U.S. GOVERNMENT PRINTING OFFICE

63–746 CC WASHINGTON : 2000

OVERSIGHT OF THE INTER-AMERICAN

FOUNDATION

HEARING

BEFORE THE

SUBCOMMITTEE ON NATIONAL SECURITY,

VETERANS AFFAIRS, AND INTERNATIONAL

RELATIONS

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

OCTOBER 13, 1999

Serial No. 106–108

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpo.gov/congress/house

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

DAVID M. MCINTOSH, Indiana

MARK E. SOUDER, Indiana

JOE SCARBOROUGH, Florida

STEVEN C. LATOURETTE, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

BOB BARR, Georgia

DAN MILLER, Florida

ASA HUTCHINSON, Arkansas

LEE TERRY, Nebraska

JUDY BIGGERT, Illinois

GREG WALDEN, Oregon

DOUG OSE, California

PAUL RYAN, Wisconsin

HELEN CHENOWETH-HAGE, Idaho

DAVID VITTER, Louisiana

HENRY A. WAXMAN, California

TOM LANTOS, California

ROBERT E. WISE, JR., West Virginia

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

CHAKA FATTAH, Pennsylvania

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

HAROLD E. FORD, JR., Tennessee

JANICE D. SCHAKOWSKY, Illinois

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

DAVID A. KASS, Deputy Counsel and Parliamentarian

CARLA J. MARTIN, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON NATIONAL SECURITY, VETERANS AFFAIRS, AND INTERNATIONAL

RELATIONS

CHRISTOPHER SHAYS, Connecticut, Chairman

MARK E. SOUDER, Indiana

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

DAVID M. MCINTOSH, Indiana

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

LEE TERRY, Nebraska

JUDY BIGGERT, Illinois

HELEN CHENOWETH-HAGE, Idaho

ROD R. BLAGOJEVICH, Illinois

TOM LANTOS, California

ROBERT E. WISE, JR., West Virginia

JOHN F. TIERNEY, Massachusetts

THOMAS H. ALLEN, Maine

EDOLPHUS TOWNS, New York

BERNARD SANDERS, Vermont

(Independent)

JANICE D. SCHAKOWSKY, Illinois

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

LAWRENCE J. HALLORAN, Staff Director and Counsel

ROBERT NEWMAN, Professional Staff Member

TOM COSTA, Professional Staff Member

JASON CHUNG, Clerk

DAVID RAPALLO, Minority Counsel

(III)

C O N T E N T S

Page

Hearing held on October 13, 1999 .......................................................................... 1

Statement of:

Breslin, Patrick, representative for Colombia, Inter-American Foundation;

Daniel W. Fisk, deputy director, the Kathryn and Shelby Cullom Davis

International Study Center, Heritage Foundation; and Alvaro Rengifo,

executive director, Inter-American Development Bank ............................. 35

Otero, Maria, chair of the Inter-American Foundation, executive vice

president, ACCION International, accompanied by George A. Evans,

president, Inter-American Foundation; and Adolfo A. Franco, J.D., senior vice president and general counsel, Inter-American Foundation ........ 3

Letters, statements, et cetera, submitted for the record by:

Breslin, Patrick, representative for Colombia, Inter-American Foundation,

prepared statement of ................................................................................... 39

Fisk, Daniel W., deputy director, the Kathryn and Shelby Cullom Davis

International Study Center, Heritage Foundation, prepared statement

of ..................................................................................................................... 50

Otero, Maria, chair of the Inter-American Foundation, executive vice

president, ACCION International, prepared statement of ........................ 8

Rengifo, Alvaro, executive director, Inter-American Development Bank,

prepared statement of ................................................................................... 59

(1)

OVERSIGHT OF THE INTER-AMERICAN

FOUNDATION

WEDNESDAY, OCTOBER 13, 1999

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON NATIONAL SECURITY, VETERANS

AFFAIRS, AND INTERNATIONAL RELATIONS,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 10:10 a.m., in room

2247, Rayburn House Office Building, Hon. Christopher Shays

(chairman of the subcommittee) presiding.

Present: Representatives Shays and Sanders.

Staff present: Lawrence J. Halloran, staff director and counsel;

Robert Newman and Tom Costa, professional staff members; Jason

Chung, clerk; David Rapallo, minority counsel; and Earley Green,

minority staff assistant.

Mr. SHAYS. I would like to call this hearing to order.

Thirty years ago, Congress established the Inter-American Foundation [IAF], an independent and experimental Federal agency to

reach beyond government-to-government aid programs in Latin

America and the Caribbean working at the grass-roots level. Part

of the IAF’s cold war mission was to provide an economic and social

alternative to the lure of communism among the poor of the region.

