and the American people

must see the specific results of our programs if these activities are to continue to

receive your support. Some of USAID’s activities—such as reducing the spread of

infectious diseases in developing countries—are easier to quantify. Other equally

important interventions—such as assisting host governments to take steps to move

toward a stable, market-based economy—take more time to achieve. We are committed, however, to measuring, assessing, and reporting to Congress on the results of

all of our program activities.

During this last year, we have also continued to improve our working relationships with the Department of State. Foreign policy and development strategy are

better coordinated at the policy level than ever before. USAID’s Strategic Plan supports specific U.S. national interests as defined in the International Affairs Strategic

Plan—a document which the Department of State and USAID worked in close cooperation to prepare. USAID and the Department of State have also agreed upon

ways to streamline and better align operations ranging from how we manage facilities to how we coalesce around specific country objectives.

The cooperation between USAID and the Department of State is particularly close

in the area of democracy and governance assistance. The Department of State’s regional bureaus and its Bureau of Democracy, Human Rights and Labor (DRL) consult with USAID in programming the ESF regional democracy funds. USAID plays

a prominent role in the DRL-chaired Democracy Core Group, an inter-agency council that ensures the tight coordination of policy and programs in key transition countries. And our two agencies work together in the annual reviews of USAID’s country

programs to further strengthen the coherence of our diplomacy and assistance.

We recently submitted to Congress the initial version of USAID’s fiscal year 1999

Annual Performance Plan. This plan provides specific benchmarks against which
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our performance can be assessed at the end of fiscal year 1999. We will also submit

our self-assessment of performance through fiscal year 1999 at the end of March

2000 through our Annual Performance Report. Our Performance Report will comment on why we think our approaches did or did not work and what we will do to

improve our performance. These plans and reports are important tools for helping

our agency, and you, to determine the degree to which we have achieved the results

that we had set out for ourselves. We look forward to consulting with you on our

performance measuring and planning efforts.

In conjunction with the Department of State and other agencies having an overseas presence, USAID implemented the International Cooperative Support Services,

or ICASS, system effective October 1, 1997. Under this system, administrative support services at overseas posts will be provided by the agency best able to provide

effective service at a reasonable cost. While any major change such as this is likely

to face problems in the first year of implementation, the changeover from the old

Foreign Affairs Administrative Support system to ICASS appears to be going very

smoothly. All agencies, including USAID, are working to ensure that this new system is a success and that it will result in the end in better administrative support

for all agencies at a lower cost.

In other areas of management, two USAID task forces identified ways to streamline procurement processes and to better align our workforce to projected needs in

developing countries. Our workforce planning task force recommended reducing the

Washington staff over the next three years to meet tight Operating Expense levels

while protecting the USAID field presence and permitting expanded staff training.

These moves would not entail a reduction in force, but it is clear that managing

Washington with a reduced staff will require streamlined processes and greater efficiency. The task force recommended that USAID field staff not be cut any further,

and that staffing remain at approximately 700 U.S. direct hires in the field. However, we will be looking at how to more effectively manage our field presence.

The initial action plan on procurement addresses three areas: strengthened teamwork, operational goals and administrative streamlining. We are reestablishing the

Procurement Policy Advisory Panel which will provide for a wider vetting and understanding of procurement and assistance policies. Our operational goals are intended to establish benchmark time periods for effecting actions, such as procurement planning and operational year budget allocation and distribution which will

hopefully stimulate earlier action on procurement and assistance actions, and even

out the workload over the fiscal year.

Completing the move of USAID headquarters to the Ronald Reagan International

Trade Center last year was a sizable logistical challenge, but having all our agency’s

Washington staff together in one building—for the first time in our history—has

greatly improved teamwork and collaboration among employees.

Over the coming year, we will seek to further improve USAID’s unique comparative advantage to rapidly and innovatively respond to diverse development and humanitarian needs. A further streamlining of USAID work processes could increase

the amount of time available to build and nurture partnerships and coalitions with

those willing to collaborate on development problems. It will also ensure that

USAID maintains the technical breadth and on-the-ground developing country expertise in preparing responses closely attuned to local conditions.

USAID’s recognized excellence as a pre-eminent bilateral development organization will serve the United States well as we continue to lead other development organizations. U.S. leadership helps create a shared vision on development goals and

approaches across the U.S. government, among donors, within the nongovernmental

and business communities and with the countries in which we work. As hosts of the

upcoming 30th anniversary Tidewater meeting of development ministers, we now

turn our energies to jointly implementing the Development Assistance Committee

21st Century Strategy. Similarly, as part of the New Transatlantic Agenda of the

European Union and the United States, USAID is now working closely with the European Commission on more than 60 joint development activities.

The New Management System

I also must address an issue that has been of particular concern, the agency’s

New Management System (NMS). Last April, I made the difficult decision to suspend overseas operations of two modules of the New Management System. Communications problems, difficulties in transferring data and system problems, particularly with the USAID Worldwide Accounting and Control System (AWACS) financial

management module, were forcing the agency to expend an inordinate amount of

time responding to problems, particularly at our overseas missions.

USAID contracted in the fall with a top-notch consulting team recommended by

the General Services Administration, and led by IBM, to conduct a thorough assess-
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ment of the NMS. This independent assessment by the consulting team was completed in January and has been shared with Committee staff. This analysis identified the software flaws that have plagued NMS, particularly the AWACS module,

and also identified areas where we could strengthen the management of our information systems.

The report also carefully assessed the options for delivering the necessary business functionality in NMS for the agency to comply with the Government Performance and Results Act and other government-wide standards. The report recommended options for modifications of the operations, budget and assistance and acquisition modules, and replacement of the financial management module with one

of the now-available commercial off-the-shelf financial packages that would be integrated with the other modules.

Our agency staff has put a lot of work into making the NMS system function and

I deeply appreciate their labors. This was not a wasted effort. The business area

analysis process established a solid base for the development of each of the NMS

modules. The vision of an integrated financial and information management system

that would meet our needs into the 21st Century was, and remains, the correct vision. It is now clear, however, with the advantage of hindsight, that we were too

ambitious. We knew that our old systems were inadequate so we rushed the effort

to reach full compliance with government standards and with the business needs

identified in the business area analysis. Basically, we were too ambitious; we felt

we could not achieve the changes we wanted without activating the system prior

to testing it on a smaller-scale basis.

I must also point out that, when we began this process in 1993 at the start of

the Administration, everyone from the Office of Management and Budget to Congress agreed that the agency’s financial information systems were badly flawed and

that immediate action needed to be taken. At that time, no commercial off-the-shelf

packages existed that would meet our financial information systems needs. Our intentions were good in overhauling the agency’s financial information systems, but

with the benefit of hindsight, our method was flawed. For that I accept responsibility.

What are our next steps? We have completed our assessment of the consultant’s

report and are defining a comprehensive plan that will assure us that the mission

critical systems will meet the year 2000 compliance standards. The second priority

is to have in place a financial management system that complies with federal standards that can produce an auditable consolidated financial statement. Third, we must

deliver the basic business functionality and data integration planned for NMS.

Our Management Bureau, in collaboration with the Capital Investment Review

Board, has laid out internal management and external contracting strategy to

achieve these goals. We are in the process of sharing that approach with this Committee and our other oversight Committees. We have invested significant resources

in NMS development, and it is disappointing that we are not where we had hoped

to be. The independent assessment, however, provides an invaluable analysis of our

current situation and a clear description of the steps that we must take to achieve

the original vision of the NMS. We now find ourselves with the opportunity to resolve our difficulties with the NMS and create a system that will allow you the

transparency and accountability that should be the standard for government operations.

In Conclusion

We know that the United States cannot fulfill its leadership responsibilities or

pursue our values as a nation without an effective international cooperation program. Ultimately, development assistance administered by USAID improves the

lives of people in developing countries and helps to strengthen their capacity to mobilize local resources and take ever greater responsibility for their own destinies.

Foreign assistance is one of America’s best and most cost-effective tools for building

relationships among peoples and institutions that can endure and advance our interests.

The lines between domestic and foreign affairs are increasingly blurred. USAID

bolsters America’s domestic and foreign policy interests by capitalizing on the challenges and opportunities that are inherent in increased globalization and interdependence. When we look at the causes of the Asian financial crisis, we see how

important USAID’s development work is. A number of Asian countries embraced aggressive economic reforms, but were slower to embrace the open and transparent

governance which is also essential for long-term economic growth and foreign investment. USAID is investing in the institutional structures, market reforms and grassroots development programs that lead to long-term stability and growth. These programs are even more critical to America’s future now than during the Cold War.
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Referring to USAID’s programs as foreign aid is increasingly anachronistic in this

kind of environment. Neither the world’s problems nor America’s economic opportunities stop at our borders. Exports accounted for over one-third of America’s growth

during the past four years. Developing and emerging market countries accounted for

more than half of that growth in exports. All spheres of activity in the United States

demand an international reach, whether it be health, crime-prevention, environmental protection or job creation. The benefits of international cooperation are obvious—the dangers of not cooperating to help other nations meet these challenges are

too great to risk.

I am eager to work with this committee to restore a budget that will accurately

reflect our national interest in promoting development overseas. The stakes are simply too high for us to accept any other alternative. Again, I appreciate the opportunity to appear here today, and I look forward to working with you to help preserve

America’s international leadership.

Thank you.

REMARKS OF SENATOR TED STEVENS

Senator MCCONNELL. Mr. Atwood, I see the chairman of our full

committee is here. I do not know whether he would want to make

an observation or whether he is just joining us.

Senator STEVENS. Well, I came because, Mr. Chairman, I was

told that Mr. Atwood would raise the question of the reallocations

that we have made. We were forced to make severe reductions in

many of the accounts under the 602(b) allocations because the administration had submitted a budget that is based to a great extent

upon approval of new taxes, new user charges, additional revenue

streams that are just not there.

We are not allowed to allocate money based upon a prospective

action by Congress and the President in agreeing to additional revenue streams. We can only allocate the money that is there now.

As a consequence, we had the difficulty of really severe difficulty

meeting the Health and Human Services’ budget that is still almost $1 billion less than the current year. On defense, the President asked for $1.9 billion additional money

for the Bosnia operation starting in 1999 on an emergency basis,

which we had already told the President that we would not grant

an emergency for the fifth of Bosnia operations. It is no longer an

emergency, and understand the circumstances there just was no

more money. I have done the best that I can under the circumstances of allocating the money that is available. If there are

additional revenue streams that come along, of course, this subcommittee along with others would get consideration again.

At the present time, Mr. Atwood, there is just no possibility that

we can change the allocations to this subcommittee. I think anyone

that reviews the money we have got right now I hope will agree

we have done the best we can under the circumstances. I understand your appeal, but it just cannot be met.

Beyond that, I want to say I was chairman of the Government

Affairs Committee at the time we went into the problem of the Internal Revenue Service modernization of its computer systems and

found to our regret that after spending $4 billion they still didn’t

have a system that they could install and we had to abandon that,

despite the estimate that it was going to cost us $20 billion totally.

Now I am very worried about the report that we have gotten

with regard to your computer system, and I do think that that

ought to be one of the areas that is really an exception to this problem. We ought to get you the money you need to modernize that
160

system. And I hope that you will take the direction of the outside

organization that has been contracted for by GSA to redesign your

systems.

Thank you, Mr. Chairman.

Senator Lautenberg has promised that he will only take 30 seconds, so we are going to let him take his 30 seconds.

REMARKS OF SENATOR FRANK R. LAUTENBERG

Senator LAUTENBERG. I thank you, Mr. Chairman. I have used

up 7 of those seconds already, and I will do the rest in 23, and that

is: I just want to raise questions, Mr. Chairman, the questions for

Mr. Atwood related to harboring, communities harboring, war

criminals, and the assistance coming from this country. Mr. Atwood

is aware of my concerns. I will submit my questions in writing. But

I would hope that our Government is not going to permit opportunities for investment to be made in these communities while they

flout the law.

Senator MCCONNELL. Thank you, Senator Lautenberg.

Senator LAUTENBERG. Thank you.

PEACE PROCESS IN BOSNIA

Mr. ATWOOD. We know of your concern in the amendment that

was passed with your name on it. We have been, I think, very meticulous in trying to use all sources of information—human rights

groups, our own intelligence community and the like—to try to assure that we do not get into that kind of a problem. I think we

have taken risks, I think we have advanced the peace process in

Bosnia, but we do not want to get caught working with war criminals or people who have been indicted.

Thank you, Senator Lautenberg.

INDONESIA

Senator MCCONNELL. Mr. Atwood, Indonesia would be a good

place to start. You said that AID had increased food aid by $25 million. It is my understanding from the staff it was only one-half

that, because one-half went to shipping costs. These were funds for

El Nin ̃ o drought victims in the East, not a response to the 1998

economic meltdown. Apparently AID now has reoriented, whatever

that means, $23 million in crisis response, but this is for the IMF

technical consultants, not an initiative to ease through the economic transition—just some of my random observations about some

of your comments about Indonesia.

Mr. ATWOOD. Well, first, let me say that obviously the crisis is

both political and economic. We renegotiated with the Indonesia

Government, the Suharto government, to provide resources that we

had allocated for different purposes originally to a new sort of economic reform program, provide technical advice and individual

economists to the Indonesia Government.

The economic team over there everyone would concede is on the

right reform wicket. They are people for the most part educated in

the United States and they are reformers, and so we wanted to provide them with the assistance they needed so they could implement

the IMF agreement. We had to take money from other resources
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that we had allocated during calmer times and reorient it. I think

that was quite a feat in a very short period of time. We were able

within a 2-week period to sign contracts to get about six experts,

professors, in there to help them with their own reform efforts. The $25 million was made available. You are not, I am sure,

complaining about the procedures we have to use American shipping and American grain for these things, because we could talk

about that. We are required to do that.

Under title II we also have to respond to proposals. That is the

way that law is written. That does not have anything to do with

this subcommittee; this is handled by the Agriculture Committee.

Still, we operate within United States law with respect to the title

II program, and we are preparing to provide more title II resources

to Indonesia, given the problem as it evolves.

We are now having to look at our entire program again and reorient it once again because we have a political transition in place.

These things don’t happen overnight, especially when your entire

staff is evacuated out of Indonesia. I think we have under the circumstances done a good job in this situation.

Senator MCCONNELL. It seems to me, staying with Indonesia,

that it is going to be difficult for that country to return to the road

of economic reform and remove subsidies for key commodities, unless there is some kind of transitional support program in place.

This might include job training, food for work initiatives in urban

areas, and expanded maternal and child support initiatives. Can

you give me any detail on USAID plans to address national transition needs, particularly in the hardest hit urban areas.

Mr. ATWOOD. We have been able thus far to locate about $134

million that will be applied to this. We, of course, are awaiting now

the new IMF plan that has recently been presented to the Indonesia Government, which may mean that we will have to readjust

our own technical assistance package. We have programmed the

$25 million for food for work, which would create jobs and for

emergency feeding programs for very vulnerable groups, children

under five and pregnant and lactating women. We have also supplied emergency relief such as water sanitation, seed distribution

and medical supplies.

Our population health and nutrition resources are directed to

maintain the availability of basic health and family planning commodities and services and make sectoral reforms of both health and

family planning to improve the efficiency and cost effectiveness of

the Indonesia Government’s health programs.

We have also looked at programming money for elections assistance and democratization as they move through this transition period. I think that it is not inconsiderable. However, we obviously

will join with other donors including the World Bank. Our program

of $134 million is probably more than any government other than

Japan is doing in this situation, but we do not match on a bilateral

basis the resources that the World Bank can bring to bear on this

problem.

Senator MCCONNELL. Is your assistance mostly targeted at Jakarta; and if not, what part of it is heading in that direction?

Mr. ATWOOD. A lot of it is because that seems, was at least during the student uprisings, the center of all of the problems but also
162

the center where the opportunities can be found. But our program

has been very active around the country. I mean, a lot of our family

planning programs were in parts of the country that were far from

Jakarta, Bali, and other parts of Java, and some programming in

East Timor as well.

MOSLEM ORGANIZATIONS

Senator MCCONNELL. I mentioned in the opening statement the

Jakarta mission’s apparent reluctance to work with Moslem organizations. Could you give me an explanation of that?

Mr. ATWOOD. Well, we would be more than happy to work with

those organizations. At the time, you see the urgency is to let the

United States show that we care. We wanted to announce a $25

million program, but we did not even have a proposal at the outset

of this. We received a proposal from the Christian group you mentioned, the Catholic Relief Service, and so we were then able to announce something that had a political impact. We did not have a

proposal from the Moslem groups. We are working with those

groups and hope that we will be able to do that. We also have to

assure that they can carry out the program.

I think that in light of the urgency of responding, at least letting

the Indonesian people know that the American people cared about

the situation, we responded very quickly and used the organization

that we could under the circumstances.

Senator MCCONNELL. A recent Washington Post article com- mended your Agency for spending $26 million supporting opposition groups. The article was clearly written in Washington because

many of the organizations mentioned have been deeply critical of

AID’s limited role and support which leads me to ask you, how

would you describe AID’s current planning regarding these opposition groups? And, what lies ahead?

Mr. ATWOOD. Well, I think that it is probably fair to say that the

groups have been critical generally, but I am not sure they have

been critical of USAID. These are groups that have been basically

a part of a new civil society in Indonesia. They have been environmental groups, they have been health-oriented groups, they have

been other groups that have taken on an advocacy role. This is the

first part of a democracy.

They were not allowed under the Suharto regime to play more

of a role than that. As you know, political parties were not allowed

to play any active role as well at the time, so these groups have

received support over the years from USAID. Again, I do not know

whether some of them were disappointed that they did not get

more support from the United States during this troubled time or

not. The fact of the matter is I think that they formed, these

groups that we have been supporting, a basis for a smooth transition to a different, more democratic era in Indonesia. I am very

proud of what we have done to help those groups in that country.

Senator MCCONNELL. As the students were demonstrating and

being gunned down by the military and police, it is my understanding the administration requested $2 million to train the military to

fight fires. In terms of the priority, is that a decision you were involved in? And, did you think it was more important to fight fires

at that particular moment than to deal with the other problems?
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Mr. ATWOOD. This request was made well before the students

were in the streets, but the request came up here at the time that

they were in the streets. The administration, after hearing from

your very efficient staff people, realized that this was not the time

to continue to pursue the notion that it would be better to have

military people fighting fires than fighting students in the street.

Perhaps that was a motivation behind the original request, that if

we can get the military focusing on issues that would help the general welfare of the country, then it might be better to divert them

into the forest fire fighting area.

Senator MCCONNELL. During the first week of May, your Indonesia mission director and the deputy in your Asia bureau briefed

the subcommittee staff and indicated that the only new initiative

under consideration at that point was funding for consultants implementing the IMF package. They were asked to provide details

on the consultants, which we have not seen. What is the status of

implementation of the IMF reforms and hiring more consultants?

Is that in a state of suspension, or just what?

Mr. ATWOOD. Yes, sir; it has been. This is the $23 million package that I mentioned before. We did send one-half dozen people

over right away, after that package was negotiated, within 2

weeks. Then, however, Suharto fell and the whole IMF program

was put under suspension, and it has been redrafted and represented now. We will see whether or not the original consultants

are appropriate for the new program. Certainly, the reason we

have not provided you with that is because everything has been in

suspension. We would certainly be happy to provide you with all

of that information.

[The information follows:]

IMF REFORM PACKAGE

The IMF reform package can be divided into a series of major topics for action,

which include: (1) resolution of the banking and finance crisis; (2) restoration of

macroeconomic stability through reforms in fiscal and monetary policy: (3) structural reforms designed to strengthen the efficiency of the domestic economy by: increasing transparency, removing barriers to competition and, removing opportunities for corruption; and (4) improvements in the legal/regulatory structure designed

to support the entire reform program.

USAID/Indonesia is providing technical assistance in support of all of these areas,

and will continue to expand its work, as shown below. These efforts are being undertaken in close coordination with other donors, particularly the major international financial organizations who are playing a leading policy and financing role

in the reform efforts now underway, namely the IMF, the World Bank, and the

Asian Development Bank.

Banking and Finance.—To date USAID has provided short-term experts to support bank restructuring, including the closure of some of the most troubled banks

in the system, and the development of pricing models for use by the private debt

repayment facility known as INDRA. Long-term technical services are being arranged to support the work of the Indonesian Bank Restructuring Agency (IBRA)

and its Asset Management Unit, and Bank Indonesia’s bank supervision unit.

Macroeconomic Policy Reform.—USAID is providing long-term technical support

to the Government of Indonesia to improve its understanding of the impact of the

crisis on the public budget and in adjusting its fiscal policy to meet prevailing crisis

conditions. USAID has financed short-term services to strengthen monetary policy

at the central bank, launch the first direct open market sale of bonds by Bank Indonesia, and to strengthen Bank Indonesia’s understanding of inflation and demand

for money. We are arranging to supplement this work by provision of a long-term

advisor to Bank Indonesia who will focus on monetary and exchange rate policy

issues.
164

Structural Policy Reform.—USAID is providing long-term technical support to the

Government of Indonesia to assist in the elimination of barriers to domestic economic competition as specified in the IMF agreement such as inter-regional taxes,

fees, and other restrictions on the free movement of raw materials and finished

products. This includes work on vital items in the forestry sector such as logs and

rattan. Long-term support is also being provided to assist Indonesia in meeting its

obligations to the IMF to reduce tariff barriers, non-tariff barriers and export restrictions. Through a grant to the Asia Foundation, barriers to fair competition for

small businesses are being investigated and proposals for policy reform are being

made to the Government of Indonesia. Not only do these actions improve economic

efficiency and performance; they also will eliminate many of the most significant opportunities for corrupt practices. USAID is moving to further support fair competition for small and micro-businesses by providing a long-term expert on small business finance policy to Bank Indonesia, and a long-term specialist who will work with

the GOI on small business development policy. The work on strengthening the general domestic competitive environment will be supported by additional long-term advisors in the Planning Agency (BAPPENAS) and at the Ministry of Industry and

Trade.

Economic Law.—USAID is providing short-term support to Indonesia to revise or

replace many of its laws which are critical to the success of the IMF reform package

and the efficient operation of the Indonesian economy. These laws include: bankruptcy, secured transactions (a system of registration of loan collateral), competition

law, and arbitration. Arrangements are being made to continue this short-term support and to provide an additional long-term advisor to the Ministry of Justice to

support this work.

Other Actions.—Indonesia is now taking steps to move toward a more democratic

form of governance. Not only is there need for greater fairness and transparency on

the part of government, as embodied in the IMF-sponsored reforms; there is also

greater need for involvement of non-governmental actors in the development of public policy. USAID is therefore organizing a series of partnerships between U.S. and

Indonesian universities, think tanks and research organizations designed to

strengthen the ability of Indonesian non-governmental institutions to participate in

an informed manner in economic policy debates and in shaping the future structure

of the Indonesian economy. Greater public participation in such debates will not

only strengthen the economic policy framework of the country, it will also contribute

to improved governance. The first four grants under this partnership arrangement

are expected to be made by the end of September if not earlier.

MISSION

Senator MCCONNELL. You have not decided what the consultants

will be doing and how much it will cost?

Mr. ATWOOD. I think most of it, yes, we have identified the government ministries where they would be working and the banks,

the central bank, and the like. For the most part, I think it is not

going to change the location, but their mission will undoubtedly

change, which means that we will have to redraft their terms of

reference.

Senator MCCONNELL. Senator Leahy.

Senator LEAHY. Thank you, Mr. Chairman.

We have talked about the budget allocation, the fact that it is

significantly below the 1998 level. You discuss it, of course, in your

written testimony. Is there some kind of a strategy the administration has in working with Congress on this?

Mr. ATWOOD. Yes; I am sure there is, Senator, but it has not

been successful to date. I think it is very, very important that we

call attention to the 150 account. I have a great deal of respect for

Senator Stevens, since I worked here in the Senate. He was a good

friend of my boss, Senator Eagleton, at the time. I know he is a

fair man. But I know it is necessary to cut budgets in the 302(b)

allocation process, but to cut the 150 account, which is really our

national security and our foreign policy, is a very serious matter.
165

I think even if the outlay issue that has come up which I think was

not fully understood initially, what the impact would be on the

budget, to reduce below 1998 levels the budget authority for this

particular foreign operations budget is very, very serious business

in terms of our ability to influence all of these crises that are going

on around the world.

Senator LEAHY. That is why I asked about the strategy and why

I would hope that the administration will take time to share it

with some of us up here prior to the final appropriations bill being

signed into law. I would suggest to the people at the White House,

the State Department, and elsewhere, that it would be a nice

change in procedure and might actually help them in getting their

budget through. Because if we have the best circumstances, that is

probably a freeze at the current level of $12.8 billion. If you have

a 3.6-percent cut from fiscal year 1998, that is a budget of $12.6

billion. If you get no relief, then you have to cut AID operating

budgets by as much as 20 percent. Let’s take the 20 percent, what

does that mean? What would get cut?

CLOSING MISSIONS

Mr. ATWOOD. Well, back to give you some idea, I mean, we would

obviously have to close more missions, but it takes about 3 years

before you an recoup the benefits of closing missions. Initially, it

costs money to close missions overseas. You have to buy out the

contracts of your FSN’s, pay severance pay, buy out rental agreements and everything else. It costs a good deal of money, and it

takes about 3 years before you realize the benefits. The reason that

our OE budget has been going down steadily is because we have

closed 28 missions overseas. That is the only way we could do it.

To be hit with a 20-percent cut in 1 year would mean—I do not

know how we would handle it. We have a dilemma there. When

this was proposed in fiscal 1996, when we had such a severe cut,

GAO did a study and indicated that we simply would have to close

our doors if we were cut below a certain level. I believe it was $465

million at that point. That was before we had the reduction in

force. It is that kind of severity that would really mean tripling——

Senator LEAHY. The reduction in force was about 160 employees,

was it not?

Mr. ATWOOD. It was 164 to be exact, yes, Senator.

Senator LEAHY. Well, on top of the new management system and

going into a new building which cost more.

Mr. ATWOOD. Yes; that is right.

Senator LEAHY. What is the level of morale now as compared to

what it was before you had the RIF, the new building, the new

management system, and so on?

Mr. ATWOOD. Well, I think——

Senator LEAHY. Everybody is sitting behind you listening.

MORALE

Mr. ATWOOD. I realize that. I think actually, Senator, the morale

has come back very well after the reduction in force, which has got

to be a low point in the history of USAID. It was the first time that

that had been done in over 20 years. If we had not done it, frankly,

we would be in a lot worse shape today. We would have had to
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have had a much deeper RIF. We had to do it, and we had to do

it quickly. Because if you do not get people off the rolls, then you

have more expenses later and it would have been worse. The new

management system was simply something we had to do to be compliant with the law. Our financial management systems need to be

straightened out, but we think we are on the right track there.

Moving into the new building is simply something, again, we had

to do because the State Department was going to renovate the portion of the building that we were in and we were in 11 different

buildings with commercial rates going up, up, up. We are now at

least in a much more predictable situation being in the Ronald

Reagan Building, which is a Government building, and where the

rental rates are predictable at least.

Senator LEAHY. Well, let us talk about the NMS, the new management system. It cost money to get it going. You are saying it

is not working yet?

Mr. ATWOOD. No; it is working. We are actually using it. It has

a software coding error rate in the financial portion of the system

that is too high, and we are going to have to make fixes there.

Senator LEAHY. How much has it cost so far to get where it is?

YEAR 2000 PROBLEM

Mr. ATWOOD. We have spent $84 million on it to date and we

have four modules, three of which are working reasonably well and

two of which are working overseas. The financial module has got

a software coding error rate of about 25 percent, which is unacceptable. We are going to have to correct that, and, of course, modify

all of our systems for the year 2000 problem.

Senator LEAHY. When do you expect the system to be fully operational?

Mr. ATWOOD. Fully operational? It depends on how you define

that. We think it is operational now. We want to correct the problems that exist. Whether we can provide timely, accurate, and complete reports so that we can have better information about our

pipeline, we believe we can do that by the year fiscal 2000.

Senator LEAHY. If it is a new system, why does it have a year

2000 problem?

Mr. ATWOOD. It has made all of the provisions for the year 2000

issue. All of the references to years in that system are on the four

digit basis, and simply that is not the problem that we have with

the year 2000. We have six critical corporate systems that need the

year 2000 repair. We have indicated to OMB our schedule for making those repairs; they are satisfied with that. We have just announced a new contract with Computer Sciences Corp. that will be

working with us on a 5-year basis to fix all of these problems.

Senator LEAHY. Yes; on top of the $84 million already spent.

Mr. ATWOOD. Well, the $84 million has produced a better system

than we had when we started, Senator. That is not the problem.

Senator LEAHY. It does not sound it. I mean, you have got 25—

well, what was your error rate before? You have got a 25-percent

error rate now. What was it before?

Mr. ATWOOD. Well, we did not even have a system before. I

mean, we had a multitude of systems and we were spending as

much money as we are spending on this new system every year for
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about 50-plus systems. It simply was unacceptable for a modern

agency to operate that way, so we had to make the effort to do this.

We, clearly, tried to push this much too fast to get it into operation,

which is why we have the software coding error rate problem that

we have.

I certainly concede that that was a problem, but we do have a

better system now than we had in 1993 when we started. It is not

acceptable. We need to improve it, and we will. We did not have—

in those days, there were no commercial, off-the-shelf alternatives.

We had to try to build this in house. We are not a software company. We are not obviously talented in that direction. I think we

have learned more about our weaknesses in the last 5 years.

Senator LEAHY. Do not feel bad about that. The U.S. Senate

touts what they have done. They are up to about 1980 and closing

fast on 1983. You know, it is a place where they finally get around

to putting a computer in your office and they charge you full price

for what it, but it has been obsolete for 6 years. You could spend

millions and millions of dollars to put fiberoptics through the walls

and then end up feeding it all into something that is so antiquated

everything comes to a stop. Maybe we never should have let the

Government get involved with this.

Mr. ATWOOD. I would be happy to consult with you.

Senator LEAHY. The Senate has probably done as bad a job as

anybody in the country in getting a working computer system in

place. I have often suggested they fire everybody and hire a couple

of smart 12 year olds and we would save a lot of money.

INFECTIOUS DISEASES

One area, infectious disease, and I know you have worked very

hard on this as have Nils Daulaire, Dennis Carroll, and others, trying to put together a U.S. strategy on infectious diseases. It is

something that has been a great interest of mine. I think we have

made some good progress since last year, but it is a multiyear effort. This year the President has requested a $48 million cut in the

‘‘Child survival and diseases’’ account, which includes the funding

for the infectious disease strategy.

Let us assume we gave you at least the same amount of funding

for these programs as last year. Can you use that effectively?

Mr. ATWOOD. You gave us a good head start last year, and I

think we have developed a good strategy. We believe we can maintain the same level of impact with the budget request that we have

made. Obviously, we can use it. Then the question becomes, Where

does it come from? I mean, in light of the kind of budget cuts that

we are seeing here, it is a problem.

Senator LEAHY. Well, my question is if you get it, could you use

it effectively?

Mr. ATWOOD. I think we have demonstrated that, Senator, in

terms of the way we put the strategy together.

Senator LEAHY. I realize it is a zero sum game. If you give something to one, you take it from someone else. Let us go to microcredit. AID and the Congress have supported microcredit programs.

In 1994, AID set the goal that by 1996 one-half of all AID microcredit funding would be directed to the poorest people for loans of

under $300. AID did not meet that target. In 1996, a percentage
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of the funds going to the poorest people was 38 percent. We want

at least 50 percent of the funds spent on the poorest people. Can

AID reach that point?

Mr. ATWOOD. Yes; I believe we can. To the extent that that is rel- evant, to the extent that the $300 goal is relevant. We are spending

money on our microenterprise programs also to support the institutionalization of microcredit programs in other places, helping governments to set the right policy environment so that they can create the kind of banks that would do this kind of lending.

Every year because of the interest that is collected on the loans

that we provide we are adding to the amount of capital that is

available for poor people. We cannot under the rules count that as

aid to poor people, but it is, in fact, aid to poor people. I really believe that our program has been very successful, and that if you

take away the support that we have to provide to run the program

and these policy aspects of the program, that over 50 percent of

what we actually loan does go to poor people and over 50 percent

is under $300.

Senator LEAHY. I am going to have further questions for the

record. I see Senator Bennett here, and I do not want to take up

his time. I am going to have one on IFAD that I would like you

to take a very close look at and I will put the rest in the record.

Senator MCCONNELL. Thank you, Senator Leahy. I appreciate

that. If we have anybody in the Senate who understands the year

2000 problem, it is the distinguished Senator from Utah who is

with us today. Now I yield to him.

Senator BENNETT. Thank you, Mr. Chairman. I will surprise you

by not asking about year 2000 in this instance.

I will just comment, Mr. Atwood, your description of your problems—changing your systems, moving to a new system and then

running into the year 2000 problem on top of it—is very, very typical. I can list a whole series of organizations who have had the

same kinds of problems. Do not beat yourself up too badly for saying, ‘‘Gee, we did not do it right.’’ I know very, very few people who

have been able to do it right. It just seems to be the nature of the

beast to create the kinds of difficulties you have run into.

I want to switch to another area which I understand has not

been talked about. I think perhaps I can also qualify as one of the

strongest Members of the Senate in support of microcredit. I would

like to find out what the impact of the Glenn sanctions have with

respect to India and Pakistan on microcredit in those two countries.

HUMANITARIAN EXCEPTIONS

Mr. ATWOOD. As yet to be determined, Senator. As you know,

there are humanitarian exceptions to the program. We have submitted some suggestions as to what would qualify as humanitarian

to the administration, to the President, to make decisions on this

matter. He has not made those decisions yet. Once a program

under the Glenn amendment is determined to be ineligible for the

exceptions that are listed, the humanitarian exception in this case,

and you basically cut it, it is cut forever unless the law is changed.

It is a pretty rigid standard, so we are struggling with this issue

of defining what would qualify as humanitarian.
169

Senator BENNETT. Let us talk about both India and Pakistan

under the Glenn sanctions and go beyond microcredit. What programs do you have going in those countries which under the sanctions you are going to have to cut? What is the total dollar amount?

And, will that money in anyway be available to alleviate some of

your budget pressures in other areas?

Mr. ATWOOD. Yes; we have programs, first, in India that are in

the family planning area in the state of Uttar Praddesh, a very

large program there. Obviously, there is a question as to whether

that qualifies as a humanitarian program. My own belief is that it

does because it is helping women and families and children. We

have a title II food aid program of about $91 million in India. Obviously, I think that is a humanitarian program. It feeds 6 or 7 million of the poorest women and children in the world. The program

to counter the AIDS epidemic in one of the southern states of India

is a humanitarian program in my opinion.

Again, it is not only lawyers, but it is policymakers that have to

look at these questions to make these determinations. I think clearly there are programs that would not qualify. We have been doing

a good job, I think, in trying to help the Indians create a stock market and a regulatory system in Bombay. One of the needs of this

country is to attract foreign investment. When you have a stock

market that people have some confidence in, indirect foreign investment is much more likely. I cannot imagine that that will qualify as a humanitarian program.

We also have a very large energy efficiency program in India.

There is an exception written in the appropriations act that any

program that would contribute to the lowering of greenhouse gas

emissions would be excepted from provisions of law otherwise barring that aid. Again, we have suspended that program and all programs right now in India awaiting a decision as to what would

qualify under these exceptions.

In terms of Pakistan, we terminated our bilateral program under

the Pressler amendment in 1995. We have undertaken a 4-year, $9

million activity in Pakistan through a nongovernmental organization to improve basic education and strengthen literacy, to improve

mother and child health, and to strengthen income generation opportunities especially for women. That program is, again, suspended until we can get a decision as to whether or not that would

qualify as a humanitarian program.

Senator BENNETT. Do you have a dollar figure, total for India

and Pakistan, the dollar amount that presumably is in your budget

that might have to come out as a result of the Glenn sanctions? I

do not need you to be exact. But, can you give me a ballpark figure

as to how much money we are talking about?

Mr. ATWOOD. We are talking—we are thinking that based on our,

again, preliminary assessment and our recommendations within

the administration that we would have to terminate $12 million of

development assistance funds for economic growth activities and

approximately $9 million in housing guarantee authority in India.

Again, that is under the assumption that the remaining part of

what we are doing is humanitarian exception. In Pakistan, it is approximately $10 million we are spending. That would appear that

that would qualify as a humanitarian exception.
170

Senator BENNETT. Do you have any plans for the Baltic States

in the next fiscal year?

Mr. ATWOOD. Yes; we still have programs in I believe two out of

the three Baltic States. I do not have the details with me, but perhaps someone will come up with that before we are finished here.

I will provide it for the record.

Senator BENNETT. Yes; they can furnish that for the record.

Mr. ATWOOD. All right.

[The information follows:]

USAID’S FISCAL YEAR 1999 BUDGET REQUEST FOR THE BALTIC REPUBLICS

USAID has on-going bilateral technical assistance programs in Latvia and Lithuania. In September 1996, Estonia became the first country to graduate from SEED

Act assistance.

Latvia.—Fiscal year 1998 will be the final year of funding for bilateral USAID

programs in Latvia. Current programs in the areas of capital markets, collateral

law, and energy are expected to end by Latvia’s graduation date in September 1999.

Lithuania.—Until Lithuania’s expected graduation in fiscal year 2000, USAID’s

bilateral technical assistance programs will focus on economic restructuring and include activities in banking and capital markets reforms, bank supervision, privatization and enterprise restructuring. USAID assistance to the Bank of Lithuania will

facilitate efforts to peg the country’s currency, the Litas, to the Euro.

Regional programs.—Funding for regional programs in energy as well as those

implemented under the Baltic American Enterprise Fund and the Baltic American

Partnership Fund will, however, continue in all three Baltic republics over the next

several years.

HAITI

Senator BENNETT. I have no further questions, Mr. Chairman.

Thank you.

Senator MCCONNELL. Thank you, Senator Bennett. Mr. Atwood

had a choice between coming up here today and going to the dentist, and I am sure he has decided he made the wrong decision.

[Laughter.]

We want to try to wrap up by 4 o’clock, but I do want to go to

one more area of some controversy, Mr. Atwood, and that is Haiti.

A recent news article pointed out that Haiti has received $1.4 billion in international aid in the last 4 years, and yet 80 percent of

the rural population continues to live in abject poverty on less than

$250 a year, the lowest per capita in the world. The article quoted

a World Bank report which stated: ‘‘The political crisis jeopardized

foreign aid, delayed implementation of public sector reforms, derailed privatization, discouraged private sector investment, and ultimately aborted economic recovery.’’

Haiti’s last prime minister resigned in June, and the parliament

has rejected three of the president’s candidates. I am interested in

determining whether you can describe the state of play between

the president and the party holding the majority known as the People’s Organization of Struggle. And, can you explain why the administration has doubled the request for Haiti from $70 million to

$140 million, given the fact that any objective analysis would suggest that all of our efforts there have been a total failure?

Mr. ATWOOD. I would not accept the last statement.

Senator MCCONNELL. Why not?

Mr. ATWOOD. I think there has been a lot of progress that has

been made in Haiti. In fact, a good deal of progress in terms of privatization. We have been making progress in privatizing nine of
171

the state enterprises there, the flour mill and the cement mill and

there are different activities, the port, the telephone company, the

airport. They have not privatized them yet, but the progress toward that is very significant. We have seen a great deal of change

in the internal situation. There are still human rights abuses, but

nowhere near what they were.

We have set up a national police force that has 5,200 members.

We have trained 700 judges and prosecutors. Over 2.3 million people are receiving health services through NGO programs there. Infant mortality rates have dropped by 25 percent; 7,000 primary

schoolteachers have been trained. Price controls have been abolished. The exchange rate has been liberalized.

Illegal immigrants, the most significant thing I guess and the

reason we got into this in the first place, are not flooding our

shores and costing our Federal, State, and local governments millions of dollars. We were spending billions of dollars with a cordon

of the Navy and Coast Guard ships trying to pick up people leaving

that island before, and that is not happening any longer.

It is not all a bad picture. But we are very upset, as you are,

with the impasse, the political impasse, and the inability to name

a prime minister. We have been working behind the scenes in trying to resolve that problem. We have made some progress. I do not

think it would be wise for me to talk about it in an open hearing

because there are some delicate agreements that have been

reached. We hope that we will see that becoming public soon, at

which time we will be able to reveal more of what we have been

doing behind the scenes.

The impasse which was precipitated by a controversial election,

two senate seats in particular, and the role of the election commission down there has been very, very difficult, the struggle between

two relatively new political parties in a very new democracy, people

have not yet learned the art of compromise. It is a little bit like

dealing with the Mexico City population issue here. It has not been

easy to resolve that impasse. I have no excuses for that. I think it

has been an embarrassment to the administration. It has certainly

been an embarrassment to President Preval and to the Haitians as

well because it has been holding up about 250 million dollars’

worth of international financial institution support for that country. The poor people are suffering because the politicians in Portau-Prince cannot reach agreement.

Senator MCCONNELL. Well, thank you very much, Mr. Atwood. It

is not going to be an easy year, as we can all certainly agree. I appreciate your time, and we look forward to working with you in the

coming months.

Mr. ATWOOD. Thank you, Senator.

SUBCOMMITTEE RECESS

Senator MCCONNELL. That concludes our hearing. The subcommittee will stand in recess until 10:30 a.m., Tuesday, June 16,

when we will receive testimony from the Secretary of State, the

Honorable Madeleine Albright.

[Whereupon, at 3:55 p.m., Tuesday, June 9, the subcommittee

was recessed, to reconvene at 10:30 a.m., Tuesday, June 16.]

(173)

FOREIGN OPERATIONS, EXPORT FINANCING,

AND RELATED PROGRAMS APPROPRIATIONS FOR FISCAL YEAR 1999

TUESDAY, JUNE 16, 1998

U.S. SENATE, SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS, Washington, DC.

The subcommittee met at 10:37 a.m., in room SD–192, Dirksen

Senate Office Building, Hon. Mitch McConnell (chairman) presiding.

Present: Senators McConnell, Gregg, Bennett, Campbell, Stevens, Leahy, Lautenberg, Mikulski, and Murray.

DEPARTMENT OF STATE

OFFICE OF THE SECRETARY

STATEMENT OF HON. MADELEINE ALBRIGHT, SECRETARY OF STATE

OPENING REMARKS OF SENATOR MITCH MC CONNELL

Senator MCCONNELL. The hearing will come to order.

We have excellent attendance this morning. We must have somebody of high rank before us.

I would remind all the subcommittee members that it has been

the tradition of this subcommittee for opening statements only to

be made by the chairman and the ranking member, so that we can

get on to our witnesses, and we will stick with that pattern. I expect Senator Leahy here shortly.

Secretary Albright, much has changed since your appearance

here last year; unfortunately, little for the better. There are a few

bright, hopeful spots, such as the settlement in Ireland, but there

are many more flash points challenging United States resolve, resources and interests. There are no shortages of difficulties. There

are threats to political stability and security in Kosovo, Cambodia,

Nagorno-Karabakh, Cyprus, Colombia, India, Pakistan, North

Korea, Iraq, Iran, Indonesia, and Burma.

The economies of Indonesia, Thailand, Korea, Burma, and Japan

are in deep trouble, with the prospects of a devaluation in China

more real and disturbing by the day. And now Russia has been

added to the list of countries in economic peril.

Let me comment on a few areas which I find especially troubling,

both because of the serious impact of the problems and how the administration has chosen to respond. In our own backyard, I am concerned that Colombia is entering a dangerous period in which the
174

future of a democratic government is very much at stake. The immediate threat is the emerging relationship between major narcotics traffickers and terrorists, which is compounded by the relationship between traffickers and well-armed, well-financed paramilitary organizations.

There is clearly a crisis of leadership in Colombia. But, this problem seems to be exacerbated by ambiguities and inconsistencies in

our policy. We cannot seem to decide who to support and what we

should be doing from one day to the next. Is the target of U.S. aid

traffickers, terrorists, both, or neither?

Just as one example of the confusion, in January, the Department sent a letter supporting the acquisition of Blackhawk helicopters for the Colombian counternarcotics police. In May, a letter

arrived reversing that decision. Without commenting on the merits

of such a program, I can say that the decisionmaking process

caused real alarm in the region, needlessly compromising confidence in our commitment.

I am similarly mystified by our response to the crisis in India

and Pakistan. Given the close relationship between the People’s

Republic of China [PRC], and Pakistan and, conversely, India’s

strained ties with both, I was surprised Beijing was not engaged

in the effort to reduce tensions after New Delhi detonated.

Similarly, I was disappointed in the decision to send a State Department team to Pakistan to discuss economic relief at a time

when Islamabad was seized with the security implications of the

threat. Pakistan’s detonation may have been inevitable. However,

they needed, and we apparently did not offer, any assurances that

the United States would not let stand an Indian threat to Pakistan’s existence.

The circumstances seemed to call for a senior Defense Department representative clarifying our security interests in stability

rather than an offer of potential economic relief. If there is good

news about the detonations, it is the revival of interest in the pending emergency on the Korean Peninsula. After the blast, the prospects of two regional nuclear crises called attention to a North Korean letter threatening to withdraw from the agreed framework because the United States has failed to fulfill obligations to provide

fuel.

This accusation, this problem, is astonishing, since Congress not

only fully funded the $30 million request for KEDO, but also provided an additional $10 million as a down payment to leverage contributions to cover $44 million in debt. What I find hard to understand is the fact that even if you solve the immediate shortfall,

which will require using any number of special legal authorities,

the administration has already determined that the $35 million request for 1999 is inadequate to meet the needs. When you are asking for a billion increase in the foreign aid budget, how can we

come up short in this account?

Korea is not the only Asian problem. In a hearing last week, I

expressed my continued frustration with the administration’s approach in Indonesia. No doubt you have heard reports, but let me

offer one example of a relatively minor policy decision pushed specifically by the East Asia Bureau, which I consider counter to our

long-term interests. As the military was engaged in an effort to re-
175

press Suharto’s opponents, the administration requested $2 million

to train the Army in firefighting tactics.

Like Colombia, this decision was immediately reversed in the

face of strong congressional opposition. Nonetheless, with urgent

unmet humanitarian needs, this request sent a chilling message to

democratic activists.

While I welcomed your call for Suharto to step aside, there has

been little since that message reflecting our commitment to accelerating the election timetable or for political or economic support

for the opposition.

We seem to be in similar drift with regard to the elections in

Cambodia. There appears to be little stomach to call Hun Sen’s

bluff and support the democratic opposition’s call to delay the elections, even though they are being denied full and free participation.

The final region I want to discuss is perhaps the most widely and

deeply afflicted with problems: Europe and the NIS. Most immediately, many are questioning whether we learned any lessons in

Bosnia. From one day to the next, from one official to the next, we

are sending very mixed messages to Milosevic, to Kosovo and to

other key regional players. Your call for sanctions, followed by Ambassador Holbrooke’s request for sanctions relief, followed by air

exercises and threats of air raids—all while the Serbs gut yet another village—communicates confusion and yields to the savagery

of more ethnic cleansing.

While I questioned our major commitment of resources in Bosnia,

I have no doubt of our interest in this area. I am convinced that

the Bush administration got it right in Kosovo, with the 1992

Christmas warning to Serbia. As the President and Brent Scowcroft spelled out to Milosevic, the United States had and has clear

interest in preventing the spread of this conflict. Milosevic understood the United States was willing to take unilateral military action if needed, to avoid a conflict with the potential to suck in

Greece, Macedonia, Turkey, and Albania, and strike at the heart

of NATO unity.

But the Balkans are not the only serious European problem. For

the past 5 years, Senator Leahy and I have called attention to the

need to restructure, implement and enforce changes in the commercial, tax and banking systems in Russia. Each year, we have been

assured that the billions of dollars in bilateral and multilateral aid

were making this happen. Now, senior IMF officials are warning

that Russia is on the brink of a full-fledged crisis. Spending excessively outpaces tax collection, a system crippled as we all know by

corruption. The immediate risk of hyperinflation is real and requires urgent correction, not another bilateral bailout.

I do not want to recite the many failed attempts Congress has

made to attach conditions or constraints to aid to Russia. Not only

are there severe immediate economic consequences to the administration’s reluctance to challenge Moscow, I fear we will pay a heavy

price in future security interests with the possibility of a nucleararmed Iran. Every year, the administration has opposed our efforts

to link aid to the end of Russia’s transfer of nuclear technology and

equipment to Iran. Every year, cooperation between Tehran and

Moscow has expanded.
176

Russia’s neighbors also pay a price for our approach. Nowhere is

this more evident than in Nagorno-Karabakh, where a consistent

United States-led initiative could produce a breakthrough. Unfortunately, after extensive conversation with leaders in the region, it

is clear to me that the Russians are not interested in a settlement.

If we do not elevate this issue and proceed with or without the

Russians or the Minsk Group, we compromise our interests in a coherent Caspian energy security policy.

Speaking of energy, let me conclude with the observation that

problems in the Persian Gulf and the Middle East remain contentious and potentially destabilizing. In this context, I was concerned

by confusion recently generated over prospects of United States

support for the costs of the next stages of Israeli redeployment. At

a time when Israel has proposed the elimination of ESF, I am

caught somewhat by surprise by representations that to secure an

agreement the administration has suggested that we might be prepared to provide up to $1 billion for redeployment. I hope these

promises are not being made, because many people will be very disappointed.

Secretary Albright, you have a full plate obviously. What concerns me, both as the chairman of the subcommittee and as a Senator deeply interested in the course of our Nation’s foreign policy,

is the preservation of American credibility and interests. That

credibility is damaged by reversals, inconsistencies and inattention.

Small as some decisions may seem in the global context, there is

a cumulative and negative impact of the administration calling for

sanctions in the face of Kosovo ethnic cleansing, then, 1 week later,

reversing the decision; calling for Suharto to step down, but offering no meaningful followup or economic or political support to the

opposition; and calling Iran a terrorist state, but failing to impose

even the weakest of restrictions on Tehran or its nuclear partners

in Moscow.

Each decision contributes to creating an impression of American

weakness and a sense of hollow diplomacy. There is a mismatch between rhetoric and real requirements, a disconnect between diplomacy and the credible threat and use of force. In an effort to get

a crisis off the front page, there is an inevitable push toward expedient solutions. While this approach may relieve immediate pressure, it will only make your future tasks more difficult.

You clearly have a sense of purpose and of the direction the

country must go. In the face of the problems, shortfalls, reversals,

and ambiguities I have reviewed, the question is: Who is following?

PREPARED STATEMENT

Much is at stake. Much more is expected from you and your team

in the months and years ahead. Unfortunately, you face more challenges with fewer resources. The hard-won increase in foreign assistance which you, Senator Leahy, Senator Stevens and I fought

to secure last year has been unfortunately substantially reduced by

the pressures of balancing the budget and other discretionary

spending priorities. I am hopeful that by delaying our markup as

late as possible, the subcommittee may benefit from unused budget

authority and outlays, as well as the chairman’s good judgment,

generosity and shared commitment to the 150 account.
177

[The statement follows:]

PREPARED STATEMENT OF SENATOR MITCH MCCONNELL

Secretary Albright, much has changed since your appearance here last year, unfortunately, little for the better. There are a few bright, hopeful spots such as the

settlement in Ireland, but there are many more flashpoints challenging U.S. resolve,

resources and interests.

There is no shortage of difficulties—there are threats to political stability and security in Kosova, Cambodia, Nagorno-Karabakh, Cyprus, Colombia, India, Pakistan,

North Korea, Iraq, Iran, Indonesia and Burma. The economies of Indonesia, Thailand, Korea, Burma and Japan are in deep trouble with the prospects of a devaluation in China more real and disturbing by the day. And, now Russia has been

added to the list of countries in economic peril.

Let me comment on a few areas which I find especially troubling both because

of the serious impact of the problems and how the Administration has chosen to respond.

In our own back yard, I am concerned that Colombia is entering a dangerous period in which the future of a democratic government is very much at stake. The immediate threat is the emerging relationship between major narcotics traffickers and

terrorists which is compounded by the relationship between traffickers and well

armed, well financed paramilitary organizations. There is clearly a crisis of leadership in Colombia, but this problem seems to be exacerbated by ambiguities and inconsistencies in our policy. We can’t seem to decide who to support and what we

should be doing from one day to the next. Is the target of U.S. aid traffickers, terrorists, both or neither?

Just as one example of the confusion, in January the Department sent a letter

supporting the acquisition of Blackhawk helicopters for the Colombian counter-narcotics police. In May a letter arrived reversing that decision. Without commenting

on the merits of such a program, I can say that the decision making process caused

real alarm in the region, needlessly compromising confidence in our commitment.

I was similarly mystified by our response to the crisis in India and Pakistan.

Given the close relationship between the PRC and Pakistan and conversely India’s

strained ties with both, I was surprised Beijing was not engaged in the effort to reduce tensions after New Delhi detonated. Similarly, I was disappointed in the decision to send a State Department team to Pakistan to discuss economic relief at a

time when Islamabad was seized with the security implications of the threat. Pakistan’s detonation may have been inevitable, however they needed, and we did not

offer, any assurances that the United States would not let stand an Indian threat

to Pakistan’s existence. The circumstances seemed to call for a senior defense department representative clarifying our security interests in stability rather than an

offer of potential economic relief.

If there is good news about the detonations, it is the revival of interest in the

pending emergency on the Korean peninsula. After the blasts, the prospects of two

regional nuclear crises called attention to a North Korean letter threatening to withdraw from the Agreed Framework because the United States has failed to fulfill obligations to provide fuel.

This accusation—this problem—is astonishing since Congress not only fully funded the $30 million request for KEDO, but also provided an additional $10 million

as a down payment to leverage contributions to cover $44 million in debt. What I

find hard to understand is the fact that even if you solve the immediate shortfall

which will require using any number of special legal authorities, the Administration

has already determined that the $35 million request for 1999 is inadequate to meet

needs. When you are asking for a $1 billion increase in the foreign aid budget, how

can you come up short in this account?

Korea is not the only Asian problem. In a hearing last week I expressed my continued frustration with the Administration’s approach in Indonesia. No doubt you

have heard reports, but let me offer one example of a relatively minor policy decision pushed specifically by the East Asia Bureau which I consider counter to our

long term interests. As the military was engaged in an effort to repress Suharto’s

opponents, the Administration requested $2 million to train the army in firefighting

tactics. Like Colombia, this decision was immediately reversed in the face of strong

congressional opposition. Nonetheless, with urgent, unmet humanitarian needs, this

request sent a chilling message to democratic activists. While I welcomed your call

for Suharto to step aside, there has been little since that message reflecting our

commitment to accelerating the election timetable or for political or economic support for the opposition.
178

We seem to be in similar drift with regard to the elections in Cambodia. There

appears to be little stomach to call Hun Sen’s bluff and support the democratic opposition’s call to delay the elections even though they are being denied full and free

participation.

The final region I want to discuss is perhaps the most widely and deeply afflicted

with problems: Europe and the NIS. Most immediately, many are questioning

whether we learned any lessons in Bosnia. From one day to the next, from one official to the next, we are sending very mixed messages to Milosevic, to Kosova, and

to other key regional players. Your call for sanctions, followed by Ambassador

Holbrooke’s request for sanctions relief, followed by air exercises and threats of air

raids—all while the Serbs gut yet another village—communicates confusion and

yields to the savagery of more ethnic cleansing. While I questioned our major commitment of resources in Bosnia, I have no doubt of our interests in this area. I am

convinced that the Bush Administration got it right in Kosova with the 1992 Christmas warning to Serbia. As the President and Brent Scowcroft spelled out to

Milosevic, the United States had and has clear interests in preventing the spread

of this conflict. Milosevic understood the U.S. was willing to take unilateral military

action if needed to avoid a conflict with the potential to suck in Greece, Macedonia,

Turkey and Albania and strike at the heart of NATO unity.

But, the Balkans are not the only serious European problem. For the last five

years, Senator Leahy and I have called attention to the need to restructure, implement and enforce changes in the commercial, tax and banking systems in Russia.

Each year, we have been assured that the billions of dollars in bilateral and multilateral aid were making this happen. Now, senior IMF officials are warning Russia

is on the brink of a full fledged crisis. Spending excessively outpaces tax collection,

a system crippled by corruption. The immediate risks of hyperinflation are real and

require urgent correction, not another bilateral bail-out.

I do not want to recite the many failed attempts congress has made to attach conditions or constraints on aid to Russia. Not only are there severe immediate economic consequences to the Administration’s reluctance to challenge Moscow, I fear

we will pay a heavy price in future security interests with the possibility of a nuclear armed Iran. Every year the Administration has opposed our efforts to link aid

to the end of Russia’s transfer of nuclear technology and equipment to Iran; every

year cooperation between Tehran-Moscow has expanded.

Russia’s neighbors also pay a price for our approach. Nowhere is this more evident than Nagorno-Karabakh where a consistent, U.S. led initiative could produce

a break-through. Unfortunately, after extensive conversation with leaders in the region, it is clear to me that the Russians are not interested in a settlement. If we

do not elevate this issue, and proceed with or without the Russians or the Minsk

Group, we compromise our interests in a coherent Caspian energy security policy.

Speaking of energy, let me conclude with the observation that problems in the

Persian Gulf and the Middle East remain contentious and potentially destabilizing.

In this context, I was concerned by confusion recently generated over prospects of

U.S. support for the costs of the next stages of Israeli redeployment. At a time when

Israel has proposed the elimination of ESF, I am caught somewhat by surprise by

representations that to secure an agreement the Administration has suggested we

are prepared to provide up to $1 billion for redeployment. I hope these promises are

not being made because many people will be very disappointed.

Secretary Albright, you have a full plate. What concerns me both as the Chairman

of this subcommittee and as a senator deeply interested in the course of our nation’s

foreign policy is the preservation of American credibility and interests. That credibility is damaged by reversals, inconsistencies and inattention. Small as some decisions may seem in a global context, there is a cumulative and negative impact of

the Administration calling for sanctions in the face of Kosova ethnic cleansing, then

a week later reversing the decision; calling for Suharto to step down, but offering

no meaningful follow up economic or political support to the opposition; and calling

Iran a terrorist state but failing to impose even the weakest of restrictions on

Tehran or its nuclear partners in Moscow.

Each decision contributes to create an impression of American weakness, a sense

of hollow diplomacy. There is a mis-match between rhetoric and real requirements—

a disconnect between diplomacy and the credible threat and use of force. In an effort

to get a crisis off the front page, there is an inevitable push toward expedient solutions. While this approach may relieve immediate pressure, it will only make your

future tasks more difficult. You clearly have a sense of purpose and of the direction

the country must go. In the face of the problems, shortfalls, reversals and ambiguities I have reviewed, the question is who is following?

Much is at stake—much more is expected from you and your team in the months

and years ahead. Unfortunately, you face more challenges with fewer resources. The
179

hard won increase in foreign assistance which you, Senator Leahy, Senator Stevens

and I fought to secure last year has been substantially reduced by the pressures of

balancing the budget and other discretionary spending priorities. I am hopeful that

by delaying our mark up as late as possible, the Subcommittee may benefit from

unused budget authority and outlays as well as the Chairman’s good judgment, generosity and shared commitment to the 150 account.

OPENING REMARKS OF SENATOR PATRICK J. LEAHY

Senator MCCONNELL. Let me now call on Senator Leahy.

Senator LEAHY. Thank you very much, Mr. Chairman.

Madam Secretary, it is good to have you here and I hope you feel

the same way. Because this subcommittee, both under the chairmanship of Senator McConnell and, prior to that, under my chairmanship, has been very supportive of the budget you are testifying

about.

Anyone who thought the world would become a calm and peaceful place after the cold war obviously does not think that any

longer. There are major security challenges and crises today practically everywhere you look. And to your credit, Madam Secretary,

you are one who, from the first day of your time as Secretary of

State, warned us that could be the situation, just as you said so

very clearly and very emphatically at the United Nations.

Before we get to that, I do want to congratulate you on the vote

to admit Poland, Hungary, and the Czech Republic to NATO. I

know this was extremely important to you personally. You deserve

a lot of credit for the overwhelming vote in the Senate.

As you know, I reached a different conclusion, but I genuinely

hope I am proven wrong, and that the decision to enlarge NATO

turns out to be the right one. Now that we have voted for enlargement, now that it is the position of the United States, I believe the

Congress should give both the administration and NATO strong

support and that we are obligated to do everything possible to

make it work.

We have cast our vote on both sides of the issue, but now we

should be united as a country and as a Congress in giving that support. And I, for one, will pledge to do that.

Now, lately, you have been to Japan, China, South Korea, and

Mongolia. You were in Ukraine a few months ago, in Africa before

that. And then you spent an afternoon in Burlington, VT, which

some people may think is a foreign country.

Only the people in the eastern States, like New Hampshire, feel

that way, I would say to my friend from New Hampshire.

And I would thank you for that. Because the reaction of the people in Vermont, I think, in their questions to you, reflects the fact

that, contrary to what some may think, most people in this country

really do care what our foreign relations are and really do have

strong opinions, and you found that. I think we are fortunate to

have a Secretary of State who knows that a successful foreign policy needs the public’s support.

And while you can sit across the table from Foreign Minister

Primakov or President Jiang Zemin and speak passionately and

forcefully about the world as we want it to be, you also go out to

the country and talk to those who make up this wonderful country

and hear their views.
180

But you only have to drive a mile from the State Department to

find one of your most difficult and urgent challenges. It is not as

dangerous as a nuclear arms race between Pakistan and India, or

Russia selling nuclear technology to Iran, but it is just as deserving

of your attention. Despite the strong bipartisan vote to enlarge

NATO, the Congress has virtually ground to a halt over foreign

policy.

The impasse over family planning is only one aspect of it. It is

at least as much a reflection of widely differing views about how

the United States can best achieve its foreign policy goals and the

appropriate role of the Congress in that process.

Now, some of your predecessors made the fateful mistake of

spending a lot of time building relations with foreign governments

and trying to promote policies without first building the relationships and the support needed here. Then, when they needed Congress to back them up, the Congress was not willing to give them

the political support or the resources they needed. Without that,

you cannot do very much in foreign policy.

Over the past 2 years, I believe you tried hard to avoid that trap.

I think we have made real progress in reversing the decline in the

foreign operations budget.

But today I am afraid that we are on the verge of losing everything we have gained. You know as well as anyone that dealing

with the Congress is not easy. Some here in this body and some

in the House made commitments and then they broke them, like

funding for the United Nations.

I come from the old school that if you make a commitment you

ought to stick with it. Some did not.

Sometimes, no matter how hard you try, you cannot convince

people to agree with you, even if it is in the national interest, especially if there are political points to be made by disagreeing.

Last month, we received our 1999 budget allocation. In the best of circumstances, it amounts to a $200 million cut below the current level. Not only will you not get the increases the President requested, but many foreign operations programs, except for—or because of—the Middle East, will be cut sharply.

I think that would be foolhardy, and it would nullify all that you,

Chairman Stevens, Chairman McConnell, and I have done to protect this budget in the past year. And I would compliment Senator

Stevens and Senator McConnell, who have put as their mantra and

as their lode stone ‘‘bipartisanship’’ in trying to get this through.

Your written testimony lays out an extremely ambitious foreign

policy agenda. Frankly, I do not think a superpower can have it

any other way. And I am one of those Americans who want us to

be a superpower because of our democratic ideals. And I think that

being able to promote those democratic ideals is the greatest way

to have peace.

PREPARED STATEMENT

I do not want to see the United States become Fortress America,

and shirk from the rest of the world. I think for our children and

our grandchildren, it is important that we maintain, and expand,

our role in the world. But I urge you, during the coming weeks and

months, to devote as much time as possible to our budget situation.
181

Because, otherwise, we are not going to be able to do the things

that a great nation should and can and will do if we have the tools

to do it.

Thank you, Mr. Chairman.

Senator MCCONNELL. Thank you, Senator Leahy.

[The statement follows:]

PREPARED STATEMENT OF SENATOR PATRICK LEAHY

Madam Secretary, it is good to have you here.

Anyone who thought the world would become a calm and peaceful place after the

Cold War obviously does not think that any longer. There are major security challenges and crises today practically everywhere you look.

But before we get to that I want to congratulate you on the vote to admit Poland,

Hungary, and the Czech Republic to NATO. I know this was extremely important

to you personally and you deserve a lot of the credit for it.

As you know, I reached a different conclusion, but I genuinely hope I am proven

wrong and that the decision to enlarge NATO turns out to have been the right one.

You have been to Japan and China, South Korea and Mongolia. You were in

Ukraine a few months ago, and Africa before that. And you spent an afternoon in

Burlington, Vermont, which to some people here can seem like a foreign country.

The American people are fortunate to have a Secretary of State who knows that

a successful foreign policy needs the public’s support, and who can sit across the

table from Foreign Minister Primakov or President Jiang Zemin and speak passionately and forcefully about the world as we want it to be.

That is the job of a Secretary of State. But you need only drive a mile from the

State Department to find one of your most difficult and urgent challenges. It is not

as dangerous as a nuclear arms race between Pakistan and India, or Russia selling

nuclear technology to Iran. But it is no less deserving or in need of your attention.

Despite the strong, bipartisan vote to enlarge NATO, the Congress has virtually

ground to a halt over foreign policy. The impasse over family planning is only one

aspect of it. It is at least as much a reflection of widely differing views about how

the United States can best achieve its foreign policy goals and the appropriate role

of Congress in that process.

Some of your predecessors made the fateful mistake of spending a lot of time

building relationships with foreign governments and trying to promote policies without first building the relationships and a base of support here.

Then when they needed Congress to back them up the Congress was not willing

to give them the political support or the resources they needed. Without those two

things you cannot do much in foreign policy.

Over the past two years you tried hard to avoid that trap, and together we made

real progress in reversing the decline in the Foreign Operations budget.

But today we are on the verge of losing everything we have gained. You know

as well as anyone that dealing with the Congress is not easy. Some here made commitments and broke them, like funding for the United Nations.

And sometimes no matter how hard you try you cannot convince people to agree

with you even if it is in the national interest, especially if there are political points

to be made by disagreeing.

Last month we received our 1999 budget allocation, and in the best of circumstances it amounts to a $200 million cut below the current level. Not only will

you not get any of the increases the President requested, but many Foreign Operations programs, except for—or because of—the Middle East, will be cut sharply.

That would be foolhardy, and it would nullify all that you, Chairman Stevens,

Senator McConnell and I have done to protect this budget in past years.

Your written testimony lays out an extremely ambitious foreign policy agenda. I

don’t think a superpower can have it any other way. But I urge you during the coming weeks and months to devote as much time as possible to our budget situation,

because otherwise you are not going to be able to do many of the things you need

to do.

SUMMARY STATEMENT OF HON. MADELEINE ALBRIGHT

Senator MCCONNELL. Thank you, Madam Secretary, for being

here. I gather you have a lengthy statement. We will put that in

the record, and I ask you to proceed with your oral presentation.

Secretary ALBRIGHT. Thank you very much, Mr. Chairman.
182

I am very pleased to be here. I feel that both of your opening

statements have raised many questions, which I will be happy to

address. But I first thought that maybe I should give some of my

oral statement.

I want to thank you and the subcommittee for accommodating

my schedule. I was supposed to testify last month, but talks on the

Middle East intervened. And certainly the past 5 weeks have given

us even more to talk about, as you have listed so eloquently. But

they have not altered my fundamental mission in coming here,

which is to ask for money. In so doing, I will be brief.

You have my written statement, which is not so brief, and I hope

that you will review it, nevertheless, because it covers many of the

subjects that you have raised, and parts of the world I would not

be able to include in my oral remarks and still honor your time for

questions.

PEACE, PROSPERITY, AND FREEDOM

Mr. Chairman and members of the committee, we Americans

want to live and we want our children to live in peace, prosperity,

and freedom. But it is becoming increasingly clear that we cannot

guarantee those blessings for ourselves if others do not have them

as well.

Events of the past few months, especially in South Asia, the Far

East, the Balkans, and the gulf, illustrate the range of perils that

exist as we approach the new century. I come to this subcommittee

in search of the resources and tools we need to respond to those

perils, and to seize opportunities for strengthening democracy, promoting open markets and upholding American values. I realize

that this subcommittee has been a champion of adequate funding

for international programs. I consider our work together and our

cooperation a model in trying to achieve what we can for the American people. And I salute you for the help and the work that you

do.

However, this year, we have, together, been given an unacceptably low allocation, a full $900 million below the President’s request. I hope very much that we can work together this year to

adequately fund this account so that we can provide the kind of

leadership our interests require and our citizens expect and deserve.

Mr. Chairman, despite recent setbacks, the Middle East remains

an area where U.S. leadership is both needed and desired. The current deadlock in the peace process endangers historic gains and

threatens our own interests. And for that reason we have been

working patiently to help Israelis and Palestinians overcome their

crisis of confidence.

During the past several months, we have sought to create an environment that would trigger accelerated permanent status negotiations. Chairman Arafat has accepted in principle our ideas for

doing so, and we are now working with Prime Minister Netanyahu

to see whether there is a way for Israel to accept them as well. I

believe there is a possibility to reach agreement, and we will continue our efforts as long as we believe that Israelis and Palestinians are serious about doing so.
183

As we persist in our diplomacy, I hope that we have this subcommittee’s support for our request for assistance to our partners

in peace, including Israel, Egypt, Jordan, and the areas under Palestinian self-rule. Your help will contribute to stability, while providing a foundation for future diplomatic efforts.

In another long-troubled region, the Balkans, the cause of reconciliation is confronted simultaneously with new opportunities

and resurgent danger. In Bosnia, serious challenges remain, but

the prospects for an enduring peace have brightened. Our budget

request, when combined with the larger amounts provided by our

allies, will help keep Bosnia on the upward road to permanent

peace, and will help ensure that when our Armed Forces do leave

that country, they leave for good.

Unfortunately, the outlook in Kosovo is far more clouded. There,

Serb repression has spurred a cycle of violence that has caused

great suffering and has the potential to draw neighboring countries

into conflict. The United States has joined other leading nations in

sending a strong message to President Milosevic. He must end the

excessive use of force against civilians, enter a serious dialog with

the leaders of the Albanian-Kosovar community, cooperate in the

safe return of refugees, and take steps to see that the legitimate

rights of all the people of Kosovo will be respected.

To encourage a positive Serb response, NATO leaders have not

ruled out the use of force if the violence in Kosovo continues. And

yesterday we conducted air exercises. Contingency planning is underway.

Obviously our strong preference is for a diplomatic outcome that

restores peace and respects rights. We condemn acts of violence by

all sides, including the Kosovar Liberation Army. But we must also

oppose as strongly and effectively as we can the campaign of terror

and depopulation being waged by Serb forces.

As we look ahead, we know that the prospects for long-term

peace in Europe depend, as well, on the success of democracy in the

Baltics, Ukraine, Russia, the Caucasus, and Central Asia. For this

reason, I strongly urge your support for SEED and for the Partnership for Freedom.

These democracy-building, prosperity-creating, law-strengthening

programs are blue chip investments. Already a number of countries

have graduated and no longer need our aid. But the region is vast,

and the dangers posed by criminals and backsliders are many.

In Russia, we have a vital interest in seeing that nuclear weapons technology and expertise is controlled, not put up for sale. We

need your help in funding these initiatives fully and flexibly, so

that the forces of democracy may be bolstered and their enemies

held at bay.

Our efforts to promote lasting stability across Europe are mirrored in Asia, which I visited early last month. During that trip,

I had the opportunity to sign an agreement creating important new

defense cooperation arrangements with our close ally, Japan. I met

with Korea’s courageous new President Kim Dae Jung, who came

to Washington last week.

In that connection, let me emphasize the value of funding in full

our contributions to the Korean Peninsula Energy Development Organization [KEDO]. Mr. Chairman, you have helped on KEDO
184

funding before, and we will continue to work closely with the subcommittee on this. This is a line item that is truly vital to our national security and to the safety of a key ally.

During my Asia trip, I also met with senior Chinese officials to

prepare for the upcoming summit in Beijing. Now I know that

some say that the President should not go to China. But I believe

it is right for the leader of the world’s greatest democracy to bring

a message of democracy to the world’s largest nation.

While in Beijing, the President will have a chance to say things

that the people of China cannot say and have not heard. And his

presence in Tiananmen Square will ensure that the world does not

forget, as it must not forget, the outrages perpetrated there.

Moreover, the President’s visit will create an opportunity to look

to the future, a chance to make further progress in our relationship

with China, to cooperate in halting the spread of nuclear weapons,

to maintain stability on the Korean Peninsula, to coordinate in responding to the regional financial crisis, to join in fighting global

threats, and to express our concern about freedom of religion,

human rights, and Tibet.

As I have said many times, Mr. Chairman, engagement is not endorsement. We continue to have sharp differences with China. But

we are also developing more and more areas of common ground.

And this is important to both countries, and vital to the future stability and prosperity of all Asia.

In Indonesia, there is an opportunity now to move from an era

of stability without freedom to an era of stability and freedom. The

challenges, however, are great. They include economic recovery

under very difficult circumstances, an end to ethnic intolerance and

scapegoating, and the construction almost from scratch of genuinely representative institutions. At this difficult time, America’s

place is by the side of the Indonesian people. Accordingly, we will

continue to provide humanitarian and development assistance, and

aid to civil society. And we will continue to urge the authorities in

Jakarta to make good on their pledge to open up the political process so that the future of Indonesia will be determined as it should

be—by the people of Indonesia.

In South Asia, our challenge, in partnership with others, is to

minimize the adverse consequences to international security and

peace of recent nuclear tests. During the past few days, we have

seen a willingness both in New Delhi and Islamabad, to try to

bring tensions under control, resume bilateral dialog and respond

to international concerns. We welcome this, and urge both countries to resolve their differences peacefully and to avoid stumbling

further into an arms race they cannot afford and might not survive.

More broadly, we believe there are a number of steps we can

take to renew the strength of the nuclear nonproliferation regime,

and that it is very much in our security interest to do so. This

morning, I want to highlight one step of particular importance.

That is Senate approval of the Comprehensive Test Ban Treaty

[CTBT]. Now, more than ever, it is important to get the CTBT’s

monitoring and detection system up and running, to reinforce the

principle that nuclear testing is not acceptable, and to dissuade

other countries from following India and Pakistan’s example.
185

Accordingly, I urge members of the subcommittee to encourage

your colleagues on the Senate Foreign Relations Committee to

schedule hearings on the CTBT, and to approve it as soon as possible. There could be no greater gift to the future.

Mr. Chairman, our efforts to build security through democracy

and greater participation in the global economy are also very much

in evidence among our hemispheric neighbors and in Africa. In

Santiago in April, the elected leaders of 34 nations came together

to support democracy and prosperity at the Summit of the Americas. Of course, one of the great challenges we face in this hemisphere is Haiti. As a champion of freedom, a neighbor and a friend,

we have a compelling interest in helping Haitian democracy to succeed. That is why the President has proposed an increase in our

assistance.

Although the ongoing political stalemate is frustrating, Haiti is

a place where every dollar of our aid helps people move a little further from their terror-ridden past and a little closer to the goal of

true democracy. With the memories still fresh of thousands of immigrants fleeing to our shores, we know that helping Haiti is the

smart thing to do. It is also the right thing to do.

During his historic visit to Africa this past March, President

Clinton issued an inspiring call for a new American partnership

with the people of that continent. To launch our initiative, I urge

the subcommittee’s support for funds to build democracy, promote

justice, spur investment, and create incentives in the form of debt

relief for nations undertaking needed economic reforms.

I also urge your support for the Africa Growth and Opportunity

Act. This measure embodies our belief that trade, even more than

aid, will prove the engine of African growth.

Mr. Chairman, I began my statement this morning by saying

that the purpose of our foreign policy is to help build a world that

is increasingly peaceful, prosperous and free. As appropriators, you

can help by approving the President’s request for funds to respond

to global problems.

For example, you can help children and empower women by supporting the U.N. Development Program and UNICEF. You can help

safeguard nuclear programs and materials worldwide by approving

funds for the IAEA. You can promote the use of clean technologies

by meeting our commitments to the Global Environment Fund. You

can help protect our families by backing the President’s request for

funds to fight the war against international drug trafficking and

crime. You can support our global demining initiative, which was

inspired by Senator Leahy, and which aims to end the threat posed

to civilians by land mines in every country on every continent by

the end of the next decade.

And, finally, you can renew your approval of funds to pay our

share of financial backing to the International Monetary Fund

[IMF]. These funds are critical to demonstrate American support

for the IMF’s effort to restore financial confidence and stability in

East Asia, and to prevent the problems there from spreading to

other regions. Because of the way the IMF is set up, these contributions will not cost U.S. taxpayers a dime, but they will help

ensure the health of the global financial system in which America

and your constituents have the largest stake.
186

Unfortunately, through no fault of this subcommittee, the President’s request both for the IMF and the United Nations have become embroiled in an unrelated disagreement over international

family planning. I ask your help to resolve this deadlock on the

basis of what is best for America and for our ability to promote

U.S. interests. I urge you to vote yes on the IMF, without regard

to any unrelated issue.

Mr. Chairman, half a century ago, a democratic President and a

Republican Congress worked together to help forge the institutions

that have shaped our foreign policy and defined the history of our

age—institutions that proved instrumental in the defense of freedom, the growth of prosperity, the defeat of Communism, and the

confirmation of America’s standing as the world’s leading force for

justice and law. Our predecessors were not prophets. But because

they stood tall, they were perhaps able to see a little bit further

into the future than others. And they had faith in our people and

in the principles upon which our Nation was founded.

PREPARED STATEMENT

Today we have a responsibility to honor their faith, to reject the

temptation of complacency, and to assume, not with complaint, but

welcome the leader’s role established by our forbearers. Only by living up to the heritage of our past can we fulfill the promise of our

future, and enter the new century free and respected, prosperous

and at peace.

Mr. Chairman and members of the subcommittee, I thank you

very much, and I now will be very pleased to respond to your questions.

Senator MCCONNELL. Thank you, Madam Secretary.

[The statement follows:]

PREPARED STATEMENT OF HON. MADELEINE K. ALBRIGHT

Mr. Chairman and members of the subcommittee, good morning. I am pleased to

be here to seek your support for the President’s request for funds for the foreign

operations programs of the United States.

I want to acknowledge at the outset that this Subcommittee and its members

have been leaders in supporting a principled and purposeful U.S. foreign policy. We

have not always agreed on all subjects, but the disagreements have almost always

been on tactics, not goals. We all agree that the United States is, and should remain, vigilant in protecting its interests, careful and reliable in its commitments

and a forceful advocate for freedom, human rights, open markets and the rule of

law.

The budget request before you seeks to ensure that we have the foreign policy

tools we need to sustain our leadership.

It includes funds for programs that help us promote peace and maintain our security; safeguard our people from the continuing threat posed by weapons of mass destruction; build prosperity for Americans at home by opening new markets overseas;

promote democratic values and strengthen democratic institutions; respond to the

global threats of international terrorism, crime, drugs and pollution; and care for

those who are in desperate need of humanitarian aid.

Given the scope of American interests, the range of threats to our security, the

connections between our prosperity and that of others, and America’s role as a

champion of freedom and defender of human rights, we need the full measure of

U.S. influence and leadership at this critical time. I urge you to help us, as you have

in the past, to obtain the resources we need to conduct our foreign policy in the way

our interests demand and our citizens deserve.

I would like to begin my discussion here this morning with our programs for

maintaining the security and safety of our people.
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I. PEACE AND SECURITY

The Middle East

One region that is central to maintaining international security and peace is the

crescent of land bridging Asia and Europe, including the Gulf and Middle East.

Here, American policy is designed to strengthen the forces of peace, encourage regional economic integration, marginalize extremists, and defeat terror.

In Iraq, our primary purpose remains what it has been since the Gulf War ended

seven years ago. We are determined to prevent Saddam Hussein from ever again

threatening Iraq’s neighbors or the world. And we want to do all we can to ease

the hardships faced by the Iraqi people as a result of his misrule.

Since 1991, Iraq’s path to renewed respectability has been open through compliance with all relevant Security Council resolutions. But in spite of the strong incentive provided by sanctions, Iraq has not been willing to take this road. Instead, its

leaders have lied and concealed information, and harassed and blocked UN weapons

inspectors. As a result, a journey that could have been completed in a matter of

months remains far from finished. And Saddam’s intransigence has deprived the

Iraqi people of over $100 billion in oil revenue.

Under its February agreement with the UN, Iraq is obliged to provide UN inspectors with full access to all sites, including those from which they were previously

barred. To date inspections under this agreement have gone smoothly.

But UNSCOM must continue to test Iraq’s promises.

The Security Council must be rigorous in judging Iraq’s actions not according to

some artificial timetable, but according to the quality of information received and

actions taken.

The United States will continue to insist on Iraqi cooperation that satisfies not

just the letter, but the spirit of Security Council resolutions. And unless that occurs,

sanctions will remain.

And to keep a lid on Saddam’s military options, we will continue to enforce the

no-fly and no-drive zones.

Although our military is returning to its prior force levels in the Gulf, our troops

there remain strong, versatile, well led and well equipped. If the need should arise,

they can and will be promptly reinforced. As always, the United States will not

make a decision to take military action lightly, but we are prepared to do so if that

is required to protect our interests and our friends.

In the meantime, we will do all we can through the United Nations to ease the

hardships faced by the Iraqi people.

Across the border from Iraq in Iran, there are signs that popular support is building for a more open and less confrontational approach to the world. The United

States would welcome that. An Iran that accepts and adheres to global norms on

terrorism, proliferation and human rights could be a significant contributor to the

security and prosperity of the entire region.

Iran’s President Khatemi has called for a dialogue between our two peoples. There

is merit in this, for we have much to learn from each other. But the issues and

deeds that have divided us these past two decades are not matters of respect between our two peoples, but matters of policy that ultimately must be addressed by

governments.

Elsewhere in the region, America’s interests are best served when we help meet

the challenge of building peace—for peace creates a climate friendly to economic

growth and democracy, which leads, in turn, to greater stability. This is true, for

example, in the Caucasus and Cyprus.

It is also true in the Middle East, where we continue to strive with our Israeli,

Palestinian and Arab partners to make progress towards a just, lasting and comprehensive peace.

Unfortunately, the Arab-Israeli peace process remains stalled. Historic accomplishments and future hopes are both at risk.

Indeed, the longer the present stalemate continues, the greater the chance the

momentum that had been built in the direction of peace will snap back and begin

to run in reverse. If that happens, we may see a future in the Middle East that

mirrors the grim and conflict-ridden past. That would not be in the interest of the

United States, our Israeli allies and friends, the Palestinians or anyone but the

forces of extremism and terror.

For that reason, the United States has been working patiently to help Israelis and

Palestinians overcome their crisis of confidence and put the process back on track.

Over the past several months, we have sought to create an environment that

would trigger accelerate permanent status negotiations. Chairman Arafat has accepted in principle our ideas for doing so. We are now working with Prime Minister

Netanyahu to see whether there is a way for Israel to accept them as well.
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I believe there is a possibility to reach agreement, and we will continue our efforts

as long as we believe that Israelis and Palestinians are serious about doing so.

At the same time, we cannot make the parties agree. Nor would it be appropriate

for us to try. For just as the credit for opportunities opened by peace would belong

to Israeli and Palestinian leaders, so would responsibility for the consequences of

failure rest with those who make progress towards peace impossible to achieve.

As we continue our diplomatic efforts, I hope that I can count on your support

to fund the programs that help make the peace process possible, such as our requests for Economic Support Funds and Foreign Military Financing to our partners

in peace—Israel, Egypt, Jordan and the areas under Palestinian self-rule.

We have requested that aggregate assistance for the region remain at the same

level as in previous years. Within that total, I hope we can work together to find

appropriate funding for all our concerns in the Middle East.

Over the years, the level of assistance provided to this region has been the subject

of increasing scrutiny as foreign aid budgets have decreased and dollars are more

carefully allocated than ever. We welcome the initiative of the Israeli Government

in beginning discussions with the Executive Branch and Congress on a gradual reduction, and eventual phase-out, of economic support funds, coupled with a proposed

increase in military assistance. I look forward to working closely with you as we

move discussions forward on this subject.

Europe

In Europe, we have two strategic goals. We work with our allies and partners

across the Atlantic to respond to the global challenges no nation can meet alone.

And we work together to build a Europe that is itself peaceful, undivided and free.

The Senate’s vote this spring to enlarge and strengthen NATO has sent a message

to our old and new allies that America will continue to defend its interest in the

peace and security of Europe. It has made it clear to Europe’s new democracies that

we are not going to treat them as second-class citizens in the future simply because

they were subjugated in the past. And it is a resounding bipartisan signal that

America will defend its values, protect its interests, stand by its allies, and keep

its word.

I congratulate members of this Subcommittee for their roles in this historic decision, whether as supporters or as thoughtful skeptics who demanded that hard

questions get sound answers.

In the quest for a peaceful, undivided Europe, our efforts in support of the peace

process in Northern Ireland also have borne fruit. The ‘‘Good Friday’’ agreement, approved by sizeable majorities in the North and South last month, marks a turning

point in the history of that troubled province.

I thank this Subcommittee for its support for the annual U.S. contribution to the

International Fund for Ireland, which serves as a tangible expression of our support

for peace in Northern Ireland.

Two years ago, also in support of a Europe at peace, the United States led the

effort to stop the war in Bosnia. We recognized that it did not serve American interests to see aggression undeterred, hatred unleashed, and genocide unchecked and

unpunished in the heart of Europe. Now, we must finish what we started and continue helping the parties to implement the Dayton Accords.

Bosnia today remains deeply divided. But multi-ethnic institutions are once again

beginning to function. Economic growth is accelerating. Air and train links are being

restored. Despite troubling violence, more refugees are returning. And more indicted

war criminals are facing trial. Since I appeared before this Subcommittee last

year—and with your strong support for our renewed emphasis on apprehending war

criminals—more than 30 people indicted as war criminals have surrendered or been

turned over to the International Criminal Tribunal for the former Yugoslavia in The

Hague.

Perhaps most importantly, a new Bosnian Serb government has turned its commitment to implementing Dayton into action—encouraging minority returns, enacting a program of privatization, taking an active part in Bosnia’s national institutions.

We must make good on our pledge to support the new Bosnian Serb leaders as

they work toward these goals. That is why I have waived restrictions on our assistance to help rebuild infrastructure and revitalize private business—when and where

Serbs are ready to work with their neighbors.

Our aid to Serb regions—as to others—is strictly conditioned on progress in implementing Dayton. It will support those who seek to build peace, not those who would

undermine it.

Overall, we are requesting $225 million for Bosnia in fiscal year 1999, primarily

from the Support for Eastern European Democracy (SEED) program. These re-
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sources will support economic reconstruction, humanitarian assistance, democratic

development, and physical rebuilding, as well as U.S. police monitors and reform

of Bosnian police forces. These programs are designed to continue and make irreversible the progress that Bosnian communities are finally beginning to see.

The United States should continue to play an appropriate role in Bosnia as long

as our help is needed, our allies and friends do their share, and most importantly,

the Bosnian people are striving to help themselves. That is the right thing to do.

And it is the smart thing—for it is the only way to ensure that when our troops

do leave Bosnia, they leave for good.

Today, the international community faces a second challenge in the Balkans—preventing the escalation of violence and helping the parties find the path to peace in

Kosovo.

There, Serb repression has spurred a cycle of violence that has killed hundreds

of civilians, left dozens of villages in ruins, and sent thousands of refugees into

neighboring Albania and the Former Yugoslav Republic of Macedonia. Without

international involvement, Mr. Chairman, there is no natural endpoint to the conflict unleashed by President Milosevic. There is a growing risk that fighting will

spill across the border and draw in neighboring countries.

Last Friday, in London, leading nations agreed on a strong message to President

Milosevic to cease his brutal and provocative military campaign; enter a serious dialogue with leaders of the Kosovar Albanian community; and take steps to see that

the legitimate rights of all the people of Kosovo will be respected.

To encourage a positive Serb response, NATO leaders, including the United

States, have not ruled out the use of force if the violence in Kosovo continues. In

preparation, the alliance has decided to move forward with air exercises in Albania

and the FYROM. Further contingency planning is underway. The United States

would strongly prefer a diplomatic outcome that restores peace to Kosovo based on

respect for the rights of all. We condemn acts of violence by all sides, including the

Kosovar Liberation Army. But we must also oppose as strongly and effectively as

we can the campaign of terror and de-population being waged by Serb forces.

The expansion of NATO and the effort to build and maintain peace in the Balkans

are important parts of our effort to build a Europe that is wholly democratic and

stable. But there are a number of other initiatives, as well.

For example, we are encouraging integration among nations of the Nordic and

Baltic region, and helping strengthen their ties with us, their neighbors, and European and transatlantic institutions.

We strongly support the expansion of the EU into central and eastern Europe,

and Turkey’s desire to be part of that process.

We are working hard to achieve a settlement in Cyprus that respects the rights

and needs of both communities.

We are putting in place a new Southeast Europe strategy to help integrate countries in that region into western institutions.

We are leading the transformation of the OSCE into an organization that produces not just reports, but results. The funding we have requested for the OSCE

helps support human rights and elections monitoring in Bosnia and Croatia; special

arms control regimes across the former Yugoslavia; and conflict resolution missions

elsewhere in eastern Europe.

Finally, we are once again asking your help in funding the Support for East European Democracy (SEED) programs. As two more states, Hungary and Latvia, conclude their use of SEED programs this year, we are shifting our focus to the countries of southeastern Europe, whose political and economic transformations are more

slow and uncertain. In addition to our efforts in Bosnia, we will be supporting economic stabilization in Bulgaria and Romania, to help reforms begun in good faith

generate positive results. And we will be promoting regional partnerships to use the

region’s own resources to stimulate growth.

Although a great deal of the world’s attention has been focused elsewhere, Mr.

Chairman, our efforts to build security and democracy continue in the New Independent States (NIS).

We were pleased to see President Yeltsin’s new Prime Minister, Sergei Kiriyenko,

confirmed by the Duma in April and look forward to working with him to build on

the past accomplishments of the U.S.-Russia Bilateral Commission.

Unfortunately, Russia faces an even more difficult economic environment than it

did just a year ago. The Asian financial crisis, a substantial decline in world oil

prices and insufficient implementation of fiscal and other reforms have darkened

the economic outlook considerably.

President Clinton has made clear, as have our G–7 partners, that there should

be additional, conditional support from international financial institutions in the

context of a strong Russian reform program, if that support proves necessary.
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Meanwhile, the United States and Russia continue to work together on a broad

range of issues from peace building in Bosnia to proliferation in South Asia to dealing with Saddam Hussein.

During the many times I have seen Foreign Minister Primakov in recent weeks,

I have raised American concerns about Russian cooperation with Iran’s nuclear and

missile programs, as well as related matters, including President Yeltsin’s effort to

gain Duma ratification of START II. And I have urged the Foreign Minister to recognize the depth and seriousness of American opposition to religious discrimination

in Russia, and our concerns about Russia’s new religion law.

Mr. Chairman, we agree that an independent, democratic and prosperous Ukraine

can be a keystone in the archway to the new Europe. Our efforts to build a strong

relationship with Ukraine have led to better cooperation in the area of non-proliferation, including an express commitment by its government to cancel participation in

the Bushehr nuclear reactor project.

In April, I certified that Ukraine has made significant progress toward resolving

the concerns of the dozen U.S. businesses that have faced extraordinary obstacles

in operating and investing there.

But this is by no means a clean bill of health. For as you know, Mr. Chairman,

I was barely able to certify. And we are withholding a portion of our assistance to

the Ukrainian government pending progress on reform.

Ukraine’s friends abroad and the international business community are watching

closely. Ukraine has no margin for error. It is our strong hope that President

Kuchma will demonstrate the leadership, and the new Rada the wisdom, to press

ahead quickly with overdue reforms.

Throughout the NIS, a great deal of work remains to be done to build stable

democratic governments and functioning, transparent market economies. In this

connection, the Administration continues to seek repeal of Section 907 of the Freedom Support Act. This would restore balance in our policy toward Azerbaijan and

Armenia, and reinforce our role as an honest broker in the peace process.

In the coming year, we will continue to promote peaceful solutions to regional disputes in the Caucasus. We will work to support and strengthen democratic institutions. And we will continue to foster regional cooperation in Caspian energy development and transportation infrastructure. I know these issues are of great interest to

many in Congress, and I welcome your support in providing the tools we need to

make progress.

Our contributions to democracy building through the Partnership for Freedom will

not re-make the region overnight, but they can help those in the region who are

helping themselves to move in the right direction.

For example, our support fosters economic development by encouraging investment in small businesses; promotes tax reform and transparent and effective regulation of industry; helps to build accountable democratic institutions; and fights the

crime and illicit dealing that have shadowed emerging markets.

We fund these NIS programs neither as a favor to governments in the region nor

as a stamp of approval of all their policies, but because they serve American interests. And frankly, we need to do more. These priority programs were funded well

below our request last year. So I urge you to back our full request for $925 million

this year. And I ask that you grant the flexibility we need to support democratic

and market reforms wherever in the region they flower—and whenever our support

will best serve America’s interests.

Asia

In Asia, we are working to maintain stability by solidifying our key alliances with

Australia, Japan, the Republic of Korea, the Philippines and Thailand.

I had the great pleasure of visiting Japan last month to reaffirm the strength and

breadth of our bilateral relationship. The U.S.-Japan security alliance is a foundation of Asian stability. I took the opportunity, while in Tokyo, to express U.S. concerns about Japan’s economic situation and the need for efforts to promote domesticled growth and deregulation.

I also had a chance in May to visit Korea, whose new President Kim Dae Jung

was in Washington for a state visit just last week.

During that visit, President Clinton made it clear that the United States remains

committed to South Korea’s security and supports President Kim’s bold program of

economic reform. We are also coordinating efforts to facilitate a lasting peace on the

Korean Peninsula, to be achieved through a process of dialogue between North and

South.

Obviously, the past twelve months have been difficult for many parts of Asia. Our

policy has been to promote economic and political reforms that are essential to prosperity and human dignity from Bangkok to Beijing.
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In Korea, the Philippines and Thailand, for example, democratic governments

have made progress in overcoming the Asian economic crisis in part because their

people were able to elect new governments, which started work in a climate of openness and trust, and with the moral legitimacy to call for shared sacrifice.

Indonesia now has a chance to achieve both democracy and stability, but it also

faces immense challenges—from restoring growth, to preserving religious tolerance,

to building truly representative institutions.

Democracy can only be built by the people of Indonesia. But what America says

and does will matter, as it has in other critical periods in Indonesia’s history.

Our message is simple. America’s interest lies not in who rules Indonesia, but in

how that immense and important country is ruled: whether it ends up with a legitimate democratic government, or an unrepresentative, unaccountable and therefore

unstable regime.

The key is credible progress toward open, accountable government. Free elections

must be held in a timeframe and under rules acceptable to the Indonesian people.

Political parties and labor unions must be allowed to form. Press freedoms must be

respected. Political prisoners must be released.

America’s interest also lies in standing by the Indonesian people now. We will

continue to provide humanitarian and development assistance and aid to civil society. And if and when elections are held, we will stand ready to help in any way

we can. As the world well knows, Mr. Chairman, President Clinton will leave next week

for a visit to China.

Although some have suggested that the President not make this trip, I cannot

imagine anything more consistent with his responsibilities as President. For the

President’s purpose is to promote the security, political and economic interests of

the United States and to bring to China a message of support for democracy, the

rule of law and human rights.

Although the space for political discussion in China has clearly expanded in recent times, the President will have the opportunity to say things that the people

of China cannot say, and have not heard. And the President’s presence in

Tiananmen Square will ensure that the world does not forget, as it must not forget,

the terrible suppression of peaceful political expression that occurred there.

Moreover, the President’s visit will create the chance for additional progress towards a more constructive overall relationship with China. Mr. Chairman, that

process of engagement is not the same as endorsement. We continue to have sharp

differences with China on human rights, Tibet and other issues, but we also believe

that the best way to narrow those differences is to encourage China to become a

full and responsible participant in the international system.

Steps in the right direction include China’s security cooperation on the Korean peninsula and very recently in South Asia, its commitment to strictly control nuclear

exports, its assurances on nuclear cooperation with Iran, its continued economic liberalization, its positive role in responding to the East Asian economic crisis, its

agreement to pursue cooperative activities with us to strengthen the rule of law, the

release of Wei Jingsheng and the remarkable Wang Dan, and its announced intention to sign the International Covenant on Civil and Political Rights.

In Cambodia, we are deeply engaged in a diplomatic effort to press the Government to hold free and fair elections in which all elements of the opposition can participate without fear of intimidation or threat.

In Burma, we are deeply troubled by the military’s regime’s refusal to enter a dialogue with its democratic opposition, its continued repression of dissent, and by its

ties to leading drug traffickers.

I know that you are deeply concerned as well, Mr. Chairman. Indeed, it seems

we are both members of the ‘‘international colonialist gang’’ that the regime’s propaganda machine loves to complain about, since we both believe that the Burmese people should have a say in running their country. I want to thank you for helping develop a range of measures to ensure that Burma’s generals cannot realize their economic ambitions without heeding the aspirations of their people.

As you know, Mr. Chairman we also have a small humanitarian aid program designed to help the Burmese people survive without helping their government endure. The people who receive our support realize that it comes from the friends of

Burmese democracy abroad, not from the junta that is the cause of their suffering.

Their needs are staggering; years of government neglect and denial, for example,

have left Burma with the highest rate of AIDS infection in all of East Asia.

Let me assure you, Mr. Chairman, that we will not move forward in this area—

or in the area of counternarcotics—without consulting with the Congress. And any

efforts we undertake will only be designed with the support and involvement of Burma’s legitimate elected leaders.
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South Asia

There is no question that the recent Indian and Pakistani nuclear tests endanger

international security and peace and dealt a blow to the nuclear nonproliferation regime. Working with other members of the UN Security Council, the G–8, and nations from around the world, we are striving to minimize the adverse consequences

of those ill-considered tests.

During the past few days, we have seen a willingness in both New Delhi and

Islamabad to try to bring their bilateral tensions under control, resume dialogue

and begin to respond to international concerns. We welcome this and urge both

countries to resolve their differences peacefully, and to avoid stumbling further into

an arms race they cannot afford and might not survive.

More specifically, we have called upon both countries to join the Comprehensive

Test Ban Treaty (CTBT), without conditions; to stop producing fissile material; to

refrain from deploying nuclear weapons and from testing or deploying missiles capable of delivering them; and to formalize their pledges not to export any materials

or technology that could be used to build nuclear weapons.

India and Pakistan should take such measures not as a favor to the world community, but because it is in the security interests of each to do so.

And in considering their next steps, they should realize that the Non-Proliferation

Treaty (NPT) will not be amended to include them as nuclear weapon states.

This is fundamental—for the NPT is fundamental to nuclear nonproliferation. A

generation ago it was predicted the world would have twenty to thirty nuclear

states. No measure has done more than the NPT to prevent that. If we were to

allow India and Pakistan to test their way to nuclear status under that agreement,

we would create an incentive for others to follow their example.

The nuclear tests in South Asia present us with an historic choice. Some now say

that nuclear nonproliferation is doomed, and the sooner we accept that, the better

off we’ll be. The Clinton Administration does not share that view.

We believe there are a number of steps we can take to renew the strength of the

nonproliferation regime, and that it is very much in the security interests of America to do so. Last week, I outlined those measures in a speech sponsored by the

Stimson Center, and I will not repeat that discussion now. I do, however, want to

highlight one step of particular importance, and that is Senate approval of the

CTBT. For despite the South Asia tests, the CTBT remains essential to our strategy

to reduce the nuclear danger.

This Treaty has been a goal of U.S. Presidents since Dwight Eisenhower and John

Kennedy. If approved and enforced, it will arrest both the development and the

spread of new and more dangerous weapons. It has been widely endorsed by our

military and scientific leaders. And it has consistently commanded the support of

no less than seventy percent of the American people.

Now more than ever, it is important to get the CTBT’s monitoring and detection

system up and running; to reinforce the principle that nuclear testing is not acceptable, and to dissuade other countries from following India and Pakistan’s example.

Accordingly, I urge Members of the Subcommittee to encourage your colleagues

on the Senate Foreign Relations Committee to schedule hearings on the CTBT, to

examine its merits and to approve it as soon as possible.

The Americas

In our own hemisphere, we have important interests dictated not only by proximity of geography, but by proximity of values. As President Clinton said in April at

the Santiago Summit, ‘‘never have we had such an opportunity to build a true community of the Americas.’’

With one lonely exception, every government in the hemisphere is freely elected.

Every major economy has liberalized its system for investment and trade. With war

in Guatemala ended, Central America is at peace for the first time in decades. Ecuador and Peru have made real progress toward resolving their long-standing border

dispute. From pole to pole, it would seem, our nations are determined to live in security and peace.

But the region still faces serious challenges, which can affect us as well. For

many, the dividends of economic reform are not yet visible, but the costs of accompanying austerity measures are. Growing populations put pressure on natural resources, spark large-scale migration, and make it harder to translate macroeconomic

growth into higher standards of living. The building of democracy remains in all

countries a work in progress, with stronger, more independent legal systems an urgent need in most. And narcotics trafficking and crime still tear at the fabric of our

societies.

In Santiago, President Clinton and the other 33 democratic leaders of our hemisphere set an agenda for meeting those challenges together. We agreed to boost in-
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vestment in education as a foundation for success in the next century, and to fight

poverty and discrimination to make sure that success is shared by all. We established new programs to protect freedom of the press, strengthen judicial systems,

and improve local government—all pillars of the kind of strong democracies we want

as our neighbors. And we agreed to work together to assess and improve our efforts

in the war on drugs.

Finally, we all reaffirmed our commitment to free and fair trade and economic integration. To reach that goal, we will soon begin negotiations for a Free Trade Area

of the Americas. We also will do more to ensure that basic worker rights are secure

throughout the hemisphere, so that prosperity for some does not come at the cost

of suffering for others. And we will work together to develop clean energy sources

and protect our environment as we grow.

This new quality of partnership means that the United States is not supporting

all these projects alone. Several South American countries have joined us as major

donors for education, democracy and anti-poverty projects. Many nations from this

hemisphere contribute to UN peacekeeping operations and play important roles in

mediating regional conflicts.

We can count on strong support from our neighbors—but where our interests are

at stake, we cannot fail to lead.

That is why it is vital that we remain engaged in Haiti’s democratic transition—

and why we have requested a substantial increase in assistance for that country

this year.

The job of creating a democratic culture and market economy in Haiti, where none

has ever existed, is daunting. For months, the government has been mired in a

stalemate, while efforts to restructure the economy have lagged. For millions of impoverished Haitians, democracy has not yet delivered on the hope of prosperity.

When I visited Haiti in April, I was reminded again how much Haitians desire

change. I had the chance to meet many dedicated people who are using our assistance programs, and their own ingenuity and drive, to vaccinate children, open

schools, and fight drugs. They have a vision of a better future, and we are supporting it through programs that create jobs, lay the foundation for sustained economic

growth, and professionalize Haitian law enforcement.

We cannot turn our backs on Haiti at this critical stage. To do so would risk creating a future there that mirrors the past: an undemocratic country that serves as

a safe haven for criminals and drug traffickers—and from which thousands of

would-be migrants are driven to seek refuge on our shores.

Helping democracy put down roots in Haiti serves U.S. interests.

The same is true in Cuba. Over the past two decades, the Americas have been

transformed from a hemisphere dense with dictators to one in which every single

country but one has an elected government. We believe the Cuban people deserve

the same rights and liberties as their counterparts from Argentina to Alaska.

With that goal in mind—and taking advantage of the opportunities presented by

the Pope’s historic visit—the President in March decided to take four actions to

reach out to the people of Cuba to make their lives more tolerable, while maintaining the Helms-Burton Act and the embargo and other pressures for change on the

Castro regime.

We are working with leaders in the Senate and the other body to develop bipartisan legislation to meet humanitarian food needs on the island. We are streamlining

and expediting the issuance of licenses for the sale of medical supplies to Cuba. We

are resuming licensing direct humanitarian charter flights. And we are restoring arrangements to permit Cuban-American families to send remittances to their relatives in Cuba.