In the intervening three decades, the world has changed dramatically. The Inter-American Foundation has not. So oversight is

long overdue. Last scrutinized in 1984, the IAF has been beset by

internal strife and management lapses, particularly regarding two

controversial grants to leftist organizations. While many of the

Foundation’s once innovative strategies were being adopted by

other aid agencies, the IAF seems to have stagnated into a fractious bureaucracy squabbling over reduced budgets and a lost sense

of purpose.

The administration recently acknowledged ‘‘the need for change

to enhance the Foundation’s internal oversight procedures and

project monitoring.’’ According to IAF officials, the Foundation has

begun to make those changes. But will they be enough to revitalize

the IAF and make it relevant in the post-cold war world? Could

some or all of the Foundation’s functions be privatized? Should

they?

These are the questions we asked our witnesses to address this

morning, and we welcome our witnesses. And at this time I would

recognize my good friend and colleague Mr. Sanders.

Mr. SANDERS. Thank you, Mr. Chairman.

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The Inter-American Foundation was created 30 years ago to

build a direct relationship between the people of the United States

and the poor people of Latin America. The IAF is unique among

U.S. Government agencies operating abroad. The Foundation helps

the poor to help themselves by providing small grants for innovative community-based projects. It minimizes the bureaucratic waste

and corruption that often plagues foreign aid.

The IAF has never had more than 70 staff members. It gives

small grants directly to local organizations rather than channeling

millions of dollars through government bureaucracies. Congress

created the IAF as a public corporation with an independent board,

a structure designed to insulate the agency from the short-term

whims of U.S. foreign policy.

In Mexico, the Foundation supported an association of Mexican

peasants that marketed organic coffee beans for Ben and Jerry’s

Ice Cream, in my State of Vermont, but that is not the reason I

am here today. IAF grants helped to create one of the hemisphere’s

most successful community-controlled adventure travel sites on

Tequile Island in Peru’s Lake Titicaca, and the IAF backed the Colombian Artisans Network that help poor rural women to improve

their skills and raise the incomes of their families.

Mr. Chairman, I am concerned about the threats to the future

of the Foundation and its mission. Congressional funding is now

two-thirds of what it was since 1994, and appears likely to be cut

to 25 percent from its current levels in the fiscal year 2000 budget.

The Foundation’s crucial political independence appears to be

threatened.

Over the years, and I think this is very clear, we have spent billions of dollars supplying and training Latin American militaries,

many of whom have turned out not only to be corrupt, but to have

been violent and very bad institutions. We have spent billions of

dollars funding the bureaucracies of Latin American governments

that were often more interested in the well-being of the members

of the government than of the poor people of the countries. We

have spent billions propping up economic policies of regimes that

are more concerned with the needs of foreign corporations than

with the peasants or the workers of their own countries. It seems

to me that we want to take a very hard look about the need to continue funding an organization which is representing the poor people in that country in an independent way.

I think we should not ignore for one moment that very, very serious economic problems remain in existence throughout Latin America and the Caribbean, and we should also be aware that poor people do not actively participate in many of the democracies in those

countries.

So I thank you very much for calling this hearing, and I look forward to the discussion.

Mr. SHAYS. I thank my colleague, and I would like to say to all

the witnesses before I swear them in that I just am basically an

open book on this issue. I do not have any strong feelings one way

or the other and look forward to what I learn today.

Let me just take care of some business first and ask unanimous

consent that all members of the subcommittee be permitted to

3

place an opening statement in the record, and that the record remain open for 3 days for that purpose.

Without objection, so ordered.

I ask further unanimous consent that all witnesses be permitted

to include their written statements in the record, and without objection, so ordered.

And now let me call our witnesses. The first witness will be accompanied by two individuals, but there will be one statement. We

are happy to have you, Ms. Maria Otero, Chair of the Inter-American Foundation. And I guess your day job is executive vice president, ACCION International, Washington, DC; accompanied by

George A. Evans, president, Inter-American Foundation, and

Adolfo A. Franco, senior vice president and general counsel, InterAmerican Foundation.

I am assuming that the two individuals accompanying you, their

day job is with the IAF.

Mr. FRANCO. Day and night, Mr. Chairman.

Mr. EVANS. Day and night.

Mr. SHAYS. OK. Welcome. We are going to have a clock, I think,

and we are going to set it for 5 minutes, but we will roll it over.

We prefer you to be 5, but you have another 5 to say what you

need to say.

I’m sorry, I have not sworn you in. I apologize. So if you would

stand and raise your hands, and if all of you would stand because

we are going to ask all three of you to respond to questions. Is

there anyone else who might respond to questions?

Ms. OTERO. This is it.

Mr. SHAYS. OK.

[Witnesses sworn.]

Mr. SHAYS. I would note for the record that all three of our witnesses have responded in the affirmative, and now the 5 minutes

begins.

STATEMENT OF MARIA OTERO, CHAIR OF THE INTER-AMERICAN FOUNDATION, EXECUTIVE VICE PRESIDENT, ACCION

INTERNATIONAL, ACCOMPANIED BY GEORGE A. EVANS,

PRESIDENT, INTER-AMERICAN FOUNDATION; AND ADOLFO

A. FRANCO, J.D., SENIOR VICE PRESIDENT AND GENERAL

COUNSEL, INTER-AMERICAN FOUNDATION

Ms. OTERO. Thank you, Mr. Chairman. I am honored to testify

before this distinguished committee regarding the important work

of the Inter-American Foundation, and I do thank you for the opportunity to do so.

I am the Chair of the Board of Directors of the Inter-American

Foundation, an uncompensated position that I have held since July

1994, when President Clinton appointed me to this post. I am also

the executive vice president of ACCION International, a nongovernment organization that promotes microenterprise development through the Americas. I have dedicated my entire professional life to development efforts and to the promotion of a philosophy that sound development assistance leads to sustainable

growth, the replacement of welfare dependency and social economic

mobility. Today I wish to discuss why the Inter-American Foundation, a novel, independent agency of the United States, dedicated

4

to the principles of development that I have enunciated, is of critical importance to this country.

I know the Inter-American Foundation well, not only because I

have chaired its board for the last 5 years, but because I began my

professional career there as an intern nearly 25 years ago. The

Inter-American Foundation’s values of 25 years ago today ring

true. Simply stated, those values are that the enlightened people

of the United States have a noble role to play in the development

of our neighbors by fostering and promoting principles of democracy, self-reliance, and free enterprise that have shaped our great

country.

I wish to be clear that the Inter-American Foundation does not

advocate welfare or dependency, but it seeks to invest in the creative and sustainable development projects of the poor to increase

income, create new jobs and expand markets and, in the process,

strengthen the free enterprise and democracy where it matters the

most, at the grass-roots level.

Specifically, the Inter-American Foundation operates in the following manner: First, the Foundation effectively channels funds to

the private sector, not to governments. It channels funds to cooperatives, community development organizations, and nongovernment organizations. Grants are closely monitored, and they are audited, ensuring financial accountability and enhanced project quality.

Second, the Foundation does not assign projects, but, rather, it

supports the entrepreneurial spirit. The Foundation awards grants

to private sector organizations that have strong leadership, have a

proven track record, innovative ideas, and which invest their own

resources in their work. Historically, the Foundation grantees have

raised $1.44 in counterpart funds for every dollar that the Foundation has invested in them.

Third, small projects supported by the Foundation help open the

way for the participation of poor people in the mainstream economy

and also demonstrates successful approaches to development that

have been adopted by local organizations and by large multilateral

and bilateral organizations. These tenets are as important and relevant to our foreign policy objectives today as they were 25 years

ago when I served as an intern.

The beneficiaries of the Inter-American Foundation are poor city

dwellers housed in slums or squatter settlements, often living in

appalling overcrowded settings, lacking access to the basic services

of health, education and water. Their survival tool kit often lacks

the education and the skills they need to enter the formal economy.

Many are women, who play the dual role of providing income for

their family and caring for their children. These people are more

greatly exposed than others to the threats of contamination and to

the threats of bad sanitation. When disaster strikes in the form of

a flood or a hurricane, these are the ones that are most affected.

In the rural areas, the Inter-American Foundation beneficiaries

are land-poor, and their land is often unproductive and lies outside

irrigated areas. Many farm in arid zones or on steep hills that are

ecologically vulnerable. They live in large households, and their

children are especially susceptible to malnutrition and disease.

Most of these rural households patch together an income through

5

their small crop production, the raising of small livestocks, and

selling of processed goods. Without assistance, many of them depend on their children for work, and they weigh the opportunity

cost of sending their children to school against present and future

benefits.

Mr. Chairman, as part of its program to address grass-roots development with the people I have just described, the Inter-American Foundation initiated a successful corporate outreach initiative

that began under my stewardship as Chair. The Foundation has

established alliances with major American corporations, including

Levi Strauss, B.P.-Amoco Corp., Dow Corning, Green Giant, and JP

Morgan to promote in Latin America and the Caribbean the principles of democracy and economic development advanced by the

U.S. Government.