We know that in expectation of the Pope’s visit, Christmas Day had special meaning in Cuba this year. We will not rest until another day—Election Day—has real

meaning there, as well.

Africa

As the world saw when President Clinton visited Africa earlier this year, this is

a continent whose problems remain deeply-rooted, but whose potential is great.

More and more, countries are modernizing. Centralized economies are giving way

to open markets seeking new investment. And civil society is starting to take root.

Accordingly, we have a good opportunity now to engage and enlist Africa in the

fight against terror, narcotics trafficking, crime, environmental degradation and

other global problems before they spill over into other parts of the world—including

America.

As the President’s visit reflects, we have been according a high priority to events

in Africa.
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Recently, for example, Assistant Secretary Susan Rice has played a lead role in

diplomatic efforts to end the senseless and destructive fighting between Ethiopia

and Eritrea. We are exploring every option for encouraging the new leaders in Nigeria to respect human rights and to move down the path towards real democracy.

And we have tried hard to persuade the leaders of the Democratic Republic of Congo

to permit opposition political activity and to take steps that would enable that vast

and strategic country to get back on its feet economically.

Although these diplomatic initiatives have not yet succeeded, we retain our faith

in the promise of Africa, and are determined to persist in our efforts throughout the

continent.

Let me highlight three important initiatives that can have real benefits for Africans—and for us:

The Great Lakes Justice Initiative will help prevent violence and bring justice to Africa’s heart. We have requested $30 million for this urgent initiative, that can

help save lives directly and soon.

For the Education for Development and Democracy Initiative, which will build civil society and fuel economic growth, we seek $66 million in new funding.

The Trade and Investment Initiative will stimulate African economic reform and

domestic and international trade. It involves $30 million for technical assistance

and $35 million of special debt relief for poor countries that are taking the right

steps toward reform.

I also urge the Senate to act this year to approve the Africa Growth and Opportunities Act, to spur trade between the United States and Africa’s most forward-looking economies. This is a Capitol Hill initiative, on which I will testify tomorrow before the Senate Finance Committee. The bill is strongly supported by the Administration; it was approved on a bipartisan basis by the House of Representatives; and

is designed to frame a new American approach to the new Africa.

We believe that the African countries that most deserve our help are those that

are doing the most to help themselves. And that the most useful help we can provide is the kind that will enable economies to stand on their own feet—through open

markets, greater investment, increased trade and the development among their peoples of 21st century skills. These programs deserve your support.

Promoting our security through arms control

When we help ease conflicts in regions important to the United States, we advance the long-term interests and safety of Americans. The same is true of our support for arms control and anti-terrorism efforts around the world.

The South Asia nuclear tests have complicated, but not altered, the nature of the

twin imperative our diplomats face: sustaining a global full-court press to keep biological, chemical and nuclear weapons, and the missiles to deliver them, from falling

into the wrong hands; and achieving further progress with Russia and others so

that the American people never again face the costs and dangers of a nuclear arms

race.

Toward these goals, we ask your support.

This year, we are requesting $28.9 million to fund the CTBT Preparatory Commission, which is laying the human and technical foundation for the Treaty’s entry

into force. Whether or not the test ban treaty is in force, we need to do the best

job we can to detect and monitor any explosive testing of nuclear weapons around

the world. These funds will help build the international verification system that will

help us to accomplish those tasks.

I also ask your support for our proposed $40 million voluntary contribution to the

International Atomic Energy Agency (IAEA). These funds will help the Agency continue strengthening the safeguards system that helps deter and detect cheating on

NPT obligations in such countries as North Korea, Iraq and Iran.

Our request this year includes $35 million for the Korean Energy Development

Organization (KEDO). The Agreed Framework has succeeded in freezing North Korea’s dangerous nuclear program. And it has secured, under international safeguards, all of that program’s spent fuel rods—which once could have been reprocessed into several bombs’ worth of weapons-grade plutonium.

Our own spending on KEDO is needed to leverage contributions from our Asian

allies that will ultimately dwarf our own. More importantly, it is a national security

bargain—spending that has helped to stabilize a volatile peninsula, support a close

ally, and make our 37,000 troops in Korea safer.

Finally, our Nonproliferation and Disarmament Fund lets us move quickly to destroy or remove dangerous weapons or poorly protected nuclear materials from NIS

countries. And the International Science Centers in Kiev and Moscow address the

human side of the proliferation threat, helping to prevent a perilous brain drain of

scientists with special weapons expertise to rogue states.
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Fighting terrorism

We also have a critical national interest in fighting international terror and helping others to do the same.

This year, we are requesting $21 million for our anti-terrorism programs. These

programs enhance the skills of police and security officials in selected countries so

that they may be more effective partners in preventing and punishing terrorist acts.

The $2 million increase over last year’s funding level will help fund training in terrorist interdiction and explosives detection and investigation, and will allow us to

beef up our programs in the Middle East and Asia.

Anti-personnel landmines

This year we seek a major increase in funding, from $20 million to $50 million,

to support the Administration’s Demining 2010 initiative. With strong support from

Senator Leahy and other Senators from both parties, America leads the world in

humanitarian demining—and we are determined to do even more.

President Clinton has pledged that the United States will substantially increase

America’s support for de-mining programs. The resources we have requested from

you will help persuade other countries to increase their own contributions as well.

And that will help us meet our larger goal: to free civilians everywhere from the

threat of landmines by the year 2010.

The security-related programs I have been discussing fall within the Non-Proliferation, Antiterrorism, Demining, and Related Programs, or ‘‘NADR’’ Account,

which was created in the fiscal year 1997 Foreign Operations Appropriation Act to

consolidate in one account a number of related programs previously funded separately. This year our NADR request includes funding for the CTBT PrepCom previously funded through ACDA and the CJS Appropriation, funding for the Science

Centers previously included in the NIS account, and our first request for export control assistance as a separately funded activity.

Fighting drugs and crime

Last week at the UN Special Summit on Drugs, President Clinton re-stated America’s strong commitment to the international war against illegal trafficking in narcotics.

In that war, we have moved aggressively and with results. This past year, our

support for eradication and interdiction helped trigger the largest decline ever in

Latin American coca production. For the second year in a row, production fell in

every Latin American country—except Colombia, where traffickers moved when denied the freedom to operate elsewhere. In Peru, coca cultivation is at its lowest level

in a decade.

Although drug-related corruption remains a very serious problem in Mexico, official cooperation and support for anti-drug initiatives has been substantial. Last

week in New York, Presidents Clinton and Zedillo reaffirmed that policy of cooperation, notwithstanding the recent controversy surrounding the drug money laundering investigation Operation Casablanca.

Over the past year, Mexico has enacted legal reforms to combat drug trafficking,

organized crime and money laundering. It has formed specialized investigative

units, sought out and punished official malfeasance, and passed a comprehensive

chemical control law. Drug seizures, arrests and extraditions are up.

We ask your support for our request for $275 million to continue the fight against

international narcotics and crime. In addition to other anti-crime initiatives, these

funds support our source country narcotics eradication and alternative development

programs—following up on our progress in the Andes and transferring that approach to new projects elsewhere in Latin America and in Africa and Asia.

These funds support police and military counter-narcotics forces as they uncover

and block new smuggling routes and methods.

They will bolster eradication and interdiction programs in Laos, Colombia, Peru,

and elsewhere.

They fund a comprehensive, international heroin control strategy.

And they support carefully-monitored multilateral narcotics efforts in Afghanistan

and Burma—where success is critical but our access is limited.

Our request also includes $20 million for worldwide anti-crime programs. This

training and technical assistance helps fight money laundering, trafficking in

women and girls, alien smuggling, and other crimes which, although they begin far

from our shores, often put Americans at risk. We are depending on these funds as

we work to bolster anti-crime initiatives with our partners in the New Independent

States. And these same resources support the International Law Enforcement Academy in Budapest, and similar academies slated to open elsewhere.
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II. PROMOTING ECONOMIC GROWTH AND SUSTAINABLE DEVELOPMENT

Mr. Chairman, peace and security are paramount goals of our international programs, but promoting economic prosperity is another top priority.

International trade is twice as important to our domestic economy as it was twenty-five years ago. Strong trade-building policies and healthy trading partners are essential—for increased trade is responsible for fully one third of our economic growth

over the last five years.

The Clinton Administration is committed to seeing that American companies,

workers and farmers have a level playing field on which to compete.

That means being a global leader for trade agreements that help open markets

and create jobs for Americans.

It means using the expertise and contacts of our embassies to provide all appropriate help to American firms.

It means sustaining the Export-Import Bank, the Trade and Development Agency,

and the Overseas Private Investment Corporation, which help our business people

find new markets overseas.

And it means putting our full weight behind better enforcement of intellectual

property standards, and improved observance of core labor rights, from the halls of

the World Trade Organization and the International Labor Organization to our assistance programs and to my dealings with other world leaders.

But our diplomats and our business people need your commitment as well, and

your support for the resources that make these efforts possible.

The first place we need your support is for our leadership at the international financial institutions, such as the IMF and the World Bank. They provide money—

far more than we ever could—not just to help countries develop, but to head off crises in some of our key trading partners and friends.

This is important because, in a globalized economy, trade is not a zero-sum game.

When the economies of our trading partners falter, we risk slipping as well.

East Asia, for example, is home to some of our closest allies and friends—and

some of the best customers for U.S. products and services. More than one third of

our nation’s exports go there. As much as half of some states’ exports, and thousands of good jobs, depend on the economic vigor of such places as Bangkok and

Seoul.

The IMF is not perfect. No international organization, or government, can make

that claim. But its programs have helped restore financial stability, and promote

better governance, in East Asia.

But we are far from out of the woods yet. Financial markets are watching for

signs of relapse, of contagion in regions such as Central Europe and Latin America—or for signs that the international community, beginning with the United

States, will not supply the IMF with the resources it needs to support countries in

difficulty.

We can choose to be leaders at these institutions, by paying our full share and

staying heavily involved in their decisionmaking; or we can forfeit our involvement

by not paying, and thus lose our influence.

Simply put, the IMF’s programs are a hand up, not a hand-out. They won’t cost

U.S. taxpayers a dime—they are a loan that will be repaid with interest as our financial markets stay strong and our trade with the Asia-Pacific recovers and grows.

With members of this Subcommittee providing leadership and insight, the Senate

took early, bipartisan action to fully fund our emergency supplemental request. I

deeply regret that the Senate position was not retained in Conference, and that no

action was taken on our urgent request for UN arrears and IMF funding. But I hope

we can work together to fund these requests soon. By paying our full share of the

IMF’s quota increase, we will spur economic recovery in East Asia and help limit

similar crises in the future.

Our supplemental request would also provide our contribution to a line of credit

for the IMF to use if a crisis threatens the world financial system. Both of these

requests are for budget authority only—they involve no outlay of funds and have

no effect on calculations of government spending.

The choice to support the IMF is a choice between shaping the global economy,

or allowing ourselves to be buffeted by it; between sustaining America’s leadership,

or abdicating it.

Our support for the World Bank and the five regional development banks also

works to build healthier economies and strengthen societies in countries which are

already our partners in diplomacy and trade, as well as in those which are unable

to participate fully in the international system but seek to do so.
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Our total request for multilateral development banks includes $502 million in arrears payments, for the second year of a three-year plan to clear our debts to these

institutions.

With the support of this Subcommittee, we have begun to make catch-up payments this year—and have been able to negotiate substantial reductions in our contributions to these organizations. Our campaign for transparency and accountability

has helped open Bank activities, especially in East Asia, to greater public scrutiny.

But we cannot sustain our influence in these areas unless we sustain our funding

as well.

Let me also emphasize the work of the Global Environment Facility (GEF), which

mobilizes the resources of developed and developing nations to protect the environment. Our contributions to the GEF help protect our fisheries and our climate by

cutting pollution of the world’s oceans. Already, GEF programs are working to reduce emissions in developing nations. Making sure that all nations do their part in

slowing global warming is a critical part of our strategy; through the GEF, those

efforts have already begun. And we know they work.

But it is difficult, to say the least, to obtain more cooperation from our partners

on these matters so long as we are failing to fund our pledged share of the GEF’s

expenses—as has been the case for the past three years. I urge you to fund our $300

million request fully—of which almost $193 million is for arrears payments—both

to meet these important objectives and to work toward keeping our promises and

sustaining our influence on behalf of sound and sensible environmental protection.

Similarly, I ask your support for activities under the Montreal Protocol, to help

address the critical issue of ozone depletion.

When we contribute to multilateral efforts promoting sustainable development, we

leverage as much as eight or ten times our national contribution to support goals

we share.

This year, we have requested a modest $7 million increase in our contributions

to the United Nations Development Program (UNDP), a body which has to date always been headed by an American.

For years, UNDP has been at the forefront of helping developing countries establish democratic institutions, market economies and basic human rights. It supports

free elections from Yemen to Mexico City; establishes credit arrangements for small

enterprises in Ghana, Mongolia and Romania; and coordinates de-mining programs

from Mozambique to Cambodia.

The need for UNDP’s work remains especially strong among African countries

emerging from war and hunger with great aspirations—and serious reform plans;

and among Asia’s poorer nations, trying to catch up with their neighbors. It also

plays a major role in supporting women worldwide as they work to gain more equal

access to the levers of political and economic power.

Like UNDP, UNICEF plays an important role in countries suffering or recovering

from the devastation caused by civil or international conflict. Around the world,

UNICEF helps protect children—a society’s most vulnerable members and its hope

for the future. We have maintained our request for funding for UNICEF at $100

million for fiscal year 1999.

Mr. Chairman, one of the most inspiring ways this account helps make a difference in the lives of men and women in this country and around the world is

through its support for the Peace Corps. The Peace Corps has been one of this country’s most successful programs overseas—both in bringing skills and knowledge to

those who desperately need them, and in bringing great respect and admiration to

America and Americans.

President Clinton’s request for $270 million in funding will put us well along the

path to having 10,000 volunteers serving overseas by the year 2000.

Mr. Chairman, we also ask your support for our population and health programs,

which help developing nations devote more of their scarce resources to building a

better future for their citizens.

Our voluntary family planning programs serve our broader interests as well.

When women and families can choose the number and timing of their children, population growth rates stabilize. Maternal and infant mortality decline—as does the

demand for abortions. In Russia alone, for example, AID’s support for voluntary

birth control has helped reduce the abortion rate by a reported thirty percent over

five years.

III. PROMOTING DEMOCRACY, HUMAN RIGHTS AND THE RULE OF LAW

Mr. Chairman, America’s global leadership is derived not only from our economic

and military power, but from the power of our ideals. And fundamental to American

ideals is our commitment to democracy, human rights and the rule of law.
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To millions around the world, the United States represents the potential of democracy. Wherever we are visibly present and engaged, we give hope to people who

are struggling to secure their human rights and to build democracy.

By building partnerships with other freedom-loving peoples, we extend the spread

of democracy and open markets that has enhanced our own security and prosperity

and been the signature element of our age. The State Department’s Democracy,

Human Rights and Labor Bureau and USAID’s Democracy and Governance Center

work together to consolidate democracy where it has taken root and to support nations seeking paths to democratic rule.

USAID’s democracy and governance funds have helped nearly double women’s

participation in Bangladesh elections and encourage greater accountability within

the Palestinian Authority. For many years, USAID programs quietly provided the

sole source of outside support for NGOs and human rights groups in Indonesia—

groups that today have emerged to help shape their country’s future. I know you

have heard separately from Brian Atwood about USAID’s request, but let me take

this opportunity to indicate my strong support for it, and for the work USAID is

doing around the world.

We also bolster democracy through our economic support and development assistance programs in selected countries. For example, the economic support funds we

request will help improve judicial systems in Africa and Latin America; work to sustain peace and democracy in Guatemala; and contribute to the work of the War

Crimes Tribunals for Rwanda and the former Yugoslavia.

Whether through the SEED and Partnership for Freedom programs, the President’s Africa Great Lakes Initiative, or USAID’s Office of Transition Initiatives,

when we support human rights and democracy we are supporting our natural partners—and our natural interests.

IV. PROVIDING HUMANITARIAN ASSISTANCE

This year, we have requested $670 million for Migration and Refugee Assistance

and for our emergency funds in this area. That is the amount we need to do our

part in international relief for victims of persecution or armed conflict. The request

also includes funding for new initiatives to assist and protect refugee children.

We have also requested funds for international disaster assistance, including programs to respond to the ever-present risk of biological, chemical or nuclear disasters

abroad.

V. CONCLUSION

As always, Mr. Chairman, I come before you with my mind focused on the present

and future, but conscious, also, of past events that have shaped our lives and that

of our nation.

Fifty years ago, a Communist coup in my native Czechoslovakia altered forever

the course of my life and prompted, as well, an urgent rethinking by the west of

what was needed to defend freedom in Europe.

In that defining year, a Democratic President and a Republican Congress approved the Marshall Plan, laid the groundwork for NATO, helped create the Organization of American States, established the Voice of America, recognized the infant

state of Israel, airlifted life-sustaining aid to a blockaded Berlin and helped an embattled Turkey and Greece remain on freedom’s side of the Iron Curtain.

Secretary of State George Marshall called this record ‘‘a brilliant demonstration

of the ability of the American people to meet the great responsibilities of their new

world position.’’

There are those who say that Americans have changed and that we are now too

inward-looking and complacent to shoulder comparable responsibilities. This year,

we have the opportunity to prove the cynics wrong. And Mr. Chairman and members of the Subcommittee, I believe we will.

From the streets of Belfast and Sarajevo to classrooms in Africa and South America to boardrooms in Asia and courtrooms at The Hague, America’s influence and

leadership is as beneficial and as deeply felt in the world today as it has ever been.

That is not the result of some foreign policy theory. It is a reflection of American

character.

We Americans have an enormous advantage over many other countries because

we know who we are and what we believe. We have a purpose. And like the farmer’s

faith that seeds and sweat and rain will cause crops to grow, it is our faith that

if we are true to our principles, we will succeed.

Let us, then, live up to the heritage of our past, and together fulfill the promise

of our future—and so enter the new century free and respected, prosperous and at

peace.
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Mr. Chairman, Members of the Subcommittee, thank you very much. And now,

I would be pleased to respond to your questions.

REMARKS OF SENATOR TED STEVENS

Senator MCCONNELL. The chairman of the full committee has

stopped by, and I want to give him an opportunity to make a few

observations before we go to our questions. We are going to have

a 5-minute rule on questioning which will give everybody a maximum opportunity to have an exchange with the Secretary.

Mr. Chairman.

Senator STEVENS. Thank you very much, Mr. Chairman.

I am sorry I was a little bit late and could not hear your full

statement, but we had talked about it on the phone before, so I am

sure that you said what you said you were going to say.

But I have to say what I said to you before. We deal with hard

dollars that are in the bank. We cannot deal with prospective

streams of revenue that are based on increased revenue charges,

increased taxes and further acts of Congress that appear dubious

as far as being passed in time to have them spendable by October

1.

As a consequence, it is my sad duty to tell you that there just is no more money. We just have come across an additional $900

million out of approximately out of the highway bill passage, but

it is unfortunately claimed—I do not see the people here who put

down the claim—for Amtrak already. And I do not see, really, how

we can relieve the stress that you, I think, so rightly point out in

time to give this subcommittee any additional moneys by the time

the markup will come about.

It may be possible, by the time we get to conference, that we can

have a further allocation for Senator McConnell and his colleagues

on this subcommittee. I would hope that it will. I join you in hoping

that we can untie the problems of Mexico City from the problems

of some of the very pressing needs that we have, particularly I believe we made a commitment on the U.N. arrears, and I think we

have got other commitments we have to meet. And as far as this

Senator is concerned, the IMF situation is getting more and more

acute daily. But those are other issues to deal with.

But if you want that money, you are going to have to help us find

it. We have not allocated the money to other subcommittees. To the

contrary, they have the same problems.

So, I welcome you here. But these are the days of very tight

purse strings. And I do not see any way to open the purse any further in this climate that we have right now.

Thank you, Mr. Chairman.

Senator MCCONNELL. Thank you, Mr. Chairman, for stopping by,

even though the news is not great. This is an issue upon which all

of us agree.

We used up a good deal of political capital last year, both the

Secretary, with the administration, and myself and Senator Stevens and Senator Leahy up here, to get the increase that we all

thought was necessary. And, unfortunately, we find ourselves in

this situation this year. We are not happy about it.

Madam Secretary, let me lead off with my 5-minute round. You

touched on Kosovo, which is certainly the big news of the moment.
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In the Financial Times today, the headline is: ‘‘Serbs Ignore NATO

Exercise to Continue Kosovo Attacks.’’ And Mr. Solana, the NATO

Secretary-General, warned that his organization was, ‘‘preparing to

go further, if required, to halt the violence and protect the civilian

population.’’

As I mentioned in my opening statement, in the so-called Christmas warning of December 1992, the Bush administration, warned

Milosevic that the United States would use unilateral force if ethnic cleansing was carried out in Kosovo. As a CRS issue brief

points out, President Clinton reiterated that policy when he took

office in early 1993.

However, in congressional hearings and statements of policy,

CRS notes, ‘‘administration officials have declined to confirm or

deny the continued validity of the warning.’’

So, I guess I would like to start, Madam Secretary, by asking,

is the warning still valid?

Secretary ALBRIGHT. Well, let me, Mr. Chairman, if I might just

take a minute because you had mentioned some other issues on

Kosovo that I would like to respond to. We are obviously very concerned about the Kosovo situation. I have also just gotten a report

on President Yeltsin’s meeting with President Milosevic, in which

I would say there was some progress, but did not meet our primary

points that the contact group raised, which was for Milosevic to

pull back his security forces.

He said he would do so only in the context of a halt of the

Kosovar Liberation Army terrorist activities, which is clearly unacceptable to us, because we believe that Milosevic has the primary

responsibility here to halt the repression and stop making excuses

for the repression. There is an offer, again, of dialog, which is

something that we do want, because we believe that this can ultimately only be resolved through a political solution.

But, at the same time, it is insufficient to say that dialog could

go forward if the killing of civilians and depopulating of villages

continues. We will continue to press on this issue.

Let me speak more specifically now to what you have said. The

Kosovo situation is, frankly, more complicated than was Bosnia at

the time of 1991, primarily because of two issues. First of all, Bosnia was an autonomous country, recognized by the international

community, and the ethnic cleansing that was going on there was

clearly unacceptable to the international community. I do not have

to recount all the actions that we have taken to reverse that.

Kosovo has been a part of the Federal Republic of Yugoslavia.

What happened was that this whole mess began when Milosevic

took away the autonomy that it had and created a problem, I

think, in radicalizing the Kosovar population. The best recruiters

for the Kosovar Liberation Army are the Serbs, who are out there

torching various populations.

So, we are doing everything we can, through NATO, to plan for

various options that involve the use of force. And as the President

and I have said, and Secretary Cohen has said, all options are on

the table in terms of the use of military force. That is our position,

that we are prepared to use force. We would prefer, as I am sure

you would, that the situation be resolved through talks, peaceful
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dialog, and the NATO planning is done in support of forceful diplomacy.

One of the problems, I have to say and I think that you would

also see this, is that the Kosovar Liberation Army and some of the

tactics they are using are also not the kind that help the peaceful

dialog go forward. And we support President Rugova and his colleagues in trying to get substantive dialog going.

Senator MCCONNELL. The Bush letter said: ‘‘In the event of conflict in Kosovo caused by Serbian action, the United States will be

prepared to employ military force against the Serbians in Kosovo

and in Serbia proper.’’

Maybe you do not want to answer it, but I want to ask one more

time, is the warning still valid?

Secretary ALBRIGHT. Mr. Chairman, the Christmas warning has

never been made public, specifically. And it is a private diplomatic

conversation. And my answer to you is that all options are on the

table. Nothing has been removed from the table.

Senator MCCONNELL. In response to the Kosovo crisis, you

worked successfully to secure a ban on investments in Serbia. Can

you explain the thinking behind the reversal of that position a

week later in the negotiations involving Ambassadors Holbrooke

and Gelbard? My understanding is the reversal secured talks between Milosevic and Rugova. What results have those talks produced, and at what price, in terms of offering more time for more

Serbian violence?

Secretary ALBRIGHT. Mr. Chairman, we have had a number of

contact group meetings. You correctly say that in the first one we

were able to get a series of sanctions, an investment ban and a

freeze on assets. As a part of those contact group talks, there was

also a desire to develop a way to get dialog between Milosevic and

Rugova. That was part of what the contact group wanted.

There was a proliferation of envoys to Belgrade. We then took

the issue up and Ambassador Gelbard and Ambassador Holbrooke

went there. There was not a reversal. There was a suspension of

the execution of those sanctions. And we thought that there was

value in getting this dialog going. As soon as we saw that the dialog was not going anywhere because of the lack of credibility in

terms of it becoming a process dialog rather than a substantive dialog, we did in fact then impose those sanctions. And last Thursday,

when the contact group met, we also added a sanction of Yugoslav

Airline flights.

So, it was not a reversal; it was a tactical suspension because we

thought it was worth trying to see if we could get the dialog—a

good dialog or a useful dialog going.

Senator MCCONNELL. I am going to stick to my own imposed

time limit here. If the other questions on Kosovo do not answer all

of mine, I will come back to it on the next round.

Senator Leahy.

Senator LEAHY. Thank you, Mr. Chairman.

Madam Secretary, I was glad to hear what you said about the

President’s upcoming trip to China. I am not one of those who feel

he should not go to China. Just as I strongly urged each of the five

Presidents I have served with to go to the then-Soviet Union at the

height of the cold war and hoped that there would be return visits
202

here. I urged that because I felt it was most important that our

leaders meet and discuss our differences.

By the same token, with China as important a country as it is,

I think it is important for the President to go there. That does not

signify that the American people agree with the Chinese on human

rights. There are many issues on which we disagree with them

very strongly. What is most important is what the President says

when he is there.

President Tiang Zemin did not hesitate to express his views

when he was here in the United States. And he heard us speak

right back to him. And we both gained by that. And President Clinton, I think, needs to speak publicly and forcefully about human

rights, Tibet and so forth, as I know he has in private conversations with Tiang Zemin.

So, I think it is important for the United States that our President go there. It does not condone improper activities by the Chinese any more than we condoned the activities of the Soviet Union

when a number of President’s, Democratic and Republican alike,

went there.

Yesterday’s New York Times reported that Iraq and the United

Nations have agreed on a 2-month schedule for completing the program to monitor Iraq’s destruction of its chemical and biological

weapons. Has the administration been consulted about that agreement? And do we agree with it?

Secretary ALBRIGHT. Well, first of all, let me just say, in terms

of what you said about China, I think a motto here is that we engage but do not endorse. And we have said very clearly that we can

never have a completely normal relationship with China unless

their human rights record is one that is quite different from the

one they have now.

On Iraq, let me just say this. We obviously are in very close consultation with the United Nations. The problem according to the

people involved in all of this, is that there has not been a very good

road map—or the Iraqis have said—that they have not had a road

map about what they have to do, when.

I think that what has happened now is that we have taken that

excuse away from the Iraqis, because Chairman Butler has indicated to them what they have to do and by when they need to do

it. He will be checking up on this road map. And then, in August,

he will give some discussion of that. But, then again, in October,

when there are sanctions reviews, he will then make clear to the

Security Council whether they have in fact come clean on the various files, the nuclear, chemical and biological.

So, this does not in any way prejudge the effects, but does, in my

opinion, basically take away an excuse from the Iraqis, as well as

those who support them, who say, well, you never really tell them

what they have to do; you are always adding things. And this really is a road map, a work plan basically, in terms of what they have

to do.

Senator LEAHY. We will watch carefully, all of us, to see how well

we do, as well will you all.

Secretary ALBRIGHT. Well, we will. And we are not going to give

them a passing grade on a work plan that is not carried out properly.
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Senator LEAHY. The negotiations on the International Criminal

Court have begun in Rome. You have been perhaps more outspoken

than anyone in support of the War Crimes Tribunal at The Hague.

I notice in Rome one proposal is that any country whose citizens

are charged with war crimes would have to consent before a trial

takes place. Well, Saddam Hussein or President Milosevic or others

are not going to consent.

And if a Security Council veto could block prosecution, don’t we

run the risk of China, for example, blocking prosecution of the

Khmer-Rouge? And if there were not already the Bosnia War

Crimes Tribunal, then Russia possibly blocking prosecution of Serbian war criminals? Wouldn’t that court become as ineffective, actually, as the United Nations has been at times when strong action

is needed?

Secretary ALBRIGHT. Well, I think that we have, in principle,

backed an international criminal court because we think that there

continue to be serious violations of the core crimes of genocide, war

crimes and crimes against humanity. We support a practical court

that reinforces these institutions charged with maintaining international peace and security. What we desire is for the court to have

a proper relationship with the Security Council. And we are looking

forward to working for a positive outcome of the Rome conference.

I think that what is very important, Senator Leahy—because

there have been questions about this—is that we want to develop

a comprehensive approach to the court that advances the cause of

justice and protects American citizens from unwarranted action

from a court. So, we have the goal of trying to develop a functioning, good court, but also make sure that our citizens are protected

and also that it does fulfill the responsibilities of international institutions.

Senator LEAHY. I hope you follow carefully on that. Because I

read that the Chief Prosecutor of the War Crimes Tribunal recently

dismissed charges against 14 Bosnian Serbs because she does not

have money to prosecute them. I want to see an effective War

Crimes Tribunal. But that means that the nations who support it

have got to fund it, too. And to have 14 people go free simply because the money is not there should be a matter of grave concern

to all of us.

Secretary ALBRIGHT. I agree with that. And I think that what is

interesting is that the record of the War Crimes Tribunal now has

gotten quite good in terms of the number of indictees and those

who really have come to trial. I think that one of the reasons we

want to have a permanent international court is that there is some

fatigue, I think, in terms of funding ad hoc war crimes tribunals,

and this is a more efficient way.

I definitely agree that we need to fund the War Crimes Tribunal

now. I think it is doing a great job. And, ultimately, the only way

that there can be a real reconciliation in Bosnia is if individual

guilt is assigned and collected guilt is removed.

Senator MCCONNELL. Thank you, Senator Leahy.

Senator Gregg.

Senator GREGG. Thank you.

Madam Secretary, it has been reported that missile technology

was sold to China by a United States company that has the capac-
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ity to allow the Chinese to target their missiles on the United

States—not necessarily that they are, but it gives them that type

of technical capacity. It was also reported that that decision was

taken after the State Department—and I presume yourself—had

the good sense to advise the administration not to allow that sale

to go forward.

My question is, is that correct? Did the State Department advise

the administration not to approve that sale?

Secretary ALBRIGHT. Senator, there are really two parts to this

question. First of all, there was the whole issue as to how commercial sales of satellites should be handled. Since these are commercial satellites, after a great deal of discussion, it was determined

that it was appropriate for the Commerce Department to handle

this issue, with the State Department always having the ability to

be a part of the decisionmaking process on this. And we continue

to do that.

We look at each of these sales in a way to make sure that our

national interests are protected. And we look to make sure that the

recommendations are appropriate. This justification for commercial

satellites to be launched by the Chinese is something that goes

back two administrations. It is done basically in order for competitiveness, because we are the ones that are leaders in the satellite

technology; for openness, CNN, et cetera—to be able to beam into

China; for nonproliferation reasons.

And so we consider it something in the national interest. And the

State Department has its review process, and we did not recommend against it.

Senator GREGG. You did not recommend against selling this technology to China?

Secretary ALBRIGHT. No.

Senator GREGG. So, those reports are inaccurate, representing

that you did?

Secretary ALBRIGHT. It is a complicated inner process. And I

think that we believed that this was in the national interest. There

were other departments that made their recommendations.

Senator GREGG. There is a bit of irony, though, isn’t there, when

we go to China and ask them not to sell technology to Iran and to

potentially Pakistan that is missile technology, when we are selling

China missile technology which may give them the capability of

targeting the United States should they decide to use it that way?

Secretary ALBRIGHT. Senator, we are not selling them the kind

of technology that allows them to target the United States. These

are commercial satellites that are used for the purposes that I described. We certainly would not be involved in any kind of sale that

in any way jeopardized our national interest.

We have been concerned about Chinese missiles, as well as nuclear proliferation. They have systematically, I think, come within

international regimes that limit any country’s ability to sell or

transfer weapons. It is a subject of discussion that we have them,

and will continue to be a subject of discussion as we go into the

Beijing summit.

Senator GREGG. So, basically, the reports that represent that this

technology gave them guidance systems which could give them the

capacity to target America if they decided to do so—with adjust-
205

ments, obviously, to these systems—target the United States with

their missiles, you believe that is inaccurate?

Secretary ALBRIGHT. My understanding, Senator, is that that is

inaccurate and this is not that kind of technology.

Senator GREGG. I am interested also in this India/Pakistan situation. Why is it that the European nations have been so reticent to

participate in pursuing whether, under our statutes, required sanctions relative to India? Why have our European allies been so reticent to pursue sanctions and been unwilling, especially France, to

do anything in the area of limiting or putting pressure on the Indians in the area of nuclear proliferation?

Secretary ALBRIGHT. Senator, I think we have all kind of had

this discussion before. I think that other countries view sanctions,

the use of sanctions or the imposition of sanctions, in quite a different way than we do. We have seen sanctions—depending upon

how they are used and what the flexibility associated with the

piece of legislation is—as a useful tool of foreign policy. There are

times—and I hope that we can all have a broader discussion of

this—when sanctions are more sledgehammers than scapels that

allow some surgical activity to take place and actually limit the

American ability to carry out our policy.

The Glenn amendment is probably the strongest sanctions resolution that has existed. We had hoped that it would deter India

and Pakistan. It clearly did not, even though they are going to, I

believe, suffer economically. And they certainly have become less

secure as a result of these bomb blasts, or tests.

I discussed this issue when we had a Permanent Five meeting

in Geneva. And I said, you know that the Americans have a very

strong sanctions resolution. We would like you all to join us. But

certainly what we do not want is, while we are being firm, for you

all to go in and pick up the contracts. I think that we have to work

more closely with our allies. And I must say that our meeting of

the Permanent Five was very good. We were also able to get condemnation of India and Pakistan by NATO, by the NATO Joint

Council, with the Russians, by the Euro-Atlantic Partnership

Council, by the OAS General Assembly.

And so, within a matter of 4 or 5 days, we had 80 countries that

had made quite clear their condemnation of what India and Pakistan had done. And there are numbers of countries that have

joined us in the sanctions, just not the ones that you mentioned.

Senator MCCONNELL. Thank you, Senator Gregg.

Senator Murray.

Senator MURRAY. Thank you, Mr. Chairman.

And I welcome Secretary Albright. It is good to have you before

this committee. I appreciate your testimony and your work for all

of us around the world.

Secretary Albright, you know, as you were just discussing, the

administration has moved to implement the mandatory sanctions

against India and Pakistan for their nuclear weapons tests. The

law does exempt food and humanitarian aid from the sanctions.

However, the Justice Department recently concluded that agricultural credits for the purpose of purchasing food were not exempt

from those sanctions.
206

Last week, in the Appropriations Committee, on an amendment

to the agricultural appropriations bill, I offered an amendment that

would exempt those agricultural credits from the sanctions. And it

was accepted with a lot of bipartisan support in the Senate. I

would like to know what your view is of that issue, and if you will

support the Murray amendment to exempt agricultural credits for

food purchases from those sanctions.

Secretary ALBRIGHT. Yes; thank you very much, Senator. And the

administration very much thanks you for your leadership in addressing this question. We would support your amendment. We

think that it is useful, because it does in fact allow for an exception

for credit, credit guarantees and other financial assistance provided

by the Department of Agriculture for the purchase or the provision

of food or other agricultural commodities. And so we support your

efforts on this and do in fact believe that it is important to go forward with humanitarian assistance.

I think this is a point that needs to be made, generally, about

the fact that we are not trying to punish the people of India or

Pakistan, and we do not wish to create major instability. Therefore,

this, I think, is very useful. Thank you for offering it.

Senator MURRAY. Thank you. And I will look forward to working

with you. It is important to my State and my region, and we appreciate your support.

Secretary ALBRIGHT. And we look forward to working with you,

Senator.

Senator MURRAY. I also want to ask you about the IMF fund.

You mentioned it in your comments, as well. But that too, the

Asian currency crisis, is dramatically affecting the Pacific Northwest, our farmers as well as our exporters. And I note that the

United States, in the last week, has once again seen that it is a

serious and long-term problem. Our own stock market has dropped

by 6 percent recently as a result of the fears that are generated by

Asia’s situation.

Could you expand on your comments, and tell us what the administration is doing to encourage Congress to fund the IMF request? And in your opinion, what are the risks to the United States

if Congress refuses to act?

Secretary ALBRIGHT. Well, I think that we have all been kind of

talking about the Asian financial crisis for some time. I think

Americans are becoming more and more aware of it. I think that

with each passing day it becomes evident that this is not something that is just happening in Asia that has no effect upon us.

The Japan stock market declined slightly today, and we continue

to be concerned about the fluctuation. And we are concerned, deeply concerned, about the prolonged weakness of the Japanese economy.

We feel that there are any number of ways that we can be helpful as far as the Asia financial crisis is concerned. But the IMF is

the major tool here because it allows for or directs that there be

transparency, open markets, business practices and procedures

that provide a certain level of confidence. They are the international way of letting the leaders of countries know the direction

that they can take to dig themselves out of a hole.
207

Our problem is that with our lack of funding for it, we are in effect weakening that particular tool. And as I explained in my testimony, it is basically an international credit union, so that it does

not cost the American taxpayer. On the other hand, it provides the

kind of security that allows the leaders to take steps in terms of

reforming their economies.

We will continue to press to try to get full IMF funding, and also

to get the arrears. Because, again, that is a problem that we have

talked about, vis-a-vis the U.N. It is very hard for us to keep exercising the leadership role and at the same time put ourselves in a

position where other countries criticize us for not fulfilling our obligations.

So, we consider this very important, and we must separate it

from the family planning issues. Because while I think that there

are really good folks on both sides of that issue—and I know that

we all have different views on it—it is an important issue that

should be discussed separately and not attached to a national security issue. Funding the IMF at this point is a national security

issue.

Senator MURRAY. Thank you. I look forward to working with you

on that, as well.

Secretary ALBRIGHT. Thank you.

Senator MURRAY. And, finally, Secretary Albright, I recently sent

you a letter with a set of questions on Guatemala and the release

of documents pertaining to human rights violations. Our staffs

have been speaking about this letter. I just simply wanted to ask

that you ensure a timely response to that, with as much information as possible.

Secretary ALBRIGHT. Absolutely, yes. And we are. I have had a

beginning discussion with some of the Guatemalan officials that I

have just seen recently at the OAS General Assembly. So, we will

follow up on that.

Senator MURRAY. Thank you very much. I look forward to that.

Senator MCCONNELL. Thank you, Senator Murray.

Senator Bennett.

Senator BENNETT. Thank you very much, Mr. Chairman.

Madam Secretary, when you were confirmed last year, I sent you

some written questions. And in your responses, you revealed that

Chinese military companies were selling germ warfare equipment

to Iran. And last year, in this place, you confirmed, in response to

my questions, Chinese sales of poison gas equipment to Iran.

And by coincidence, this morning, Bill Gertz, in the Washington

Times, says that the Chinese are assisting the Iranians and the

Libyans in purchasing missile equipment.

Are we ever going to get a handle on Chinese arms smuggling?

Secretary ALBRIGHT. There does seem to be an odd coincidence.

Senator BENNETT. Every time you come, I seem to have these

questions. But it continues.

Secretary ALBRIGHT. Let me go through this, if I might, in a little

bit of detail because there is no question that we have been concerned about issues that deal with nonproliferation and China. And

as a major producer of nuclear-, chemical-, and missile-related

equipment, China does have a responsibility to meet internation-
208

ally accepted nonproliferation standards. This is a subject that

comes up all the time with the Chinese as we meet with them.

I think that it is worth detailing for you the extent to which

China has become increasingly a part of the international norms

that are so essential to all of us. On nonproliferation, there has

been a sea change, particularly in the nuclear area. They have

joined the NPT, the CTBT, the Biological Weapons Convention, the

Chemical Weapons Convention, and they have committed to no nuclear cooperation with Iran, joined a major international nuclear

suppliers group—the Zanger Committee, and instituted comprehensive nuclear export controls.

They have, and they do, also cooperate with us in our efforts to

maintain stability on the Korean Peninsula. When I was in China

the last time and also when I met with the Chinese Foreign Minister again 4 or 5 days ago, in Geneva—we talked on a regular

basis about their necessity to fulfill their obligations and to make

sure that they expand their control over dual-use chemicals and refrain from any arms transfers. This is very much a part of our ongoing dialog.

They have improved. I think the record will show it. They still

need to improve. And we will continue to press that. The President

is going to raise all these issues when he is in Beijing.

Also, we have expert-level talks. Acting Under Secretary Hollum

has met with senior visiting Chinese officials. And Assistant Secretary Einhorn continues to have expert-level talks.

On the subject of today’s article, I think that it is very important

that it be clear that we strongly oppose any missile cooperation

with Iran. We have repeatedly made that clear to China at senior

levels, our concerns about reports of Chinese exports of missile-related equipment and technology to Tehran. We have said that and

we will continue to do so, as I have stated.

I think that this is an important problem, and we continue to

deal with it. Engaging China on nonproliferation has been a top

priority of this administration for several years. And it will continue to be so.

I think that I need to also make very clear to you that we still

have important concerns about China’s missile-related exports. It

is, as I have said, very much on our agenda.

Senator BENNETT. You are talking about having a strategic partnership with China. Maybe words do not mean too much, although

I think very often the choice of words is perhaps the No. 1 challenge of a diplomat. The word ‘‘partnership’’ is the word that comes

out of this that I would like to pursue.

And in light of what we have just been discussing, how can we

have a strategic partnership—not a relationship, not a dialog, but

a partnership with a country that is involved in this kind of activity and proliferation of weapons of mass destruction—germ warfare, poison gas, and now missile technology to Iran? How do you

explain this strategic partnership with China to our Asian allies?

And what is their reaction to the idea that the United States is

going to be partners with someone who is exporting this kind of

technology around the world?
209

Secretary ALBRIGHT. Senator, let me again put this into some

context. I think Senator Leahy spoke about the President’s trip.

And I had some comments in my opening testimony.

Senator BENNETT. I am not saying the President should not go.

Secretary ALBRIGHT. No; but let me comment. I think that we

have many challenges as we look at the world of the 21st century.

And I do not want to make this answer too broad, but the questions and points that Chairman McConnell raised are part of a

very complex world that we are looking at as we move into the 21st

century.

I think there is no argument about the fact that China is the

largest country in the world in terms of its population and also in

terms of its economic possibilities. I think you could rightfully haul

us all up here and get us on incompetence if we were not having

some kind of a relationship with China that engaged them and that

did not isolate them.

Senator BENNETT. I agree with that. I am focusing on the idea

of creating a partnership with a Communist country that is involved in exportation of weapons of mass destruction. We did not

have a partnership with the Soviet Union. We had engagement.

The President, whoever he was, went to Moscow regularly. I am

not talking about that.

I am talking about this concept of a strategic partnership. Do we

view the future as a joint China-American relationship in Asia?

Secretary ALBRIGHT. Well, let me say that we are looking toward

the future of having a relationship with China, and who knows

what they are going to look like in the 21st century. Plus, maybe

I had this wrong, but I think one can be partners with more than

one country, and it does not exclude other countries from having

a partnership or relationship with us.

I can tell you now that, while we clearly disagree with the form

of government in China and, as I just explained, we also are taking

very active steps to have them improve and change their proliferation relationship, they have in fact been quite helpful in a number

of issues of strategic importance. That is, in terms of stabilization

on the Korean Peninsula and their support for what we are doing

there.

And I might add that the Chinese were in the chair of Permanent Five members of the Security Council who met last week in

Geneva, the chairmanship of that rotates. The Chinese did the formal part of the meeting and then turned it over to me. And we

were able to get a statement out of the Permanent Five that was

condemnatory of India and Pakistan that I think we could not have

occurred had we not worked on having a strategic relationship or

one where we are increasingly engaging China.

I think, sir, that perhaps you are reading too much into the word

‘‘partnership.’’ But it is an effort, I think ultimately, because we are

hoping that China will in fact play an increasingly responsible role

in Asia, and we want to engage it across the board. And I think

there is evidence that there is some good coming out of it. Though,

clearly, there are problems, whether they be in human rights or in

the proliferation area or in other ways that they run their country.

Senator MCCONNELL. Madam Secretary, shifting back to the

Middle East for a moment. There has been some controversy sur-
210

rounding the views of the administration related to the status of

Jerusalem. The Vice President recently made a speech on the occasion of the 50th anniversary of the State of Israel, and he made

that speech in Jerusalem.

In your view, when he made that speech, was he in Israel?

Secretary ALBRIGHT. Jerusalem is a final status issue. I think

that both Israel and the Palestinians have agreed that Jerusalem

is one of the issues to be addressed in permanent status negotiations. And, clearly, no issue in the Middle East peace process is

more volatile than Jerusalem. I think it is not appropriate for us

to offer our views. This is going to be a permanent status issue.

I think that what is important here is that we get to permanent

status, so that we can actually deal with that and the other very

complex issues.

Senator MCCONNELL. Staying in that part of the world, as I mentioned this in my opening remarks I am curious as to whether

there have been additional financial commitments made with reference to the peace process?

Secretary ALBRIGHT. No, sir; there have not been. There have

been feelers as to whether there could be. But there have not been

any additional commitments. Obviously, if there were, we would be

discussing them with you.

Senator MCCONNELL. Moving to Cambodia, we all have watched

with disappointment over the past 11 months as the situation in

Cambodia has deteriorated, reaching what by any standard would

have to be agreed were unacceptable levels of corruption. The Hun

Sen government has relied on tactics of murder, extortion and military intimidation to maintain power. The world community publicly

condemns the practices, but remains largely disengaged. And no effort seems to be underway to ensure that the July 1998 elections

are legitimate.

Now, Assistant Secretary Roth was up before the Foreign Relations Committee recently. He said that a framework ‘‘exists in

which free and fair elections could conceivably be held.’’ Do you

share that optimism?

Secretary ALBRIGHT. Well, Mr. Chairman, this has been very

much on my mind. We have worked very closely with the ASEAN

troika on this, as well as created a Friends of ASEAN group. I

think that we have done what we can to try to give the Cambodian

people a chance at these elections. There are going to be observers.

The opposition leaders are back. There is access to the media. And

there has been a drop-off in the violence.

I go back to how we all talked about the first Cambodian elections, when people thought that nothing would happen in them and

that the people would not really have an opportunity to voice their

views. I went to Cambodia shortly after those elections. People had

flocked to the polls in record numbers and stated their views.

And so I think that I agree with Assistant Secretary Roth, or he

agrees with me——

Senator MCCONNELL. How surprising. [Laughter.]

Secretary ALBRIGHT [continuing]. I think there is a chance here,

and we ought to make sure that we are able to get the NGO’s and

various observers in their and give the Cambodian people a chance.
211

In the meantime, we will also continue to press, with ASEAN

again and through our Friends of Cambodia group.

Senator MCCONNELL. Well, you are familiar with the concern expressed most recently just this morning in the Washington Post,

which I will quote. It says: ‘‘Unfortunately, the Clinton administration is giving hints of leading toward a third even less attractive

option—accepting the election results without much of a fuss.’’

I gather what I hear you saying is that you think they are on

track to having a relatively free and fair election?

Secretary ALBRIGHT. What I am saying is I guess there is not—

I do not always agree with every editorial. But I think that we

have at least provided a framework for them to have a chance to

do that—not a guarantee, but a chance. And we will continue to

do that.

And if the election is not free and fair, we will so declare. But

we have set up a process whereby there should be enough observers in there in order for us to be able to make the judgment.

Senator MCCONNELL. So, you are still optimistic that this may

pass the international smell test when it occurs in July?

Secretary ALBRIGHT. Mildly optimistic, yes.

Senator MCCONNELL. Mildly optimistic.

In terms of Cambodia, let me just ask this, finally, before going

to Senator Leahy for a second round; does the administration have

a plan in place to deal with the more than 75,000 Cambodian refugees along the Thai border?

Secretary ALBRIGHT. Well, we generally have been looking very

carefully at this vast increase of refugees all over the world. One

of the things that we are asking is for increased funding in the refugee accounts. I will have to get back to you with a specific plan

for those on the Thai border. But it is something that we have discussed a great deal. I have also had discussion with the Thai authorities. And also it is a subject that I am sure will come up again

as we meet with the ASEAN group later this summer.

Senator MCCONNELL. Senator Leahy, do you want to have a second round?

Senator LEAHY. Thank you. Briefly, and then I will put my other

questions in the record.

One thing I would like to ask about, Madam Secretary, our law

prohibits aid to any unit of a security force of a foreign government

if that unit has been implicated in gross violations of human rights

unless the foreign government is taking effective measures to bring

the individuals responsible to justice—the so-called Leahy Law. I

believe it is common sense. And I appreciate that you and others

in the State Department have seen this law as an opportunity to

support human rights. And you and others from the Department

have been very strong in their support in your testimony on the

Hill.

The Pentagon has said that it also adheres to this standard, but

I have received reports that make me wonder if that is so. Can I

assume that it is the administration’s policy, regardless of which

budget the funds come from they will follow the Leahy Law?

Secretary ALBRIGHT. Well, first of all, let me just tell you what

we do to let people know about the Leahy Law. In March, we sent

out a cable to all diplomatic posts, informing them of the new re-
212

quirements, and instructing them to formulate action plans to implement the legislation. And before disbursing any funds to foreign

security forces units, our Embassies vet the proposed recipients to

ensure no human rights abusers are among them. We are working

with DOD to make sure that the law is properly implemented.

We also have human rights officers at each of our diplomatic

posts, and they routinely gather information on human rights violations. And we are working very assiduously to make sure that

the law is implemented, as I said, working with DOD also.

Senator LEAHY. Thank you.

I have been watching the growing civil unrest in Mexico, as I

know you have. There are some 70,000 soldiers in Chiapas, about

one-third of the Mexican armed forces. And there has been clashes

between rebel groups and soldiers in several other states. And

while we would all like to think of Mexico as being different than

a lot of the countries in Central America, it has many of the same

problems. And I worry about what happens in Mexico.

Despite President Zedillo’s statements to the contrary, every indication is that the government is trying to solve these problems

with force. A lot of people are being killed in Chiapas. The negotiations on a peace agreement have broken down. The Bishop who

headed the negotiations quit in disgust last week.

Is this situation just going to become worse and worse?

Secretary ALBRIGHT. Senator, President Zedillo did move very

quickly to have his Attorney General investigate some of the December massacres and to really try to get the situation dealt with

in a negotiated way. I have now met with the Mexican Foreign

Minister a number of times on a number of issues recently, in a

number of places—whether in Santiago or Caracas or in Washington last week. I can assure you that the Government of Mexico

knows of our concern, in terms of what is happening in Chiapas—

massacres—and trying to make sure that there is a very thorough

investigation.

We are following the investigation very closely, and have told the

Government of Mexico that we will be doing so. We are also working generally with the Mexican Government to try to make sure

that there is timely notification of detention and counsel access to

United States citizens that are in Chiapas.

So, I think, on the whole, Senator, we are pressing them to resolve the Chiapas situation and, at the same time, pressing them

to deal with what we consider issues that need to be investigated

thoroughly.

Senator LEAHY. The reason I ask is we license a lot of sales of

military equipment to Mexico—lethal equipment, helicopters, and

so forth. And I worry, as many others in my own State of Vermont

worry, that a lot of that equipment is being used in Chiapas in a

way that would go beyond anything we have licensed or would condone. And I would hope that we are following that very, very closely, so it is not being done.

I have further questions, but I will submit those for the record,

Mr. Chairman.

Secretary ALBRIGHT. Senator, if I might just say, that was a

question asked of me at St. Michael’s College.

Senator LEAHY. I just thought I would throw it in again.
213

Secretary ALBRIGHT. I came back and specifically asked whether

there was any evidence of American equipment being used, and

was told that there was not. I said I was asked this by a very

smart young woman in Vermont, and I needed an answer.

Senator LEAHY. Well, I expect that she is probably going to stop

me on the street while I am up there and ask me again. So, I just

want to make sure.

Senator MCCONNELL. Thank you, Senator Leahy.

Senator Bennett.

Senator BENNETT. Thank you, Mr. Chairman.

We will undoubtedly be pursuing the question of United StatesChina relations for a long time as this subcommittee goes forward.

I simply note that Secretary Christopher did not want to use the

word ‘‘partnership’’ in his relationship with the Chinese. It is Secretary Albright who agreed to the phrase during her April meeting.

That is why I raised it here. Because I think words do have

meanings, and I want to pursue that, not for the point of splitting

semantic hairs but to go back to a strategic statement that I got

out of my last visit to China, when the U.N. Ambassador told us

that China’s long-term goal was to get the United States out of

Asia and become the only significant power in that part of the

world, and that our other allies’ long-term goal was to make sure

we did not get out of Asia, because they did not like the idea of

having China as the only superpower in Asia.

And it is against that background that I raised the questions in

the first round. We will undoubtedly have some more.

Let me go to another quick issue that I would like to give the

Secretary an opportunity to respond to. The CIA now admits that

it was surprised by the Indian nuclear tests last month. I would

be interested in knowing if the State Department was also caught

unawares by the Indian actions?

Secretary ALBRIGHT. Senator, let me, if I might, just go back to

the previous question. I think that there is a dynamic relationship

between us and the Chinese, and we are moving in a positive direction with them, which would allow us to have the kind of relationship that I discussed. But things have moved and changed quite

dramatically on a number of issues, especially on some of the nonproliferation issues which we discussed.

Also, I think that we cannot and should not operate on the

premise that China is trying to keep us out of Asia. It is impossible

to keep the United States out of Asia. We are a Pacific power. We

have interests there. It is very evident in the meeting with President Kim Dae Jung, for instance, just now that we are viewed as

a major Pacific and Asian power. There is no way that anybody can

keep us out.

I think what we need to clarify is that our policy is not one of

containing China, but of engaging China, and that we need to work

systematically to have regular summits with them, to engage in a

dialog that goes beyond just United States-Chinese relations, but

talks about what they see in the Asian subcontinent, et cetera.

So, we will probably have a lot of opportunity to discuss that.

Senator BENNETT. Yes; and I do not mind engaging. I voted for

MFN, and have done the other things that have brought some political heat on me with respect to China. But it is true, in my view,
214

that the PRC has signed a number of arms control agreements.

And the problem is they do not seem to live up to them. And the

administration has had a lot of meetings with the Chinese on arms

sales, and the problem is that nothing seems to come of these meetings long term.

So, that is why I continue to pick away at the sore.

Secretary ALBRIGHT. Well, I would respectfully disagree about

the fact that nothing comes of them in the long term. I think there

is progress to be made, and progress has been made. I think if you

believe that the word ‘‘partnership’’ means that we are not friends

or partners with anybody else, then it is the wrong word. But if you

see it as a possibility of engaging with them on a series of issues

where we can press them or cooperate with them, then I think

maybe we could agree.

But let me just say, on the Indian issue, we have known, obviously, all of us, for some time that the Indians and the Pakistanis

were capable of having these kinds of tests. And we have raised the

subject of proliferation with them every time that we have met

with them. I did so when I was in India. We do so when we meet

with the Indians and Pakistanis.

What happened here was that a party in which the testing of nuclear weapons was part of their party platform got elected. Their

people were here, and simply denied the fact that they were going

to happen at that particular moment. But we knew that the possibility existed. Yes, we were all surprised by the fact that the tests

took place when they did. And I think that the CIA has said that

this was a problem, and they have had an investigation looking

into it.

The Glenn amendment was supposed to hold all this back. But

we clearly all knew about the fact that it was a long-term possibility. We were surprised by the moment.

Senator BENNETT. Thank you, Mr. Chairman.

Senator MCCONNELL. Madam Secretary, I want to close with the

Caucasus. When you were here last year, you indicated your belief

that the Russians were as anxious as we were—as we are—to see

a settlement of the Azeri-Armenian dispute. I was there last August, which does not in any way make me an expert, but I have

had a chance to meet with the players. In Armenia, since last August, the principal player has changed, with the resignation of

President Ter-Pertrossian and the new election of Mr. Kocharian.

I am deeply skeptical that the Minsk Group, as a process for resolving this dispute, can work. And as I look out at the places

around the world where we have clear interests, it seems to me,

Madam Secretary, one could argue that we have a good deal more

interest in the Caucasus, particularly given the involvement of

many of our energy companies in the Caspian Sea development,

than we do in the Balkans. Yet, we are intensely involved in the

Balkans, and while I am not arguing necessarily that we should

not be, it seems to me, in looking at priorities, by any standard,

we have huge interests in the Caucasus.

Do you have any optimism—or anything that could illustrate a

reason for optimism I guess would be a better way to put it—that

a settlement of the Armenia-Azeri dispute is someplace in the near
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future? And if you are optimistic about the Minsk Group as a

framework for achieving a peace, tell me why.

Secretary ALBRIGHT. Mr. Chairman, I looked at the subject even

before I got to the United Nations. But the issue, when I was Ambassador at the United Nations, was very much on our agenda. I

went to both Armenia and Azerbaijan to talk about this. At that

stage, I talked a great deal about my own sense that the Minsk

Group was not really moving. In fact, I discussed it also within

OSCE circles, and tried to really press it.

I think that you made a statement as part of your opening remarks about trying to do this without Russia. I think I heard that

right. I think it is very hard to see about some kind of settlement

in Nagorno-Karabakh without having Russian involvement in the

discussions of it.

Senator MCCONNELL. I did not mean to say that they would not

be involved at all. After all, it is on their doorstep. But do you see

any evidence that you can cite that the Russians are interested in

a settlement of this dispute.

Secretary ALBRIGHT. Frankly, I believe that in the long run they

would like to have the various disputes on their borders settled, because they create a series of problems for them.

Senator MCCONNELL. My question is about the short run. Can

you cite any evidence that they would like to see this settled?

Secretary ALBRIGHT. Well, the last evidence that I had was that

we discussed this in the tripartite talks—with the French and the

Russians.

I must agree with you that I would like to see more steam put

behind this, and that, to some extent, it is in one of those categories that you just let it bubble along, I think, without enough

action to it.

Senator MCCONNELL. Are you willing to make it a higher priority? I know Strobe Talbott is, at least ostensibly, the point person

on this for you. How frequently is he dealing with this? Does he

go to the meetings, or is it instead passed down to somebody below

him?

Secretary ALBRIGHT. He goes to a number of them. But there is

somebody who does this on a full-time basis, because it requires

constant following.

I am taking what you are saying very seriously, and I will make

a point of making sure that we rev it up a bit. It is one of those

situations that is—having dealt with this myself previously—there

is no quick and easy solution to it. And if the parties do not want

to talk to each other about it, and if changes in government make

it difficult for the various problems, in terms of the corridors and

the blockages to be resolved, it is very hard to push.

I agree with you on the general point that the Caucasus are an

area of major importance to us. We spend quite a lot of time, in

terms of dealing with general issues in the Caucasus and in Central Asia—and even more, I think, with the whole issue, obviously,

of their strategic importance and the issue of Caspian oil, and, generally, the whole area.

When I testified before the Foreign Relations Committee, I

brought my globe, and I showed that we basically look at the world

always through the prism of the Western Hemisphere. Then I
216

turned it around and I showed how much of Eurasia there was.

And there are the Caucasus, central to all that. So, it is one of the

areas that we are trying to spend more time on, in terms of its

overall importance to us.

Senator MCCONNELL. Well, I know you have a lot of trouble

spots. I appreciate what you said about giving this more personal

priority, in terms of your own time, because I frankly think,

Madam Secretary, that unless this is escalated on the priority list

in your shop, the chances are it is just going to drift along with this

Minsk Group, where nothing ever happens. In the meantime, I believe you visited the refugee camps as I have, there is a desperate

situation.

Wholly aside from the oil interests, which are apparent, the humanitarian side of this is very bleak. And if CNN had spent any

time in the refugee camps in either Armenia or Azerbaijan, I think

we would have a lot more interest in this issue in this country. And

I hope you will in fact take a greater interest in it.

Secretary ALBRIGHT. Mr. Chairman, just now and also in your

opening statement, you really had a long list of the various issues

that we have to deal with. And as I have said to all my political

friends, every county has been heard from. I mean, there is not a

problem anywhere that somehow is not out there for us.

And I think we need to have more discussions about generally

how we proceed into the 21st century. With the kind of statement

that Chairman Stevens made, you know, I would like to see the

money. I think we all would like to see the money. We also would

like to have the ability to deal with the Nagorno-Karabakhs and

the various other issues that have come up here today.

I think we need to understand what our role is; that the United

States cannot lead without the resources. We talked about sanctions——

Senator MCCONNELL. Can I interrupt you on that point, though?

Secretary ALBRIGHT. Yes.

Senator MCCONNELL. I think the money would follow the success. I mean, what happened after Camp David is that the Congress made a very generous commitment, which it is still keeping

20 years later. I think if there is a success that requires some

American commitment, you will find people in Congress on both

sides trying to figure out a way to do our part.

Secretary ALBRIGHT. Well, I hope that we have that opportunity.

And I also hope that we have an ability to work on something that

is tying our hands. That is the whole issue of sanctions policy that

we have talked about, that came up here today. I would welcome

very much a much broader discussion of the various issues that we

have to deal with, because they are bubbling everywhere, and we

need to work together on it.

I would like to correct something, though, Mr. Chairman, that I

said on the refugees. We have not requested an overall increase,

but we have changed some of the allocations. And we will get back

to you on that.

Senator MCCONNELL. Thank you very much, Madam Secretary.

We wish you well.

Senator BENNETT. Mr. Chairman, may have one last shot at a totally unrelated issue?
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Senator MCCONNELL. All right, Senator Bennett.

Senator BENNETT. Wearing my hat as chair of the Senate Special

Committee on Y2K, may I ask, Madam Secretary, that you continue to press on the initiative that I understand you have from

John Koskinen, to see that every U.S. Ambassador raises the year

2,000 [Y2K] issue with every country vigorously? Because I think

the evidence is now coming through that while we will have problems in this country, we are now close enough to the possibility

that we will get most of our Y2K problems under control in this

country, the evidence indicates that it will be a disaster in many

parts of the world, with serious economic consequences. And I

would hope you would continue to press forward on that issue.

I would be derelict, as you know, Mr. Chairman, if I did not take

every opportunity to raise this.

Secretary ALBRIGHT. I have to say, Senator, that you remind me

of me on this. Because in every meeting that I have with a foreign

minister, after we have finished with everything, I say—we have

had a meeting of the Cabinet, and the President has made very

clear that we are all responsible for our sectors in terms of letting

them know that they have to do something about the Y2K problem.

And so the Transportation Department has to deal with local police

stations, et cetera.

I consider that my sector is the world, and, therefore, every time

I meet with a foreign minister, I say, you have to do something

about this. Some of them think I am a techie because I even raise

it, but I am telling them that we are not going to be able to talk

to each other. So, I promise you that that is very high on my agenda.

Senator BENNETT. Thank you.

Senator LEAHY. I am not planning on traveling on the day we

change over. I also want to emphasize that I agree with what Senator McConnell said on the refugee issue. This is something that

I think you will find strong, total agreement on.

Thank you.

Secretary ALBRIGHT. Thank you very much.

Senator MCCONNELL. Thank you, Madam Secretary.

CONCLUSION OF HEARINGS

Senator MCCONNELL. The concludes our hearings, the subcommittee will stand in recess subject to the call of the Chair.

[Whereupon, at 12:22 p.m., Tuesday, June 16, the hearings were

concluded, and the subcommittee was recessed, to reconvene subject to the call of the Chair.]
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FOREIGN OPERATIONS, EXPORT FINANCING,

AND RELATED PROGRAMS APPROPRIATIONS FOR FISCAL YEAR 1999

U.S. SENATE,

SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS,

Washington, DC.

NONDEPARTMENTAL WITNESSES

[CLERK’S NOTE.—The subcommittee was unable to hold hearings

on nondepartmental witnesses, the statements and letters of those

submitting written testimony are as follows:]

ENVIRONMENT

PREPARED STATEMENT OF SCOTT SKLAR, EXECUTIVE DIRECTOR, SOLAR UNITY

NETWORK

INTRODUCTION

The U.S. Export Council for Renewable Energy (US/ECRE), the trade consortium

of the six renewable energy and energy efficiency industry associations, urges the

Subcommittee on Foreign Operations to stick with its strong guidance to the Agency

for International Development (AID) to integrate renewable energy applications in

our bilateral programs. Renewable energy can significantly enhance the child survival, environmental, agricultural, healthcare, development and infrastructure programs in a meaningful way.

Our recommendations for fiscal year 1999 are for $20 million for AID’s Office of

Energy, Environment and Technology within the Center for Environment as well as

level funding for the Center’s other programs. These recommendations mirror the

previous guidance of this Subcommittee, as well as the growth in opportunities of

the U.S. renewable energy industries in an era of reprioritization of AID’s programs,

and the implementation of sustainable private sector projects in the developing

world.

The Subcommittee should realize that developing country activities to promote renewable energy have increased significantly where 2 billion people still have no access to electricity. India represents the largest short-term market and Mexico is

electrifying nearly 60,000 villages beyond the existing electric utility grid. The renewable energy options, in this case, micro-hydropower, photovoltaics and wind, are

the least-cost options to provide electricity to a population that would otherwise be

unserved for generations. Similar efforts have been initiated in Indonesia (48,000

villages), Sri Lanka (20,000 villages), South Africa (35,000 villages) and Brazil

(22,000 villages). The real issue is whether the United States or our competitors will

garner the dominant marketshare of these new and emerging markets.

These immense impending market and development opportunities, which will surpass $4 billion in aggregate by the year 2000, require an unusual focus and resolve

of the United States’ development and export agencies to work hand-in-hand with

the U.S. renewable energy industries. Therefore, recommendations will effectively

promote environmentally benign U.S. technologies, principally biomass, energy efficiency, geothermal energy, hydropower, photovoltaics, solar thermal, and wind energy.

In photovoltaics for instance, the developing world markets with the help of AID’s

Center for Environment, specifically the Office of Energy, Environment and Technology have contributed to the increase of U.S. solar manufacturing capacity. The

following manufacturing facility openings represent this increase from last year’s

testimony:

—January 1998, British Petroleum Solar, this country’s fourth largest photovoltaic manufacturer, ribbon-cut a new state-of-the-art automated manufacturing facility in California.

—December 1997, ASE Americas ribbon-cut its new photovoltaics manufacturing

plant in Massachusetts.
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—March 1998, Tucson Electric announced its intention to ribbon-cut its U.S. photovoltaic manufacturing plant for exports geared to Latin America.

—April 1998, Solarex Corporation, a business unit of Amoco/Enron Solar will hold

its ribbon-cutting for a new state-of-the-art, 10 megawatt per year amorphous

silicon photovoltaics plant in James City County, Virginia.

The failure of the United States to position itself as a market leader on the range

of emerging energy technologies hinders not only our competitive position, but also

encourages dependency by the poorest countries of the world to export their precious

resources and foreign exchange in order to import energy. This encouragement of

fossil fuel dependence insures that these developing countries will be unable to grow

out of debt, leaving them with fewer resources to acquire a broad range of U.S. produced goods and services.

The U.S. renewable energy industries are asking the Subcommittee to adopt and

maintain clear, consistent, and determined mandates for the Agency for International Development. The goal would be to implement a strategic development

plan in cooperation with the U.S. renewable energy industries and the AID Mission

Directors to promote these technologies in a cost-effective and systemic way to promote sustainable development.

FISCAL YEAR 1999 APPROPRIATIONS AND DIRECTIVES

The U.S. Export Council for Renewable Energy asserts that an essential ingredient for increased Third World democratization must be a substantial increase in the

utilization of renewable energy. If sustainable development by the Third World is

to be ultimately achieved, it must rely on the use of renewable indigenous resources

to build worldwide economic growth. And finally, the only way to significantly

achieve the kind of world market penetration needed to accomplish these goals is

to develop policies and create new financing tools to aggregate markets which will

significantly lower the costs of renewable energy to make these technologies accessible to the world’s peoples.

The renewable energy and energy efficiency industries want to bring to your attention one of the most successful private sector-driven programs within the Agency

for International Development through its Office of Energy, Environment and Technology.

Over the last five years, this subcommittee with bipartisan support, has consistently supported funding for AID’s Energy Office at a consistent level of $20 million

for innovative replicable renewable energy and efficiency projects.

AID’s Office of Energy, Environment and Technology has worked collaboratively

with industry to leverage global renewable energy markets in order to provide electricity and thermal energy not only to the 2 billion people without access to energy,

but to the other billion people who have access to electricity for less than ten hours

per day. Over 70 percent of U.S. photovoltaic technology is exported to Third World

countries and several new U.S. automated manufacturing plants are to be built in

the U.S. to meet global demand, which is increasing at a rate of 30 percent per year.

Nearly 1,300 megawatts of wind capacity has been installed worldwide as have been

over 85 megawatts of geothermal in 1995. Over 3,000 megawatts of geothermal are

now under contract in Indonesia and the Philippines by U.S. companies. A multibillion dollar market exists worldwide for U.S. energy efficiency technologies and

services with over $500 million in sales ranging from Mexico, Russia, India, Thailand, and Indonesia.

The AID industry-driven program has created new multilateral financing programs and U.S. industry cost-shared prefeasibility programs with over $2.5 billion

in short term sales opportunities in Mexico, Chile, Central America, India, Indonesia, Philippines, South Africa, Zimbabwe, Brazil, and Russia.

We have been very concerned that AID not only enhance AID’s Office of Energy,

Environment and Technology and related programs working through existing NGO’s

and industry consortia as earlier directed to do.

Our industries urge you to nurture these demonstrated successful industry-driven

programs at the high level and spirit first achieved in the Bush Administration.

There is no reason that international development programs must build U.S. jobs

and strengthen U.S. industry’s global market advantage, but to establish working

groups to further AID’s goals.

Renewable energy and energy efficiency technologies support viable development

worldwide. Our industries lead the world technologically and thanks to our strong

partnership with USAID, have begun to penetrate multi-billion dollar overseas markets.

Can the United States foster sustainable development and increase U.S. business

opportunities simultaneously? Yes, but only if AID’s programs are reinforced toward
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a collaborative effort with the private sector. The directives this Subcommittee has

given in the last few years has surely helped (AID would have done nothing otherwise). But unless funding priorities are explicit in the fiscal year 1999 appropriations which do not count in-kind AID Missions contributions which cannot be guaranteed or relied upon towards renewable energy and energy efficiency, we will be

unable to achieve an even modest advance.

The Subcommittee should be reminded that promises by AID to use mission buyins to meet appropriations report directives are not substantial.

In addition, the US/ECRE consortium wishes to have the additional $5 million

historically directed toward AID Mission buy-ins transferred under the federal interagency board, (the Committee on Renewable Energy Commerce and Trade

(CORECT)), of which AID is a member and which AID should become the administering agency to drive village power programs.

CONCLUSION

The United States must come to terms with how best to utilize its development

programs. The current AID programs must be enhanced through new credit and

technology transfer options. However, the Congress must begin to set development

priorities now, to integrate renewables in the Subcommittee’s priorities including

child survival, democratization and health to name a few. By sending a new set of

signals, the United States can leverage an impressive set of global activities.

The world is moving towards renewable energy and the United States holds the

lead in almost all these technologies. The United States also holds a lead in services

including the development of Energy Service Companies (ESCO’s) and packaging

and system design, maintenance, and deployment services.

While over 50 percent of renewable energy equipment and services are exported,

the U.S. cannot sustain our markets globally without a pragmatic U.S. development

program committed to renewable energy. The global renewable energy market

should grow nearly 30 percent per year and the U.S. could garner over half of that

expanding market with a minimal investment. Our industries ask you to join with

us to take advantage of this unprecedented opportunity.

Thank you.

PREPARED STATEMENT OF ALEXANDER F. WATSON, VICE PRESIDENT AND EXECUTIVE

DIRECTOR, LATIN AMERICAN AND CARIBBEAN DIVISION, THE NATURE CONSERVANCY

The Nature Conservancy appreciates this opportunity to submit testimony for the

record concerning our views on foreign assistance appropriations for fiscal year

1999.

SUMMARY

The Nature Conservancy’s mission is the protection of the plants and animals

that make up the natural world, primarily through protection of their habitat. We

work mainly through private means. The generosity of our members during the last

fifty years has enabled us to purchase, using private funds and exclusively from voluntary sellers, the 1.2 million acres that we now preserve in the United States,

making up the world’s largest system of private nature preserves. The Conservancy

also works in 24 countries in Latin America, the Caribbean, and the Asia/Pacific region; abroad, we help local organizations improve the effective level of protection to

biodiversity, mainly in existing parks and protected areas, by strengthening local institutional capacities, building infrastructure, and involving local people in community-based conservation. Since the beginning of our international program in 1981,

we have helped protect more than 74 million acres of biologically significant land

in the Western Hemisphere alone, as well as critically important marine and forest

conservation sites in Pacific island countries. Economic implications for forest and

soil conservation, watershed and fisheries protection, for instance, are enormous.

Parks in Peril (PiP), the flagship of our Latin American and Caribbean efforts,

turns ‘‘paper parks’’ into genuinely protected areas. The Agency for International

Development (AID) has been vital to our international efforts by its support to global biodiversity protection and, especially, through its funding of Parks in Peril. Our

partnership with AID is managed under an innovative multi-year cooperative agreement that minimizes administrative burdens and expenses while maximizing return

on taxpayers’ dollars. AID’s growing commitment to helping international conservation, using assistance instruments, leverages resources from non-AID sources. For

example, the $27.5 million PiP has received from AID since 1990 has been formally

matched by more than $10 million from The Nature Conservancy, local in-country
221

partners, and governments. However, that total greatly understates the real multiplier. Local partners and governments have thus far attracted approximately $180

million of non-AID funding; this includes debt-for-nature swaps, carbon sequestration projects with major U.S. utility and oil companies and partners in developing

countries, grants from the Global Environment Facility (GEF) and foreign governments including Japan, the Netherlands, and the European Union.

This Committee in previous years has explicitly recognized the importance of defending biodiversity through public-private partnerships. The Nature Conservancy

appreciates that support very much and urges that the Subcommittee once again

strongly support continued funding for Parks in Peril, as well as the rest of AID’s

biodiversity programs in the fiscal year 1999 appropriations process. We also endorse appropriations for two other activities with great potential impact on international conservation. First, we support full funding at the Administration’s $300

million request level for the Global Environment Facility (GEF), which includes biodiversity among its concerns. There is just no substitute for the GEF in dealing with

the global environmental problems. Second, we support the Tropical Forest Conservation Act, originally cosponsored in the House by Congressmen Portman, Kasich, and Hamilton, which was approved on the House floor March 19 and is pending before the Senate as S. 1758. If it becomes law, appropriations will be needed.

We hope that Members then will look to all possible sources to support this worthy

measure—outside Function 150, but also within it, and hence that this Committee’s

report will create space for this measure. We have appended to my written statement language regarding PiP, the GEF, and the Tropical Forest Conservation Act,

which we hope the Committee will find useful in preparing its report accompanying

the appropriation legislation it is considering.

IMPORTANCE OF INTERNATIONAL BIODIVERSITY

People in developing countries rely on living natural resources for a multitude of

economic and social benefits, and the rest of the world, including the United States,

also benefits from them. Biodiversity is critical for the pharmaceutical industry, agriculture and a wide variety of other industrial processes. According to the World

Resources Institute, 4.5 percent of the U.S. Gross Domestic Product is due to economic benefits from wild species. Genetic diversity used in plant breeding accounted

for about one-half of all the gains in agricultural yields in the U.S. between 1930

and 1980. Major U.S. crops now depend on infusions of new genes from other countries. One-quarter to one-third of all the prescriptions drugs in the U.S. contain

compounds derived from wild species. 120 prescription drugs currently come from

about 95 species of plants; of these, 39 grow in tropical forests. Botanists believe

that more than 35,000 plant species (mostly drawn from tropical forests) provide

traditional medicines to local peoples and, hence, are good candidates for future

pharmaceutical research. Recently, the Abbott Laboratories company announced the

development of a new drug that reportedly uses an entirely new mechanism to block

pain with few of the side effects of existing drugs; the active compound was originally found in the skin of a frog living in the tropical forests of Ecuador. Only about

2 percent of plants have been examined for medicinal properties. There is no way

to know what new cures we may be losing with each species that goes extinct or

what the health care costs can be of remedies never developed.

Moreover, the destruction of natural ecosystems in the developing world is now

widely viewed as a major threat to social and economic stability. The true economic

value of biological, and other ‘‘renewable’’ resources such as water, may at times be

difficult to measure. After all, aren’t biological resources and water, by definition,

renewable? They can be, but not if species become extinct. Not if watersheds are

destroyed. Not if coral reefs are killed. Not if topsoil is blown or washed away. Not

if interlocking communities of living organisms are disrupted.

The developing world’s economic development (and, ultimately, the health of much

of our environment here) is unquestionably tied to the protection of its natural resources. Coastal wetlands, mangrove forests and off-shore reefs, for example, are essential for healthy fish populations—and fish is currently the leading source of animal protein in the human diet worldwide. Forests serve as ‘‘carbon sinks’’ to help

control carbon dioxide buildup in the atmosphere. Forests also promote the retention

of water and keep soil from blowing away and eroding into critical waterways—waterways that provide drinking water, hydropower, irrigation and transportation to

millions of people. Biodiversity enables the recycling of essential elements, such as

carbon, oxygen and nitrogen. Parks and protected areas are critical to conserving

biodiversity, and they have the added benefit of attracting tourists which generate

income and employment. Nature tourism alone already generates $12 billion annually.
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By contrast, the degradation of natural and biological resources leads to poverty,

hunger, disease and civil unrest. Massive shifts in population density may occur

when affected peoples migrate from areas that once were productive but now cannot

support them. The linkages between natural resource depletion in developing countries, and the national security of the United States, are real.

USAID’S COMMITMENT TO BIODIVERSITY PROTECTION/THE EXAMPLE OF PARKS IN PERIL

The Foreign Assistance Act states that the protection of tropical forests and biological diversity is a goal of U.S. foreign policy. AID is active in implementing this

goal, and its biodiversity conservation activities reach more than 60 countries. These

programs focus on developing sustainable economic uses of biological resources;

building local capacity for the management of biologically diverse areas, including

parks, protected areas and buffer zones; supporting innovative programs for nongovernmental organizations in conservation and resource use; encouraging participation of stakeholders, including women, indigenous peoples, and local communities

at every stage of decision making; and facilitating the setting of conservation priorities at the local, national and regional level.

The Nature Conservancy strongly believes that the U.S. Government should continue to devote significant resources to the protection of biodiversity. Administrator

Brian Atwood has indicated that AID will look to partnerships with NGO’s in order

to achieve AID’s goals in the most cost-effective manner possible. Parks in Peril

(PiP) has been a model of long-term cooperation.

Over the course of recent decades, many nations of Latin America and the Caribbean took important initial steps to conserve their living resources by establishing

protected area systems to safeguard critical watersheds, coastal and marine ecosystems, wildlife, scenic attractions, and other areas of significance. Unfortunately,

these nations often had not succeeded in managing these areas so as to truly protect

them—they remained ‘‘paper parks.’’

To address this serious problem, in fiscal year 1990 AID began supporting The

Nature Conservancy’s Parks in Peril (PiP) program, a public-private partnership

that seeks to protect the most threatened national parks and reserves in this hemisphere. Parks in Peril was designed to secure minimum critical management for a

series of sites, transforming them into functional protected areas. Parks in Peril is

administered by The Nature Conservancy and its Latin American and Caribbean

partners, under a series of multi-year cooperative agreements with AID. The program builds collaborative partnerships among national, international, public and

private organizations. It has become the largest in-situ biodiversity conservation

project in the tropical world and has drawn wide support from other governmental

and non-governmental constituencies in the region and around the globe.

Parks in Peril works to achieve four objective goals: (1) To build on-site protection

and management infrastructure; (2) to integrate the protected areas with the

human societies inhabiting their surrounding regions; (3) to create long-term funding and policy mechanisms to sustain the local management of the Parks in Peril

sites; and (4) to use PiP’s activities to influence conservation in other sites in the

region’s most imperiled ecosystems.

AID and the Conservancy have designed a scorecard to measure how well particular sites meet these goals. As they do so, they are ‘‘consolidated’’—having achieved

the program’s original goals, they are phased out from receiving direct assistance

from the centralized AID program. This transition to long-term sustainability has

been from the outset a goal of the program.

Here is a ‘‘scorecard’’ for the program as a whole: to date, AID LAC Bureau funds

have supported conservation efforts at 29 PiP sites, comprising over 22 million acres

in 12 countries. (Parenthetically, I would note that the Conservancy also works at

more than 30 additional PiP sites, totaling another 50-plus million acres.) Of those

29 sites, 14 have been ‘‘consolidated.’’ We are working with AID to extend the PiP

model to 8 new sites. Four of the new sites are in countries (Brazil, Honduras and

Jamaica) where PiP has not operated before. PiP has provided exceptional leverage

for the American taxpayer: the $27.5 million PiP has received from AID since its

inception in fiscal year 1990 has been formally matched by more than $10 million

from The Nature Conservancy, local in-country partners, and governments, but that

total greatly understates the real multiplier. Local PiP partners and governments

have thus far attracted approximately $180 million of non-AID funding. This includes debt-for-nature swaps, carbon sequestration projects with major U.S. utility

companies and partners in developing countries, grants from the Global Environment Facility (GEF) and foreign governments including Japan, the Netherlands,

and the European Union.
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PiP has worked to protect cloud forests, coral reefs, tropical forests, and savannas.

PiP funding has supported efforts to demarcate critical boundaries; recruit, train

and equip rangers and community extensionists; build protection infrastructure and

provide transportation and communication technology; promote compatible naturalresource use in local communities; carry out baseline studies and biodiversity monitoring; and establish sources of long-term financing for reserve operations. At all

PiP sites, local peoples’ involvement is stressed, including measures to involve them

in management decisions, creation of local opportunities for compatible resource

uses and tangible economic benefits from the park. Parks will not ultimately survive

unless local people value them and take pride in the their preservation. Parks in

Peril is, thus, fundamentally different from one-time grant programs for park protection, and its methodology has become a model toward which the rest of the world

is looking.

In concluding the portion of my statement concerning AID’s efforts in support of

protection of biodiversity, I would note with approval the important cooperative activities of its non-PiP programs. The Biodiversity Support Program (BSP) operates

globally to promote biodiversity protection by integrating conservation with on-theground development, research, and information exchange. The Biodiversity Conservation Network (BCN) promotes and measures the effectiveness of enterprise-oriented conservation at sites in Asia and the Pacific islands. Both these initiatives

have been assistance instruments with The Nature Conservancy, World Wildlife

Fund, and World Resources Institute, and have done excellent work.

Before closing, I will briefly touch upon two other topics with great potential for

boosting international biodiversity conservation: the Global Environment Facility

(GEF) and the Tropical Forest Conservation Act.

The Global Environment Facility (GEF)

The Nature Conservancy supports the proposed appropriation of $300 million to

the GEF—enough, if approved, to fund the current U.S. pledge level of $107 million

and pay off $193 million of arrears. The GEF, supported by 120 members, is an essential financial mechanism. There is just no substitute for the GEF in dealing with

the major global environmental issues. Grants from many other countries leverage

the U.S. share. The GEF had teething problems early on, but has now largely

worked through them. It has committed $1.3 billion for over 200 large projects in

more than 80 countries, plus 300 smaller projects funded through its successful

Small Grants Program. The GEF is potentially a strategic mechanism to assist

countries to develop innovative and effective means to deal with environmental

threats, especially as the GEF involves a broader array of stakeholders, such as

through its new Medium Sized (up to $750,000) Grants Program. We urge the Subcommittee to fund GEF at the full request level.

The Tropical Forest Conservation Act of 1998

H.R. 2870, the Tropical Forest Conservation Act of 1998, passed the House on

March 19 with overwhelming support and is pending before the Senate as S. 1758.

It has more than twenty Senate cosponsors, broadly bipartisan. It is based firmly

on the precedents and administrative structure of the ‘‘debt-for-environment’’ provisions of the Bush Administration’s Enterprise for the Americas Initiative (EAI).

Under EAI, Western Hemisphere governments could restructure some of their official debt to the United States. They can pay, in local currency to national funds,

the money that would otherwise have gone to pay the debts. The funds use the

stream of income for environmental protection and child survival. There have been

seven EAI trust funds created so far and their funds will receive a total of at least

$154 million from local currency payments. The Funds proposed under the Tropical

Forest Conservation Act would operate under rules similar to EAI’s as they promote

debt reduction, swaps and buybacks, but would focus on tropical forest conservation

and extend eligibility to include countries in Africa and Asia. The Nature Conservancy welcomes and supports this initiative; so do the World Wildlife Fund, Sierra

Club, Environmental Defense Fund, and Conservation International.

The new Act has great potential to boost forest protection. The current status of

the world’s tropical forests is alarming. Within 25 years, half of all the remaining

tropical rain forests are projected to be gone; with them will disappear about 10 percent of all the species currently alive on the Earth. This has implications for the

countries where the forests are located, and also for the people of the United States.

More needs to be done to protect and preserve the tropical forests, by private and

official U.S. action and, especially, by the governments where the forests are located.

The Tropical Forest Conservation Act will, if passed and appropriated, represent

an investment by the American people in the survival of forests that have great economic, environmental and moral value. This is the sort of sensible, results-oriented
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effort with staying-power that The Nature Conservancy likes. We thank the Congressmen and Senators who have brought it forward and urge that space be found

for an appropriation. The bill would authorize $50 million in fiscal year 1999 to pay

Treasury’s costs under the rules for ‘‘scoring’’ such debt reductions and swaps. The

Administration’s position toward this legislation, as affirmed by Congressmen Gilman and Hamilton during the House floor debate, is that it supports its passage

but has expressed concern about where to find financing. We urge that the Members

and Leadership of the Congress look imaginatively within Function 150, but also at

other areas of the Federal budget, for possible sources of appropriations.

Thank you for this opportunity to submit to the Subcommittee The Nature Conservancy’s views on these important international conservation issues.

APPENDIX TO TESTIMONY BY THE NATURE CONSERVANCY SUGGESTED LANGUAGE FOR

FISCAL YEAR 1999 FOREIGN OPERATIONS REPORT

Parks in Peril

The Committee notes its strong support for the existing AID Parks in Peril program, a partnership with the private sector to promote biodiversity conservation in

imperiled ecosystems throughout Latin America and the Caribbean. AID/Parks in

Peril has worked at 29 sites in twelve different countries. It has made significant

progress at turning ‘‘paper parks’’ into genuine protected areas, to the extent that

14 sites have been ‘‘consolidated’’ from the program; central AID funding are being

phased out to those sites, and the program is shifting its successful methodology to

8 new locations. Since its inception, Parks in Peril has received $27.5 million from

central AID funds, formally matched by more than $10 million from The Nature

Conservancy, foreign partners, and foreign governments, and has indirectly leveraged more than $180 million from non-AID sources.

Global Environment Facility

The Committee believes that the GEF should play a critical role in addressing

global environmental problems. As bilateral sources of assistance decline, it will be

increasingly important for the U.S. to leverage its contributions through multilateral institutions such as the GEF, an institution that supports a broad range of

globally-significant environmental programs. The Committee further notes that, in

many developing countries, NGO’s have superior capacity and expertise to implement biodiversity conservation projects, and therefore the U.S. should continue to

press for improved access for NGO’s to GEF funding, such as through active implementation and funding of its new Medium-Sized Grants window with simplified application and accounting procedures.

Tropical Forest Conservation Act of 1998

The Committee endorses this measure, which has the potential to protect threatened tropical forests of global significance.

PREPARED STATEMENT OF THE WORLD WILDLIFE FUND

On behalf of World Wildlife Fund’s 1.2 million members, we welcome this opportunity to submit written testimony on the prospective fiscal year 1999 Foreign Operations Appropriations bill. Known worldwide by its panda logo, WWF is the largest

international conservation organization working in over 100 countries to protect the

rich biological diversity necessary to save life on Earth.

WWF supports the administration’s proposed fiscal year 1999 budget increases for

bilateral and multilateral assistance programs in the Department of State, U.S.

Agency for International Development, and Department of Treasury. These modest

increases will help ensure the effectiveness of key international environmental programs essential to protect U.S. national interests.

This statement highlights programs that are important to WWF’s goals of conserving global biodiversity by recovering endangered species, effectively addressing

global threats—overfishing, toxic chemicals, climate change and unsustainable logging—and ecoregion-based conservation.

BILATERAL ASSISTANCE

U.S. Agency for International Development

WWF strongly supports the President’s proposed $1.769 billion for USAID’s development assistance funds, of which $290 million—an increase of $46 million over fiscal year 1998—is proposed for global environmental programs. USAID’s integrated

approach to biodiversity conservation and sustainable use recognizes the inter-
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dependency of humans, wildlife, and their environment. USAID provides technical

and financial support for conservation projects around the world that emphasize

community-based conservation of natural resources.

WWF applauds the administration’s proposal to devote $730 million in development assistance to the Development Fund for Africa (DFA). This fund assures U.S.

commitment to help the countries in Africa achieve broad-based, sustainable economic growth. Given the acute environmental problems in many African nations,

biodiversity conservation has long been an integral part of the DFA’s goals. For example, the Rwenzori Mountains Conservation Development Project, co-funded by

WWF and the DFA, straddles the Uganda-Zaire border and encompasses some of

the highest peaks and richest biodiversity in Africa. The project, through collaboration with Rwenzori Mountains National Park staff, is developing a park management plan. Cooperation with local communities emphasizing sustainable forest use

and agricultural activities, such as tree planting and bee keeping, help reduce

human pressure on the park.

WWF also supports USAID’s integration of biodiversity conservation in development assistance programs in other regions of the world. For example:

—In Bolivia, WWF and its conservation partners have played a key role in the

creation of two new protected areas, the Otuquis National Park and the San

Matia Integrated Management Area, in the Bolivian Pantanal. The Pantanal

represents one of the world’s largest wetland complexes and supports abundant

populations of wildlife, including several endangered or threatened species—jaguar, giant anteater and anaconda. The Pantanal is under assault from an increasing demand for its resources. Forests are being cleared for agriculture and

timber, rivers are threatened by toxic chemical pollution, gold mining is crippling the river ecosystems. With USAID funds, management plans are being developed and implemented for these two protected areas.

—In Nepal, USAID funds a project to conserve biodiversity in the Shey

Phoksundo National Park. Shey, covering over 3,500 sq. km., was set aside to

protect one of the last habitats for the endangered snow leopard, blue sheep,

wild yak and other wildlife. Communities living adjacent to the protected areas

depend heavily on forests and rangelands for energy, fodder and timber. The

USAID-funded program strengthens the conservation and resource management

capacities of local people and promotes sustainable enterprises to raise rural incomes.

USAID’S Climate Change Action Plan

Climate change issues have been an important and long-standing part of the

USAID’s environmental agenda. For several years, USAID has actively funded conservation projects that have reduced greenhouse gas emissions.

WWF is encouraged by USAID’s proposed Climate Change Action Plan, which reflects a renewed effort to facilitate technology transfer and collaborate with developing and Central and Eastern European countries to achieve the goals of the U.N.

Framework Convention on Climate Change. The use of credit mechanisms, such as

development credit authority to leverage funds for climate friendly investments, are

vital to breakdown barriers to energy efficiency and renewable energy. WWF believes that win-win strategies are available that simultaneously promote sustainable

development and combat climate change by reducing emissions. Furthermore, these

strategies can be carried out through projects which advance development priorities

of both the developing countries and the United States.

Tropical Forest Conservation Act

WWF enthusiastically supports the Tropical Forest Conservation Act (S. 1758), introduced by Senator Lugar on March 13. Similar legislation passed the House of

Representatives on March 19. The legislation will protect the world’s dwindling

tropical forests by providing urgently needed resources for forest conservation. When

the bill is enacted, we urge the Subcommittee to appropriate the authorized level

of $325 million over three years, beginning with $50 million for fiscal year 1999.

Intact forests are essential to global biodiversity conservation. However, there is

a severe crisis in many parts of the world resulting from forest destruction. An estimated 40 million acres, more than one percent of total forest land, disappear every

year. The woeful lack of resources in many countries to stem this destruction is

equally alarming. The severe forest fires burning in Brazil and Indonesia dramatically underline the seriousness of the problem.

The Tropical Forest Conservation Act authorizes ‘‘debt-for-nature swaps,’’ whereby

outstanding bilateral government debt owed to the United States is reduced. In exchange, the eligible developing country places local currencies in a tropical forest

fund to finance preservation, restoration, and maintenance of its tropical forests.
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The appropriation compensates the U.S. Treasury for any revenues lost due to the

restructuring of outstanding debt. For several years, the U.S. government has been

involved in debt-for-nature swaps, the most well-known being the Enterprise for the

Americas Initiative established under the Bush administration.

In addition to the bill’s important contribution to financing forest conservation,

H.R. 2870 offers other benefits:

—U.S. contributions by means of debt restructuring can serve as a model for European and Asian nations to do the same with debt owed them by some of the

world’s poorest countries.

—Establishing environmental funds in developing countries helps strengthen democracy and nongovernmental organizations. Environmental funds promote accountability and consensus-building and often bring together governments and

non-governmental organizations for the first time.

—Delivering U.S. international assistance via trust funds for the purpose of tropical forest conservation is an issue Americans care about.

—Offering an opportunity for the U.S. to encourage other bilateral creditors, the

IMF, and the World Bank to actively pursue opportunities to apply the debtfor-nature mechanism to many poorer countries that will participate in the

World Bank’s Highly Indebted Poor Country (HIPC) Initiative.

MULTILATERAL ASSISTANCE

Department of State

WWF supports the administration’s fiscal year 1999 request for $6 million for the

International Conservation Programs of the Department of State’s International Organizations and Programs account. This amount will finance crucial conservation

programs such as the Convention on International Trade in Endangered Species of

Wild Fauna and Flora (CITES), Ramsar Convention on Wetlands of International

Importance, and the World Conservation Union (IUCN).

We urge the Subcommittee to direct the Secretary of State to meet the U.S. commitment of $1.123 million to the core budget of the CITES Secretariat. It is especially important to provide full funding for CITES in light of decisions made at the

1997 Conference of Parties adding significant new responsibilities to the Secretariat

for monitoring threatened and endangered species such as the African elephant.

WWF supports an increase of $250,000 over the fiscal year 1998 level of $750,000

for the U.S. contribution to the Ramsar Convention on Wetlands of International

Importance. This increase would fund the new ‘‘Wetlands for the Future’’ program

in Africa. Successfully piloted in Latin America over the past four years, the ‘‘Wetlands for the Future’’ concept provides funding directly to local groups for wetlands

conservation. We believe the program should be expanded to Africa in order to provide habitat for a wide range of animals as well as natural resources for people.

In addition, we support an increase over the fiscal year 1998 level of funding for

the World Conservation Union (IUCN). IUCN has been instrumental in implementing the important international agreements such as CITES, the Biological Diversity

Convention, and the Ramsar Convention. IUCN, a union of 70 governments, 100

government agencies, 700 non-governmental organizations (NGO’s) and over 8,500

volunteer experts operating in more than 180 countries, has been recognized by the

U.S. government as a unique forum that strengthens cooperation among international programs, national and local governments and the private sector, and in

translating global policy into practical action.

International Development Association (IDA)

WWF supports the administration’s fiscal year 1999 request for $800 million for

full payment to the twelfth International Development Association (IDA) replenishment.

IDA, the concessional window of the World Bank, is the single most important

source of development finance for the world’s poorest countries. Through investment

in specific projects and economy-wide or sector-specific reform programs, IDA can

address the root causes of political and economic instability such as extreme poverty, environmental degradation, and weak institutions of government and civil society.

IDA also is cost-effective—every U.S. dollar contribution leverages several additional dollars from other donors. Finally, IDA is responsive to U.S. leadership, which

has been responsible for recent reforms to make the institution more transparent

and accountable.

While IDA and the World Bank have been criticized for failing to pay adequate

attention to poverty reduction and to the environment in its policies and loan-funded operations, WWF believes that U.S.-led progress toward reform is sufficient to
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justify continued support. Moreover, prospects for continued reform are strong—the

World Bank’s Board of Executive Directors last year approved a ‘‘Strategic Compact’’

with bank management to invest resources in improving the bank’s efficiency and

effectiveness as well as to focus its efforts in such critical areas as social analysis,

rural development, and capacity-building in Africa.

From WWF’s perspective, there is unexploited potential for IDA and the World

Bank Group to play a more proactive role in promoting environmental sustainability

in the context of individual borrower countries and the global community as a

whole. Indications that the bank is moving in this direction are the recent global

alliance between the World Bank and WWF for forest conservation and sustainable

use. WWF believes that meeting the administration’s request for IDA funding this

year would provide a signal of support for such initiatives and for the important

new direction the institution has taken.

The Global Environmental Facility

WWF endorses the administration’s fiscal year 1999 request for $300 million for the Global Environmental Facility (GEF) to pay the accumulated arrears ($192.5

million) as well as the current U.S. contribution ($107.5 million). While this amount

is a substantial increase over the fiscal year 1998 appropriated level, WWF believes

the GEF is the only international financial institution dedicated solely to assisting

qualified countries in addressing critical environmental threats—biodiversity loss,

degradation of international waters, climate change, and the thinning of the ozone

layer. U.S. national interests require that these environmental threats be addressed

on a global scale.

We urge the Subcommittee to examine the GEF’s strengths, its untapped potential and its receptivity to reform. Specifically, we urge the Subcommittee to consider

the following examples of success:

—‘‘A learning institution’’.—The GEF, only in its third year of full scale operation,

considers itself a ‘‘learning institution,’’ committed to incorporating into the future, lessons from the past. A recently released independent performance study

commissioned by the GEF Council recommended a number of ways the GEF

could be strengthened. The council has adopted them.

—A catalyst for reform.—The GEF has been a catalyst for environmental reform

in the policies and operations of its implementing agencies—the World Bank,

United Nations Development Program (UNDP), and United Nations Environment Program (UNEP). The GEF’s operating principle of ‘‘mainstreaming’’ (i.e.,

integrating global environmental concerns into the non-GEF operations) has led

to closer scrutiny of the World Bank’s commitment to integrating environmental

concerns into its core projects.

—A good record, the small grants program.—The GEF’s small grants program, by

which GEF funding effectively reaches the field level, has been widely viewed

as a success story. Some 300 smaller local projects have been established under

this program.

—Leveraging power.—Every dollar from GEF leverages an additional $4 from the

private sector, recipient countries and bilateral donors, thus ensuring funding

for full-scale projects.

—Direct American benefit.—Last year, U.S. companies were the largest beneficiary of GEF procurement, receiving $48 million (16 percent of total procurement and 30 percent of contracts to industrialized countries).

—Problem solving.—The GEF deserves credit for successfully addressing problems

such as slow disbursement of funds hampered by insufficient strategies and

project criteria and cumbersome procedures for NGO access to the fund. These

issues have been largely resolved, including the establishing of new procedures

to streamline NGO access.

The staff at WWF can personally attest to productive NGO and GEF cooperation

in furthering biodiversity conservation. For example:

—Galapagos project.—Through its mid-size grant program, the GEF is funding a

project jointly managed by its Ecuadorian associate Fundacion Natura and

WWF to help conserve the world famous archipelago, the Galapagos Islands.

While the Galapagos have so far survived major human incursions, the islands

face significant threats, including overfishing due to heavy external demand for

certain marine products, increasing impacts from tourism, and increasing immigration from mainland Ecuador for jobs in tourism and fishing industries.

The Galapagos project will establish information systems to monitor the environmental impact of policy decisions and the conservation status of the Galapagos. The systems will, for example, monitor the impact the fishing industry is

having on the ecosystem, monitor the status of introduced species to the islands,
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and the impacts of tourism. Compiling this information is important in order

to better evaluate the threats to the islands, and serve as an important basis

for policy decisions.

—Caribbean of Central America and Mexico.—With GEF funding, the regionallybased Central American Commission for Environment and Development is mobilizing conservation efforts on an ecoregional scale in the Meso-American Caribbean Reef. The Meso-American Caribbean Reef is the fourth longest barrier

reef in the Western Hemisphere and contains the most diverse coral reefs in

the western Atlantic. It is located along the coast of four countries—Belize,

Mexico, Guatemala, and Honduras. In 1997, these countries signed the Tulum

Declaration to establish political guidelines and principles for the reef’s preservation. There are significant pressures on the reef system—overfishing, water

quality degradation due to municipal waste, ocean-going vessels, and banana

plantations, and development for tourism. The Central American Commission

will establish and improve management of protected areas and strengthen regional development to support conservation of this important natural system.

—Bhutan Trust Fund for Environmental Conservation.—The BTF currently has

assets of approximately $30 million, including grants from WWF and the Global

Environment Facility. Founded in 1991, the trust fund has financed a number

of major activities, revised a national protected areas system, developed a management plan for the Royal Manas National Park which hosts an astounding

variety of rare and endangered species, and developed a biodiversity information system. The World Bank supervised the implementation of BTF’s benchmark activities, accomplished well ahead of schedule. The bank, when it ended

its supervisory role last year, noted in its final report, ‘‘a fund such as the BTF

probably has better prospects for serving the long-term conservation objectives

of the (Royal Government) than any other financial device.’’

Ultimately, GEF must be judged by its track record on improving the environment. There are hopeful signs that GEF projects are making a real difference on

the ground. WWF urges the Subcommittee to appropriate the administration’s requested level, to give the GEF the opportunity to achieve more and reach its full

potential. The U.S.’s continued underfunding of the facility at this early stage in its

development undermines the GEF’s full effectiveness and undercuts U.S. influence

in shaping the facility’s direction.

Finally, the success of U.S. domestic environmental policy ultimately depends on

effective global collaboration. The GEF provides the forum for such collaboration.

CONCLUSION

For more than three decades, the United States has been a key participant and

catalyst in global efforts to protect endangered and threatened wildlife, to promote

international cooperation on environment and science, and to support communitybased efforts in conservation and biodiversity. WWF urges the Subcommittee to support the administration’s efforts to restore much of past years’ budget loss, thereby

helping to regain U.S. prominence in global environmental programs.

World Wildlife Fund looks forward to working with the Subcommittee on the Foreign Operations bill. Thank you again for the opportunity to present our views.

INFECTIOUS DISEASES

PREPARED STATEMENT OF THE PAN AMERICAN HEALTH ORGANIZATION

The Pan American Health Organization (PAHO) would like to thank the members

of the Subcommittee on Foreign Operations for the opportunity of presenting this

statement.

The Pan American Health Organization is the oldest continuing health agency in

the world. It was founded in Washington, D.C. in 1902. It has 35 Member States

from the Americas, three Participating Governments, and one Associate Member

Government. The United States was one of its original founders. PAHO cooperates

with its Member States, individually and collectively, in designing and implementing measures to improve the health of their populations.

ANTIBIOTIC RESISTANCE

In the Region of the Americas, as in the rest of the world, antimicrobial resistance

poses a major and growing threat to public health. Drug-resistant strains of microbes are having a deadly impact on the fight against tuberculosis, malaria, cholera, diarrhea and pneumonia, major diseases that together kill more than 10 million
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people worldwide each year. Disastrously, this is happening at a time when too few

new drugs are being developed to replace those that have lost their effectiveness.

Many of our most powerful antibiotics have been rendered impotent. The two

most common bacteria that are the major cause of death in children through acute

respiratory infections, particularly pneumonia, are becoming more and more resistant to drugs. Antibiotic resistance in hospitals throughout the Region threatens to

leave medical and public health workers virtually helpless in the prevention or

treatment of many infections. Antibiotic resistant bacteria are responsible for up to

60 percent of hospital acquired infections in the United States, for example. Resistance means that people with infections are ill for longer periods, and are at greater

risk of dying. Disease epidemic are prolonged, as well. Moreover, with the enormous

increase in the frequency and speed of international travel, individuals infected by

resistant pathogens during travel abroad may introduce those pathogens into other

countries where resistance can spread. Tourism alone mobilizes over 110 million

people per year in the Region of the Americas.

Major factors that contribute to antibiotic resistance are the uncontrolled and inappropriate use of antibiotics. There is a need to prevent the improper prescription

of these drugs by the medical community, and their non-prescription use by the population at large. In addition, implementation of legal and policy guidelines that

mandate the rational use of antibiotics must be promoted.

An additional constraint in this area is the lack of reliable data to determine the

real magnitude of antibiotic resistance in the Region and to provide baseline information for planning interventions. In order to address this situation and the misuse

of antibiotics, PAHO feels that it is necessary to collaborate with the best and most

influential individuals working in the countries on the issue, especially if changes

in policy and health care practices are to be promoted in the near future. Some work

is already in progress with organizations in the United States, including collaboration with the Centers for Disease Control and Prevention (CDC), the Agency for

International Development, the National Institutes of Health, other research institutions, national and regional professional associations, pharmaceutical companies

and others.

PAHO, together with the World Health Organization, the Ministry of Health of

Venezuela, and the Pan American Society of Infectology will cosponsor the Pan

American Conference on Antibiotic Resistance, to be held in Venezuela in November

1998. During this event, information will be gathered on the current situation of antibiotic use and resistance in the Region, especially in regard to public policy, health

care practices, economics, quality control, surveillance and training. A series of

group discussions will also take place, and it is expected that a product of the discussions will be a sound plan of activities for the next five years, aimed at strengthening surveillance and promoting policy formulation. Also invited are technical experts form the CDC, participants from four major drug companies and other international experts.

INFECTIOUS DISEASES SURVEILLANCE

Today communicable diseases continue to be the major source of illness and death

in developing countries, but industrialized countries are becoming increasingly

aware that they too are at risk from many new and reemerging diseases. Infectious

diseases today affect us all in many spheres of life. The socioeconomic development

of many nations is being crippled by the burden of these diseases, which cause huge

losses in foreign currency and income from food trade and tourism as a result of

epidemics of diseases such as cholera, plague and other diseases. Another case in

point is dengue, which in recent decades has reemerged with dramatic force and is

now endemic in most of the Americas. During 1997 alone, 387,000 cases were reported with the consequent losses in productivity and impact on health services.

The problem of emerging and reemerging diseases must be approached from a regional perspective, since it does not affect countries in isolation any longer. For example, with the enormous increase in the frequency and speed of international travel, individuals infected during travel abroad may introduce a given disease into a

previously unaffected area in a matter of hours.

Infectious diseases are not only a health issue. They have become a social problem

with tremendous consequences for the well being of the individual and the world

in which we live. In order to control these diseases, we need to have strengthened

epidemiological surveillance systems nationally and internationally to detect infectious diseases and, particularly, drug-resistant forms.

PAHO is currently working very closely with the CDC, the U.S. Department of

Defense, national research institutes, ministries of health and other partners to de-
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velop a regional surveillance system for infectious diseases, as well as to strengthen

existing antimicrobial surveillance programs for selected pathogens.

In order to strengthen the regional capability for emerging and reemerging diseases surveillance in the public health sector, effective plans for data collection,

analysis, investigation and prompt intervention are being prepared with the following objectives: (a) strengthening regional infectious disease surveillance networks as

well as the capacity to implement effective prevention and control strategies; and

(b) developing the national and regional infrastructure for early warning of and

rapid response to the threat of diseases.

Once in place, the new surveillance system will make use of available Internet

technology to build e-mail and Intranet systems (closed access) for communications.

Access to the system will be granted to ministries of health and PAHO/WHO Country Representative Offices in each country; the Canadian Laboratory Centers for

Disease Control (LCDC), and the U.S. Centers for Disease Control and Prevention

(CDC) and the Department of Defense. All participants will have equal access to the

common database for analysis. Once the project is finalized, surveillance systems

and corresponding infrastructures will be in place which are capable of monitoring

emerging pathogens and diseases for the confirmation of current epidemics; assessment of health and socioeconomic impact and likely evolution of the problem; and

determination of local response capacity, identification of most effective control

measures, and assessment of additional immediate needs.

TUBERCULOSIS

Tuberculosis, a curable and preventable disease, remains a major public health

threat in the Region, with an estimated 400,000 new cases occurring each year.

Each case is at risk of death without proper treatment. Each year 60,000 to 75,000

persons die, the majority of them in their most productive adult years. An estimated

3–5 percent of all new cases in the Region are attributable to co-infection with the

human immunodeficiency virus (HIV). Fewer than two-thirds of all new cases are

reported, and most that go unreported will receive inadequate treatment or no treatment. As a result of poor treatment, some patients may develop and spread drugresistant strains.

To confront what the World Health Organization has declared a ‘‘Global Health

Emergency,’’ the World Health Assembly has adopted two objectives for tuberculosis

control for the year 2000 which will diminish morbidity, mortality and transmission

of the disease: cure of 85 percent of all detected pulmonary smear-positive (infectious) cases; and detection of 70 percent of these incident cases. WHO has just announced that due to the slow pace of many large, high TB incidence countries, the

global targets will not be met. Many of the countries of the Americas could still

meet these targets, but only if we intensify our actions and find additional resources.

The global strategy for control of the disease is based on the implementation of

a strategy call Directly-Observed Treatment Short-course (‘‘DOTS’’). It is among the

most cost-effective health interventions available, and is included in the World

Bank’s proposed ‘‘essential package of health services.’’ The five elements of the

global control strategy are: government commitment to a TB program; case detection through predominantly passive case-finding; standardized and directly-observed

short-course chemotherapy for all pulmonary smear-positive cases; regular drug supply; and a program monitoring and evaluation system.

The DOTS strategy makes a difference in the American countries. Countries that

have applied it are doing far better in curing cases and in evaluating their work.

For the 10 countries and two territories applying DOTS in 1995, 76 percent of patients were successfully treated, compared to only 30 percent in the 13 non-DOTS

countries who reported to PAHO/WHO. In 1995, DOTS countries reported results

for 91 percent of their patients vs. 41 percent for non-DOTS countries. Of patients

successfully treated, 89 percent were lab-confirmed cured in DOTS countries. In

non-DOTS countries, only 40 percent were confirmed.

Still too many countries have not begun to use the DOTS strategy or are applying

it incompletely. More support is needed to purchase drugs, train and supervise

health workers, equip labs and motivate the public to help find and cure patients.

Recent national surveys show that multidrug resistant TB is present and poses

a real threat to the public and to disease control programs. Treatment of these patients is often too costly for public health systems. They are less likely to be cured

and are more likely to die, even with treatment. Drug-resistant TB can develop as

a result of poor prescribing and treatment monitoring, drug supply problems, and

poor patient compliance. The DOTS strategy addresses each of these problems.
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PAHO seeks to improve awareness of the TB epidemic and of the DOTS strategy.

It works with Member countries and partner agencies in training health personnel,

building inter-country collaboration, developing tools to facilitate the application of

the DOTS strategy, mobilizing resources for effective and sustainable programs, and

encouraging investigation of new interventions.

The main international agencies and non governmental organizations working

with PAHO in different countries are: World Bank (Haiti, Venezuela); International

Union Against Tuberculosis and Lung Disease (Central America, Cuba, Bolivia,

Peru); United States Centers for Disease Control and Prevention (Mexico, CAREC,

Argentina, Peru); Royal Netherlands Tuberculosis Association (Bolivia, Central

America); U.S. Agency for International Development (Bolivia, Honduras, El Salvador, Mexico); Canadian International Development Agency (Ecuador, Peru); Laboratory Centers for Disease Control, Canada (Supra national reference laboratory

for the countries in the Region); Damien Foundation, Belgium (Guatemala, Panama); German Leprosy Relief Association (Colombia, Ecuador, Brazil, Bolivia, Paraguay); and German Federal Ministry of Economic Cooperation (Ecuador).

MALARIA

Epidemiological Surveillance for Malaria Control

PAHO has been monitoring and advising on epidemiological activities of malaria

eradication and control programs in the Region for at least 44 years. Standard

malariometric indices and operational indicators are calculated in order to measure

the impact of control activities and to assess the adequacy of intervention efforts.

Surveillance data, including trend analysis and epidemiological situation assessment in each endemic country, are reported annually in a document on the ‘‘Status

of Malaria in the Americas.’’

These data are used as follows: to define and classify endemic areas according to

levels of transmission risk; to classify geographical areas by operational phase of

intervention and surveillance activities; to measure specific indicators of disease incidence according to parasite species; to analyze epidemiological trends, identifying

key factors associated with the trends; to extend the knowledge of biology and vectorial capacity of anophelines; to estimate coverage of population in endemic areas

according to different case-finding strategies; to adjust the different surveillance

strategies according to endemic level; to assess coverage rates of insecticide spraying

for vector control; to evaluate availability of antimalarial drugs and their distribution; to identify social and economic risk factors associated with transmission in

areas of recent colonization, deforestation and mining; to predict epidemics based on

population movements in the endemic area; to assess the onset and map malaria

drug resistance and advise on antimalarial drug policy; to identify structural and

functional deficiencies in the control programs; to implement a strategy for control

based on a stratification of rates defined for each locality; to perform cost-effectiveness analysis of control programs; to promote decentralization as the appropriate

strategy to increase coverage for diagnosis and treatment, as defined in the Global

Strategy for Malaria Control.

Current situation of P. falciparum resistance:

P. falciparum resistance in the Americas is highly variable as is the ability of the

health services to provide prompt diagnosis and proper treatment for malaria. Although this variability is related to the parasite reservoir movement (population),

special groups of people are more affected by the parasite resistant strains than the

population as a whole, mainly those who live in primitive organized social communities (indigenous peoples, hunters and gatherers) and those with high risk behaviors, such as those seeking the extraction of natural resources utilizing low technological means (subsistence agriculture, gold/gem mining and lumber).

From the population exposed to highest risk of transmission in the Americas (46.3

million persons or 5.9 percent of the total population), between 1994 and 1996 there

was an increase from 9.8 to 12.1 million exposed to high P. falciparum transmission,

resulting in a very high incidence rate (> 1,900 cases per 100,000 exposed population). This spread of P. falciparum exposure is particularly severe in the Andean

Countries’ rain forests.

Major challenges and constraints

There are three major challenges to malaria control in the Americas; one is related to the need for a change in the public health perception that ‘‘malaria control

is obtained by insecticide spraying and this can only be done by a major operational

institution.’’ Major advances in the implementation of new concepts and expansion

of coverage have been achieved in Bolivia, Brazil, Colombia, El Salvador, Guatemala, Honduras, Nicaragua, Panama, and Peru and somewhat in Venezuela.
232

The second and third major constraints are related: drastic budgetary reduction,

and major administrative processes of decentralization of health services.

PREPARED STATEMENT OF THE UNIVERSITY HEIGHTS SCIENCE PARK

Infectious diseases now pose a profound threat to national and international security. Changing international conditions, post-Cold War deployment of U.S. troops in

new geographic areas, and an increasingly global economy have contributed to a resurgence of infectious microbes. The rapid and repeated exposure to diseases arising

in any part of the world is now a reality for military men and women as well as

our citizens at home. In 1980, there were 280 million international travelers, including military personnel. By the year 2000 there will be 400–600 million international

travelers. In response, many federal agencies are developing infectious disease initiatives to address the emergence of new infectious agents as well as the re-emergence of known infectious agents in drug resistant form. The creation of the International Center for Public Health is a direct response to this emerging public health

crisis.

The International Center for Public Health is a strategic initiative that will create

a world class, infectious disease research and treatment complex in University

Heights Science Park, Newark, New Jersey. Science Park is located in a Federal Enterprise Community neighborhood. The International Center will have substantial

local, regional, national and international impact as it addresses many critical social, economic, political and health related issues. The Center is a $78 million anchor project that will launch the second phase of a fifty-acre, $350 million mixeduse urban redevelopment initiative, University Heights Science Park. The facility

will total 161,600 square feet and house three tenants: The Public Health Research

Institute (PHRI), the University of Medicine and Dentistry of New Jersey’s

(UMDNJ) National Tuberculosis Center, one of three Federally funded TB centers,

and the UMDNJ New Jersey Medical School Department of Microbiology & Molecular Genetics. The International Center for Public Health is a priority project for

UMDNJ, Rutgers Newark, the New Jersey Institute of Technology, Essex County

College and the City of Newark.

The core private tenant for the International Center is PHRI. PHRI is an internationally prestigious, 57-year-old biomedical research institute that conducts a

broad range of infectious disease and public health research. A major PHRI research

focus is the study of antibiotic resistance to life threatening bacterial organisms, and

the development of new antibiotics. Among its many accomplishments over the

years, PHRI has contributed to the development of smallpox vaccine, developed a

new diagnostic assay for influenza, conducted early experiments on oncogenes,

cloned the gene responsible for toxic shock syndrome, and identified the multi-drug

resistant TB strain ‘‘W’’. PHRI’s current research centers on molecular pathogenicity, drug discovery, drug resistance, diagnostic and vaccine development, and gene

expression. Scientific disciplines include virology, immunology, biochemistry, genetics, cell and structural biology, and regulation of cell development. Presently, PHRI

supports a staff of 110, including 20 Principal Investigators. These numbers will

double in the move to the International Center.

UMDNJ will be the primary medical center linkage and academic affiliation for

the Public Health Research Institute. The New Jersey Medical School National Tuberculosis Center at UMDNJ, one of only three model Tuberculosis Prevention and

Control Centers in the United States funded by the CDC, will add an important

clinical, epidemiological and training component to the International Center, since

many TB patients also manifest other infectious diseases, and knowledge and strategies to deal with the world wide epidemic are seriously deficient. The TB Center

was founded in 1993 as a response to the national resurgence of antibiotic resistant

tuberculosis strains. At the time, Newark had the nation’s second highest rate of

TB cases for a major city.

Rounding out the International Center’s initial tenants will be the New Jersey

Medical School’s Department of Microbiology & Molecular Genetics. The Department’s relocation will add a staff of 100 to the Center’s critical mass of microbiology

research. Currently the seventeen-member faculty conducts research in control of

cell proliferation; cellular aging; transcriptional, post-transcriptional, and

transcriptional regulation; mutagenis; DNA replication and recombination; chromosome structure and segregation; human molecular genetics; and molecular pathogenesis of viruses, bacteria and parasites.

Together PHRI, the National TB Center and the Department of Microbiology &

Molecular Genetics will create a world class research and treatment complex having

substantial local, regional, national and international impact.
233

Other collaborators in the development of the International Center include the

New Jersey Department of Health & Senior Services (NJDHSS) and the pharmaceutical industry. Responsible for overseeing all statewide public health initiatives,

NJDHSS will contract with the International Center to have cutting edge molecular

epidemiology services provided to the State of New Jersey. Expanding the strategic

use of molecular epidemiology to direct public health activities will facilitate prompt

identification and containment of emerging and re-emerging pathogens. New Jersey’s major biomedical companies will also participate in the International Center.

An infectious disease consortium will be developed to serve as a forum for disseminating fundamental research on the underlying molecular processes of infectious

disease organisms. This research will contribute to pharmaceutical industry development of new drug therapies for antibiotic resistant microorganisms. Private industry R&D facilities contiguous to the International Center are also being explored.

The International Center for Public Health will be located in University Heights

Science Park (UHSP). UHSP is a collaborative venture of Newark’s four higher education institutions, the City and Community of Newark, and private industry designed to harness university science and technology research as a force for urban

and regional economic and community development. The university sponsors, New

Jersey Institute of Technology (NJIT), The University of Medicine & Dentistry of

New Jersey (UMDNJ) and Rutgers University at Newark, annually conduct nearly

$100 million of research in Newark, much of it federally funded. Essex County College trains technicians in eleven science and technology fields, and prepares Newark

residents for employment with Science Park technology companies. Four Newark

based companies also sponsor the Park: Public Service Electric & Gas, The Prudential Insurance Company, First Union National Bank and Bell Atlantic of New Jersey.

Located in a Federal Enterprise Community neighborhood, UHSP is a 50-acre,

mixed-use, science and technology park in Newark’s Central Ward, adjacent to its

higher education sponsors. At buildout UHSP will include one million square feet

of technology commercial space, 75,000 square feet of technology incubator space,

up to 20,000 square feet of retail business opportunities, an 800 student technology

high school, two blocks of new and rehabilitated housing and a community day care

center. The $10 million first phase of Science Park is complete and includes the

NJIT Enterprise Development Center 2 (a technology business incubator), a 100

child day care center and the CHEN Building (housing the industrial laboratories

for the Center for Biomaterials and Medical Devices). CHEN is the acronym for the

Council for Higher Education in Newark, the four universities who founded Science

Park. For almost two decades CHEN has jointly sponsored educational, housing,

and retail/commercial projects in Newark’s public schools and the neighborhoods of

University Heights. The NJIT technology incubator was completed in fall 1996, and

is now 100 percent leased. Nearly half of the 17 incubator companies are MBE/

WBE’s. In addition, over half of the children in the Science Park day care center

are from the surrounding community, and the majority of day care center staff are

from Newark.

The construction of the International Center will anchor the second phase of

Science Park, and serve as a magnet to attract pharmaceutical, diagnostic and other

biomedical companies to Science Park. The Center will have the same impact on the

Park as an anchor store does in a retail shopping mall.

How the International Center for Public Health Addresses Foreign Operations Objectives

The United States is vitally concerned with the impact of infectious diseases on

individuals in foreign countries, both because of the health impact on the citizens

of those nations, as well as the threat posed by exposure to diseases as the result

of increased world travel resulting from an ever-expanding global economy. Individuals traveling to new geographic areas always encounter new infectious disease

threats. Of particular concern are new and re-emerging diseases, food-borne diseases, and drug resistant organisms.

USAID recognizes that disease and endemic ailments often overwhelm and disrupt developing countries, posing a strategic challenge to the U.S. The spread of

HIV/AIDS, drug resistant tuberculosis, and other infectious diseases consumes resources needed for long-term investments. Without long-term investments, longterm stability cannot be achieved. USAID is actively seeking to implement health

related programs it considers vital through partnerships with non-governmental and

private organizations. The International Center will contribute to the achievement

of these objectives in the following ways:

—The Center will develop cooperative programs with foreign governments to implement molecular epidemiology techniques as a means of focusing public health
234

priorities and programs in those counties. PHRI is presently engaged in a 13-

nation European Economic Community DNA TB fingerprinting project, and is

in discussions with Egypt, Indonesia, and Russia to provide similar and expanded infectious disease services. UMDNJ’s National Tuberculosis Center is

currently consulting with the Singapore government to develop a TB Elimination Plan, with the Center’s Executive Director chairing an international advisory panel. Staff training is currently being provided during the implementation phase of the Elimination Plan. The National Tuberculosis Center, through

its International Scholars Program, is currently training physicians and other

staff from China, India, the Netherlands, Singapore and Japan.

—Last summer, PHRI received a $12 million grant from Mr. George Soros to implement infection control laboratories and programs in Russia. This grant was

the result of an earlier successful collaboration between Mr. Soros and PHRI,

in which PHRI administered the distribution of $130 million of Soros funds to

Russian research scientists following the end of the Cold War in an attempt to

prevent a mass scientific community exodus from Russia. On March 5, 1998

PHRI, representing the International Center for Public Health, presented the

Russian Infectious Disease Program to the Medical Committee of the Gore/

Chernomyrdin Commission in Washington, D.C. Attached is a progress report

on the implementation of the Russian program.

—The most notable part of the collaboration between UMDNJ’s TB Center and

PHRI is the fact that for several years, the WHO and CDC have been unsuccessful in convincing Russia with its monumental TB problem to adapt the

DOTS strategy (Directly Observed Therapy Short course) even though the

DOTS program is the WHO’s global tuberculosis programme’s standard of care,

and its implementation is their highest priority worldwide. Last July, A PHRI/

National TB Center site visit team analyzed the PHRI/Soros program and recommended that it not be carried out unless the Russian ministry of health

adopted the DOTS strategy. In September, 1997, U.S. Secretary of Health and

Human Services, Donna Shalala, announced at the Gore-Chernomyrdin Commission meeting in Russia that the Russian Ministry of Health would be using

the DOTS strategy. This decision was further reiterated at the GoreChernomyrdin Commission meeting held in Washington, D.C. earlier this

month.

—A mission of the International Center is the establishment of molecular epidemiology laboratories in foreign countries. PHRI just signed an agreement with

Egypt to establish elements of the Russian program in that mid-eastern country.

—The National TB Center currently collaborates with the International Union

Against Tuberculosis and Lung Disease (IUATLD, an NGO) and WHO, providing them with ongoing consultations and TB staff training. On March 18–19,

I was the only non-U.S. government representative from North America among

the 17 member WHO Ad Hoc Committee on the Global Tuberculosis Epidemic.

—The International Center will raise private funding to supplement governmental

funding for these programs.

Request For Assistance

Through the leadership and direction of the Governor Christine Todd Whitman,

a Memorandum of Understanding (MOU) was signed between the State of New Jersey, UHSP, UMDNJ and PHRI in October 1997. The MOU commits $60 million of

State loan and grant funds toward development of the $78 million International

Center for Public Health. Science Park is working closely with the New Jersey Economic Development Authority, through whom project bonds will be issued and 14-

acres of land acquired. Presently the Science Park partners and International Center for Public Health tenants are seeking the remaining $16 million from Federal

and private sources during 1998. Groundbreaking is scheduled for March 1999.

University Heights Science Park is requesting $5 million from the United States

House Appropriations Subcommittee on Foreign Operations for fiscal year 1999 to

support the International Center for Public Health. On behalf of the University of

Medicine and Dentistry, I want to thank the Committee for the opportunity to

present this request. We appreciate your consideration of our proposal, and hope to

receive your support for the creation of the International Center for Public Health

at University Heights Science Park, Newark, NJ. This project is a top priority for

UMDNJ, Rutgers Newark, the New Jersey Institute of Technology, Essex County

College and the City of Newark.
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PHRI/SOROS RUSSIAN INFECTIOUS DISEASE PROGRAM, AN INITIATIVE OF THE INTER- NATIONAL CENTER FOR PUBLIC HEALTH EXTRACTS FROM PROGRESS REPORT OF DR. ALEXANDER GOLDFARB, PHRI PROJECT DIRECTOR—JANUARY 29, 1998

Introduction

This program is carried out by the Public Health Research Institute (PHRI) under a $12.3 million grant from the Open Society Institute (Soros Foundation). The program is part of the $500 million pledge of aid to Russia made by Mr. Soros last October. The aim of this program is to combat emerging infectious diseases in Russia,

with special emphasis on TB and hospital infections. This extract covers the period

from project inception in October 1997 through the end of January 1998.

Highlights

The groundwork for Clinical Microbiology Laboratory at the Moscow Medical

Academy has been completed with regard to space preparation, personnel recruitment, purchase of equipment and supplies. The first Russian team begins training

in Canada in February.

A full TB control program is under way in Tomsk. This includes a comprehensive

reform of the regional TB service and provision of TB care in the prison system. The

program is the prototype for similar programs to be implemented in other regions.

TB control programs are in the development stage in Ivanovo, Marii El, Nizhniy

Novgorod and Leningrad oblasts.

Tuberculosis

Four specific problems are addressed by our TB program: (1) The catastrophic rise

of TB within the Russian prison system; (2) The presumed high incidence of multiple drug resistant TB, particularly among inmates, compounded by general lack

of reliable specific information on this subject; (3) The resistance to the World

Health Organization (WHO) recommended Directly Observed Therapy—Short

Course (DOTS) approach from the old-school Soviet TB establishment; and (4)

Waste and inefficiency in the regional TB control services; need for health care management reform.

Tomsk Regional Government

We have chosen to first tackle these issues in a single regional demonstration

project (Tomsk), and then expand to other regions. Tomsk was chosen because of

its relatively advanced status due to the prior work of the British medical group

MERLIN. Tomsk is fairly typical for Russia, and MERLIN’s work provided specific

and detailed insights into the situation.

We succeeded in bringing the issues of TB control to the personal attention of the

Tomsk Governor. The approach that we offered was for PHRI/Soros to provide

bridge financing for TB service reform in exchange for binding guarantees of longterm funding from the local government and political support of the restructuring.

A working group was set up that included representatives of PHRI, MERLIN,

Tomsk Regional TB service, Tomsk Regional Department of Health, the Governors

office, the Ministry of Health in Moscow and the Moscow Research Institute of TB.

As the result, an agreement between PHRI and the local government of Tomsk

was reached on a three-year plan which includes the following components:

—cuts and reductions in the inefficient parts of TB service that will lead to savings of $2 million a year. This includes reduction of the number of TB hospital

beds, reduction of the number of x-ray examinations and closing of TB sanatorium for children—within a period of one year.

—the savings generated by these cuts will be used for enhancement of outpatient

services, building of TB hospice, payment of salaries, and support of DOTS infrastructure for three years

—during the first year, we will purchase drugs, pay salaries, install new equipment, train personnel and create region-wide DOTS network, including a bacteriological laboratory for monitoring of drug resistance.

Tomsk Prison System

The Tomsk prison system includes a special TB colony (1,300 patients), a jail (estimated 50–100 TB cases) and five regular prisons.

An agreement has been signed with the Tomsk Department of Corrections to fully

implement DOTS in the prison system. The plan includes training of medical officers, provision of drugs and vitamin supplements for all TB patients, setting of a

bacteriology field lab in the main TB prison, improvement of TB diagnostics among

general prison population, identification and isolation of patients with multiple

drug-resistant TB, and an extensive system of oversight and control by the regional

TB service, Moscow Institute of TB, and our own representatives.
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Other Oblasts

Similar agreements for regional TB service reform and for prison DOTS programs

have been signed with the government and prison authorities of Marii El, a small

ethnic region in central Russia. Negotiations are in progress with the authorities of

Ivanovo and Leningrad oblasts, and with the prison administration of Nizhniy

Novgorod.

The precedent of Tomsk facilitates negotiations with other regions, and we expect

to commit all available funds by mid-1999. Our current funding will permit support

of regional TB reform in four regions (Tomsk, Marii El, Ivanovo, Leningrad oblasts),

and prison program in 7–8 regions.

Additional Resources

The Central Research Institute of TB has been chosen by WHO as the site of a

national DOTS center. We have committed funds and are providing technical assistance for the establishment of National Bacteriological TB Reference Lab that will

provide training and quality control to regional laboratories (e.g. in Tomsk). The

Moscow laboratory will work together with the Massachusetts State TB lab in Boston (run by a Russian expatriate).

The molecular analysis of bacterial strains collected in Moscow will be carried out

at PHRI laboratories in New York. This network is the first systematic effort to

monitor drug resistant TB in Russia and make information on this subject available

to international health agencies. A grant application, for funding beyond that available from the Soros grant, to expand the understanding of MDRTB in Russia and

to use this information in both patient treatment and TB control, is currently being

prepared.

The Central Research Institute of TB will serve as the national training center

for regional TB services. A first group of six medical officers from the Tomsk prison

will start training these in mid-February.

We are setting up the TB Information Center at the Moscow Medical Academy.

It will provide informational backup to the program, maintain a data base of patients involved in DOTS treatment, monitor and process the results, publish training materials, carry out information campaigns, etc. The center will utilize resources

of the Academy (particularly students) and will in turn aid the teaching process.

Publicity and Relationships

The PHRI/Soros program was highly praised in a cover story in the Russian national newsmagazine ITOGI and several newspaper publications. It has also been

attacked as a foreign plot to ‘‘destroy’’ the Russian TB service.

In addition to cooperation with MERLIN in Tomsk, we are negotiating a collaboration with Doctors Without Borders to provide bacteriology support to their project

in Mariinsk prison in Kemerovo.

The implementation of the PHRI/Soros Russian TB program is being carried out

in consultation with the WHO Global TB Program in Geneva, the U.S. Centers for

Disease Control and Prevention (CDC) in Atlanta, and National Institutes of Health

(NIH) in Bethesda.

Hospital Infections

This project is aimed at establishing a state-of-the-art clinical microbiology laboratory at the Ob/Gyn hospital at the Moscow Medical Academy, which is a major

teaching hospital in Russia. The need for such laboratory stems from general absence of microbiology in Russian clinical practice, a major problem of the Russian

health care system. The laboratory is designed to become a teaching resource and

reference center on a national scale.

During the past period, the following steps were implemented:

—A team of U.S./Canadian experts visited Moscow in October. As the result, a

specific action plan was designed, including requirements and specifications for

lab space, equipment, supplies, personnel, job descriptions, and training goals.

—Adequate space has been allocated and renovated by MMA at its own expense.

—Russian project participants have been identified. The first Russian group has

been scheduled for training at the Mt. Sinai Hospital in Toronto.

—The list of needed equipment and supplies has been compiled. The equipment

is currently in various stages of purchase/delivery.

—A Russian expatriate U.S. trained MD specializing in Ob/Gyn and pediatrics infections has been retained to oversee the project on a day-to-day basis and provide specific guidance to the Russian team via regular video/audio conferences

over the Internet.
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INTERNATIONAL AGENCIES

PREPARED STATEMENT OF MICHAEL D. BARNES, ESQ., CO-CHAIR, U.S. COMMITTEE

FOR THE UNITED NATIONS DEVELOPMENT PROGRAMME

Thank you for providing the opportunity for me to submit this testimony to the

Senate Foreign Operations Subcommittee. My name is Michael Barnes and I am a

former Member of Congress from the 8th Congressional District of Maryland. I represent the U.S. Committee for UNDP which I Co-Chair. My testimony represents

my views not just as a former Member of Congress, but as an American citizen, a

businessman and a lawyer committed to a strong U.S. foreign policy and strong U.S.

leadership in international affairs.

With the support of this Subcommittee, the United States returned to the position

as the number one donor to UNDP last year. As a Member of the U.S. Committee

for UNDP, I would like to thank the Subcommittee for that strong support for and

their endorsement of American leadership of this agency.

My testimony contains good news.

First, UNDP has made real progress in implementing a far-reaching internal reform process with stronger accountability, a culture of cost-consciousness and a

sharper focus on country operations. The increase that the U.S. Government provided to UNDP last year helped to make that reform possible. The Subcommittee

should be proud of the work that has been done. In recognizing these remarkable

changes, I believe UNDP deserves an increase in the contribution this year. I am

proud to represent an organization that the United States heads and through which

it has been able to implement these reforms.

Second, this new Committee, which has been in operation for about a year now,

has begun to reach out to the private sector to establish a base of support around

the country, and to bring in private sector contributions so Americans can begin to

make their own contributions to this organization. Clearly this is an idea whose

time has come. It has been shown that Americans will support the United Nations

when the need is clear and this is something this Committee is helping to do, to

show a clear need for support of poverty eradication, protection of the environment,

promoting women and good governance in the developing world so we can have true

partnerships with the countries around the world. This is the role of UNDP.

In my work, I travel all over the world, and I have witnessed the progress made

by developing countries in recent years in their move toward establishing more

democratic institutions, market economies, and greater protection of human rights.

UNDP has played a significant role in promoting this positive change. Having had

the privilege of serving as Chairman of the Subcommittee on Western Hemisphere

Affairs, I am very familiar with all the countries in Latin America and the Caribbean and U.S. relations with them. I would thus like especially to acknowledge the

role of UNDP in assisting the impoverished and war-torn countries of Central America in their transition to stable and democratic societies with market-oriented economies.

The President has requested an increase of $7 million for UNDP for next year,

raising the U.S. contribution to UNDP to $105 million. If that level is met, there

is a very good chance the U.S. will retain its position as the leading donor to the

organization. There are four reasons why it is important for the U.S. to maintain

its position as top donor and these are as follows:

First, it will help the U.S. retain the position of UNDP Administrator. This is the

highest post held by an American in the entire U.N. system. Starting with the first

UNDP Administrator and veteran Marshall Plan Administrator Paul Hoffman, this

post has always been held by an American, including a former friend and colleague

who served with distinction in the U.S. House of Representatives, Bradford Morse,

(R-MA). Thirty years ago, the United States contributed more than 40 percent of

total core resources of UNDP. But today, thanks to greater burden-sharing by the

other donor countries, the U.S. share is down to approximately 10 percent. However,

the competition with other countries to retain the top job is much more intense

today.

Second, as a result of reforms undertaken in recent years, UNDP has become a

lean, cost-effective and country-focused organization. Since 1992, UNDP has reduced

its administrative budget by 19 percent in real terms and decreased total regular

staff by nearly 15 percent. Headquarters staff has been reduced by 31 percent. Further administrative budget reductions are planned in 1998–99 and a policy of cost

containment will then go into effect. UNDP is a hands-on organization with 85 percent of its staff in the countries it serves. At the field level, UNDP helps the United

Nations as a whole to succeed. The 132 UNDP Resident Representatives normally

serve as Resident Coordinators of the United Nations System, reporting to the Sec-
238

retary-General through the UNDP Administrator. Resident Coordinators constitute

a global network for coherent and cohesive United Nations action. They are the

U.N.’s main agents of reform around the world, helping to establish common program frameworks, common premises and common services. That network is funded

and managed by UNDP under a decision of the General Assembly. A summary of

the reform effort is attached.

Third, UNDP promotes the interests and values of the United States of America.

For every dollar invested by the U.S. in UNDP, the U.S. receives a return of more

than 2 to 1 in the procurement of American goods and services. Americans constitute the largest pool of talent selected to advise governments, non-governmental

organizations, and the private sector in developing countries throughout the world

through UNDP. Last year, the General Accounting Office published a report on

UNDP. Chapter 7 of that report described the ways in which the work of UNDP

is consistent with basic U.S. foreign policy objectives.

Fourth, UNDP is the U.N.’s largest and most influential multilateral development

organization and has a positive global impact on the lives of billions of people

throughout the world. UNDP concentrates its efforts in the poorest countries and

in countries in crisis. Ninety percent of UNDP core resources go to 66 low-income

countries that are home to ninety percent of the world’s people living in extreme

poverty.

In the distribution of UNDP core resources, 45 percent goes directly to good governance; 24 percent to environment, and 31 percent to poverty eradication and family livelihoods.

UNDP’s overriding goal is poverty eradication and its priorities include job creation, instituting the rule of law, establishing systems of accountable governance,

promoting democratic institutions, regenerating and protecting the environment and

empowering women.

Since much of my law practice focuses on Latin America, let me point out how

the countries in that region which formerly were such trouble spots for the United

States have today come to embrace democratic institutions and have opened up

their societies and their economies through the assistance of UNDP. One of UNDP’s

key functions is to provide technical assistance to developing countries to hold fair

and free elections. It has done so in Guatemala, Nicaragua and El Salvador. UNDP

has helped each of these countries move from humanitarian relief programs to longterm development strategies by establishing the infrastructure for the executive,

legislative and judicial branches of government and by assisting with the establishment of the legal foundation to promote foreign direct investment.

For example, in Nicaragua, UNDP is strengthening the National Assembly and

the Supreme Court to make them more effective in supporting the political and economic reform processes. UNDP is also working with the Ministry of Finance to help

bring final resolution to the thorny property settlement issue.

From my own personal perspective, and speaking as a businessman, let me clearly

acknowledge how important UNDP’s role in setting up the infrastructure for democratization, promoting the framework for solid economic growth and supporting the

advancement of good government in this particular region also serves American values and our interests abroad.

In summary, Mr. Chairman, an appropriation of $105 million for UNDP in fiscal

year 1999 will help ensure American leadership of this vital U.N. organization

which is effectively and efficiently carrying out its global mission while promoting

American interests and values abroad.

UNIVERSITIES

PREPARED STATEMENT OF DR. RAYMOND E. BYE, JR., ASSOCIATE VICE PRESIDENT

FOR RESEARCH, FLORIDA STATE UNIVERSITY

Thank you, Mr. Chairman, and the Members of the Subcommittee, for this opportunity to present testimony. I would like to take a moment to acquaint you with

Florida State University. Located in the state capital of Tallahassee, we have been

a university since 1947; prior to that, we had a long and proud history as a seminary, a college, and a women’s college. While widely known for our athletics teams,

we have a rapidly emerging reputation as one of the Nation’s top public universities.

Having been designated as a Carnegie Research I University several years ago,

Florida State University currently exceeds $100 million per year in research expenditures. With no agricultural or medical school, few institutions can boast of that

kind of success. We are strong in both the sciences and the arts. We have high quality students; we rank in the top 25 among U.S. colleges and universities in attract-
239

ing National Merit Scholars. Our scientists and engineers do excellent research, and

they work closely with industry to commercialize those results. Florida State ranks

seventh this year among all U.S. universities in royalties collected from its patents

and licenses. In short, Florida State University is an exciting and rapidly changing

institution.

I want to express my appreciation to the Subcommittee for its support in fiscal

year 1998 for the activities of the Caribbean Law Institute (CLI), which is housed

at Florida State University. That Institute, a joint endeavor between FSU and the

University of the West Indies, was formed to promote the reform and harmonization

of commercial laws in the Commonwealth Caribbean. Projects have included a wide

range of commercial statutes including company law, insurance law, insolvency

banking, and arbitration. Legislation has been passed in several countries as a result of the CLI’s efforts in Trinidad and Tobago, St. Vincent, Grenada, Antigua, Dominican, and St. Lucia.

The recent effort, which focuses on alternative dispute resolution, environmental

law, and fair competition legislation, is just beginning, and I look forward to providing this Subcommittee with progress reports periodically. I should add, however,

that if the United States is to genuinely make progress in this and other regions

around the world, one way of doing so is to undertake efforts that allow for the economic development of those nations. That can often be done through providing assistance to nations that would result in laws and legal frameworks that allow for

trading and other means of economic commerce to take place more effectively. Corporations in the U.S. and in other nations as well will more likely embark on economic activities with developing nations if the legal framework allowing for routine

economic activity is in place and functioning. Here is where an organization like the

Caribbean Law Institute is invaluable. With its ties into an academic institution

within the Caribbean region, the CLI can assist with expertise but without the outsider’s presence.

The Caribbean Law Institute proposes to expand its focus for fiscal year 1999 and

seeks to provide an array of activities around the broad topic of criminal justice legislation. Such areas as money laundering, for example, can have substantial impacts

on trade and other relationships between nations. Working closely with legal practitioners and criminal justice experts, the CLI and other experts from Florida State

University and the University of the West Indies will continue discussions with officials at USAID on this effort. We envision utilizing the CLI model of working closely

with the Attorneys-General in each of the Caribbean states, along with appropriate

criminal justice officials, to identify legislative areas in need of redress, work to

draft such changes, and assist where appropriate in their legislative approval. The

effort will build upon the successes of the past and present activities of the CLI.

The estimated costs for this effort will be approximately $2 million in fiscal year

1999.

I appreciate the past support this Subcommittee has provided the Caribbean Law

Institute (CLI) at Florida State University and look forward to your continued support for this effort.

PREPARED STATEMENT OF GEORGETOWN UNIVERSITY

Mr. Chairman and Members of the Subcommittee: We are Father Julio Giulietti,

S.J., Director of Georgetown University’s Center for Intercultural Education and Development (CIED), and Father William George, S.J, Assistant to the President of

Georgetown University. We appreciate the opportunity to testify before this Subcommittee on the Cooperative Association of States for Scholarships (CASS) Program and the East Central European Scholarship Program (ECESP).

We would like to thank you and your Subcommittee for your generous support of

the cost-sharing program, the Cooperative Association of States for Scholarships

(CASS). We would also like to thank you for your encouragement to the East Central European Scholarship Program (ECESP) which provides scholarships for Poland, Hungary, the Czech Republic and Slovakia.

We are grateful to the Subcommittee for its support of $13.75 million for Central

America and the Caribbean and $2.75 million for East Central Europe. We would

ask the Subcommittee to continue its support in fiscal year 1999 as we have had

very productive negotiations with USAID.

Cooperative Association of States for Scholarships (CASS)

Under a Cooperative Agreement with USAID, Georgetown University administers

CASS. The University’s mission in fulfilling the will of Congress is to provide peace

scholarships to capable, economically disadvantaged students from Central America
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and the Caribbean who attend United States community-based institutions for academic education and technical training.

CASS has been designed to contribute to the formation of more effective work

force resources and to foster the leadership and technical skills required to meet social, economic, and democratic needs in Central America and the Caribbean. CASS

works closely with in-country experts, support network members, United States

PVO’s, USAID Missions and USAID Washington to determine which fields of study

can best support strategic objectives and contribute to the economies of participating

countries.

United States community-based institutions then develop or adapt programs to

provide students with the technical skills and experience that are in demand in the

region. Needs analysis and follow-up studies of alumni are conducted periodically

to modify course offerings based on current and projected economic realities in the

region.

‘‘Experience America’’ is an essential phase of the program. Its three major components—academic training, experiential opportunities, and personal and professional

development—reinforce self-reliance, self-responsibility, and commitment. Living

with American families and studying at community-based institutions, peace scholars develop an understanding of U.S. culture and values, and our democratic processes. These students in turn have a positive impact on their host communities,

heightening cultural awareness, geographical knowledge, and political and personal

insights about the Americas. The result is the formation of lasting social, economic,

and cultural links between the United States and future leaders of Central America

and the Caribbean.

In 1991, 179 CASS participants arrived to begin two-year programs of study.

Eighty-five percent (85 percent) of these students successfully completed their program and returned to their home countries in 1993. The uncertain situation in Haiti

had a direct impact on our success with scholars from that nation. CASS’ successful

completion rate in 1993 for non-Haitian CASS students is ninety-two percent (92

percent).

In 1992, 311 CASS participants arrived in the U.S. to begin two-year programs

of study. Ninety-one percent (91 percent) of these students (284) successfully completed their program and returned to their home countries in 1994. This is a six

percent (6 percent) improvement over the previous year.

In 1993, 325 CASS participants came to the U.S. for two years of technical training. Eighty-seven percent (87 percent) of these students (285) graduated and returned to their home countries in 1995.

In 1994, 305 CASS participants arrived in the U.S. for two-year training programs. 91.8 percent successfully completed their program of study and returned

home in 1996. It was the most successful of the seven CASS cycles since 1989. We

have generally defined ‘‘success’’ as having completed the degree, or target objective

(it might be a certificate) and returned home at the end of training.

In 1995, 253 CASS participants arrived in the U.S. for two-year training programs. Ninety-four percent (94 percent) returned home, 90 percent having graduated with an associate degree.

Today, 469 CASS participants in Cycles 96 and 97 are enrolled at 20 communitybased institutions in 14 states. An additional 18 participants from Central America

and the Dominican Republic arrived in the U.S. in January, 1998, for a special sixmonth program for strengthening the skills of math and science teachers.

In 1998, 257 students will begin training in CASS programs. 227 participants will

begin two years of study at 14 U.S. community-based institutions, leading to associate degrees in 14 fields of study. In addition, 30 CASS students from Haiti will come

to the U.S. for 6-month programs in the fields of health and education administration.

In Nicaragua, CASS designed the Nicaragua Peace Scholarship Program (NPSP).

NPSP is an innovative program designed to teach young adults who, because of social and/or economic circumstances, could not complete secondary school educations

during the past decade of civil strife in Nicaragua. A small number of veterans from

both sides of the conflict are included in the target population. Training is focused

to equip Nicaraguan youth with technical and democratic leadership skills so that

they may increase their opportunities to be productive in their communities upon

return.

Today a total of 105 NPSP participants are in the U.S. studying English as a Second Language, courses leading to the GED, and technical courses in public health,

computer repair, business management, industrial manufacturing management, and

electronic communication technology. They are placed at three community-based institutions in three states.
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Prior to U.S. studies, a three-month Academic Upgrading program is conducted

in Nicaragua emphasizing not only basic math and Spanish skills, but personal development, self-esteem enhancement, leadership practice and practice to participate

in a culture of peace rather than a culture of war. Two hundred seventy-one (271)

NPSP graduates returned home between 1992 and 1997. Fifty-seven (57) Cycle 97

NPSP participants initiated their 18-month technical training in January 1998 and

48 Cycle 96 participants will complete studies and return home in June 1998.

It is noteworthy that in 1997, CASS had a total of 82 participants in programs

at Historically Black Colleges and Universities (HBCU’s), namely Harris-Stowe

State College in St. Louis, Missouri and Kentucky State University in Frankfort,

Kentucky.

Federal funds for CASS are being supplemented by states and private sector contributions, increasing the total number of students served. After an intensive effort

in the first two years of CASS to identify a model for cost-sharing funds to maximize

the federal dollars allocated to the program, we learned that no one policy or plan

for state or regional support of the program will evolve. Each participating CASS

state has its own funding formula for higher education which simply means no one

legislative approach can be applied to all states. Colleges in our network are effective partners in providing significant cost-sharing resources for CASS. We require

all participating colleges to contribute twenty-five percent (25 percent) of the total

costs of the program. Colleges are exceeding this goal. From 1990 through September 1997, we have received $25 million (40 percent) cost-sharing from our colleges

in the form of tuition waivers, indirect cost waivers, and the funding of other program components. The program has also received over $451,000 of in-kind support

from private donors in the countries in which CASS operates.

Follow-up surveys of alumni activities solidly demonstrate the success of the

CASS program through sustainable employment levels, continuance of education incountry and community service. Data collected over the last several years show that

between ninety-one percent (91 percent) and ninety-two percent (92 percent) of all

CASS alumni in the 8 participating Central American and Caribbean countries are

employed in their countries. This figure is in stark contrast to the massive unemployment in the region. One in ten CASS graduates owns his or her own business.

As of December, 1997, ninety-seven percent (97 percent) of the 271 NPSP alumni

is occupied as mid-level technicians and managers and/or is studying in a national

economy where over 50 percent of the working population is unemployed.

CASS has pioneered training opportunities for economically disadvantaged disabled persons and is achieving impressive results. In 1990, CASS began a pilot program to offer computer business applications training to hearing impaired students

from Central America and the Caribbean. Seventy-six percent (76 percent) of the

CASS deaf alumni are employed in their countries. Twenty-six percent (26 percent)

of the deaf alumni continues their studies; seventy-three percent (73 percent) are

involved in community service activities.

Since 1990, CASS has negotiated 20 credit transfer agreements for CASS alumni

with universities in Central America and the Dominican Republic. Last year, twenty-three percent (23 percent) of CASS alumni reported they are currently continuing

their studies, most working full-time and studying concurrently. Sixty-five percent

(65 percent) of all CASS alumni responded that in addition to their work and/or

studies, they continue to actively participate in community leadership and service

activities.

GEORGETOWN CASS DISTANCE EDUCATION

The Cooperative Association of States for Scholars (CASS) delivered an innovative

international distance education business program via the Internet in 1996. Designed in 1995, the results of this creative application of Internet technologies to

education and training has been a catalyst for providing continuing professional and

personal development opportunities to large numbers of people who because of their

employment, economic, or geographic location in Central America do not have access

to traditional classes. The program is called Tecnicas en Soluciones Empresariales

(TSE).

The TSE program is offered to companies and organizations in Central America

who are employers of CASS graduates. Participants do not have to leave the workplace to go to a classroom or university; instead, they access class lectures and

group discussions from their computers at work. In 1996, the TSE course in business solution techniques targeted mid-level managers and technicians to solve

chronic problems in real time. In 1997, the target was expanded to include their supervisors. These new work groups, incorporating supervisors, more effectively implement quality management strategies in the work place.
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Georgetown University administers TSE in Guatemala, Nicaragua, El Salvador,

and Panama. In 1996, forty-four companies and 88 students received 9-month training in Guatemala, Panama, and Nicaragua. In 1997, TSE trained 150 participants,

expanded to El Salvador and lengthened the training period to twelve months. In

1998, TSE will train 177 participants from 59 companies in four countries. The new

12-month TSE program comprises three modules. Employers have input into the

training and a clearly defined responsibility to work with students to ensure that

training is applicable to their jobs. In addition to theory, students are required to

select topics for study and solution from among chronic job-related issues that impact their performance as employees and supervisors as well as the achievement of

company goals. Each project team is responsible for defining and researching the

selected project, recommending the solution and leading it’s implementation.

Instruction is delivered through the Internet, written books and publications. It

is supported by local instruction teams. Students access class lectures and assignments from the Internet and use ListServes for group discussions among participants in the four countries. E-mail is the primary vehicle of communication between

TSE teams and participants.

Administered by Georgetown University and funded by the U.S. Agency for International Development, CASS is now among the first to combine training and Internet technologies, having devoted eleven years to the invention and successful conduct of traditionally-managed technical and leadership training for thousands of disadvantaged Central American and Caribbean young adults.

The East Central European Scholarship Program (ECESP)

The East Central European Scholarship Program (ECESP) was founded at

Georgetown University to address the rapid political, social, and economic changes

in post-communist European countries. It was the first education and training program to be funded and implemented under a 1989 initiative of the U.S. Congress

to support democratization and privatization in East Central Europe.

The goal of the program is to educate a core group of public administrators and

experts in public administration and policy, management, finances, banking, health

care administration, regional/rural development, and education. Over the past years,

these experts have included administrators of central institutions (high ranking civil

servants from the Ministry of Finance, Privatization, Agriculture, Health, Environment, and Labor/Social Services, and from State Property Agencies); members of

provincial and local self governments (governors, council members, as well as mayors and vice-mayors); administrators of key state and private sector financial institutions; managers and administrators of non-government and non-profit institutions, including institutions of higher education; educators involved in educational

reform and planning, curriculum evaluation, teacher training, minority and disability education; and faculty from universities, colleges, and professional schools working to introduce new courses into the curriculum of their institutions. In an effort

to meet the ever-changing needs of the participating countries, ECESP introduced

in 1995 a health care policy and administration program designed to aid the processes of privatizing and reforming the health care and insurance sector. In 1996,

ECESP initiated a short term, specially designed program of training for the National Bank of Poland with the aim of building a stronger and more transparent

banking industry in Poland. Today, that program also encompasses the National

Banks of Hungary and Slovakia, as well as the Polish Bank Guarantee Fund, the

Bank of Economic Union, and the regional banks. The program cooperates with the

U.S. Federal Reserve, the Office of the Comptroller of Currency, and the Federal

Deposit Insurance Corporation.

ECESP hopes that the education and training it provides will allow the participating countries to reap the benefits of a more open and structured policy-making process, an increased number of civic-minded citizens, a better educated and skilled

democratic leadership and administration, and a more evolved pattern of cooperation between civil society and government in solving key social, political and economic problems.

Since its founding in 1990, ECESP has sponsored 609 Czech, Hungarian, Polish

and Slovak participants. An additional 40 participants are scheduled to arrive shortly. As programs in Hungary and Slovakia close in 1999, ECESP will shift its main

focus to southern tier countries, as approved by the U.S. Congress. In fiscal year

1998, ECESP will complete its training in Poland (centered on final programs for

the Ministry of Finance and the National Bank, the Bank Guarantee Fund, the European Union Bank and the regional and cooperative banks). It will also prepare

programs for Albania, Macedonia and Romania. Discussions on the scope of those

programs are currently under way with USAID. Finally, ECESP will address the

training requests from the Governor of the National Bank of Croatia and the Min-
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1 (HBCU) Historically Black College/University.

istry of Health in Bulgaria. ECESP anticipates selecting approximately 100 new

participants for training under fiscal year 1998 funds.

Georgetown University, with the assistance of this Committee, has agreed with

USAID to negotiate a new cooperative agreement to cover five years; that is fiscal

year 1998 through fiscal year 1902. Funding has been set for $53 million over five

years. Beginning in fiscal year 1999, Georgetown will apply $6 million to the traditional CASS technical program; $2 million to infectious disease control and prevention; and $2 million to educational administration and training of primary school

teachers. The Georgetown CASS program will continue to focus its resources on the

same population this Committee is concerned about: socio-economically disadvantaged men and women from the region of Central America and the Caribbean.

We thank the Committee for its support in the past and for its assistance in the

negotiations for a new Cooperative Agreement.

PARTICIPATING INSTITUTIONS BY STATE

COOPERATIVE ASSOCIATION OF STATES FOR SCHOLARSHIPS (CASS) INCLUDING

NICARAGUA PEACE SCHOLARSHIP PROGRAM (NPSP)

California.—Kings River Community College; and Modesto Junior College.

Florida.—Florida Community College at Jacksonville; Santa Fe Community College; and St. Petersburg Junior College.

Iowa.—Iowa Western Community College; Kirkwood Community College; and

Scott Community College.

Kansas.—Coffeyville Community College; and Hesston College.

Kentucky.—Kentucky State University (HBCU).1

Massachusetts.—Berkshire Community College.

Missouri.—Harris-Stowe State College (HBCU) 1; and St. Louis Community College.

New York.—Broome Community College.

Ohio.—Hocking Technical College.

Oregon.—Mt. Hood Community College.

Pennsylvania.—Mount Aloysius College.

South Carolina.—University of South Carolina at Sumter.

Texas.—Alamo Community College District with St. Philip’s College (HBCU).1

Utah.—Utah Valley State College.

Wisconsin.—Fox Valley Technical College; Northcentral Technical College; and

University of Wisconsin Center-Marinette County.

Washington.—Edmonds Community College.

EAST CENTRAL EUROPEAN SCHOLARSHIP PROGRAM (ECESP)

Kentucky.—University of Kentucky; and Eastern Kentucky University.

Wisconsin.—University of Wisconsin (La Crosse); and University of Wisconsin

(River Falls).

New York.—Rensselaer Polytechnic Institute; and State University of New York

(Syracuse).

Washington, D.C.—George Washington University; and Georgetown University.

PREPARED STATEMENT OF CYRUS M. JOLLIVETTE, VICE PRESIDENT FOR GOVERNMENT

RELATIONS, UNIVERSITY OF MIAMI

Mr. Chairman and Members of the Subcommittee, on behalf of the University of

Miami, I would like to present testimony on two important nationally recognized

centers located on our campus, the North-South Center and the International Center for Health Research.

NORTH-SOUTH CENTER

The mission of the North-South Center is to promote better relations and to serve

as a catalyst for change among the United States, Canada, and the nations of Latin

America and the Caribbean. The North-South Center conducts programs of research, public outreach, education, training, and cooperative study. It publishes and

disseminates policy-relevant information on the Americas. Its programs and activities also foster linkages among academic and research institutions, NGO’s, governmental institutions both civilian and military, and philanthropic and private sectors

throughout the Americas.
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We are convinced that such a mission is fundamental to the national interests of

this country. Informed and balanced analysis and improved understanding of our

neighbors in the Western Hemisphere provide us great opportunities to enhance our

economy, expand our jobs, and learn of risks before they reach threatening proportions. The United States has long equated stability in the region with its own security interest. The maintenance of that stability today requires a sophisticated partnership among the countries of the Hemisphere. It also demands continually new

approaches in U.S. policy. Fulfilling a singular role in inter-American affairs, the

Center’s programs produce nonpartisan, policy-relevant analysis and discussion of

key issues directly affecting the lives and well-being of citizens of the United States.

Unlike partisan institutes and advocacy groups, the North-South Center engages

vital inter-American issues such as trade, investment, competitiveness, security, corruption, civil-military relations, institutional reform, drug trafficking, immigration,

and the environment from the perspective of the public good. The Center devotes

its efforts toward publishing analyses that are accessible and relevant for diverse

audiences, including legislators, government officials, nongovernmental organizations, and the private sector.

The North-South Center is a reflection of the belief that the nation benefits when

the great issues of the Western Hemisphere are analyzed and debated by private

sector and nongovernmental groups under the auspices of a neutral forum. Governments cannot successfully convoke and organize nongovernmental opinion, and academic institutions have a different mandate. As a respected, independent, public

policy institution—fully cognizant of the special responsibilities attached to its federal funding—the Center has served this function successfully. Most notably, the

Center has established a unique capacity to serve as a forum and facilitator for civil

society input in the far-reaching inter-American policy negotiations that seek to

build upon the Miami Summit of the Americas. These negotiations are creating the

underlying architecture of inter-American relations for decades to come.

Hemispheric Security Issues

The Center has been deeply engaged in promoting and sponsoring research and

dialogue on inter-American security issues, especially since the onset of federal

funding support in 1991. Among other issues, the Center has conducted an extensive research program on drug trafficking in the Hemisphere. It has studied and

promoted dialogue on the crises in Cuba, Panama, and Haiti. The Center has engaged in research in civil-military relations, conflict resolution, and security cooperation, and it has followed closely the Peru-Ecuador border conflict, in which the

United States has acted as one of the primary ‘‘guarantor’’ powers. The Center

hosted, in December 1996, an international conference attended by 58 scholars and

government officials from eight countries in the Americas to assess the impact of

that conflict on inter-American relations.

The Center founded its own inter-American security program in April 1997, headed by Dr. Richard Downes, a former officer in the U.S. Air Force. The program focuses on ways to improve Hemispheric collaboration on control of illegal drug trafficking, improving civil-military relations, initiating and sustaining efforts at conflict

resolution in the Americas, exchange of information on arms proliferation in the

Americas, and exploring systematic ways to improve cooperative security in the region. The focus of the program and the Center’s accomplishments in the security

area were recognized in a letter to the Center’s director from General Wesley K.

Clark, USA, the then Commander in Chief, United States Southern Command, in

March 1997.

The relocation of the U.S. Southern Command to Miami in late 1997 has afforded

an enhanced role for the Center in security issues. The Center figured prominently

in discussions on the future of civil-military relations in the Hemisphere at a recent

conference with key Latin American military officials sponsored by the U.S. Southern Command and the U.S. Army War College. In December 1997, the Center

founded the ‘‘Miami Security Roundtable’’ with the cooperation of the University of

Miami School of International Studies, the Latin American and Caribbean Center

of Florida International University, and the U.S. Southern Command headquarters

in Miami. Three meetings of the Roundtable held thus far have brought together,

in an informal setting, thirty or more academic experts and staff members of the

U.S. Southern Command to discuss the latest security issues in the Americas, including drug trafficking and transnational crime. The Center’s Issues report on

inter-American security cooperation has been well-received in academic and professional circles. We are currently preparing a monograph in the Center’s Agenda

paper series entitled ‘‘Building New Security Relationships in the Americas: The

Critical Next Steps’’ for release in mid-May 1998 and a new Issues report on environmental security in the Americas, to be published in June 1998. We are in close
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consultation with the newly established Center for Hemispheric Defense Studies at

the National Defense University at Ft. McNair, Washington, D.C. We anticipate

that cooperative programs will result this year from our discussions.

The Center’s director serves on the Board of Visitors of the U.S. Army School of

the Americas in Ft. Benning, Georgia. In that capacity, he has been engaged in reviewing the curriculum of the school and sharing perspectives with a senior officer

from U.S. Southern Command headquarters who acts as the Command’s liaison

with the school. The Center’s director also has a Presidential appointment to the

Panama Canal Consultative Committee, a body charged with making recommendations in connection with the operation and future of the Panama Canal. The Center

looks forward to enhancing its contributions in the security field. We have applied

for sponsorship from a major foundation for a grant to conduct a security review

of an increasingly turbulent region of the Hemisphere—the Amazon Basin. The Center is prepared to collaborate with the Department of State and the Office of National Drug Control Policy to conduct a series of seminars on conflict resolution,

civil-military relations, and drug control strategies with civil society experts.

In summary, the Center is committed to advancing the state of security cooperation in the Americas. It serves as a bridge between government officials dedicated

to enhancing regional security and academic and other civil society experts who

have devoted their professional lives to analyzing the Hemisphere’s critical security

issues. We believe that Hemispheric cooperation on security issues can multiply the

impact of United States policy initiatives generally and overcome historically profound cultural and political gaps between North and South.

The Overall Agenda: Economic Growth and Sustainable Development

In a broader context, the Center’s research programs are framed in a manner

which recognizes the imperatives for the development of the economies of the Latin

American and Caribbean countries and for the extension and deepening of the region’s democratic practices. These are seen as crucial for the long-term prosperity

of the United States, and as a means by which to address the human problems that

result from poverty and under development, such as environmental degradation, uncontrolled migration, narcotics production, and political and social instability. The

programs under this thematic include research and outreach in the Inter-American

Business and Labor Program, Summit of the Americas working groups on trade and

the environment, the above-mentioned research activities on the emerging agenda

of inter-American security issues, analysis of immigration problems in a multilateral

context, studies on institutions and democratic governance, and training and education seminars. A special regional emphasis is given to the wider Caribbean

through the Caribbean Studies Program. Small-scale studies on discreet research

topics that fall within the scope of the overall research theme are carried out

through the Adjunct Senior Research Associate Program.

Accomplishments Toward Meeting Objectives in Fiscal Year 1997 and Fiscal Year

1998

In April 1997, the Center participated in a trade and investment seminar on Trinidad and Tobago, which featured the Prime Minister, Baseo Panday. In May 1997,

the Fifth Annual Reuters Seminar for economic and financial journalists in Latin

America was designed by and held at the Center under the title of ‘‘The Challenge

of Hemispheric Integration: Economic Alliances and National Realities.’’ Another

Reuters seminar is planned for May 1998. In February and June 1997, sessions

were held at the Center’s Washington office for civil society consultation with Timothy Wirth, Under-Secretary of State for Global Affairs, and representatives of U.S.

civil society on follow-up and implementation of the agreements from the December

1996 Santa Cruz Summit on Sustainable Development. In February, the Center

hosted the OAS Coordination Group for the ‘‘Inter-American Strategy for Participation (ISP): Strengthening Public Participation in Environment and Sustainable Development Policy Making in the Americas.’’ Later in the year, the Center participated in a meeting of the OAS Inter-American Commission on Sustainable Development, which also sought to follow up on the Santa Cruz Summit. In April 1997, Ambassador Richard Brown, Senior Coordinator, Summit of the Americas, U.S. Department of State, visited the Center for a discussion with some 30 invited participants

on ‘‘Developing the Hemispheric Agenda for the 1998 Summit of the Americas.’’

Toward a Better Hemisphere

To summarize, the North-South Center’s work unfolds against a backdrop of auspicious changes and urgent concerns. The Center addresses these issues, as it has

for more than ten years, influencing positive change throughout the Western Hemisphere in several distinctive ways:
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—Supporting economic growth, competitiveness, jobs, and regional trade integration;

—Serving as a catalyst to promote solutions for pressing regional security problems, including regional conflicts;

—Promoting democratic governance and social change with equity;

—Providing a forum for the study of environmental policies that promote sustainable development;

—Developing research and training programs that foster the exchange of ideas

and analysis of critical hemispheric issues;

—Promoting technical and scholarly interchange and productive networks among

scholars and throughout the private and public sectors;

—Producing policy-relevant books and reports.

The Summit of the Americas process offers the best hope for creating a secure,

durable and beneficial framework for inter-American relations. Yet, the promises of

summitry only become significant in their implementation. No other independent

body has been as active as the Center in monitoring progress on the commitments

made at the Miami Summit. As the Summit of the Americas II in Santiago, Chile

fast approaches, this function will only take on added importance for U.S. policy interests. We fully realize that the Congress always faces many difficult funding decisions. In an age of deepening interdependence in the Americas, and with great opportunities for regional economic growth before us, the North-South Center provides

a value-added return on U.S. taxpayer dollars. As a national resource in the public

interest providing informed analysis of issues whose effects reach into every American home, the North-South Center represents an investment in our citizens’ future

and well-being.

INTERNATIONAL CENTER FOR HEALTH RESEARCH

I would especially like to commend this Subcommittee for its significant and invaluable efforts in providing $50 million for the ‘‘Communicable Diseases Initiative’’

at USAID in fiscal year 1998. Like the Subcommittee, we believe that it is imperative that the United States address the threat of infectious diseases by responding

to the dramatic increase in, and resurgence of, communicable diseases affecting children and adults, assisting developing countries to strengthen their ability to protect

and care for their people, and stopping the spread of these communicable diseases

in developing countries. Emerging infections have been defined as those diseases

whose incidence has increased in the past two decades, or threatens to increase in

the near future. Re-emergence is the resurgence of known infections after declines

in incidence. Emerging and re-emerging diseases, once thought to be under control,

have sharply increased in recent years around the world. The reasons are multidimensional, including population growth and increased mobility, environmental

and climate changes, urbanization, the evolution of microbes, drug resistant organisms, and modern travel and trade. International commerce, travel, and migration

within the Americas are creating new opportunities for disease re-emergence and

greater spread, particularly when the movement of people and products is from developing to industrialized nations.

Infectious diseases are the leading cause of death worldwide, causing 17 million

of the 52 million deaths each year. The U.S. has also been adversely impacted by

emerging infectious diseases. This is evidenced by the fact that the death rate from

infectious diseases in the U.S. has increased more than 50 percent since 1980 and

in 1996, infectious diseases in the United States were ranked as the third leading

cause of death. This trend will continue in the future since infectious microbes can

easily travel across borders from other parts of the world and be introduced into

the United States, threatening our national health and security. Controlling disease

outbreaks and factors promoting them in other countries is important not only for

humanitarian reasons, but also to prevent those diseases from entering the United

States. Moreover, U.S. supported research in other countries provides American investigators with the opportunity and capacity to determine the causes, patterns of

spread, factors that promote infectivity, and strategies for prevention and control of

these diseases in the United States. Emerging infections are particularly serious in

individuals with impaired immune systems, including malnourished children and

adults. Even subclinical malnutrition or deficiency of individual vitamins and minerals that can only be detected by laboratory means, may predispose populations to

infectious diseases. Poor nutritional status has been shown to influence all aspects

of the humoral and cell mediated immune responses.

The synergistic interaction of malnutrition and infection has long been recognized.

Infectious illness influences nutritional status which, in turn, affects host susceptibility to infection. The interrelationships between infection, nutritional status and
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immune function are especially apparent in individuals infected with the HIV virus,

who exhibit impaired immune function and altered nutritional status. The international dimensions of emerging, and re-emerging infectious diseases are a continuous challenge that call for concerted efforts of the American countries. For example,

in 1993 a new hantaviral illness, hantavirus pulmonary syndrome (HPS) was identified in the southwestern region of the United States (CDC, MMWR, 1993). This disease is characterized by a febrile prodrome in young, healthy adults and disease

progression can lead to respiratory failure. This virus has now been identified from

cases around the world.

Cholera, has also returned in epidemic proportions. In the United States, more

cases occurred in 1992 than in any other year since cholera surveillance began in

1962. Since 1991, over 1 million cases and 9,000 deaths have occurred in Latin

America, and the disease is showing a tendency to become endemic in areas in

which basic sanitation is deficient and the educational level of the population is low.

Although cholera initially reemerged in Peru, the disease has occurred throughout

Latin America. The most profound problem associated with the reemergence of cholera has been the rapid emergence of multi-drug resistant strains. For example, Honduras witnessed its first case of cholera from the new pandemic in October, 1991.

Within five years, antimicrobial-resistant V. cholera strains appeared in this country (Dubon, et.al. 1997). This may be due to the overuse of antibiotics in this area

of the world or may indicate that drug-resistant cholera is becoming the dominant

infecting form of the organism. International commerce may play a role in the redistribution of multi-drug resistant Vibrio cholera strains to the United States and

other Latin American countries. The cholera problem illustrates how factors in one

continent interact with global health by facilitating increased microbial traffic to

distant regions. The re-emergence of dengue and dengue hemorrhagic fever (DHF)

has been dramatic in the Americas. During the last ten years, five countries in

South America have experienced major epidemics, for the first time in over 50 years.

In the United States, the first indigenous transmission of dengue after 35 years of

absence occurred in Texas in 1980. Between 1986 and 1992, the Centers for Disease

Control and Prevention (CDC) diagnosed 157 cases of dengue. In 1994, 37 laboratory-confirmed cases were reported, doubling the annual average from the previous

years (1987–1993). From 1977 to 1994, a total of 2,248 suspected cases of imported

dengue fever were reported in the United States. Both mosquito vectors, Aedes

aegypti and Aedes albopictus, are present in the southeastern part of the United

States (8 states) permitting rapid transmission of the virus throughout this region.

More recently, a major outbreak of dengue fever and DHF was reported from Cuba.

Nearly 3,000 cases of confirmed dengue fever (including 12 fatalities) were reported

during 1997 by the Cuban Ministry of Health (Kouri et.al., 1998). Since asymptomatic and subclinical dengue cases frequently occur, the number of people infected

with dengue virus was probably much higher. There are strong indications that dengue virus infections are currently increasing in several other Caribbean countries

as well in several countries in Central America. Thus, there is a compelling need

to increase surveillance activities to track the movement of dengue fever and DHF

throughout the Americas.

Tuberculosis (TB) appears to be on the rebound. In the United States, TB incidence rose from 22,210 to 25,313 between 1985–1993, with 60 percent of the excess

cases attributed to disease in foreign-born individuals. From 1986 to 1993, 40 percent of foreign-born cases were from Latin America. Between 200,000 and 250,000

cases have been reported annually in the Americas since 1980. Eight countries face

very severe problems, with incidence rates estimated at over 80 per 100,000: Bolivia,

Ecuador, El Salvador, Guatemala, Haiti, Honduras, Paraguay and Peru. There are

four factors that seem to contribute to such a resurgence of TB: the HIV/AIDS epidemic, drug resistance, an increase in marginalized populations, and neglect of public health TB control programs. According to the PanAmerican Health Organization

(PAHO) estimates, 3.5 percent of TB cases in the Region were associated with HIV

infection in 1990 and 15 percent will be linked to HIV infection in the year 2000.

In several countries of the Americas, including the United States, the emergence of

multi-drug resistant TB (MDR-TB) has been also intimately related to the HIV epidemic. Thus, drug resistance surveillance can be an important program indicator for

policy makers. Support of laboratories for international drug resistance monitoring

needs to be considered.

Malaria has had a resurgence in many tropical areas. The disease now occurs in

more than 90 countries worldwide and it is estimated that there are over 500 million clinical cases and 2.7 million malaria-caused deaths per year. A multitude of

factors have contributed to the reemergence of malaria, including (1) insecticide resistance in the Anopheles mosquito (2) social instability resulting in movements of

unexposed nonimmune individuals into areas where malaria is endemic and (3) the
248

failure to develop an effective malaria vaccine. Compounding the problems of malaria’s geographical expansion and of increasing morbidity and mortality are the emergence and rapid spread of antimalaria-drug resistance which necessitate the use of

more expensive and sometimes toxic antimalaria drugs and longer treatment course.

In various parts of the United States, concomitance of competent vectors, suitable

weather conditions, and malaria-infecting carriers entering the country have caused

isolated cases or small outbreaks of ‘‘autochthonous malaria’’. In the past, these

cases were limited to rural settings, but since 1990, indigenous malaria has been

reported in urban areas as well. Plasmodium falciparum, the hemoparasite which

causes the most severe form of the disease, has become even more resistant to commonly used antimalarial drugs. Resistant falciparum malaria is now present

throughout malaria endemic areas of South America.

Antimicrobial drug resistance is perhaps one of the most alarming threats among

the problems presented by emerging and re-emerging infections. The problem is well

documented in the United States where increasing levels of drug resistance in both

community-acquired (e.g. MDR Streptococus pneumonia) and nosocomial infections

(resistant enterococci) have led infectious disease experts to declare the situation a

crisis that could lead to a ‘‘post-antibiotic’’ era. Although less well-documented, the

threat of antimicrobial resistance in the developing nations of the Western Hemisphere appears to outweigh that present in the United States and Canada. Most of

the Latin American countries have conditions that facilitate antimicrobial drug resistance: uncontrolled sale of antibiotics, frequent self-medication, overcrowding and

lack of adequate nosocomial infection control programs in many hospitals, along

with almost nonexistent surveillance and reporting of antimicrobial resistance patterns.

The HIV/AIDS pandemic continues to increase exponentially. Reports from the

World Health Organization (WHO), the Joint United Nations Programme on HIV/

AID (UNAIDS), and the World Bank (WB) predict dramatic increases in worldwide

HIV infections, particularly in developing nations. Dr. Piot, executive director of

UNAIDS recently announced that ‘‘We are now realizing that rates of HIV transmission have been grossly underestimated—particularly in sub-Saharan Africa’’.

The WHO has stated that ‘‘The growing global HIV/AIDS crises is reversing decade

of progress toward improving the quality of life in developing countries.’’ It is now

estimated that more than 30 million individuals are infected with HIV worldwide

with as many as 16,000 new individuals becoming infected each during 1997. Nearly

90 percent of all people infected with HIV live in developing countries (Fox, 1998).

Clearly, major research efforts need to be focused on the development of HIV prevention programs and more importantly, into the development of an effective vaccine.

The HIV/AIDS epidemic has also refocusing the attention of public health experts

on the problem of emerging and re-emerging infectious diseases. HIV/AIDS and

other sexually transmitted diseases (STD’s) illustrate the impact of changes in demographic conditions, social standards, modification of the global environment, and

the mutability of microorganisms. The impact of HIV/AIDS on public health is due

in large part to the multiple opportunistic infections that develop in association with

this condition (e.g. Mycobacterium complex, Pneumocistis carinni, Toxoplasma

goondii, Cryptosporidium, etc.). In 1993, the United States experienced the largest

waterborne disease outbreak ever registered. The source was the urban municipal

water supply contaminated with Cryptosporidium, an intestinal parasite that causes

prolonged diarrheal illness, and severe disease in the immunosuppresed individuals.

In addition, HIV infection interacts in complex ways with other tropical infectious

diseases endemic in Latin America, such as Chagas’ disease and leishmaniasis,

which are occurring with varied and unusual clinical manifestations in persons infected with HIV.

The magnitude and gravity of the current emerging and re-emerging infectious

disease situation in the region of the Americas is of critical concern. In order to develop an effective system for disease surveillance control and prevention, a strong

and stable research infrastructure and close cooperation between scientists of

United States and Latin America and Caribbean countries are essential. Enhanced

research and training efforts need to be established in the areas involving the most

prevalent infectious diseases including TB, malaria, dengue, cholera, and HIV. The

complex interaction between nutritional status and susceptibility, as well as disease

progression, and control of these infections needs to be investigated along with basic

research on all aspects of disease processes and public health strategies.

The University of Miami, International Center for Health Research is located in

Miami, Florida, the major gateway city to Latin America and the Caribbean. The

major goals of the Center are to investigate biological characteristics of causative

microbial agents, to study the risk factors related to the spread of these infections,
249

including interactions between nutritional status and susceptibility, as well as to develop innovative preventive strategies. An important role of the Center involves collaborative infectious disease control and prevention efforts to broaden expertise of

indigenous Latin American and Caribbean health professionals, and link laboratory

science and epidemiology with public health strategies and policy making processes.

The Center’s priority is to strengthen programs for the control of major infectious

diseases, particularly malaria, dengue, TB and cholera. Emphasis is also placed on

programs aimed at preventing the spread and reducing the impact of HIV infection

and other sexually transmitted diseases. There is an urgent need to strengthen the

existing research infrastructure and a close collaboration between U.S. and Latin

American and Caribbean scientists and policy makers. This enhanced research will

lead to development of new effective strategies for control and prevention of these

emerging and re-emerging diseases in the Americas. We respectfully seek the Subcommittee’s support for $2 million for the International Center for Health Research

at the University of Miami to strengthen and expand its research and prevention

efforts in Central America and The Caribbean. Once again, thank you for your critical support for USAID’s efforts in infectious diseases.

On the occasion of submitting testimony for the record to the Foreign Operations

Subcommittee, Committee on Appropriations, U.S. Senate, regarding the fiscal year

1999 Budget for the United States Agency for International Development (USAID).

I, Cyrus M. Jollivette, Vice President for Government Relations of the University

of Miami, located in Coral Gables, Florida, state the following:

According to the two most recent audits of the University of Miami performed in

accordance with provisions of Office of Management and Budget (OMB) circular A–

133 (‘‘Audits of Institutions of Higher Learning and other Non-profit institutions’’)

for the fiscal years ending May 31, 1996 and May 31, 1997, federal awards received

by the University of Miami for all activities (including research and development,

student financial aid, extension education, public service, academic support, enterprise/institutional/plant support, and scholarships and fellowships) totaled

$121,562,876 and $122,601,809 respectively.

Should the Subcommittee require further details of federal support received at the

University of Miami, or copies of the audits as produced by Arthur Anderson LLP

(for fiscal year 1996 and fiscal year 1997), the University’s independent auditors,

I will make every effort to see that they are provided.

PREPARED STATEMENT OF DR. RICHARD L. BERNALA, JAMAICA’S AMBASSADOR TO THE

UNITED STATES AND PERMANENT REPRESENTATIVE TO THE ORGANIZATION OF

AMERICAN STATES

Thank you for providing this opportunity to submit testimony highlighting Jamaica’s views on the Clinton Administration’s fiscal year 1999 Request for Latin America and the Caribbean.

INTRODUCTION

Over the years, U.S. assistance and trade programs have fostered an important

economic partnership between the United States and the countries of the Caribbean

Basin. Since the 1980’s, U.S. foreign aid to the region has averaged about $200 million. At the same time, during this period, U.S. exports to the Caribbean have expanded by more than 200 percent and Caribbean exports to the United States have

climbed by nearly 170 percent. The Caribbean Basin now comprises the tenth largest market for the United States, and it is one of the few regions where the United

States consistently posts a trade surplus. With combined trade exceeding $36 billion

in 1997, U.S./Caribbean commercial links support more than 360,000 jobs in the

United States and countless more throughout the Caribbean and Central America.

For Jamaica, the United States is an important economic partner and supporter

of its development program. Indeed, over the past decade, Jamaica has been a major

recipient of U.S. foreign aid to the Caribbean region. The United States has been

a vital source of funding for the following programs: facilitating economic liberalization and private sector-led growth; promoting institution-building and public sector

efficiency; supporting debt reduction; providing assistance to the social sectors to

cushion the effects of economic adjustment on the poor; improving natural resource

management; assisting in efforts to combat the international narcotics trade; and

funding environmental protection.

Ultimately, Jamaica is seeking to reduce its traditional reliance on official assistance and to finance development through a combination of domestic and foreign private capital flows. However, this long-term goal can only be achieved with continued
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United States support for Jamaica’s comprehensive economic reform and development programs.

Jamaica is acutely aware of the budgetary constraints in the United States. Furthermore, given the end of the Cold War and pressing domestic concerns, Congress

and the American public opinion favor a reduction in foreign assistance programs.

The Government of Jamaica welcomes the refocusing of the U.S. aid program towards sustainable development, with an emphasis on entrepreneurial development,

assistance to the social sectors, and popular participation in the development process. Nevertheless, while the rationale for this new approach is clearly understood,

a reduction in assistance resources to be a phased process which is sensitive to Jamaica’s development needs. Sudden and drastic foreign aid cuts would adversely affect Jamaica’s structural transformation efforts.

SUPPORTING SUSTAINABLE ECONOMIC GROWTH

Since 1990, the Jamaican Government has been implementing a comprehensive

and uncompromising economic program which has brought positive results and

which has supported private sector-led, market-driven economic growth. The Government is now working vigorously to maintain and strengthen confidence in its financial sector while engaging in wide-ranging activities to promote consumer rights,

dismantle government regulations, and encourage private sector development. The

U.S. Government has supported this process of economic reform and trade liberalization by providing balance of payments support, in addition to traditional development assistance funding (DA) for specific projects and programmes to support overall growth targets.

Development Assistance (DA) has helped Jamaica undertake critical social programmes in areas such as education and public health, and economic programs,

through the promotion of micro-enterprise development. In fiscal year 1999, USAID

is proposing to allocate $11 million to Jamaica to stimulate micro-entrepreneurial

activity; to increase employment in small, niche export industries; to promote environmentally sustainable policies, especially in the tourist areas, to raise educational

standards of elementary school children; and to encourage effective family planning

techniques.

Such programs are clearly in the U.S. interest, particularly since Jamaica is in

such close proximity to the United States. It should be noted that, as the economy

has expanded, so too has our ability to import from the United States, our largest

trading partner. Jamaica currently imports about 70 percent of its goods and services from the United States and since 1985, annual growth of U.S. exports to Jamaica has averaged 12 percent. Moreover, the accomplishment of social, health, and

educational goals contribute to overall stability, which have a dampening effect on

migration and narcotics trafficking through U.S. borders.

SUPPORTING PRIVATE SECTOR DEVELOPMENT: THE MULTILATERAL INVESTMENT FUND

The United States has also supported private sector development via the InterAmerican Development Bank’s Multilateral Investment Fund (MIF). In fact, Jamaica was the first country to receive funding from the MIF. This $1.5 billion development facility is being used to support micro-enterprise and human resource development and strengthen private sector activities in Jamaica and other activities

throughout the region. In fact, the first MIF project provided $1.8 million to support

the establishment of an Employee Share Ownership Plan (ESOP) to expand the participation of Jamaica’s labor unions in Jamaica’s privatization program. Additional

projects in Jamaica have included:

—$1.27 million to establish an Office of Utilities Regulation;

—$3.5 million to fund a human resource development pilot project—a unique collaboration between organized labor and employers to expand private sector capacity to retrain displaced workers and improve labor market exchange mechanisms;

—$1.9 million for institutional strengthening of the Jamaican Cooperative Credit

Union League;

—$1 million for computer-aided technology and training in rural Jamaica—an extension of a private sector initiative: Jamaica 2000; and most recently; and

—$1.5 million in institutional support for the Financial Sector Adjustment Company (FINSAC), which was created by the government to facilitate the restructuring of the financial sector.

Cumulatively, Jamaica has received $11.7 million in grants from the MIF through

December 1997. U.S. leadership in the MIF has played an important role in guaranteeing matching contributions from other donor governments, including the Japanese, thereby ensuring the success of this program. The Government of Jamaica
251

supports the President’s commitment to request continued U.S. contributions to the

MIF.

SUPPORTING PRIVATE SECTOR DEVELOPMENT: PRIVATE SECTOR INVESTMENT FUNDS

In the face of aid cuts, the government is also looking to private sector sources

and foreign direct investment to generate additional capital to finance Jamaica’s development needs.

U.S. Government support has been instrumental in facilitating private investment

in Jamaica, strengthening a complementary partnership that ultimately generates

U.S. jobs and exports. The Overseas Private Investment Corporation has supported

dozens of projects in Jamaica—to the amount of $835 million—since it opened for

business there in 1963. OPIC provided more than $40 million in political risk insurance during 1996 alone. Moreover, over the past ten years, the Section 936 program

generated more than $2 billion in investment throughout the Caribbean, one-quarter of which was in Jamaica. Combined, these programs have supported much of

the foreign direct investment targeted for Jamaica over the past decade. Regrettably, however, the Congress closed the Section 936 window in 1996.

Several programs may provide a mechanism to help the Caribbean fill this funding gap. First, OPIC itself may provide a solution through the creation of an OPIC

Equity Fund for the Caribbean Basin. OPIC currently supports 4 sector-specific

funds as well as 24 regional funds operating in virtually every region of the world.

Conspicuously absent is an OPIC-supported regional fund for the countries of Central America and the Caribbean Basin. Several investor groups are already petitioning for the creation of such a fund as a way to help accumulate sufficient capital

to invest in the region. This fund would help attract the risk-averse investors to the

Caribbean Basin economies while strengthening OPIC’s portfolio in the region—a

fact that may also benefit OPIC, given the widespread constituency of support for

regional trade links.

A related concept is the creation of an Enterprise Fund, which has recently been

suggested by House Foreign Operations Subcommittee Chairman Sonny Callahan

(R-AL). Although enterprise funds have posted mixed records in Eastern Europe,

they have provided an important mechanism to encourage the development of a viable private sector in the former communist countries. Such a model could be replicated in Jamaica to encourage the development of a vibrant private sector among

micro-entrepreneurs and the sectors of society traditionally overlooked by other development programs. Moreover, an enterprise fund could provide a structured way

for Jamaicans living throughout the United States to participate in the development

of their homeland.

PROMOTING TRADE EXPANSION

In the context of the foreign aid debate, Congress should also give due consideration to the strengthening of our mutually beneficial trading partnership. In the

long-term, as foreign aid is phased out, it can only be replaced by a sound, and commercially viable, trade and investment relationship. Jamaica has long recognized

the importance of such a relationship with the United States. Bilateral trade flows

have expanded by more than 10 percent a year since the mid-1980’s. Moreover, U.S.

investors are playing an active role in Jamaica’s growing private sector.

The Caribbean Basin Initiative (CBI) has formed an important basis for the U.S./

Jamaican and U.S./Caribbean partnership to flourish. The Administration has recently developed a proposal to strengthen this CBI framework to help CBI countries

cope with trade and investment diversion from Mexico under the NAFTA. Such diversion has already begun to distort trade and investment flows with the Caribbean

country. In 1997, for example, contractions in the Jamaica textile and apparel sector

led to a decline in both exports to, and imports from, the United States. We are

hopeful that this situation can be remedied through the enactment of pending legislation during the 105th Congress.

Jamaica was an active participant in the preliminary discussions and summits

leading toward the Free Trade Area of the Americas (FTAA). Jamaica chaired the

Working Group on Smaller Economies, calling attention to the needs of the smaller

economies in the FTAA framework. The size and trade profile of many of these

countries—which by some estimates account for about two-thirds of the FTAA participants—makes them particularly vulnerable to the shocks of external events.

While they all want to embrace the path of trade liberalization, they are often not

capable of implementing steps on the same timetable as their more developed neighbors.
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FACILITATING DEBT REDUCTION

Jamaica continues to face heavy debt service obligations. Recently, the United

States has made valuable concessions which have provided important debt relief to

support reform efforts. This debt relief frees scarce foreign exchange resources for

crucial imports and reduced debt servicing helps to lower fiscal expenditure, thereby

contributing to Jamaica’s growth. The program has also channeled local currency

debt repayments into environmental management funds, building a sustainable environmental framework for development. Ultimately, because of debt relief, Jamaica

has been one of the few countries to reduce its stock of external debt and debt servicing. The stock of public debt currently totals approximately $5.23 billion, more

than half of which is external debt.

Nevertheless, debt service obligations remain high and currently absorb approximately 45 percent of the Government’s annual budget. By comparison, in the United

States, where public debate has highlighted the burden of the U.S. Government

budget deficit, debt service is roughly 14 percent. As Jamaica allocates such a high

percentage of the public sector budget for debt servicing, it is unable to pursue other

on-going development priorities. In this regard, Jamaica welcomes the approval in

recent appropriations and authorizations bills of new mechanisms to effect debt reduction for environmental programs, based on the Enterprise for the Americas Initiative (EAI). Jamaica endorses efforts to renew this program for fiscal year 1999,

and has engaged in discussions with the Administration about how this program

can be deployed to assist in reducing Jamaica’s debt burden while providing the

mechanisms to sustain the mutual development efforts of both Jamaica and the

United States.

SUPPORTING COUNTER-NARCOTICS ACTIVITIES

The Jamaican government is irrevocably committed to maintaining a comprehensive anti-drug campaign based upon a two-pronged approach, focusing both on supply and demand reduction. To curtail the supply of drugs, the government is engaged in a campaign to eradicate marijuana growing in the remote mountainous regions of the country and to strengthen capabilities to interdict and punish drug offenders. Already Jamaica has succeeded in reducing marijuana production substantially since 1990. Jamaica has also recently passed legislation on asset forfeiture

and money laundering, implemented a Mutual Legal Assistance Treaty (MLAT) and

a new shiprider agreement with the United States, and is now preparing to consider

legislation to prevent trade in pre-cursor chemicals. The United States has made an

important contribution through the support of economic and security assistance,

training, and other material and assets, and we are actively working with U.S. government agencies to strengthen cooperation across a range of activities.

Jamaica also recognizes that without a demand for illegal drugs, there would be

no industry. To stem demand for drugs in Jamaica, critically acclaimed programs

are being funded that focus on rehabilitating former drug addicts and on providing

drug education to vulnerable groups. These supply and demand-related programs

place considerable pressure on the Jamaican government’s budget, particularly at

a time when there is considerable effort to fund other social programs while curtailing the growth of fiscal expenditure. With continued U.S. assistance, Jamaica can

maintain its aggressive efforts, both to stop the harmful flow of drugs into the

United States and to provide viable alternatives for Jamaicans to induce them out

of illegal narcotics activities.

While we understand the U.S. domestic debate regarding counter-narcotics assistance, our fear is that reduced counter-narcotics funding may be interpreted as a signal to international drug cartels that Jamaica has a reduced capability to effectively

engage in international narcotics interdiction. Similarly, such reductions would put

additional financial burdens on the Jamaican Government at a time when it is undertaking critical economic reforms. U.S. assistance sustains an important partnership in the effort to combat international narcotics trafficking.

CONCLUSION

Jamaica is now moving decisively to promote economic growth—both by attracting

foreign investment and mobilizing domestic savings. In March 1996, the Jamaican

Government finalized and issued a National Industrial Policy that outlines a framework under which different sectors of the economy—government, private firms, and

organized labor—can work together to ensure growth and prosperity in Jamaica

through the 21st century. This policy provides an important long-term blueprint for

Jamaica’s economic development, focusing on growth through investment and export

promotion. During that same month, Jamaica successfully completed an IMF ex-
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tended funds facility agreement, bringing to an end Jamaica’s long borrowing relationship with the Fund, and setting the stage for current government economic policies.

U.S. assistance is making an important contribution to Jamaica’s development.

USAID-Jamaica has been particularly effective at the grassroots level, funding programs that seek to incorporate the poor into the economic growth process. This is

crucial for sustainable development, which in turn will further stimulate trade and

investment with the United States. The U.S. foreign assistance program in Jamaica,

should be viewed as an investment in the economic well-being of the United States,

not as outflows of money. The mutual benefits of foreign assistance are well-documented and need to be clearly recognized. Strengthening our common economic relationship will provide an additional framework through which aid flows can be replaced by advantageous commercial linkages.

U.S./CBI TRADE STATISTICS (1985–96)

[Millions of U.S. dollars]

Year U.S. imports U.S. exports

Annual export

growth

(percent)

Trade balance

1985 ....................................................... 6,687 5,942 ........................ ¥745

1986 ....................................................... 6,065 6,362 7.1 297

1987 ....................................................... 6,039 6,906 8.6 867

1988 ....................................................... 6,061 7,690 11.4 1,629

1989 ....................................................... 6,637 8,290 7.8 1,653

1990 ....................................................... 7,525 9,569 15.4 2,044

1991 ....................................................... 8,372 10,013 4.6 1,641

1992 ....................................................... 9,627 11,263 12.5 1,636

1993 ....................................................... 10,378 12,428 10.3 2,050

1994 ....................................................... 11,495 13,441 8.1 1,946

1995 ....................................................... 12,673 15,306 13.8 2,633

1996 ....................................................... 14,469 15,870 3.7 1,401

1997 ....................................................... 17,740 18,431 16.1 692

Average annual U.S. export growth ...... ........................ ........................ 9.95 ........................

Note: 1997 marked the 12th straight year of U.S. trade surpluses.

Source: U.S. Department of Commerce and U.S. International Trade Commission.

NUMBER OF U.S. WORKERS DEPENDENT ON TRADE WITH THE CARIBBEAN BASIN NATIONS

Year Total number of

U.S. workers 1

Number of new

U.S. jobs created

per year

1985 ........................................................................................................ 118,840 ............................

1986 ........................................................................................................ 127,240 8,400

1987 ........................................................................................................ 138,120 10,880

1988 ........................................................................................................ 153,800 15,680

1989 ........................................................................................................ 165,800 12,000

1990 ........................................................................................................ 191,380 25,580

1991 ........................................................................................................ 200,260 8,880

1992 ........................................................................................................ 225,262 25,002

1993 ........................................................................................................ 248,552 23,290

1994 ........................................................................................................ 268,814 20,292

1995 ........................................................................................................ 306,120 37,306

1996 ........................................................................................................ 317,400 11,280

1997 ........................................................................................................ 368,600 51,200

Average annual job creation .................................................................. ............................ 20,813

1 Assuming that $1 billion in U.S. exports creates 20,000 U.S. trade-related jobs.

Source: U.S. Department of Commerce and U.S. International Trade Commission.
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U.S./JAMAICAN TRADE STATISTICS (1985–97)

[Millions of U.S. dollars]

Year Annual U.S.

imports

Annual U.S.

exports

Export growth

(percent) Trade balance

1985 ....................................................... 267 404 ........................ 137

1986 ....................................................... 298 457 13.1 159

1987 ....................................................... 394 601 31.5 207

1988 ....................................................... 441 762 26.8 321

1989 ....................................................... 527 1,006 32.0 479

1990 ....................................................... 564 943 ¥6.3 379

1991 ....................................................... 576 963 2.1 387

1992 ....................................................... 599 938 ¥2.6 339

1993 ....................................................... 720 1,113 18.7 393

1994 ....................................................... 747 1,066 ¥4.2 319

1995 ....................................................... 847 1,421 33.3 574

1996 ....................................................... 839 1,491 4.9 652

1997 ....................................................... 738 1,417 ¥5.0 679

Average annual U.S. export growth ...... ........................ ........................ 12.0 ........................

Note: U.S. trade surplus in 1997 is the 13th straight year of trade surpluses.

Source: U.S. Department of Commerce and U.S. International Trade Commission.

U.S. FOREIGN ASSISTANCE TO JAMAICA (FISCAL 1985–99) 1

[Millions of U.S. dollars]

Year 2 ESF DA Public Law

480 MIL PeaceCorps Narc Prog Total

1985 ....................................... 81.0 34.3 40.1 7.6 .............. 2.4 165.6

1986 ....................................... 58.6 26.1 37.6 8.0 1.5 2.6 134.3

1987 ....................................... 26.0 18.1 39.9 3.4 3.3 2.5 93.1

1988 ....................................... .5 39.2 35.7 .3 1.9 3.0 80.7

1989 ....................................... 12.9 51.8 47.1 3.8 1.0 3.0 119.6

1990 ....................................... 13.2 14.0 44.2 1.3 1.0 2.3 76.6

1991 ....................................... 10.0 17.2 44.7 1.9 1.4 2.4 77.6

1992 ....................................... 15.9 22.3 32.6 3.2 1.0 2.1 77.0

1993 ....................................... 2.0 13.7 30.0 .4 1.3 2.3 49.7

1994 ....................................... .............. 8.9 14.0 .5 .6 2.2 26.2

1995 ....................................... .............. 10.5 .............. .2 .6 1.9 13.2

1996 ....................................... .............. 7.8 2.2 .5 .7 1.9 13.1

1997 ....................................... .............. 11.2 .............. .5 .7 1.9 14.3

1998 ....................................... .............. 11.0 .............. .5 .6 2.0 14.1

1999 ....................................... .............. 10.9 .............. .5 .8 2.0 14.2

1 Fiscal year 1999 request levels equal 8.6 percent of fiscal year 1985 actual levels.

2 Figures for fiscal years 1997 and 1998 represent actual appropriations. Figures for fiscal year 1999 are based on request levels.

Note: Figures may not total exactly due to rounding.

Source: USAID, Obligations and Loan Authorizations Fiscal Year 1946–Fiscal Year 1992. USAID Congressional Presentation, fiscal years 1995–99.

ASSISTANCE TO GREECE, CYPRUS, AND TURKEY

PREPARED STATEMENT OF ANDREW E. MANATOS, PRESIDENT, NATIONAL

COORDINATED EFFORT OF HELLENES

I and the national Greek-American organizations on whose boards I serve value

this opportunity to participate in our country’s democratic process. What follows are

our recommendations for foreign assistance levels for and American policies toward

the countries of Greece, Cyprus and Turkey in fiscal year 1999. We believe that

these recommendations will significantly benefit our country’s short term and long

term interests.
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As this committee knows, this year the United States, the European Union and

the United Nations have intensified their efforts to bring about a just and viable

Cyprus settlement as well as greater stability in the Eastern Mediterranean. The

success of these important and unprecedented efforts will be significantly advanced

if the government of Turkey continues to receive the proper message from our government and the international community.

The Turkish government must understand that the path to Turkish advancement

requires adherence to today’s rules of a civilized world order, including a respect for

human rights, intentional law and sovereignty, and the non-use of force or threat

of force. The traditional American message sent to Turkey (through our previously

routine and presently sporadic practice of ignoring Turkish wrongdoing) has given

legitimate standing and credence to a group in Turkey who advocate that Turkey

can advance by saying the ‘‘right’’ things and doing the ‘‘wrong’’ things. In today’s

world, whether in the EU or the U.S., leaders will no longer accept the ‘‘right’’ words

followed by the ‘‘wrong’’ actions. There are a significant number of journalists, government officials and business people in Turkey who understand that the best interests of the Turkish people lay in their government adhering to standards of modern

civilization. They will be strengthened if America’s message on this subject is correct.

Mr. Chairman, we urge you and your subcommittee to do whatever you can in

this year’s legislation to help Turkey understand that in today’s world, whether in

the European Union or the United States, leaders will no longer accept ‘‘right’’

words followed by ‘‘wrong’’ actions. Please help reinforce, as the E.U. reinforced, the

evidence to which enlightened people in Turkey can point to show the direction their

country must go.

PRESIDENT’S REQUESTED AID LEVELS

With regard of the specific aid levels that President Bill Clinton requested of the

Congress for Greece, Cyprus and Turkey, we strongly support these levels and encourage the Congress to adopt them. The President’s budget asks the Congress to

send no military aid to Turkey and Greece, no economic aid to Turkey, and the full

15 million in aid to Cyprus.

It is time to end U.S. military aid to Turkey, a country which has been using U.S.

military equipment to violate internationally accepted standards of conduct, including threatening U.S. allies, Greece and Cyprus, and illegally occupying Cyprus. It

would mark the end of a process started by the U.S. Congress 6 years ago to graduate Turkey and Greece from the annual U.S. foreign military financing program.

The primary reason Greece and Cyprus need military equipment is to defend themselves against U.S arms and Turkish hands.

With regard to Turkey’s economic aid, each year since 1994 the U.S. Congress has

cut or conditioned a portion of this aid in the attempt to send a message of U.S.

disapproval of Turkish actions with regard to Greece, Cyprus, Armenia, and its

Kurdish population. Ending this aid sends the strongest message.

With regard to the traditional $15 million earmark in economic aid for Cyprus

adopted in the final foreign operations appropriations bill each year, it is important

that the Congress maintain this demonstration of support for a peaceful reunification of the island. An appropriation of anything less would send the people of Cyprus the wrong message at perhaps the most crucial time for settlement efforts in

the nearly 24 years since the Turkish invasion and occupation of Cyprus.

IMPORTANT ISSUES

Mr. Chairman, I would like to take the remainder of my testimony to highlight

for you some important developments that have taken place with regard to the

countries of Greece, Cyprus and Turkey since I testified before your committee a

year ago.

Relations between Greece and Turkey

On July 8, 1997, U.S. Secretary of State Madeleine Albright hosted a meeting at

the NATO summit in Madrid between the Foreign Ministers of Greece and Turkey.

At this meeting the two countries agreed to abide by a set of important, internationally recognized standards of conduct including: Respect for the principals of international law and international agreements; Respect for each other’s sovereignty;

Commitment to settle disputes by peaceful means based on mutual consent and

without use of force or threat of force; and A mutual commitment to peace, security

and the continuing development of good neighborly relations.
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Turkey must abide by these agree-to principles to the letter. If Turkey challenges

Greece’s sovereign rights, it should take such a challenge to the International Court

of Justice at the Hague or other appropriate legal forum.

Turkish Provocations Continue

Unfortunately, the Turkish government continued its aggressive acts against

Greece and Cyprus, violating the internationally accepted standards of conduct to

which it agreed in Madrid. Attached is a detailed list of such acts.

Sending Turkey the Proper Message

The administration has begun sending Turkey the proper message when such aggressive acts occur—that Turkish advancement requires adherence to today’s rules

of a civilized world. Two such examples follow:

—When four Turkish F–16 fighters buzzed the military transport plane carrying

Greece’s defense minister from Cyprus to Greece (on October 16, 1997), coming

close enough to make the plane rock, the Turkish government denied the incident. The President’s Special Envoy for Cyprus, Richard Holbrooke, stated publicly, ‘‘I have no doubt that the provocative action—indeed happened,’’ and ‘‘it

is an unacceptable action which does not at all help defusing tensions between

Greece and Turkey.’’

—When Turkish warplanes flew near Thessaloniki, Greece (on December 11,

1997), the State Department spokesman called such flights, ‘‘needlessly provocative and totally unnecessary,’’ stating clearly that the United States believes

that, ‘‘military activity of this kind undermines confidence and needlessly exacerbates tensions between our NATO allies.’’

The traditional American message sent to Turkey (through our previously routine

and presently sporadic practice of ignoring Turkish wrong doing) has given legitimate standing and credence to a group in Turkey who advocate that Turkey can

advance by saying the ‘‘right’’ things in doing ‘‘wrong’’ things. The administration

was the victim of those advocates following its hard work, which secured for Turkey

in 1995 the European Union’s Custom Union. Turkey’s ‘‘wrong’’ actions subsequently stopped the cold the completion of the Customs Union benefits for Turkey.

Again, in August of 1997, following Turkey’s ‘‘right’’ words in Madrid, Spain, the administration released $150 million worth of frigates and $113 million in Seahawk

Helicopters. Turkey’s ‘‘wrong’’ actions following the arms transfer that they wanted,

played a significant role in the European Union’s finding Turkey’s conduct as a nation unacceptable for accession.

The more enlightened individuals in Turkey have prevailed only when the message Turkey received suggested that only the ‘‘right’’ words and actions together

would produce the most for Turkey. The only time Turkey announced troop withdrawals from Cyprus was during the American arms embargo against Turkey and

again when the embargo was nearly reimposed.

The European Union’s Message to Turkey

On December 13, 1997 the European Union (EU) rejected Turkey’s bid to become

a member of the EU. Statements by EU officials and others (below) sent Turkey a

clear message:

—EU term president and prime minister of Luxembourg, Jean-Claude Juncker,

said (on December 17) that, ‘‘Turkey must understand that we are not just a

Christian club, but a club with principles and rules which it has to respect if

it wishes to become a member*** The EU has asked Turkey to recognize

the competence of the International Court of Justice at the Hauge, to show respect for the rules of good neighborliness and to support the efforts for a solution of the Cyprus issue and the island republic’s accession to the EU.’’

—European Parliament president, Jose Maria Gils-Robels, said (on December 12)

that to begin EU negotiations with Turkey, ‘‘it is necessary [for Turkey] to end

the occupation of Cyprus, to make big steps ahead concerning the treatment of

the Kurdish minority and to respect human rights.’’ Danish prime minister Poul

Nyrup Rasmussen added (December 11) that, ‘‘a country wishing to be considered as a candidate for EU membership cannot have territorial designs against

another member-state of the Union.’’

—The Jerusalem Post (on December 14) noted that, ‘‘There are several reasons

why Turkey does not qualify [for EU membership], apart from economics. In no

country in the EU, or among the aspiring members, are citizens tortured. In

Turkey they are. No EU state has 30,000 occupation troops in a neighboring

country, propping up a puppet government. In Cyprus, Turkey does. Turkey’s

treatment of its Kurdish minority is beneath contempt * * * It is true that

Turkey is generally admired as the only successful secular democratic Moslem
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state in the Middle East, but that is a long way from saying it is a fit candidate

for European Union membership.’’

Turkey’s Path to the EU

The EU noted (on December 13) that if Turkey wishes to join the European Conference (which will bring together EU member states and states aspiring to accede

to the EU) it must prove, as other members have, that it, ‘‘shares a common commitment to peace, security and good neighborliness, respect for other countries’

sovereignty*** and the commitment to settlement of disputes by peaceful

means.’’

Greece’s Prime Minister Constantine Simitis stated (on December 16) that Greece

is not opposed to Turkey’s European vocation and, on the contrary, would support

it if Turkey ‘‘played by the rules of the game which are accepted by all countries

and pertain to values, the rule of law and in general all those principles which consolidate peaceful cooperation.’’

Turkey’s Reaction

Turkish Prime Minister Yilmaz said (on December 15) that his government will

sever its political ties to the EU and threatened to derail U.S.-led Cyprus settlement

efforts.

Turkish-Cypriot leader Rauf Denktash announced that, ‘‘as a result of the EU decision, the intercommunal talks have been terminated and from now on TurkishCypriots will sit at the negotiating table only as a state.’’

Cyprus Settlement Efforts

On July 23, 1997 the House (by a vote of 417 for and only four against) and the

Senate (by unanimous consent) overwhelmingly adopted legislation calling for a U.S.

initiative seeking a just and peaceful resolution of the Cyprus problem. Through this

resolution, the U.S. Congress stated that: ‘‘the status quo on Cyprus * * * is an

unacceptable violation of international law and fundamental human

rights*** and undermines significant U.S. interests.’’

It also emphasized that a peaceful, just and lasting solution to the Cyprus problem would: serve important interests in the United States; strengthen peace and

stability in the Eastern Mediterranean; contribute to improved relations between

Greece and Turkey; and greatly benefit the security and the political, economic and

social well being of all Cypriots.

Cyprus Settlement Timetable:

The next year and-a-half offer what many consider to be the greatest opportunity,

in the over 23 and-a-half years since the division of Cyprus, to find a just and viable

settlement. Following the presidential elections in Cyprus in February, the United

States, the United Nations, and the European Union, launched an intensified effort

to bring about a just and viable Cyprus settlement. Two clocks are ticking that require significant progress in a short period of time.

Today (March 31) the European Union formally begins accession talks with Cyprus. Turkey has threatened that if such talks take place without a united Cyprus,

it will integrate the occupied areas of Cyprus into Turkey. Turkish-Cypriot leader

Rauf Denktash stated that if such talks with the EU take place before a Cyprus

solution, he would boycott all settlement efforts.

In addition, this summer Russia will deliver to Cyprus S–300 defensive groundto-air missiles. The Turkish government, from its prime minister and president to

its foreign and defense ministers, has clearly and repeatedly stated that if such a

delivery occurs, Turkey will strike militarily. Greece has stated that such a strike

against the relatively defenseless Cyprus would bring a counter attack from Greece.

The government of Cyprus, which has for many years has advocated a complete demilitarization of the island, says that these defensive missiles are only necessary if

the 30,000 Turkish troops remain. A Cyprus solution in the near future could become a necessity to keep NATO allies Greece and Turkey, and possibly Russia, from

going to war.

The U.S., the U.N. and the EU must not broker just any solution, but one that

is viable and just. A solution must be based on international law, the provisions of

relevant U.N. Security Council resolutions, democratic principles, including respect

for human rights, and in accordance with the norms and requirements for accession

to the European Union.

Greeks and Turks want to live together again on Cyprus. The United States

wants peace in the Eastern Mediterranean, beginning with Cyprus. Now is the time,

and perhaps the best and final opportunity, to make this happen.
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Progress on an Important Humanitarian Issue—the Missing in Cyprus

On March 5, 1998, the over 23 years of suffering by the Costas Kassapis family

of Detroit, Michigan was finally brought to closure. The Kassapis family was informed by the U.S. State Department that through the use of highly sophisticated

DNA testing, they believe that they have found the remains of their son and brother, Andrew Kassapis, in Cyprus. The last time the Kassapis family saw Andrew

alive was in the summer of 1974 when the then 17-year-old was taken from their

home in Cyprus by Turkish troops.

We hope that this case is just the first of many more to come. We are encouraged

by recent efforts to bring an end to this tragic, humanitarian issue. The July 31,

1997, agreement to immediately and simultaneously exchange all information on

the missing and the January, 1998, exchange of this information were major steps

forward. We pray that the families of the other 1,618 missing in Cyprus, including

four other Americans, also will be able to end their years of suffering soon.

The U.S. Congress should take great pride in this major development on this important issue. In 1994 the Congress passed and the President signed into law legislation directing the President to undertake this thorough investigation of the missing in Cyprus. We regret that such a law was necessary. However, years of efforts

by the United Nations investigatory committee on the missing and previous U.S.

State Department policies were unable to produce evidence for even a single case.

The Ecumenical Patriarchate

The Ecumenical Patriarchate, located in Istanbul, Turkey, is the spiritual center

for more than 300 million Orthodox Christians worldwide, including approximately

five million in the United States. There are several major concerns regarding the

Turkish Government’s treatment of this center of worldwide Orthodoxy:

Attacks on the Patriarchate

In recent years, the Ecumenical Patriarchate has experienced a number of security threats:

—On December 3, 1997, an explosive device was thrown over the wall of the Patriarchate, seriously injuring a clergyman and severely damaging the roof of the

Patriarchal Cathedral and the offices of the Patriarch.

—The year before, in September, the Patriarchate came under grenade and machine gun fire attack. The explosion tore off a corner of the roof of the Patriarchal Cathedral and blew the windows out of the sleeping quarters.

—In May of 1994, three powerful bombs linked to a timing device were found and

diffused only minutes before they were to detonate. Had they exploded the Patriarchate and everything within its walls would have been destroyed.

—Just two months prior to the discovery of these bombs, two firebombs were

hurled into the Patriarchate.

—His All Holiness Ecumenical Patriarch Bartholomew and those associated with

the Ecumenical Patriarchate are Turkish citizens and have the full protection

of Turkish law.

Reopening the Halki School of Theology

The reopening of the Halki Patriarchal School of Theology, the only educational

institution for Orthodox Christian leaders in Turkey, is vital for the long-term viability of the Ecumenical Patriarchate. The Turkish government arbitrarily closed

the Halki School in 1971. Turkish law requires that the Ecumenical Patriarch, as

well as all of the clergy, faculty and students, to be citizens of Turkey. The Halki

School is the only educational institution in Turkey for the Orthodox Christian leadership. The closing of the Halki School is in violation of international treaties to

which Turkey has been a signatory, including, but not limited to the Treaty of

Laussane, the 1968 Protocol, the Helsinki Final Act (1975) and the Charter of Paris.

Significance of the Patriarchate

The government of Turkey does not recognize the Ecumenical Patriarchate as the

spiritual center for worldwide Orthodoxy, but only as the head of the Greek Orthodox Church in Turkey. However, the Ecumenical Patriarchate, founded in 38 AD,

is a locale where the new testament was codified and the Nicene Creed was first

written. It was under the leadership and guidance of the Ecumenical Patriarchate

that the constitutional and dogmatic framework of the Christian Church was formulated. Ecumenical Patriarch Bartholomew is the 270th successor of the nearly 2,000

year old Christian center, founded by the apostle Andrew, the first-called Disciple

of Jesus Christ.
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U.S. Congress Honors Ecumenical Patriarch Bartholomew

On October 12, 1997, the U.S. Congress honored His All Holiness Ecumenical Patriarch Bartholomew with the highest recognition it can bestow—the Congressional

Gold Medal. He is only the fifth religious figure in America’s history to receive this

award, an honor first bestowed on George Washington in 1776 and subsequently to

such significant people as Thomas Edison, Winston Churchill and Mother Teresa.

The legislation bestowing this award on the Ecumenical Patriarch received more cosponsors (327) than any bill in recent memory.

AGGRESSIVE ACTS BY TURKEY AGAINST GREECE AND CYPRUS—MARCH 31, 1998

March 14, 1998.—Turkish troops open fire on and capture two Greek-Cypriot fishermen who were fishing in the territorial waters of the free area of Cyprus. They

are held in custody in the occupied area of Cyprus for six days.

Jan. 13, 1998.—Turkey announces, during time of heightened U.S., U.N. and E.U.

efforts for a Cyprus settlement, that Turkey’s embassies around the world will now

also represent the occupied area of Cyprus, in a step toward integrating the occupied area with Turkey. Turkey also announces its plan to open three new naval and

air bases in the occupied area of Cyprus.

Jan. 6, 1998 and Dec. 25, 1998.—Turkish warplanes overfly Greek territory on

two of Greece’s most holy religious holidays. Planned Turkish overflihgts of the the

Greek islet of Kalogiri are prevented by U.S. intervention.

Dec. 11, 1997.—U.S. State Department spokesman calls flights by Turkish warplanes near Thessaloniki ‘‘needlessly provocative and totally unnecessary,’’ stating

that, ‘‘military activity of this kind undermines confidence and needlessly exacerbates tensions between our NATO allies.’’

Oct. 16, 1997.—Four Turkish F–16 fighters buzz the military transport plane carrying Greece’s defense minister from Cyprus to Greece, coming close enough to

make the plane rock.

Oct. 14, 1997.—Turkish F–16 jets with rockets and warheads fly over Cyprus.

Oct. 13, 1997.—Two Turkish F–16 fighters buzz the military transport plane carrying Greece’s defense minister to Cyprus.

Oct. 12, 1997.—Turkish planes harass two Greek Air Force bombers over Cyprus—the first such confrontation over Cyprus.

Sept. 19, 1997.—Turkish Prime Minister Mesut Yilmaz announces that his government has asked the Turkish military to ‘‘plan and propose additional military

measures’’ to address the planned delivery of defensive surface-to-air missiles to Cyprus. U.S. State Department spokesman clarifies that the U.S. is, ‘‘firmly opposed

to threats to address the missile question militarily.’’

August 6, 1997.—Just five days before the start of the second round of U.N.-sponsored Cyprus settlement talks, Turkey signs an agreement calling for the partial

economic and defense integration of Turkey with the occupied areas of Cyprus.

July 15–21, 1997.—Just days after the first U.N.-sponsored Cyprus settlement

talks in three years: Turkey’s deputy prime minister Bulent Ecevit and TurkishCypriot leader Rauf Denktash issue a joint declaration regarding the gradual integration of the occupied areas of Cyprus with Turkey; and Turkish war ships dock

at ports in the occupied area.

July 7–8, 1997.—While the prime ministers of Greece and Turkey meet in Greece

(the first official visit by a Turkish leader in 36 years), Turkish armed forces hold

their largest ever military maneuvers in and around Cyprus. These amphibious and

airborne operations were the first of their kind in the 23 years of the occupation

of Cyprus.

April 7, 1997.—Turkish air force planes fly over the occupied area of Cyprus.

April 1, 1997.—On this national day for Cyprus, four Turkish Phantoms follow

the previous day’s pattern of violations.

March 31, 1997.—Four Turkish F–4 Phantoms fly over the Turkish-occupied area

of Cyprus in staged mock attacks.

Feb. 5, 1997.—Turkey dramatically escalates in 1996 its misuse of U.S.-supplied

warplanes to overfly Greek sovereign territory—from 73 times in 1995 to 538 times

in 1996.

Jan. 21, 1997.—Turkish Prime Minister Necmettin Erbakan joins Turkey’s President, Foreign Minister and Defense Minister in threatening war against Cyprus following announcement of the Cyprus government’s plans to acquire defensive surface-to-air missiles in 16 months. Erbakan states, ‘‘We are not going to wait passively for 16 months * * * If it is not declared within a certain time that the missiles will not be coming, we will definitely not hesitate to take the steps

required * * * We will take the initiative.’’
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Oct. 13, 1996.—Turkish troops kill an unarmed 58 year-old Greek-Cypriot who

mistakenly wandered into the occupied area. Petros Kakoullis, who was snail gathering with his son-in-law, was shot twice while his hands were raised above his

head and a third time at close range while on the ground. United Nations officials

were not permitted to approach the body for over four hours.

Aug. 9–15, 1996.—Turkish Foreign Minister Tansu Ciller diverts thousands of dollars in government funds to send over 3,000 members of the ‘‘Grey Wolves’’ terrorist

group from Turkey into occupied Cyprus for purposes of turning a peaceful GreekCypriot protest demonstration into a violent confrontation.

Turks savagely beat to death, with rocks and iron poles, unarmed 24 year-old

Greek-Cypriot Tassos Isaac and seriously injure 41 other Greek-Cypriot demonstrators in the United Nations buffer zone. Greek-Cypriots were protesting Turkey’s

continuing illegal military occupation of Cyprus.

Three days later, Turkish troops open fire on a group of unarmed mourners in

the U.N. buffer zone. Turks kill an unarmed 26 year-old cousin of Isaac, Solomos

Solomou, who was climbing a flag pole, and injure 11 others, including two U.N.

peace-keepers, two Cypriot police officers and a 59 year-old woman.

Turkish Foreign Minister Ciller flies to occupied Cyprus to show support for the

murders, publicly stating that Turkey will ‘‘break the hands of anyone who lays a

finger on the Turkish flag.’’

June 18, 1996.—The Foreign Minister of Turkey [a non-European Union (EU)

member] asks the EU President not to adopt the principle of protecting the external

borders of EU countries.

June 5, 1996.—Turkey disputes Greek sovereignty over Greek Island of Gavdos

inhabited by over 300 Greeks.

June 3, 1996.—Turkish troops murder unarmed 19 year-old Greek-Cypriot National Guardsman in U.N. buffer zone on Cyprus. U.N. rescue team is pinned down

by Turkish gunfire while boy dies from loss of blood.

April 9, 1996.—On the day that Greek Prime Minister Simitis meets with U.S.

President Clinton in Washington, D.C., Turkish warplanes escalate violations of

Greek air space to a record 48 times in one day.

Feb. 3, 1996.—Turkey claims sovereignty of 1,000 Greek isles and threatens war

if Greece doesn’t recognize that sovereignty.

Jan. 31, 1996.—Turkey moves 100 more U.S. battle tanks to occupied Cyprus,

during height of near war in the Aegean, giving Turkish forces on Cyprus night

fighting capability for the first time.

Jan. 30, 1996.—Turkish plan to invade Greek isle of Imia containing Greek personnel averted by U.S. presidential intervention. Invade instead Greek isle containing no Greek personnel.

June, 1995.—Turkish Prime Minister threatens war against Greece.

June 8, 1995.—Turkish Parliament adopts resolution authorizing war against

Greece.

PREPARED STATEMENT OF EUGENE T. ROSSIDES, GENERAL COUNSEL, SENIOR

COUNSEL, ROGERS & WELLS ON BEHALF OF THE AMERICAN HELLENIC INSTITUTE, INC.

Chairman McConnell, Senator Leahy and Members of the Subcommittee: I am

pleased to present testimony to the Subcommittee on behalf of the following organizations: the American Hellenic Institute Public Affairs Committee, Inc., the Hellenic

American National Council, the Hellenic American Women’s Council, the Cyprus

Federation of America, the Pan Laconian Federation of U.S.A. and Canada, the Pan

Cretan Association of America, and the Pan Karpathian Educational Progressive Association on the Administration’s foreign aid proposals.

In the Administration’s budgetary proposals for fiscal year 1999 military assistance and economic grant aid for Turkey are eliminated.

We congratulate the 104th Congress and the 105th Congress for their important

role in the Administration’s decision to eliminate military and economic aid for Turkey for fiscal year 1999. We particularly congratulate this Subcommittee for its

leadership role. The decision of the Administration this year to eliminate military

and economic aid to Turkey was due, I am convinced, in substantial part because

of the policy role of the Congress and this Subcommittee.

The American Hellenic Institute Public Affairs Committee (AHIPAC) welcomes

the elimination of military and economic aid for Turkey. For many years AHIPAC

has argued that U.S. military and economic support for Turkey has rendered our

country an accessory to Turkey’s violations of international law, aggression, massive

ethnic cleansing and genocidal-like actions against its 20 percent Kurdish minority

and human rights abuses generally against its citizens, including widespread tor-
261

ture. AHIPAC is very pleased that with regard to aid policy this sad chapter in U.S.

relations with Turkey is at long last coming to an end.

However, the Administration’s proposals are inadequate. In the interests of the

U.S., far-reaching changes in U.S. policy toward Turkey are needed, including a halt

to all arms sales and transfers to Turkey. The budget does not effect these changes.

Indeed, the Administration is actively contemplating such sales. Turkey’s continuing

violations of the norms of international behavior, as set out in the 1997 State Department Human Rights report, issued January 30, reinforce the need for a fresh

U.S. approach.

The European Union leaders in their statement of December 14, 1997, declining

to accept Turkey as a candidate for early accession to the EU, cited similar concerns

about Turkey’s adherence to democracy, human rights, and respect for the territorial integrity of its neighbors. The EU leaders made specific mention of Turkey’s

continuing illegal occupation of Cyprus and of its destabilizing claims to Greek sovereign territory in the Aegean.

The elimination of military and economic aid to Turkey provides an opportunity

to review U.S. policy toward Turkey. So long as Turkey persists in its human rights

abuses and threats to its neighbors, the U.S. should not maintain a normal relationship with Turkey. All U.S. arms sales and transfers to Turkey should be halted.

Further, the U.S. should instruct its representatives in the international financial

institutions to vote against any multilateral aid to Turkey.

Important U.S. interests are at stake in Southeastern Europe and the Eastern

Mediterranean. To date, our policy toward Turkey has not reflected these interests.

I hope that a review can put U.S. policy on a sounder footing.

In my letter of March 9, 1998 to President Clinton I discuss these matters in

greater detail. (See Exhibit 1 to this testimony.)

The letter conveys a strong sense of opportunity. In both Greece and Cyprus there

are vigorous democracies drawing on a broad-based political consensus about the national agenda. The result is that in Athens and Nicosia sensible, moderate governments are combining with business and civic leaders to pursue policies designed to

lower regional tensions, consolidate stability, foster regional development, and to

reach out to their neighbors. AHIPAC hopes that the Administration will make the

most of this constructive spirit on the Greek and Cypriot sides and increase American participation in the region’s political and commercial revitalization.

For this to happen, AHIPAC advocates a change in U.S. policy toward Turkey.

AHIPAC urges that U.S. policy toward Turkey should give less weight to the views

of the Turkish general staff and more to the more open-minded and forward-thinking elements within Turkish opinion.

We stand at a diplomatic crossroads in the Aegean and Eastern Mediterranean.

It is past time for the United States to reevaluate its policies in the region. The

United States must now ensure that the policies it follows will advance American

interests. Specifically, the U.S. should work with the sensible, moderate, pro-American governments of Greece and Cyprus to promote its regional interests.

Greece is the strategic and economic key for the U.S. in the Balkans and Eastern

Mediterranean to bring peace, stability, economic progress and democracy to the region. Our Ambassador to Greece, Nicholas Burns, spoke enthusiastically about

Greece’s role and actions in Southeastern Europe in a speech on March 30, 1998

in Thessaloniki.

In the interests of the United States:

1. We support the amount of $15 million in humanitarian aid for Cyprus and the

demilitarization of Cyprus. We are dismayed at the Clinton Administration’s condemnation of the purchase by the government of Cyprus of anti-aircraft defensive

missiles, the refusal of the U.S. to sell such equipment to Cyprus, and the Administration’s refusal to support the immediate demilitarization of Cyprus. The coddling

and appeasement of Turkey by the White House and the State and Defense Departments is the main obstacle to the settlement of the Cyprus problem.

2. We support military aid for Greece as long as Turkey keeps its illegal 35,000

man army of occupation and its 80,000 illegal colonists/settlers in the occupied territory of Cyprus, and maintains its 125,000 man Army of the Aegean aimed at

Greece’s Aegean islands.

We condemn Turkey’s threats on Greece’s national sovereignty over the islets of

Imia in the Aegean, Turkey’s threats of war against Greece in the Aegean regarding

Greece’s internationally recognized right to extend its territorial waters from 6 to

12 miles and Turkey’s threats of military action against Cyprus regarding the purchase by Cyprus of defensive anti-aircraft missiles. These threats are in violation

of the U.N. Charter Preamble and Article 2(4).
262

Turkey is the main security threat to Greece. For the White House and career

officials in the State Department and Defense Department to deny this is to deny

reality.

3. We oppose any sale or transfer of U.S. weapons to Turkey as contrary to the

best interests of the U.S.

4. We believe the Congress should eliminate any trade preferences for Turkey and

should consider economic sanctions against Turkey.

5. We support the brave Turkish citizens struggling for human rights and the rule

of law. Our dispute is not with the Turkish people, but with the Turkish military

and its domination of the Turkish government.

Exhibit 2 to my testimony is a memorandum titled 1998 Greek American Policy

Statements. These policy statements were prepared by the American Hellenic Institute and approved by the Order of AHEPA, the Hellenic American National Council

and the Hellenic American Women’s Council. These organizations are the major

Greek American membership organizations.

The Clinton Administration’s failure to apply the rule of law in international relations to Turkey will come back to haunt us elsewhere in the world. Instead of supporting the basic American values of democracy, the rule of law, protection of minority and human rights, the Clinton Administration is supporting the law of the jungle by Turkey.

We urge the Congress to investigate the failure of Administration officials to

apply the rule of law in international matters regarding Turkey.

The following are several examples of the United States not applying the rule of

law to Turkey, all to the detriment of U.S. interests: (1) the failure to apply U.S.

and international law to Turkey’s ethnic cleansing and genocidal war against its 20

percent Kurdish minority; (2) the failure to apply U.S. law and international law

to Turkey’s several invasions of northern Iraq, for military actions against Kurds

in northern Iraq, including a massive invasion with 35,000 troops; (3) the periodic

bombing of Kurds in Iraq; (4) the failure to apply international law to the Aegean

Imia islets crisis; (5) the failure to apply the D’Amato Act to Turkey’s deals with

Iran and Libya; (6) the failure to apply U.S. and international law to Turkey’s violations of religious freedom against Christians and Jews in Turkey, including the illegal closing of the Halki Patriarchal School of Theology; (7) the failure to apply international law to Turkey’s illegal embargo on Armenia; (8) the failure to apply U.S.

and international law to Turkey’s continuing occupation of 37.3 percent of Cyprus

with 35,000 troops; (9) the failure to apply the Geneva Convention of 1949 to Turkey’s 80,000 illegal settlers; (10) the failure to apply the terms of the NATO Treaty

to Turkey for its invasion of Cyprus; and (11) the failure to condemn Turkey’s violation of the U.N. Charter by Turkey’s threats of war against Greece in the Aegean

regarding Greece’s internationally recognized right to extend its territorial waters

from 6 to 12 miles.

Ms. Elaine Sciolino, the distinguished diplomatic correspondent of The New York

Times and former chief of its United Nations bureau, authored The Outlaw State,

Saddam Hussein’s Quest for Power and the Gulf Crisis (1991) stemming from Hussein’s invasion of Kuwait and the conflict that followed. Ms. Sciolino could just as

easily have written a book titled Turkey-The Outlaw State dealing with Turkey’s

invasion of Cyprus and violations of law and human rights in Turkey. Turkey’s violations of law exceed those of Iraq under Saddam Hussein.

Thank you Mr. Chairman.

[NOTE.—The exhibits can be found on the institute’s website at:

http:ahiworld.com.]

MISCELLANEOUS

PREPARED STATEMENT OF THE AMERICAN BAR ASSOCIATION

Mr. Chairman and members of the Subcommittee, the American Bar Association

(ABA) appreciates the opportunity to present testimony on the fiscal year 1999 Foreign Operations Appropriations budget.

This testimony describes the many programs spearheaded by the ABA to promote

the rule of law and democracy around the world. The ABA with over 391,000 members is the world’s largest professional voluntary organization. It should be noted

that our democratization efforts have, in large part, depended on this volunteer network of lawyers, judges, law professors, and sister institutions. The results have

been extraordinary, and the ABA has been able to play a crucial role in ensuring

that the U.S. maintain its commitment to engagement and leadership in the inter-
263

national arena in a very cost-effective manner. We, therefore, hope that these programs continue to receive U.S. contributions.

BACKGROUND

The increasingly changing world offers new challenges and opportunities for the

U.S. to assist transitional countries in adopting the rule of law through legal reforms and legal institutions. The only issue here is whether the U.S. will continue

its leadership role in the international community.

An important aspect of any democracy is the commitment to credible legal systems and institutions anchored in the rule of law. The creation of governments

founded on the rule of law is a key element in fostering democracy and a successful

market-based economy. Many U.S. foreign policy goals have been realized through

the support of democratization projects. To the extent that U.S. businesses can depend on a country’s legal system, foreign markets become a much more attractive

export opportunity.

The ABA’s international Rule of Law projects have been instrumental in protecting fundamental freedoms, human rights, and liberties in addition to promoting

trade and investment opportunities. Notwithstanding, there are many more opportunities throughout the world for us to be effective. In many instances these legal

infrastructures have been the foundation for the rule of law in emerging democracies. Mr. Chairman, these are the goals to which ABA projects are committed.

ABA PROJECTS

All ABA democratization projects have been guided by three principles. First,

these projects are designed to be responsive to the needs and priorities of the host

countries; the countries, not the ABA, define the need. Second, the design of these

programs recognizes that U.S. legal experience and traditions offer only one approach that participating countries may wish to consider. Third, these projects are

public service endeavors, not devices for developing business opportunities. The result of these programs has always been to take a modest grant and leverage those

sums to yield a much larger benefit for the host governments and people.

The Central and East European Law Initiative (‘‘CEELI’’)

The most comprehensive technical legal assistance project of the ABA is the Central and East European Law Initiative, or ‘‘CEELI’’. Shortly after the fall of the Berlin Wall in 1990, CEELI was organized by the ABA International Law and Practice

Section to provide technical legal assistance to the emerging democracies in Central

and Eastern Europe. By 1992, CEELI began to provide assistance to the Newly

Independent States of the former Soviet Union (‘‘NIS’’).

Through a variety of program components, CEELI is making available U.S. legal

expertise to assist countries that are in the process of modifying or restructuring

their laws and legal systems. CEELI has focused on work in several critical priority

areas: constitutional reform; judicial restructuring; bar reform; criminal law and

procedure reform; commercial law; legal education reform; and has helped develop

and/or institutionalized self-sustaining indigenous non-governmental organizations

(NGO’s) in more than 22 countries.

Designed to respond to the needs of the countries, CEELI has emphasized longterm engagement and nurtured projects that facilitate extensive consultations with

policy makers, legal scholars, judges, and attorneys in each country. Accordingly,

CEELI has developed individual country plans that address the particularized circumstances of each locale. CEELI accomplishes its work primarily through resident

liaisons and legal specialists, working pro bono, who spend one to two years working

on a daily and continuous basis with local partners. CEELI liaisons often live and

work in places where the comforts of life that you and I often take for granted do

not exist.

Over the course of the past four years, CEELI has established itself as a fundamental force for law reform in Central and Eastern Europe and the NIS. To date,

CEELI has conducted 282 Technical Legal Assistance Workshops; assessed over 323

draft laws; placed 147 long-term liaisons and 168 legal specialists in the region;

hosted 47 Central and Eastern European law school deans; sent dozens of U.S. legal

reform experts to assist in law school reform; and has placed over 50 students from

the NIS in LLM programs throughout the United States. The credit for this remarkable achievement goes to the over 5,000 American attorneys, judges, legal scholars,

and private practitioners, who have, as acts of public service, given their time and

expertise to make this project successful.

When calculating the in-kind contributions of volunteer legal professionals at an

understated rate of $150 per hour, CEELI has yielded over $55 million of pro bono
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service. Considering the modest CEELI budget in comparison to funding allocated

to consulting firms, the exceptional programmatic impact and financial leverage

that an NGO can achieve by using qualified volunteer professionals in a public service project is indisputable. This model of a volunteer professional assistance project

is a viable and cost-effective alternative to other uses of U.S. government funding

by, for example, for-profit firms. Congress has voiced strong support for CEELI and

its ability to leverage U.S. taxpayer dollars (H.R. Rep. No. 524, 1030 Cong., 2d Sess.,

82 (1994); S. Rep. No. 287, 103 Cong., 2d Sess., 76 (1994); H.R. Rep. No. 128, 104

Cong., 1st Sess., 80 (1995); H.R. Rep. No. 143, 104th Cong., 1st Sess., 31 (1995);

S. Rep. No. 143, 104th Cong., 1st Sess., 42 (1995); S. Rep. No. 000, 104th Cong.,

1st Sess., 40 (1995); H.R. Rep. No. 600, 104th Cong., 2d Sess., 31 (1996); S.Rep.

No.35, 105th Cong., 1st Sess., 25 (1977); H.R. Rep. No. 176, 105th Cong., 1st Sess.,

32 (1977)).

The ABA Cambodia Democracy and Law Project

The Cambodia Law and Democracy Project (‘‘Cambodia Project’’) was launched by

the ABA Section of International Law and Practice during 1992 at the request of

Cambodian institutions seeking assistance with Cambodia’s law modernization process. The principal purpose of the Cambodia Project is to assist Cambodia in planning and implementing legal and judicial reforms to promote democracy, a market

economy, and the rule of law.

Under a grant from the Asia Foundation in 1993, the Cambodia Project provided

a collection of legal materials in Phnom Penh principally through ABA donations.

In late 1996, the Cambodia Project established a Legal Research and Documentation Center at the Bar Association of the Kingdom of Cambodia (BAKC) which has

now secured over 1,800 donated books and publications, which include Khmer laws

and selected translations, the Official Journal of the Kingdom of Cambodia, and foreign and American legal materials. Since its official opening in March of 1997, the

Center has been fulfilling requests for information from lawyers, law students,

NGO’s, and the National Assembly Legal Research and Documentation Center.

During 1993–94, the ABA Constitutional Law Advisors assisted in drafting the

new Constitution, and legal education advisors provided a needs assessment of

Cambodia’s legal education programs and institutions. Short-term advisors traveled

to Cambodia to assist in the areas of foreign investment, contract law, and commercial arbitration.

U.S. legal experts provided commentary in the areas of border disputes, intellectual property, penal code issues, environmental law, family law, and bar association

development. During this period, an ABA resident legal advisor was placed in

Phnom Penh to oversee all ABA and Asia Foundation legal initiatives. This action

led to a request from USAID that the ABA take on a larger role in the law development process in Cambodia, which resulted in a cooperative agreement between

USAID/Cambodia and the ABA in 1995.

Until July 1997 the Cambodia Project had three long-term resident advisors in

Cambodia. They assisted the Ministry of Commerce and the BAKC, providing institution-building, teaching, and legal drafting assistance. By working in close coordination with the Ministry of Commerce, the Cambodia Project effectively extended

efforts to improve Cambodia’s legal system into Cambodia’s market economy. The

completion of Cambodia’s Bankruptcy Law, Business Organizations and Contract

Law, Products Liability Law, and Contracts Law is evidence of the project’s successful advancement. In addition to their roles in law drafting, the advisors conducted

classes at a local university, seminars in the provinces, and daily discussion and

training sessions at the Ministry of Commerce. The purpose of these events were

to train Cambodian officials and lawyers to understand and utilize the laws created

to advance the rule of law and foster Cambodian social and economic prosperity.

In late July 1997 the Cambodia Project was placed on hold by USAID due to the

political developments that occurred in Cambodia in early July. The project continues on a suspension status. The ABA expects to resume full project operations no

later than September 1998.

As with all legal technical assistance programs, the ABA Cambodia Law and Democracy Project develops all program components at the request of, and in close consultation with, participating country institutions. The bulk of the assistance continues to be provided by U.S. lawyers on a pro bono basis utilizing donated materials,

allowing a small grant to be leveraged for the benefit of democracy in the host country. The Cambodia Project has received $1,780,679 over the last four years, and the

ABA has contributed an additional $1,033,360 to this project.
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African Law Initiative Legal Education Program

With funding from the United States Information Agency Office of Citizen Exchanges, the African Law Initiative Legal Education Program continues to assist

twelve law schools in eight African countries: Eritrea, Ethiopia, Ghana, Kenya, Malawi, Tanzania, Uganda, and Zambia. Over thirty United States law schools have

been involved with this program, which was initiated at a major meeting of African

and American law school deans in Nairobi in 1994. The program has created and

supported links between U.S. and African law schools and helped to improve the

capacity of the African law schools to train lawyers who are responsive to the new

needs and opportunities brought about by democratic and free-market reforms in

their countries. Solid links have emerged over the course of the program. In addition

to bringing African and American law school professors and deans together to lay

the groundwork for linkages, the program has assisted with faculty training and

curriculum development, with an important focus on clinical legal education. The

program has shipped or facilitated the shipment of many law books and journals,

helping to update the collections at the law libraries.

Curriculum development continues to be the focus of the program. Over the past

several months, professors from United States law schools have traveled to Africa

to work on the development areas of the curriculum identified by the Africans. The

newest USIA grant will enable us to continue to work on curriculum development.

We anticipate that another group of Africans will travel to the United States in fall

1998 for study tours to U.S. law schools and that we will hold workshops in Africa

toward the end of 1998 focusing on environmental law curriculum, commercial law

curriculum and human rights law curriculum. U.S. law schools have been generous

with their time and resources, with professors and deans participating on a pro bono

basis, so that the project has had significantly wider impact than would be possible

only with the USIA funds.

Arab Legal Institute

Last year we reported the organization of the Arab Legal Institute which, in view

of current Middle East events, is a project of immediate consequence. Initiated and

organized by the ABA’s Section of International Law and Practice and its Standing

Committee on World Order Under Law, the Arab Legal Institute (‘‘ALI’’) is the first

pan-Arab effort to promote the rule of law in the Arab states of the Middle East

and North Africa, to train Arab lawyers, to train judges as independent adjudicators, and to promote human rights. Since the Institute itself is led by the Arab Lawyers Union (which includes a number of Arabs of high standing) its significance will

be substantial.

While technical assistance to the Palestinians will be offered, what is most important is that the Arab Lawyers Union (representing the legal profession in the Middle East and North Africa) is leading this pan-Arab project designed to educate and

to consider reforms conforming to internationally accepted standards. Such a program is critical to creating conditions for economic stability and opportunity and respect for the rule of law, principal ingredients for regional development and civil society. The strong pan-Arab support is exemplified in ALI’s board which is made up

of members of the Arab Lawyers Union. We are confident that such strong Arab involvement means that the project will have a sustained and continuously substantial regional effect.

The Arab Lawyers Union’s leadership of ALI is supported by a coalition of international bar associations. Since this is the first Arab-directed rule of law project,

it is almost certain to have a positive impact. In fact, our Arab partners are so committed to this effort that they and several of their governments have offered material assistance regardless of current events in the region.

ALI’s headquarters are in Cairo with additional planned facilities in Tunis,

Amman and perhaps elsewhere. Rather than restricting itself solely to Gaza and the

West Bank, the Institute is concerned with all Arab states of the Middle East and

North Africa. It is agreed, however, that the West Bank and Gaza will be among

the Institute’s first projects. This early attention to a particularly sensitive region

will contribute to the success of other U.S. initiatives directed toward stabilizing the

Palestinian economy and promoting investment. It will also furnish essential support to our Government’s program to provide for duty-free treatment to products of

the West Bank and Gaza and qualifying industrial zones.

The Arab Legal Institute has united the legal profession in the Arab states of the

Middle East and North Africa in a common effort to upgrade the legal education

of the profession and the judiciary, and to conduct research and to provide counseling on different aspects of the law and legal systems prevailing in the Arab states.

The underlying premise is the common recognition that regional peace and prosper-
266

ity depend in part on educating those who develop the laws and administer the legal

system and on looking at ways to improve the legal structure.

The Arab Lawyers Union has invited the U.N. High Commissioner for Human

Rights to participate in the project. The International Bar Association, the Law Society of England and Wales and the Paris Bar have also joined with the ABA to

provide technical assistance and to secure financial support.

Our Arab colleagues believe this project will enable them to address fundamental

problems existing throughout the Arab world. In varying degrees from state to state,

their history and contemporary concerns have left Arab states with legal systems

and institutions that cannot cope effectively with some important problems and that

cannot take advantage of opportunities, particularly in areas of economic development. Progress is inhibited by the lack of a legal profession equipped to deal with

trade, economic development, privatization and capital market issues as well as insufficient acceptance of the role of a judiciary in enforcing legal rights and in settling public and private disputes. The Institute will contribute to the prospects for

fundamental reform by equipping the Arab legal profession with critical resources

to pursue its own agenda and at its own pace. The functions of the Institute are

educational and not political.

According to the agreed Constitution, the Board of Directors’ members are from

Arab states, and the Board of Trustees is composed of Arab and non-Arab representatives of the supporting bar associations. We have established an Academic Advisory Committee composed of Arab and non-Arab lawyers, judges, law professors,

and others with relevant experience of high standing and expertise. The Academic

Advisory Committee is responsible for advising on matters relating to the academic

programs, including the appointment of lecturers and professors, the establishment

of courses, and more generally to facilitate the development of rule of law programs

in the Arab states.

Funds or services have already been donated by several of the collaborating bar

associations. The ABA has dedicated a portion of its staff time and resources to

seeking grant funds in the U.S. for this important endeavor. Most recently, the

International Bar Association (‘‘IBA’’) has developed a list of projects which it is

committed to undertake to support the Arab Legal Institute. Among the initiatives

proposed by the IBA are a series of workshops addressing the independence of the

judiciary, of the bar association and of legal practitioners; translation into Arabic

of the IBA International Code of Ethics, IBA General Principles of Ethics, and other

similar documents; and articles on selected human rights issues written for insertion into Arab journals and newspapers.

The European Union recently made a substantial grant to the Law Society of England and Wales for projects in Lebanon, Jordan and Egypt. Thus far, the U.S. government has not committed any funding.

We estimate that the value of the facilities offered by the Arab states is in excess

of one million dollars. Pro bono time and expense outlays by representatives of the

American Bar Association have already exceeded $200,000. For every dollar dedicated to the project’s support, approximately $3 in pro bono time can be expected

to be contributed.

The Association anticipates that this initiative, which unites Arab, European and

American lawyers in shared principles of professionalism and respect for the rule

of law, will advance our mutual interests. We are looking forward to the commencement of the initial programs, the first of many we expect will flourish under the

aegis of the Arab Legal Institute. We believe that this effort will positively affect

the present dynamics in the Arab states and will contribute to a future based on

accepted rule of law principles.

We hope the U.S. government will join with other governments and financial

sponsors to support ALI’s courageous Arab leaders and this ABA-initiated rule of

law program.

United Nations Development Programme

The ABA and the United Nations Development Programme (UNDP) have reached

an agreement and expect to sign a Memorandum of Understanding (MOU) on May

1, 1998 to establish an ABA/UNDP Legal Resource Unit (LRU) to be housed within

the ABA, and administered by, the ABA’s Section of International Law and Practice.

The MOU will establish a framework for a cooperative working partnership between

the ABA and UNDP, thereby helping both organizations accomplish their mutual

goals of supporting international development, good governance and strengthening

of democratic institutions.

The purpose of the LRU will be to enable the United Nations Development Programme, with ABA support services, to deliver high-quality legal assistance to

UNDP countries, in an effort to strengthen the legal institutions and processes that
267

foster sustainable democratic development and an environment conducive to free

market economies.

Initially, the LRU will focus on providing ABA-identified advisors for United Nations Office of Project Services (UNOPS) and U.N. Economic and Social Department

(DESD)-executed projects particularly in UNDP programme countries which are either in crisis or post-crisis situations. In addition, the LRU will work with UNDP

to conduct training for UNDP Headquarters and field office staff in designated

areas. The LRU will work with UNDP to address new projects submitted to both entities, and support on-going projects in mutually agreed upon areas of interest. New

project proposals dealing with the legal dimensions of good governance should ideally be initiated and submitted by UNDP programme country governments and/or

civil society.

An LRU Steering Committee will provide hands-on oversight and LRU Advisory

Committee will provide additional substantive and sourcing capability. All ABA entities will be invited to participate. CEELI will be asked to participate in all requests emanating from Central and Eastern Europe and the CIS.

Cooperation in the Field of Law: China

On May 5–6 , 1998, ABA President Jerome J. Shestack will lead a delegation composed of members of both the ABA Section of International Law and Practice, including the Section’s Chair, Timothy L. Dickinson, and of the ABA Section of Business Law to explore possible legal exchanges and other forms of legal cooperation

between the ABA and China. In the Joint U.S.-China Statement of October 29,

1997, Presidents Clinton and Jiang agreed to pursue cooperative activities in the

following legal areas: Exchange of legal experts; Training of judges and lawyers;

Strengthening legal information systems and the exchange of legal materials; Sharing ideas about legal assistance programs; Consulting on administrative procedures;

and Strengthening commercial law and arbitration.

The American Bar Association is prepared to cooperate with appropriate Chinese

institutions in each of these areas.

Among the ABA’s most fundamental policies is the promotion of understanding

and cooperation in the field of law throughout the world. In furtherance of this policy, the ABA has developed special expertise in working with lawyers around the

world, especially in those countries moving from planned to market economies.

The ABA already has a long history of cooperating with Chinese institutions in

the field of law. Over a period of twenty years, the ABA has hosted numerous delegations of Chinese lawyers, judges, and bar leaders, and two ABA Presidents have

made trips to China. The ABA’s Section of International Law and Practice has

hosted many delegations from China and has published The China Law Reporter

for many years. The ABA’s Business Law Section has likewise collaborated with

Chinese colleagues in various programs, including teaching a course to Chinese commercial law judges, working on the development of capital markets, and in 1997,

at the invitation of the Chinese Government, providing consultant services in the

drafting of the Chinese Securities Law.

In order to address the six areas of legal cooperation identified in the October

1997 Joint Communique, the ABA is prepared, upon request by Chinese institutions

participating in the law development and modernization process in China, to make

available the following kinds of exchanges and cooperation: Assessment of mutual

tasks; Task forces to facilitate cross-cultural dialogue on legal reform issues; Working groups to address immediate and long-term legal issues; Long term experts

working with advisors to Chinese institutions; Short term advisors and experts to

focus on specific legal issues; Judicial and lawyer training programs; Commercial

and trade law cooperation; Legal aid in the U.S. and Asia developmentl Bar association development; Court administration; Legislative drafting and parliamentary procedure; Law school and law curriculum development; Legal resource center development and provision of legal materials; Continuing legal education; Legal exchange

programs; and Expert legal commentary and review of draft legislation, regulations,

documents and implementation procedures.

CONCLUSION

The vast majority of Americans believe that the U.S. must maintain its leadership

role in the international community. As an organization which has adopted the promotion of the ‘‘rule of law-international’’ as a priority, the ABA fully recognizes the

importance of strong U.S. leadership in the advancement of human rights and economic prosperity.

Foreign aid has often been criticized and misinterpreted, in large measure because its benefits are not always apparent. The ABA appreciates the difficult task
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your Subcommittee has in grappling with the fiscal year 1999 Foreign Operations

Appropriations bill. However, Mr. Chairman, we trust that you will be persuaded

by the vital American interests that are at stake.

We all agree that the United States is the one country capable of providing effective global leadership. It is more important now than it ever was, and in our own

self-interest, to accept this challenge. Therefore, Mr. Chairman, the U.S. must lead

by example in accepting the myriad of challenges and opportunities offered by world

globalization through engagement and the commitment of increased foreign assistance. Only one percent of the federal budget is devoted to foreign assistance, to programs which yield an enormous return for American taxpayers. These programs foster democracy, build free markets and free trade, and promote sustainable development. Here at home, U.S. foreign assistance leads to increased exports, high quality

American jobs, and greater economic and national security.

The ABA contends that its democratization projects yield a tremendous return to

U.S. citizens on a modest financial investment. Again, these programs are primarily

supported by the enormous amount of free legal technical assistance contributed by

ABA volunteers. A strong commitment to legal and commercial infrastructures supports the ability of emerging markets to purchase U.S. products.

Mr. Chairman, let me conclude by reiterating how important foreign assistance

is to America’s success. Our national interests are increasingly becoming more intertwined with the political stability of other nations, whose policies can promote or

disrupt the free flow of goods and services. In that regard, countless American workers and businesses depend on trade and a thriving global economy for their livelihoods, which is fostered by the support of rule of law projects. There has been a

tremendous movement in recent years toward economic and political openness. We

cannot afford to reverse the tremendous gains that rule of law democracy projects

have made in fostering growth in the global economy. As stated above, we respectfully urge the Committee to continue to support for the ABA’s technical legal assistance programs through the appropriations process.

As provided by the House Rules requiring disclosure of relevant grants, the ABA

received the following grants for International Programs: Armenian Prosecutor Program (Academy for Educational Development/U.S. Agency for International Development, $30,985); Bosnian Court Training Project (World Learning, Inc./U.S. Agency

for International Development, $29,716); Rules of the Road Program with the War

Crimes Tribunal Phase II (U.S. Department of State, $49,086); Court Administration Technology Training (World Learning Institute/U.S. Agency for International

Development, $25,760); African Judicial Exchange Program Phase II (U.S. Information Agency, $135,000); Russia Training for Development: Legal Education (Academy for Educational Development/U.S. Agency for International Development,

$43,434); Rules of the Road Project for the War Crimes Tribunal (U.S. Agency for

International Development, $135,803); African Law Initiative Sister Law School

Faculty Training Program (U.S. Information Agency, $134,603); Georgian Constitutional Court Training Project (Academy for Educational Development/U.S. Agency

for International Development, $57,620); Cambodia Legal Assistance (U.S. Agency

for International Development, $731,503); Central and East European Law Initiative Regional Anti-Drug Assistance Project (U.S. Department of State, $549,998);

Russia Rule of Law Program (Agency for International Development/Moscow Office,

$2,600,000); Russia Trial Advocacy Training Program (Academy for Educational Development/U.S. Agency for International Development, $75,420); African Law Initiative Clinical Partnerships (U.S. Information Agency, $134,819); Strengthening the

Moldovan Bar Association (ARD/Checchi/U.S. Agency for International Development, $99,732); Belarusian Legislative Draft Training (Academy for Educational Development/U.S. Agency for International Development, $81,682); Ukrainian Law

Student Association Development (ARD/Checchi/U.S. Agency for International Development, $100,000); Environmental Priorities in Asia Conference (U.S. Agency for

International Development/Environmental Assistance Program, $25,000); Bar Development Training for Central and Eastern Europe (Academy for Educational Development/U.S. Agency for International Development, $86,118); Russian Defender

Training Program (Academy for Educational Development/U.S. Agency for International Development, $106,341); Russian Criminal Justice Project (U.S. Department of Justice, $2,144,182); Poland and Central Europe Criminal Justice Project

(U.S. Department of Justice, $1,551,454); Russia Jury Trial Follow-on Training

(Academy for Educational Development/U.S. Agency for International Development,

$34,337); Internship Program for New Independent States Law Teachers (U.S. Information Agency, $200,000); Moldovan Lawyers Project (Academy for Educational

Development/U.S. Agency for International Development, $100,124); Legal Assistance in Cambodia (U.S. Agency for International Development, $1,094,155); African
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Judicial Exchange Program (U.S. Information Agency, $250,000); African Sister Law

School Program (U.S. Information Agency, $204,071); Commonwealth of Independent States Rule of Law Program (U.S. Information Agency, $12,225,000); New Independent States Law Teacher Program (U.S. Information Agency, $168,927); Sister

Law School Program in Central and Eastern Europe (U.S. Information Agency,

$206,061); Rule of Law & Commercial Law Program in Central and Eastern Europe

(U.S. Agency for International Development, $16,361,643).

PREPARED STATEMENT OF ROBERT KARL MANOFF, DIRECTOR, CENTER FOR WAR, PEACE, AND THE NEWS MEDIA, DEPARTMENT OF JOURNALISM AND MASS COMMU- NICATION, NEW YORK UNIVERSITY

Mr. Chairman and Members of the Committee, on behalf of New York University

and the National Press Institute of Russia (NPI), NYU’s major initiative in that

country, I would like to take this opportunity to thank you for your previous support

for our work.

Formerly known as the Russian-American Press and Information Center (RAPIC),

NPI was gratified by the Conference Report on H.R. 2159—which encouraged the

Coordinator ‘‘to continue support for the long-term development of an independent

print media in Russia’’ using ‘‘organizations with demonstrated experience in working with print media in countries of the region’’ (see H. Rept. 105–401). The Report

has proved to be extraordinarily helpful to NPI as we continue to build on RAPIC’s

accomplishments as the most comprehensive media assistance program in the region.

I very much appreciate the opportunity to provide testimony to this Subcommittee

today, and would like to offer the following comments as a journalist, an academic,

and the founder and director of an NGO that has been providing media assistance

in the former Soviet Union and Central and Eastern Europe since 1985—longer

than any other organization operating in the region.

Having recently returned from Russia, where I met with the directors of our seven

regional offices, some of our dozens of Russian staff members, and members of our

nationwide Media Assistance Network, I would like to speak to four issues in my

testimony: First, the continuing importance of a free and independent news media

to Russia and a stable international system; second, the continuing need for U.S.

assistance to create a free press in Russia; third, the critical importance of the print

media (especially newspapers) at this moment of political and economic transition

in the county; and, finally, the approach that the National Press Institute has

adopted with these issues in mind, NPI’s accomplishments to date, and its vision

for the future.

IMPORTANCE OF THE RUSSIAN MEDIA TO AMERICAN POLICY INTERESTS

Americans take it for granted that a free press is essential for the functioning of

democratic systems and free markets, and our own history provides abundant evidence that we are right to do so. Yet this assumption has been under attack from

many quarters around the world, with the so-called ‘‘Asian model’’ of authoritarian

capitalism constituting only the most fully articulated rejection of the political and

economic transparency that a free press provides. The recent collapse of some Asian

economies has led to calls for greater transparency in many quarters, but there are

signs that few understand the role that a free press must play in the future.

In Russia itself, a free press in the sense that our own Constitutional Framers

understood it—a press playing a central role in the unfettered exchange of vital political and economic opinion and information—is still more of a dream than a reality. Years after the fall of Communism and the disappearance of official censorship, for example, most Russian newspapers still exist on the basis of official state

subsidies, and these subsidies, in turn, are always fraught with political and even

commercial conditionalities. Local editors know which side their bread is buttered

on, and behave accordingly. Those who fail to do so pay the price: Russia, for the

second consecutive year, has been named by the International Federation of Journalists as ‘‘the most dangerous country for journalists.’’

Moreover, having only recently thrown off a system under which the press was

required to be the ‘‘mass organizer’’ and ‘‘mass propagandist’’ for the Party and the

government, many Russian journalists are implacably hostile to the idea that they

have responsibilities other than to themselves. The conception of the press as a

‘‘public good’’ that both makes money for its owners and serves the public interest

is an alien one, and one that is often greeted with hostility by journalists who are

intent on maximizing their own return (all too often by selling their news columns

to the highest bidders).
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In Russia, the country of the Potemkin Village, appearances have always been deceiving. And, right now, the appearance of thousands of newspapers in a daily torrent can deceive us into believing that the Russian media are performing well the

function of informing the Russian public, policy elites, and business community.

They are not, however, and are many years, and perhaps decades, away from being

able to do so successfully.

Helping the Russian press achieve maturity as a political and economic force has

already been recognized by this Subcommittee, by the Coordinator, and by USAID

and USIA as a significant American priority, and we believe it must continue to be

a top priority because of the role the free press plays in advancing key American

interests in the country and the region:

—A free press is a key agent of economic transformation, providing investors with

vital information on business activity, corporate actions, and general business

conditions throughout the country’s many far-flung regions.

—A free press is a vital force for the creation of a civil society, providing nongovernmental organizations with the means to reach the public with their

issues, experts, and concerns, and a means by which the public, in turn, can

communicate with itself and with organizations in the independent sector.

—A free press that performs its watchdog role responsibly is essential to achieve

full government accountability, something that exists hardly at all in Russia at

this time, either in theory or in practice. Government accountability is the ultimate guarantor of the rule of law, the sine qua non of democratic politics.

—A free press committed to airing a diversity of opinion can provide outlets for

views supporting American policy interests, ranging from nuclear and missile

proliferation, to NATO expansion, to policy for the Balkans, the Persian Gulf,

and the Middle East.

—A free press is essential to the success of the next rounds of parliamentary and

presidential elections, which together will determine the direction of the country’s domestic and foreign policies for years to come.

—As it did in the case of Chechnya, a free press can moderate the adventurism

of the Russian government, and can contribute to the reduction of dangerous

ethnonational tensions throughout the Russian Federation and the entire region.

For reasons such as these, we believe that the American stake in the future development of a truly free press in Russia is enormous, and continuing media assistance

must continue to be an important thrust of American policy in the country.

WHY THE RUSSIAN PRESS NEEDS AMERICAN ASSISTANCE

The American interest in a free press in Russia is direct and substantial. But significant obstacles remain to be overcome before these interests can be realized. Specifically, critical obstacles to the development of the Russian media include the following:

—Governments continue to exert control over the media, largely through economic

levers, especially at the regional level;

—Investment and capital resources are scarce, except for politically-motivated investments;

—Most media managers have little or no training or business experience;

—Newspaper advertising revenue remains tiny and three-quarters of it flows just

to publications in Moscow and St. Petersburg;

—Virtual monopolies at key nodes of the media sector—from printing presses to

newspaper distribution—handicap development;

—The media sector has not yet effectively organized in defense of its interests;

—State and, increasingly, corporate subsidies maintain an unlevel playing field

and encourage dependency—currently approximately 85 percent of Russian

newspapers receive some form of subsidy;

—The unstable and underdeveloped legal environment surrounding the media inhibits innovation, risk-taking, and sustainability;

—Information access remains restricted, despite freedom of information laws;

—A public cynical about the quality of the press makes it increasingly difficult

for media institutions to sell their products.

Most media organizations do not now possess the resources (financial, professional, and organizational) to surmount these obstacles on their own, and it is not

in the American interest to wait until they do in order to address them. In the interim, American assistance will be vital.

American assistance will be all the more important given the decision of Russia’s

major financial and industrial groups to buy up the country’s media. The so-called

‘‘oligarchs’’ now control, through various mechanisms of ownership and subsidies,
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the editorial policies of nine out of Russia’s ten leading non-official daily newspapers. On the national level, most of the principal fora for public discussion and

information are therefore under the control of forces bent on advancing their own

interests before all else. These same oligarchs are now beginning to assemble nationwide media empires (Gazprom already owns more than 100 regional publications).

In contrast, American non-media corporations that have acquired media properties have done so many years after traditions of editorial and journalistic independence were well established. This is not the case in Russia, where editorial control is now being wielded as a blatant commercial and political weapon.

Moreover, with the exception of the National Press Institute and less than a

handful of other media NGO’s, there are no institutions able to articulate a vision

of media independence and public service, and capable of working to establish the

economic, professional and legal conditions necessary to make it a reality. Such

NGO’s exist in the United States, and they are supported by American corporations

that recognize the important service they provide. Russia, however, has little by way

of a philanthropic sector, and it will be many years before Russian corporations recognize the value of supporting media-sector NGO’s. Until such time, continuing

American assistance will be an absolutely critical resource for the NGO’s within the

Russian media sector.

WHY THE U.S. SHOULD FOCUS ON THE RUSSIAN PRINT MEDIA

It is our view, moreover, that U.S. policy should focus particularly on the print

media, notably newspapers. This is so because of the especially important economic

and political role they play, and also because of their particularly difficult economic

circumstances.

—Studies have repeatedly shown that most Russians get their local news primarily from newspapers and that they trust local newspapers more than any

other source of information.

—As the economic and political decentralization of Russia continues, local newspapers have become the locus of key economic, social, political, and other information necessary for the grassroots development on which Russia’s future depends. The mayor of Rezh, a small town outside of Yekaterinburg, told a colleague that the purchase of a printing press by the local newspaper, with which

NPI worked closely, served to jump-start the local economy.

—As the only significant source of in-depth news and analysis for Russia’s political, business, and intellectual elites, the print media facilitate public policy debates. As noted by Assistant Secretary of State for Democracy, Human Rights,

and Labor John Shattuck: ‘‘[W]hile the print media lack the intimacy of television, they can stimulate debate because print is a medium especially well suited to convey context and meaning and to explore ranges of options. In the postCold War era it has been largely print articles that have set the agenda for serious policy discussion and fundamental changes in public thinking.’’

—Given the increasing control of Russian television by a handful of elites, only

newspapers support the pluralism of views and diverse viewpoints that are essential for informed decision-making. Newspapers at both the national and local

level present a far wider spectrum of views than television.

—In Russia, as elsewhere, television take its cue from print coverage. The print

media set the news agenda. In fact, local Russian television news broadcasting

often consists of an announcer reading selections from the local press.

—The quantity and quality of television news and public affairs programming will

continue to decline as television is integrated into the market (as has been the

case in every major democratic market economy). Already, according to Radio

Free Europe/Radio Liberty Russia analyst Laura Belin, ‘‘most private television

networks and radio stations focus on entertainment programming, not news.’’

—Finally, an authoritative American study has demonstrated that local newspapers are the essential medium for informing voters in local and regional elections and for analyzing the local angle of national politics. Because the upcoming elections in 2000 will shape Russia’s future in a profound way, the burden

on Russia’s local newspapers is immense.

NATIONAL PRESS INSTITUTE: A SECTORAL APPROACH TO PRINT MEDIA ASSISTANCE

Institutional Transformation.—Since I last submitted testimony to this Committee

in April of last year, several dramatic developments have made the National Press

Institute even more central to the mission of establishing a free press in Russia.

Most important, last summer NPI registered as an independent, not-for-profit

Russian organization, thereby transforming the Russian-American Press and Infor-
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mation Center, an American media-assistance project, into a permanent, Russian,

media-sector NGO institution. Also at about this time, USAID made the decision to

begin funding NPI directly, and it is now supporting work to strengthen the institutional structure of NPI, even as it is also underwritting a major new initiative to

assist regional newspapers develop access to capital markets and loan funds. With

continuing support from USAID (and with an ongoing relationship with USIA), NPI

is now poised to become an important legacy of the American assistance effort as

this effort evolves into a framework for meaningful, sustained, and mutually beneficial bi-national cooperation.

NPI continues to apply the sectoral approach that makes it unique among all

media assistance organizations in the world. It works through a complex of economic, political, professional, and legal initiatives that together promote the political

and economic independence of the entire media sector. To implement its sectoral approach, NPI has established the following operating divisions that build upon and

consolidate NPI’s core programming agenda:

—The Business Development Service will provide consulting and other services

and support to media organizations seeking to attract financing, develop business plans, improve their management, or in other ways improve their financial

viability and attract capital;

—The Center for Cyberjournalism will provide a range of training and consulting

in new technology applications for the media; it will also develop an Internet

Media Service as a prime delivery vehicle for a spectrum of informational and

assistance services and resources;

—The School of Media Management and Journalism will be Russia’s major midcareer training institute for the print media;

—Special Projects will be undertaken to respond to particular needs or opportunities in the Russian media sector, such as preparing the media for the 2000 presidential campaign, promoting freedom of information legislation and norms, or

working to ensure improved coverage of nuclear issues;

—The Press Center will continue to organize its famous briefings, press conferences, and roundtables at all NPI centers;

—The Research Center will monitor, study, and publicize economic, political, and

journalistic issues and trends affecting the Russian media sector for the international investment community and other constituencies.

Accomplishments.—NPI’s sectoral approach has made possible some major accomplishments. For example:

—To counteract the media’s over-reliance on official sources of information, NPI

has organized over 2,000 briefings around the country, in which over 5,000 U.S.

and Russian experts have taken part, with an aggregate participation of over

80,000 journalists.

—To combat restrictions on information access, NPI established the Freedom of

Information Commission, Russia’s only organization dedicated to promoting access to government information and to educating journalists on exercising their

legal rights to it. The Commission has helped to shape a national FOI legislative agenda, its members have been invited to participate in a number of expert

groups advising the Duma, and it has influenced the Yeltsin Administration’s

approach to this issue.

—To overcome the woeful lack of management experience among publishers, NPI

has organized training programs for representatives of over 800 newspapers,

often with spectacular results. Last year I reported that Gubernskie Vedomosti

in Stavropol, like many participating newspapers, had increased its advertising

revenue by 30 percent after NPI consulting; last week editor Aleksandr Yemtsov

dropped by NPI to announce that his paper has begun to make a profit, ‘‘in

large part thanks to NPI.’’ The editor of Rezhevskaya Vest cited an NPI seminar as the turning point in the paper’s remarkable transformation from a heavily subsidized local mouthpiece to a dynamic and fully independent news organization.

—To promote capitalization and investment, NPI has begun, with the support of

USAID, a Newspaper Financial-Strengthening Program. The program is helping

regional newspapers develop business plans and loan applications to access capital markets, and is promoting alternative capitalization schemes such as equipment leasing.

—As a pilot project in response to the near-monopoly of printing presses in Russia

by the government, NPI installed the first modern printing press to be owned

and managed by a group of independent Russian newspapers. This landmark

project was hailed by USAID as ‘‘historic.’’ The Gorodskie Vesti concern is now

printing 19 different titles from as far away as Saratov and Astrakhan, and the

press is in the black.
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—NPI has been in the forefront of improving coverage of political campaigns during each of Russia’s national election campaigns. NPI has held workshops on

coverage around the country, published a handbook on election coverage for

journalists, and published a news bulletin with news of regional media coverage

of campaign issues.

—NPI took the initiative in establishing the independent Moscow Media Law and

Policy Institute, in order to promote a free and independent press through research and education on the rule of law as it applies to media. MMLPI is now

the leading institution of its kind in the region, a major resource for research,

commentary, legislative advice, postgraduate teaching, and publishing on media

law and related subjects.

—NPI is the leading regional authority on the use of the Internet by the media

for both publishing purposes and computer-assisted reporting. NPI’s annual

New Media for New World conference on Internet use by the media is the leading forum of its kind. NPI’s Center for Cyberjournalism has trained hundreds

of reporters in the use of the Internet for reporting, and it pioneered Web publishing consulting for newspapers, many of which are now publish on-line editions.

—NPI has worked with hundreds of American community-based organizations,

commercial enterprises, experts, and citizens. For example, it has established

partnerships between Russian and American newspapers to promote improved

management and profitability of papers in Russia. One NPI project included 14

publications in Alaska, Arkansas, California, Florida, Indiana, Michigan, North

Carolina, Pennsylvania, and Washington.

—NPI paired Moscow’s Skate Press with the American financial news organization Bloomberg LP to create a Russian news service devoted to providing the

first detailed corporate profiles of publicly traded Russian companies—a significant contribution to the transparency which is essential to the creation of free

markets. By now, companies which had been loathe to provide information on

themselves have seen the benefits of doing so and are contributing information

of their own accord, recognizing that transparency is essential in order to access

the capital markets.

—NPI’s Nuclear Security Programs provide a web of mutually reinforcing activities to promote more in-depth, sophisticated coverage. Through major conferences in Minsk, St. Petersburg, and Moscow for journalists reporting on nuclear issues, regular briefings, a bimonthly bulletin, and a program of targeted

outreach and consultation, NPI has developed a core group of journalists covering nuclear security who now have world-class expertise in their beat and are

committed to providing all points of view when it comes to nuclear questions.

—Through its Media and Conflict Program, NPI has helped to develop the power

of the media to contribute to the prevention of conflict and the reduction of

ethnonational tensions. For example, NPI published a study of media coverage

of the war in Chechnya, the first of its kind in Soviet and Russian history. It

also organized a pioneering television project involving the first joint professional work between Ingushetian and Northern Ossetian journalists since that

conflict began—a jointly produced feature broadcast simultaneously on the television networks of both republics.

Sectoral Agenda.—Over the next few years, in accordance with its sectoral approach, NPI will pursue projects in a range of critical sectoral issues:

—Promoting Financing and Capitalization.—Through its newly organized Business Development Service, NPI will help newspapers access investment and

debt capital, it will promote equipment leasing and other alternative means of

capital improvement, and it will continue to provide direct consulting and problem-solving support to newspapers throughout Russia.

—Developing Media Management Capacity.—Through its School of Media Management and Journalism, NPI will train newspaper managers from around Russia in key areas such as advertising sales, distribution, readership surveys,

marketing, and newsroom management.

—Participating in the Development of the Legal and Administrative Infrastructure.—Legal barriers to media independence and sustainability include lack of

access to information, legislative obstacles to business development, the violation of civil rights, and ignorance or unwillingness to enforce the rule of law

when it comes to the mass media. NPI will continue to work aggressively in all

of these areas. —Fostering the Development of a Mature Information Culture.—Through its Center for Cyberjournalism, NPI will continue to train journalists in the use of new

media technology, both in Moscow and throughout the country, and its Internet
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Media Service will provide a range of critical services and resources to journalists and media managers.

—Promoting Industry-Wide Trade Organizations and Professional Associations.—

Mindful of the weakness of national-level organizations in Russia today, NPI

will work to promote the development of regional newspaper associations, with

the ultimate goal of building a national association to defend the common interests of the media.

—Overcoming Government Domination of Information.—Through its Freedom of

Information Commission, NPI will continue to promote improved FOI legislation

and enforcement and educate journalists in exercising their rights. NPI will also

continue to promote civil society and non-governmental actors through its wideranging Press Center activities at all of its regional centers.

—Raising the level of Journalistic Professionalism.—Without a marketable product, news organizations cannot survive. NPI will continue, through its School

of Media Management and Journalism, to provide mid-career training on journalistic techniques and on the coverage of specific beats, such as business and

economics.

CONCLUSION

The burden on the media is great in a country where democracy is yet so fragile.

The euphoria produced by the fall of Communism has long faded, and the tedious

and thankless work of building democracy remains. Desmond Tutu, addressing the

South African media in 1996, said, ‘‘The media have an incredible calling—you were

the midwife of democracy, now you must be the watchdog to ensure that this beautiful thing is not corrupted.’’

For the media in Russia, too, to play this critical role, they continue need our

help—and badly. Failure to act decisively during these critical years could have profound consequences not only for the future of democracy and markets in Russia, but

also for the entire international system, in which the actions of Russia can yet carry

immense weight and produce fateful consequences for us all.

PREPARED STATEMENT OF HOBART C. GARDINER, PRESIDENT AND CEO,

INTERNATIONAL EXECUTIVE SERVICE CORPS

International Executive Service Corps (IESC) is the most effective not-for-profit

business development organization of its kind in the world. Since 1965, IESC has

provided affordable expert assistance to entrepreneurs, small and medium-sized enterprises, non-profit organizations and governments in more than 120 countries. We

currently operate programs in over 50 countries in the developing world and the

emerging democracies of the former Soviet bloc.

IESC exemplifies the successful public/private partnership. We combine the

knowledge and mentoring skills of industry and professional experts who donate

their time with the financial support of private donors, clients who contribute fees

for service, and grants from the United States Agency for International Development (USAID) and other government agencies.

IESC focuses on small and medium-sized private enterprises because they are the

engines driving economic growth and job creation around the world. By giving them

the tools for success, we create prosperity, foster conditions conducive to democratic

governance, and end the cycle of dependency. Our goals parallel similar foreign assistance objectives of the United States government.

President Clinton recently underscored the value of volunteer service in his call

for increased funding of an enlarged Peace Corps. We applaud the call for increased

funding, and the recognition given to the work of the many young men and women

who have changed their lives and the lives of others through their service in the

Peace Corps.

Our work complements that of the Peace Corps. IESC’s senior-level executive volunteers focus on improving the business sector. They donate their time and the accumulated experience of successful careers. Thus they work with their hearts as

well as their heads, making friends while making change.

IESC documents the value of its work through a rigorous evaluation process. Over

the past 33 years, we have demonstrated outstanding results for our clients and a

solid return on investment for our funders.

JOBS

Over the past 33 years, IESC programs have created almost a quarter of a million

jobs worldwide. These new jobs have been at all skill levels, and have been created
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in areas of significant unemployment or under-employment. We are particularly

proud of our efforts to create employment opportunities for women.

—In Cairo and Alexandria, Egypt, IESC created Centers for Quality Assurance

to assist various Egyptian businesses in meeting ISO 9000 quality standards

and thereby increase their productivity and competitiveness. In two and a half

years, the Centers have worked with over 200 clients; already approximately 40

clients have received ISO certification. These Centers themselves have employed over 20 Egyptian nationals. Among our staff is the first woman in the

Arab world to qualify as an ISO 9000 lead assessor.

—In Southern Russia, IESC provided production and marketing assistance to Gloria Jeans. Company management was restructured and decentralized. As a result, sales have doubled and the European Bank for Reconstruction and Development made a $3 million investment in Gloria Jeans. The transformation of

Gloria Jeans created 500 jobs, all of them for women, which has helped provide

economic stability to the region.

—Selyn Exporters, in Sri Lanka, which manufactures and exports table linens

and soft toys to Europe, North America, and parts of Asia, provides employment

for over 150 rural men and women. The majority of the workers are women who

were either widowed or abandoned by their husbands, left to fend for themselves and their children. IESC provided funds to Selyn to design and print a

promotional brochure and exhibit at successive American International Toy

Fairs in New York. Linkages from these three shows have resulted in $200,000

in initial and repeat orders from the United States, Canada, and Europe.

—In Ghana, IESC was a primary supporter of the Ghana Association of Women

Entrepreneurs, helping it present an eight-day First Global Fair and Investment Forum for Women Entrepreneurs. The fair drew thousands of participants

from 35 African countries, in addition to North American, Asian, and Caribbean

business and trade organizations.

—In Zambia, IESC infused life into the promising tourism industry by aiding

more than a dozen small to medium-sized hotels in the capital city of Lusaka

and in rural towns and villages—redesigning kitchens, training housekeeping

and kitchen staff, advising on all business aspects from accounting to promotion, and even helping one couple complete the renovation of their hotel.

Increased sales and investment.—In 1996 alone, IESC programs increased sales

for client companies by over $224 million. The total cost of our program that year

was only $33 million. This means that for every dollar we spent, our clients

achieved almost $7 in increased sales in the first year alone. At the same time, our

clients were able to reduce costs by $18 million (a 2.5 to 1 leverage) and attract capital investments in the amount of $11 million (a 1.5 to 1 ratio)—for a total impact

of $11 for every dollar invested in our programs.

—JVC Baterias Record S.A., Peru’s leading manufacturer of auto batteries, faced

increased competition from imports. With IESC help, JVD developed a new stationary battery, which is essential in the poorly-lit areas of Peru’s cities. This

new line of batteries produced sales of more than $1 million in the first year.

—IESC improved cash flow for PMO Shatura, a Moscow-area furniture manufacturer, by restructuring the company’s financial management systems. We

trained an expanded sales staff, creating a network of regional sales managers

and a motivated sales force. As a result, the company has increased sales by

$8 million and achieved two joint ventures worth $7 million.

—Frima, S.A., a Chilean meat processor, improved sanitation techniques, learned

new methods of cutting meat to enhance quality, and restructured the by-products division, leading to greater productivity and efficiency. As a result of

IESC’s innovations, Frima increased sales by $10 million, introduced four new

products, made capital investments valued at $2 million, and generated 15 new

jobs.

—For a processor of food and juices in Kazakhstan (one of the first private companies there), IESC developed a business plan that led to a joint venture. As a

result of the favorable forecasts in that plan, the client received more than $1.5

million in financing from the Asia Development Bank and Centrekredit. With

this financing it developed a new product line that is expected to double its

profits.

—IESC evaluated the master plan for the El Salvador airport and prepared technical terms of reference to solicit international consulting support, leading to direct investment by the United States Trade and Development Agency.

—IESC prepared an electric light company in Kyrgyzstan for privatization, increasing its sales by 25 percent and obtaining $400,000 in new funding from

the World Bank.
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—In Panama, IESC worked with an importer/exporter of tableware to increase

sales. As a result of IESC’s help in upgrading software programs and implementing long-term strategies to coordinate manufacturing and sales, the client

increased exports to Central and South American markets by $2 million.

—In Indonesia, IESC expertise improved quality control and productivity for a

paper-making plant in Java. As a result, production increased by 50 percent,

costs were reduced by $100,000 and sales increased by $500,000 in just one

year.

—A chemical plant in Calcutta, India, with 700 employees, wanted to reduce electrical and mercury consumption and introduce a pollution control system. IESC

initiatives led to $25,000 in energy savings and increased annual sales by $1.5

million.

—In Georgia, IESC assisted a design studio for printing, advertising and publishing. The studio improved quality and efficiency, reduced production time, and

increased sales by $140,000.

—In Armenia, IESC assisted Arax, a business support company in Yerevan. As

a result of enlarging its production capacity, training staff, and improving services, sales increased by $250,000.

PURCHASES FROM U.S. COMPANIES

The United States Agency for International Development has invested just over

$296 million in IESC programs since our first operations in 1965. The cumulative

value of purchases made by our clients from U.S. companies exceeds $2 billion. This

seven to one return is only a small indicator of the enormous impact IESC has had

worldwide.

—Linza, a Yerevan vision care company, received months of assistance from an

IESC expert, an opthamologist who dramatically improved the company’s operations. To upgrade its inventory, Linza imported almost $40,000 worth of

frames and lenses from U.S. suppliers. In the course of aiding the company and

20 other associated optical enterprises to reach world standards of eye care,

IESC improved vision care throughout Armenia.

—An IESC automotive client in Estonia, Baltic American Car Company, has imported approximately $17.5 million worth of Chrysler and Jeep Eagle products,

and $3.5 million worth of First Brands automotive products during the last five

years, with obvious benefits to the U.S. economy.

—Alchem International, in India, sought IESC guidance in producing plant extracts and derivatives meeting international specifications. IESC recommended

improvements in quality control, research and development processes, and plant

operations and maintenance. As a result, Alchem developed seven new products,

installed $50,000 of U.S. technology, achieved a 99 percent purity level in their

products, and increased exports by $1 million.

—In Sri Lanka, a nation struggling with a profound internal conflict, IESC manages a large program called Technology Initiative for the Private Sector. The

IESC program oversees grants, and monitors stipends to local companies that

partially offset the costs of upgrading technology and expanding their markets.

Joint ventures.—In 1996 alone, IESC activities produced joint ventures valued at

over $3 million for our clients. Many of these linked U.S. firms with our clients overseas.

—In Egypt, our Manufacturing Technology Centers (MTC) link Egyptian businesses with American suppliers, customers, and partners. With MTC assistance,

the Fogarty International Center in Cairo recently convened a workshop on Investing in Biotechnology. Attending were 18 American and 100 Egyptian investors and company representatives. Several joint ventures resulted, involving

purchases of U.S. pathogen-free seed potatoes and biotechnology equipment.

The field of biotechnology has potential for the Egyptian economy in the areas

of health, agriculture, industry, and the environment.

—In Bulgaria, IESC assistance to Samex, a food service client, led to linkages

with KFC and Dunkin’ Donuts, benefiting business in the United States with

franchise fees and equipment purchases, while increasing sales for the Bulgarian client and creating more than 300 jobs in just two years.

—In Czech Republic, an IESC expert spent several months assisting the young

management team at Janka, a manufacturer of air conditioning units, in cutting costs, improving safety, training staff, and promoting their product. He also

guided them in forming their first joint venture (valued at over $8 million) with

a subsidiary of an American company.
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—In St. Petersburg, Russia, IESC helped a prosthetics manufacturer become a

distributor for a U.S. company, thus raising the quality of prosthetics available

in Russia, in high demand by young soldiers wounded in the war in Chechnya.

—In the city of Ussuriysk in the Russian Far East, IESC is assisting in the conversion of an airport from military to civilian traffic, stimulating development

of the region, and opening a new air route to the area for foreign airlines.

INNOVATION

At its founding, in 1963, IESC was an innovative idea: to capture the generosity

and good will of American business people to provide the expertise needed by struggling businesses in the developing world. In the past 33 years IESC industry experts have volunteered over one million days of service, conservatively valued at

over $514 million. We continue to rely on this extraordinary pool of expertise: today

we have more than 13,000 experts registered with us, available to go any where

their skills, talent and coaching are needed.

Innovation did not stop with the concept however. We have continually created

innovative programs to meet new challenges and take advantage of new opportunities.

—Working with USAID’s Global Technology Network, we now help small and medium-sized American companies enter the global marketplace, increasing the

number of transactions between U.S. companies and companies in developing

countries and emerging democracies. Through this program, IESC experts mentor American companies, coaching them through the often confusing and difficult process of finding and following up on trade leads.

—In Brazil, an innovative approach to solving ATM fraud was designed by an

IESC expert. He evaluated present and future risks to the client’s operations,

to the supplier of ATM equipment, and set up defensive protocols to reduce the

incidence of bank fraud in Brazil, estimated at $600 million annually.

—In Lithuania, IESC is creating the Lithuanian-American Business Network

(LABnet), with the cooperation of the U.S. Ambassador, Keith Smith, and the

USAID mission there. The program is designed to accelerate U.S. investment

in Lithuanian small and medium-sized enterprises. In the United States, four

IESC experts will support the Lithuanian local consulting company by researching potential partnerships between American and Lithuanian businesses.

—In another project there, an IESC expert spent two months training sixty brokerage employees in portfolio management, educating them about U.S. funds,

and facilitating contacts with several American funds. As a result, two investors

have already entered the Lithuanian securities market.

—The Lithuanian president recognized IESC’s contribution to Lithuania’s economic revival by conferring full Lithuanian citizenship on our Country Director

couple there, George and Mai Gray. Mr. Gray had been in charge of economic

development as assistant city manager in his hometown of Tucson, Arizona, and

brought the same sensitivities and skills to his work in Lithuania.

—As new opportunities occur, IESC continues to implement innovative services

in other areas, such as assisting in legal and regulatory reform, training insurance regulators and initiating distance learning and other virtual business support services. With IESC assistance, for example, a Boston-based publishing

company, International Data Group, has recently launched PC World Lithuania

magazine, stimulating the development of information technology in Lithuania.

Alliances.—IESC recognizes that we can often accomplish our objectives more efficiently through associations with other organizations.

—IESC has formed new development partnerships in Latin America. In Panama,

we are helping the Interoceanic Region Authority manage the reversion of

United States military bases to Panama by the end of the decade. More than

20 IESC experts have developed marketing strategy, provided technical assistance, and promoted investment and joint ventures. We are also working with

the Panama Canal Authority to protect the Panama Canal Watershed area, aiding in the formation of an inter-institutional commission protecting natural

water supplies to the Canal, and training administrative staff.

—We have formed a partnership with Programa Bolivar, based in Caracas, Venezuela to create joint ventures and other strategic alliances between U.S. companies and small to medium-sized enterprises in Latin America. IESC experts

provide on-site assistance or research within the United States.

—In Ukraine, IESC has pooled resources with Agricultural Cooperative Development International/Volunteers in Overseas Cooperative Assistance, MBA Enterprise Corps, and Citizens Democracy Corps to create ‘‘The Alliance.’’ Recently,

the Alliance assisted Korop Agrotechservice, a conglomerate of eight privatized
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businesses founded in 1996. Part of the conglomerate, a former collective farm,

had a cash flow crisis. To save the farm and the jobs of its 90 employees, IESC

assigned an expert in agricultural management. His recommendations led to

improved management and marketing practices, and new cattle-breeding methods. The Alliance next called in an ACDI/VOCA volunteer, a cattle breeding expert. By October, 1997 the farm’s cash flow had improved so much that it paid

all employees their back wages. By February, 1998, still implementing the IESC

business plan, the farm settled a substantial portion of its outstanding debts.

—The Alliance has helped build a strong, stable investment banking sector, a priority for business growth. An IESC banking executive, formerly with Merrill

Lynch, helped First Investment Bank of Ukraine improve its investment capabilities. The Ukrainian bank eventually signed an agreement with the National

Bank of Paris that strengthened First Investment’s ability to market and participate in Ukrainian Euro-Bond issues. In February 1998, the First Investment

co-led, with Merrill Lynch and Commerzbank, a successful DM 750 million

Euro-Bond issue. First Investment credited IESC’s assistance with substantially

improving the bank’s abilities, ensuring its participation in future large securities issues.

—In Bulgaria, IESC is part of the Firm Level Assistance Group (FLAG) a consortium also including Agricultural Cooperative Development International/Volunteers in Overseas Cooperative Assistance, MBA Enterprise Corps, Citizens Democracy Corps, the University of Delaware, Land O’Lakes and World Learning.

IESC assisted the management-employee team of Riviera Holiday Resort in

Varna in acquiring the hotel complex. An IESC expert assessed investment alternatives, then guided the team in winning the right to purchase 60 percent

of the resort at a cost of $11 million, with further investments of $4 million to

improve services, and renovate the facility. FLAG, with the involvement of

IESC, will continue to back the team in its ambitious business endeavor.

—The Business Development Services (BDS) division of IESC is currently active

in Romania through a partnership agreement with the USAID-funded Romanian American Enterprise Fund and the International Center for Entrepreneurial Studies. This two-year program, known as ‘‘ACCESS for Business uses IESC

industry experts to assess a company’s business potential, and prepare it for investment and further growth.

—The results are exciting and encouraging. As of December 1997 (less than half

way through the program), the ACCESS team has reviewed over 300 companies, 125 of which were referred to the Romanian American Enterprise Fund

for financing and/or technical assistance services. BDS has used the donated

services of more than 150 IESC industry experts operating within the U.S. to

assist participating Romanian companies.

Sustainability.—IESC designs programs for both immediate and long-term impact. Before the need for our direct services end in a country, IESC is already preparing the local citizens to continue business-strengthening programs. For example:

—In the Slovak Republic and Lithuania, IESC’s funding from USAID will end for

both countries on September 30, 1998. However, with current support from

USAID, we are training local staff and transforming our offices in both countries into self-sustainable, indigenous consulting companies. These new 100 percent locally-owned firms will continue management consulting to businesses in

transition in these countries.

—Our Russia program also works to build the capacity of indigenous consulting

firms. Through staff training, seminars, and cooperation on projects, IESC leads

consulting firms towards self-sustainability. Developing a market presence, increasing a client base, establishing a reputation, broadening an array of services, and increasing financial stability—all these require substantial resources

and evolve over time. IESC must maintain present funding levels to continue

meeting these very challenging and worthy goals.

Building the supporting structure.—Business does not operate in a vacuum. Government policies and procedures, educational facilities, social services—all impact

business operations. Therefore, IESC dedicates part of its resources to addressing

needs in the public sector.

—IESC’s public administration program works with public officials in the New

Independent States to increase their understanding of representative government and its role in fostering a healthy economy. Because the program involves

governments, it can ultimately have enormous impact on many millions of people.

—In Kazakhstan, more than 300 officials have participated in this program. Fifty

have been selected to study government operations at various levels in the

United States. Representative Christopher Shays has become an integral part
279

of this program, meeting with these officials and sharing his insights as a member of the House of Representatives. One official concluded: The most valued

part of this program was meeting with various government and business people,

learning from them how they interact with one another, and how they organize

work.

—Many of these Kazakh officials have subsequently been promoted to senior levels. One is now Chief of Staff to the President of Kazakhstan. Previous participants have also started an alumni association, serving as mentors to newlyelected Kazakh officials.

—In Orenburg, IESC worked with the Russian Privatization Center, the city administration, and social service managers on the privatization process for 28

kindergartens. Our expert met with staff in all affected institutions, arranged

for staff retraining, and developed alternative plans for school use to reduce expenses while maintaining the quality of education.

Recently an IESC staff member was invited to South Africa, Zambia, and Botswana to meet with officials and representatives of businesses, funding groups and

non-governmental agencies to assess needs and opportunities for development in

those countries. One immediate result is IESC’s participation in the Bi-National

Commission Grant from the Department of Commerce to the South African Centre

for Scientific and Industrial Research.

CONCLUSION

These highlights of IESC’s achievements are but a sampling of the change we

have accomplished over the past 33 years with funding from the U.S. government.

We have leveraged the taxpayers’ dollars effectively. To continue our superb record,

however, we must rely on continued funding for our effective programs. We believe

what we have accomplished for America and for clients around the world is a significant chapter in a book that is still being written, with your help.

Question. If AID invests $24 million with you, what kind of a return on investment do you get?

Answer. A great return on investment For $24 million we got:

—clients who increased their sales by $224 million;

—clients whose exports increased by $34 million;

—clients who reinvested capital in their companies by $69 million (compared to

a time when money was fleeing to Swiss Bank accounts);

—clients who purchased $13 million from U.S. companies in just one year—the

first year after the project. We expect their purchases to continue year after

year.

—the investment helped break the cycle of dependency in over 25 countries.

19 other countries now also think it’s a good investment.

Lee Hamilton said, and I quote: ‘‘In this time of tough budget restraint, we must

be looking for the most efficient and cost-effective ways of providing support for our

development goals. IESC is efficient. Not only do the executives volunteer their time

but clients contribute to further offset costs. IESC is effective. Fully 40 percent of

the projects undertaken are follow-on endeavors building on initial activities. IESC

supports U.S. trade interests. 43 percent of clients purchase goods and services from

the United States.’’

We note that the Peace Corps got an increase of $40 million to help with private

enterprise. We admire the Peace Corps, but for building business, we have a bank

of talent and a 33-year track record.

Question. Do you undertake projects in any countries where you don’t get funding

from AID?

Answer. Yes sir, we work in several countries where AID funding is no longer

available and the clients pay all our expenses. Several such countries are in Latin

American and Asia. The clients tend to be large rather than small. Not large by

American standards, but still significant to the growth of the economy.

Question. Why do retired executives leave comfortable conditions to work unpaid

overseas in developing countries?

Answer. I think there are several reasons:

—They want to be of service where help is needed

—They want to pay back in some way. Feeling that this country, its customs and

ideals, from the founding fathers on, has been good to them, they want to pass

it on.

—They are used to working their butts off. Retirement and golf are not enough

to satisfy their need to be busy usefully.

—They are believers in private enterprise and the market economy.

Question. How are you funded?
280

Answer. Principally through AID. We get $24 million from AID or 74 percent. The

amount of work we do is directly related to AID funding. If AID were to double the

funding, we would do twice as much work. Next to AID in size are our clients. They contribute 19 percent or $6,400,000. The Department of Defense contributes nearly one million. USIA, $150,000. Contributions and grants from other private sources are about $1,100,000.

CONTRIBUTIONS AND GRANTS

1997 Percent

USAID missions ............................................................................................................... 21,386 ................

AID—core grant ............................................................................................................. 3,031 ................

Total .................................................................................................................. 24,417 73.8

Clients ............................................................................................................................. 6,395 19.3

DOD ................................................................................................................................. 968 3.1

USIA ................................................................................................................................ 151 .5

Other Grants for specific reason like Chase Bank Johnson Foundation (nothing from

offsets in 1997) ......................................................................................................... 553 1.7

Contributions (corporations, foundations, individuals) .................................................. 597 1.8

Total .................................................................................................................. 33,081 1 100.0

1May not add to 100 due to rounding.

PREPARED STATEMENT OF ROTARY INTERNATIONAL

Chairman McConnell, members of the Subcommittee, Rotary International appreciates this opportunity to submit written testimony in support of the polio eradication activities of the U.S. Agency for International Development. Rotary International is a global association of nearly 29,000 Rotary clubs, with a membership

of over 1.2 million business and professional leaders in 158 countries. In the United

States today there are some 7,500 Rotary clubs with over 400,000 members. All of

our clubs work to promote humanitarian service, high ethical standards in all vocations, and international understanding.

Rotary is submitting this testimony on behalf of a broad coalition of child health

advocates, including the March of Dimes Birth Defects Foundation, the American

Academy of Pediatrics, the Task Force for Child Survival and Development, and the

U.S. Committee for UNICEF, to seek your continued support for the global program

to eradicate polio. Firstly, Rotary International and our coalition would like to express our sincere gratitude. In fiscal years 1997 and 1998, you recommended that

$25 million be allocated for the polio eradication activities of the Agency for International Development, and the full Congress ratified your recommendation in both

years.

This investment has helped to make the United States the leader among donor

nations in the drive to eradicate this crippling disease. The target year is 2000 for

eradication, with certification by 2005. A thousand days remain to defeat this disease in the 60 nations where the polio virus still causes death and disability. The

eradication of polio, achieved through your leadership, will not only save lives, but

will also save our financial resources.

ERADICATING POLIO WILL SAVE THE UNITED STATES AT LEAST $230 MILLION ANNUALLY

Although polio-free since 1979, the United States currently spends at least $230

million annually to protect its newborns against the threat of importation of the

polio virus. Globally, over 1.5 billion U.S. dollars are spent annually to immunize

children against polio. This figure does not even include the cost of treatment and

rehabilitation of polio victims, nor the immeasurable toll in human suffering which

polio exacts from its victims and their families. Once polio is eradicated, tremendous

resources will be unfettered to focus on other health priorities.

PROGRESS IN THE GLOBAL PROGRAM TO ERADICATE POLIO

Thanks to your appropriations, the international effort to eradicate polio has

made tremendous progress during the past two years.
281

For 1997, it is expected that only about 3,600 polio cases will be reported, onehalf the number of cases reported only two years ago. This dramatic decline is due

to the tremendous success of National Immunization Days (NID’s) in South Asia

and Africa. Worldwide, reported cases have decreased from over 38,000 cases in

1985—a decline of over ninety percent. Acute Flaccid Paralysis (AFP) surveillance,

which is critical to the process of certification of a polio-free world, is improving, and

health authorities in polio-endemic countries are better able to assess the challenges

remaining to eradication.

In 1996, 154 countries reported no polio. That number is expected to rise in 1997.

About 60 countries, however, remain polio-endemic.

The global eradication strategy is working. Seventy-five countries conducted NID’s

in 1997, protecting 450 million children against polio—more than one-half of the

world’s children under the age of five.

During its third year of NID’s, India was able to immunize 130 million children

on January 18, 1998—the largest public health event in history. Pakistan, Bangladesh, and six other countries coordinated their NID’s with India’s to achieve the

maximum effect over the entire region.

Despite economic difficulties, more than 40 African countries conducted National

or Sub-National Immunization Days during 1996/1997, as part of the continent-wide

‘‘Kick Polio Out of Africa’’ campaign championed by South African President Nelson

Mandela, reaching nearly 70 million children. Forty-nine African countries are undertaking NID’s in 1997–98. Polio-free zones are emerging in both Northern and

Southern Africa.

The three-year ‘‘Operation MECACAR’’ (Middle East, Caucasus, Central Asian Republics) immunization campaign has been deemed a success, virtually eliminating

polio from 19 contiguous countries stretching from the Middle East to Russia. For

1997, polio cases reported from WHO’s European region have been confined to

Tadjikistan and Turkey.

As a result of three years of successful NID’s, China has reported no laboratoryconfirmed indigenous polio cases in 1996 or 1997. In 1997, reported polio cases in

the Western Pacific were confined to the Mekong Delta of Cambodia and Viet Nam,

with no cases reported for more than a year. We are hopeful that the entire Western

Pacific is now polio-free, although continued vigilance is necessary to confirm this.

The entire region has started on the process of certifying polio eradication.

THE ROLE OF THE U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT

USAID was one of the driving forces behind the eradication of polio in Latin

America and the Caribbean. Since the certification of polio eradication in the Americas in 1994, AID has turned its attention to the polio-endemic countries of Africa

and Asia, and to finding ways to use American expertise to enhance immunization

services globally. A major breakthrough was the development of the heat-sensitive

vaccine vial monitor, which will save $10 million annually by reducing vaccine wastage. AID developed the monitor in conjunction with a private U.S. firm, at the request of the World Health Organization and UNICEF, and it is now in place on

every vial of oral polio vaccine produced world-wide.

In April 1996, with the support of the 104th Congress and in response to the

strong urging of your Subcommittee, AID launched its own Polio Eradication Initiative, to coordinate agency-wide efforts to help eradicate polio by the year 2000. Congress directed $20 million for AID’s polio eradication efforts in fiscal year 1996, and

increased that amount to $25 million for fiscal year 1997 and fiscal year 1998. We

are advised by AID that their planned Polio Eradication Initiative activities in 1998

will include:

—As in fiscal year 1997, AID’s Africa Bureau will provide $16 million for the Polio

Eradication Initiative in Africa. These funds will flow through WHO, UNICEF,

and BASICS for NID operational support, surveillance, communication, social

mobilization, planning, training, evaluation and cold chain in approximately 23

countries. In 1997, special attention was given to the Democratic Republic of

the Congo (former Zaire).

—As in 1997, AID will designate nearly $4 million to support India’s NID’s and

strengthen nationwide surveillance. AID’s technical and programmatic expertise

have been critical to the success of India’s three years of National Immunization

Days to date. AID, through grants to UNICEF, WHO, and Rotary, has helped

support India’s cold chain, surveillance, training, and social mobilization efforts.

—An additional $5 million will again be programmed through AID’s Center for

Population, Health and Nutrition. These funds will be used for surveillance and

training in 4 South Asian and 10 European countries, through the WHO Regional Offices, and to support communication and research concerning vaccina-
282

tion issues. Support is also being provided to the Voice of America for broadcasting on polio eradication, surveillance, and other immunization topics, and some

funds are also earmarked for emergency vaccine transport.

THE BENEFITS OF POLIO ERADICATION

Increased political and financial support for childhood immunization has many

documented long-term benefits. Polio eradication is helping countries to develop

public health and disease surveillance systems useful in the control of other vaccinepreventable infectious diseases. Already, much of Latin America is free of measles,

due in part to improvements in the public health infrastructure implemented during

the war on polio. As a result of this success, measles has been targeted for eradication in the Americas by the year 2000. The disease surveillance system—the network of laboratories, computers and trained personnel built up during the Polio

Eradication Initiative—is now being used to track measles, Chagas, neonatal tetanus, and other deadly infectious diseases. The campaign to eliminate polio from

communities has led to increased public awareness of the benefits of immunization,

creating a ‘‘culture of immunization’’ and resulting in increased usage of primary

health care and higher immunization rates for other vaccines. It has improved public health communications and taught nations important lessons about vaccine storage and distribution, and the logistics of organizing nation-wide health programs.

Lastly, the unprecedented cooperation between the public and private sectors serves

as a model for other public health initiatives.

RESOURCES NEEDED TO FINISH THE JOB OF POLIO ERADICATION

The World Health Organization now estimates that in 1998 approximately $220

million in external funds is needed to help polio-endemic countries carry out the

polio eradication strategy. For 1999, an estimated $248 million will be needed. To

date, however, only $160 million has been committed by external donors for 1998,

leaving an estimated shortfall of $60 million. In the Americas, some 80 percent of

the cost of polio eradication efforts was borne by the national governments themselves. In Africa, many nations can contribute only a small percentage of the needed

funds, meaning that foreign donors must meet up to 100 percent of the polio eradication costs. We are asking that the United States continue to take the leadership

role in meeting this shortfall.

The United States’ commitment to polio eradication has stimulated other countries to increase their support. Belgium, Canada, Finland, France, Italy, Korea, Norway, Sweden and Switzerland are among those countries which have followed America’s lead and have recently announced special grants for the global Polio Eradication Initiative. Japan and Australia are major donors in Asia and the Western Pacific, and Japan has recently expanded its support to polio eradication efforts in Africa. And both Denmark and the United Kingdom have made major grants that will

help ensure that India eradicates polio by the target year 2000.

By the time polio is certified as eradicated, hopefully by 2005, Rotary International will have expended well over $400 million on the effort—the largest private

contribution to a public health initiative ever. Of this, $304 million has already been

allocated for polio vaccine, operational costs, laboratory surveillance, cold chain,

training and social mobilization in 119 countries. In 1997, realizing the increased

role which external donors need to play in order to ensure that polio eradication is

not jeopardized due to lack of resources, The Rotary Foundation committed an additional $34 million to its PolioPlus Fund. More importantly, we have mobilized tens

thousands of Rotarians to work together with their national ministries of health,

UNICEF and WHO, and with health providers at the grassroots level in thousands

of communities.

FISCAL YEAR 1999 BUDGET REQUEST

For fiscal year 1999, we are again requesting a $25 million earmark for global

polio eradication in USAID’s budget, through their Polio Eradication Initiative, for

the delivery of vaccine and the development of the infrastructure necessary to implement the program. This would maintain funding at the fiscal year 1998 level,

and ensure that the USA remains the decisive factor in the success of the global

initiative. In addition, we are seeking report language similar to that included in

the fiscal year 1998 Committee report, specifying that this funding is meant to be

in addition to the resources for the regular immunization program of AID, and is

intended to supplement other related activities. Lastly, we would ask that the Committee again request a report, by December 1 1998, on AID’s plans to fully implement this program.
283

Humankind is on the threshold of victory against polio, and we must not miss this

window of opportunity. Poliomyelitis will be the second major disease in history to

be eradicated. The world celebrated the eradication of smallpox in 1979, and no

child anywhere in the world will ever suffer from smallpox again. The annual global

savings of nearly $1 billion per year in smallpox immunization and control costs far

exceed the approximately $300 million that was spent over ten years to eradicate

the disease. The United States was a major force behind the successful eradication

of the smallpox virus, and has recouped its entire investment in smallpox eradication every 21⁄2 months since 1971. Even greater benefits will result from the eradication of polio.

Polio eradication is an investment, but few investments are as risk-free or can

guarantee such an immense return. The world will begin to ‘‘break even’’ on its investment in polio eradication only two years after the virus has been vanquished.

The financial and humanitarian benefits of polio eradication will accrue forever.

This will be our gift to the children of the twenty-first century.

Thank you for this opportunity to testify.

THE ROTARY FOUNDATION OF ROTARY INTERNATIONAL

The mission of The Rotary Foundation is to support the efforts of Rotary International to achieve world understanding and peace through international humanitarian, educational and cultural exchange programs.

The Rotary Foundation of Rotary International was the recipient of one Federal

grant in recent years: a U.S. Agency for International Development Child Survival

(CSVIII) grant, for the period 1 October 1992 to 30 September 1996. This grant, in

the amount of $2,650,200, was for polio immunization projects in India and Nigeria,

as well as administrative expenses, and is now closed.
(i)

LIST OF WITNESSES, COMMUNICATIONS, AND

PREPARED STATEMENTS

Page

Albright, Hon. Madeleine, Secretary of State, Office of the Secretary, Department of State ........................................................................................................ 173

Prepared statement .......................................................................................... 186

American Bar Association, prepared statement .................................................... 263

Atwood, J. Brian, Administrator, Agency for International Development .......... 141

Prepared statement .......................................................................................... 150

Barnes, Michael D., Esq., cochair, U.S. Committee for the United Nations

Development Programme, prepared statement ................................................. 238

Bernala, Dr. Richard L., Jamaica’s Ambassador to the United States and

Permanent Representative to the Organization of American States, prepared statement ................................................................................................... 250

Bye, Dr. Raymond E., Jr., associate vice president for research, Florida State

University, prepared statement .......................................................................... 239

Cassell, Gail H., Ph.D., vice president, infectious disease discovery research

and clinical investigation, Eli Lilly Co ............................................................... 95

Prepared statement .......................................................................................... 130

Daulaire, Hon. Nils M.P., M.D., M.P.H., senior health adviser, Agency for

International Development ................................................................................. 95

Prepared statement .......................................................................................... 103

Eizenstat, Hon. Stuart, Under Secretary for Economic, Business, and Agricultural Affairs, Department of State ..................................................................... 43

Prepared statement .......................................................................................... 53

Freeh, Louis J., Director, Federal Bureau of Investigation, Department of

Justice ................................................................................................................... 69

Prepared statement .......................................................................................... 75

Gardiner, Hobart C., president and CEO, International Executive Service

Corps, prepared statement .................................................................................. 275

Georgetown University, prepared statement ........................................................ 240

Greenspan, Hon. Alan, Chairman, Board of Governors of the Federal Reserve

System, Department of the Treasury ................................................................. 1

Prepared statement .......................................................................................... 8

Heymann, David L., M.D., Director, Emerging and Other Communicable Diseases, Surveillance and Control, World Health Organization .......................... 95

Prepared statement .......................................................................................... 112

Hughes, Hon. James M., M.D., Director, National Center for Infectious Diseases, Centers for Disease Control and Prevention, Department of Health

and Human Services ............................................................................................ 95

Prepared statement .......................................................................................... 122

Jollivette, Cyrus M., vice president for government relations, University of

Miami, prepared statement ................................................................................. 244

Kostyuchencko, Evgen, council member, Center for Strategic Studies and

Analysis, Ukrainian National Security and Defense Council .......................... 69
Page

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Lautenberg, Hon. Frank, U.S. Senator from New Jersey .................................... 160

Leahy, Hon. Patrick, U.S. Senator from Vermont....................... 54, 71, 97, 143, 179

Prepared statements............................................................................. 71, 145, 181

Manatos, Andrew E., president, National Coordinated Effort of Hellenes, prepared statement ................................................................................................... 255

Manoff, Robert Karl, director, Center for War, Peace, and the News Media,

Department of Journalism and Mass Communication, New York University,

prepared statement .............................................................................................. 270

McConnell, Hon. Mitch, U.S. Senator from Kentucky ........... 1, 43, 69, 95, 141, 173

Prepared statement .......................................................................................... 177

Pan American Health Organization, prepared statement .................................... 229

Pyszczymuka, Michael, special agent, Federal Bureau of Investigation, Department of Justice .............................................................................................. 69

Rossides, Eugene T., general counsel, senior counsel, Rogers & Wells on

behalf of the American Hellenic Institute, Inc., prepared statement .............. 261

Rotary International, prepared statement ............................................................ 281

Rubin, Hon. Robert E., Secretary of the Treasury, Department of the Treasury ......................................................................................................................... 1

Prepared statement .......................................................................................... 13

Sklar, Scott, executive director, Solar Unity Network, prepared statement ...... 219

Smeshko, Ihor, director, Center for Strategic Studies and Analysis, Ukrainian

National Security and Defense Council ............................................................. 69

Stevens, Hon. Ted, U.S. Senator from Alaska ............................................. 4, 159, 199

Summers, Lawrence H., Deputy Secretary of the Treasury, Department of

the Treasury ......................................................................................................... 1

Talbott, Hon. Strobe, Deputy Secretary of State, Department of State .............. 43

Prepared statement .......................................................................................... 48

University Heights Science Park, prepared statement ........................................ 233

Watson, Alexander F., vice president and executive director, Latin American

and Caribbean Division, The Nature Conservancy, prepared statement ........ 221

World Wildlife Fund, prepared statement ............................................................. 225
(iii)

SUBJECT INDEX

AGENCY FOR INTERNATIONAL DEVELOPMENT

Page

Antimicrobial resistance .......................................................................................... 102

Closing missions ...................................................................................................... 165

Foreign policy ........................................................................................................... 108

Haiti .......................................................................................................................... 170

Humanitarian exceptions ........................................................................................ 168

Indonesia .................................................................................................................. 160

Infectious diseases ................................................................................................... 167

Mission ...................................................................................................................... 164

Morale ....................................................................................................................... 165

Moslem organizations .............................................................................................. 162

Peace process in Bosnia .......................................................................................... 160

Tuberculosis ............................................................................................................. 101

Year 2000 problem ................................................................................................... 166

DEPARTMENT OF HEALTH AND HUMAN SERVICES

CENTERS FOR DISEASE CONTROL AND PREVENTION

Orphan Drug Act ..................................................................................................... 133

DEPARTMENT OF JUSTICE

FEDERAL BUREAU OF INVESTIGATION

Bribes ........................................................................................................................ 89

Corruption ................................................................................................................ 94

Counterterrorism activities ..................................................................................... 82

Criminal activities ................................................................................................... 83

Foreign investment .................................................................................................. 90

Illegal smuggling ..................................................................................................... 84

Law enforcement liaison ......................................................................................... 91

Nuclear materials .................................................................................................... 86

Prosecutions ............................................................................................................. 93

Sharing intelligence information ............................................................................ 87

Sophistication of criminals ...................................................................................... 85

DEPARTMENT OF STATE

CAUCASUS AND CASPIAN: ECONOMIC AND POLITICAL SECURITY

Elections in Armenia ............................................................................................... 56

Peacekeeping force ................................................................................................... 59

Pipeline ..................................................................................................................... 65

Sanctions .................................................................................................................. 63

Section 907 ............................................................................................................... 56

OFFICE OF THE SECRETARY

Peace, prosperity, and freedom ............................................................................... 182
Page

iv

DEPARTMENT OF THE TREASURY

INTERNATIONAL MONETARY FUND

Asian situation ......................................................................................................... 29

Budget policies ......................................................................................................... 35

Central bank ............................................................................................................ 34

Crony capitalism ...................................................................................................... 16

Global markets ......................................................................................................... 18

IMF ........................................................................................................................... 23

Mexican issue ........................................................................................................... 31

New arrangements .................................................................................................. 20

Recovery in Asia ...................................................................................................... 15

Russia ....................................................................................................................... 25

Tariff reductions ...................................................................................................... 22

Æ