It is in its agility and private sector focus on community development that positions the Inter-American Foundation to forge innovative ventures with U.S. corporations and to leverage millions of private sector dollars to serve as seed capital for the expansion of

microenterprises, for the enhancement of sustainable agricultural

practices in soil conservation, and for the expansion of education

and health care services.

The Inter-American Foundation is also a repository of development knowledge as it documents and gathers data on the projects

that it has funded to determine if its resources have had an impact

on the lives of the poor, if access to credit and vocational training

has helped improve incomes, if agricultural training has yielded

larger crops or opened new markets, if environmental training has

helped conserve vulnerable ecosystems, if access to improved education has increased literacy and mathematical skills among the

poor. This results documentation enables the Inter-American Foundation not only to learn from its projects, but also to share with

other development organizations the specific approaches that have

a positive impact on the lives of the poor.

From an operational perspective, the Inter-American Foundation

presents a model for the delivery of U.S. development assistance.

More importantly, it does not provide resources through foreign

governments, and it does avoid some of the bureaucratic inefficiency that plagues other government-to-government programs,

that I know is of concern to you and other Members of Congress.

This novel approach distinguishes the Inter-American Foundation

from government-to-government programs and agencies and sets

this model agency apart from others. It also enables the U.S. Government agency to reach small institutions working at the grassroots level with relatively small amounts of support. The average

size grant of the Foundation is $70,000. No other government agency has the capacity to reach this far down.

I wish to take this opportunity to briefly address matters of concern to this committee. As with any organization, whether public

or private, not every grant will prove a success or be without controversy. I am proud to report that the vast majority of the over

4,000 grants awarded by the Inter-American Foundation have

served to promote political stability, free enterprise and economic

development. However, as in a very few instances, the Inter-American Foundation has provided assistance to organizations that did

6

not honor their agreement or deviated from those principles that

the Foundation holds. Unfortunately, this was the case with two

organizations that the Inter-American Foundation funded in Ecuador and in Argentina and which have been the subject of considerable interest in Congress.

I wish for you to know that the aberrant activities of these organizations were brought to the attention of management and the

Board of the Inter-American Foundation through the Inter-American Foundation’s own oversight mechanisms, and the decision was

made to address these matters in a swift, decisive way, consistent

with the interest of the United States. The Embassy of the United

States in Ecuador complimented the management of the InterAmerican Foundation for the expeditious and professional manner

in which the inappropriate activities of these grantees were addressed.

I do also believe that additional measures need to be undertaken

to improve the Foundation’s program and operations. Accordingly,

the Board of Directors has worked with management in the InterAmerican Foundation to implement a significantly enhanced internal grant review and approval process to ensure that the Foundation never again supports organizations that engage in illegal or inappropriate activities that are incompatible with the objectives of

the United States.

To that end, I have directed that prior to the award of any grant

by the Inter-American Foundation, all grant proposals be forwarded for review by the U.S. Embassy personnel in those countries in which the Inter-American Foundation operates. I believe

that a careful and independent review of grant proposals by the

State Department personnel will enable these grants to be appraised by qualified and informed government officials who have

access to intelligence and economic and political information on

nongovernmental organizations in Latin America.

Mr. Chairman, it is my view that the Inter-American Foundation

administers a valuable and necessary program and does so efficiently and effectively. However, I also believe that improvements

can be made, and I pledge to work with you, this distinguished

committee, and other committees in Congress to buildupon the success of the Inter-American Foundation.

What I do consider regrettable is that, for some, a few unfortunate and clearly indefensible mistakes, which the Inter-American

Foundation courageously, expeditiously, and independently corrected, can lead to a condemnation of all of the important work this

agency has undertaken.

Mr. Chairman, without the Inter-American Foundation, the efforts of the United States to promote and foster democratic practices and economic revitalization at the community level would be

stymied. The Inter-American Foundation is different from the U.S.

Agency of International Development, USAID. It has a critical and

unique role to serve in promoting self-help development efforts in

this hemisphere.

It is because of its unique role as a people-to-people program that

I was so honored to volunteer my time and efforts when the President of the United States asked me to serve as Chair of the InterAmerican Foundation. I remain as enthusiastic about the continVerDate 11-MAY-2000 07:47 Jul 28, 2000 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 C:\DOCS\63746.TXT HGOVREF1 PsN: HGOVREF1
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ued expansion and importance of the Inter-American Foundation as

I was 25 years ago.

Thank you, Mr. Chairman. I would be happy to answer any questions that the Members may have.

Mr. SHAYS. Thank you very much.

[The prepared statement of Ms. Otero follows:]

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Mr. SHAYS. Mr. Sanders, and then we can go back and forth.

Mr. SANDERS. Let me start off with a general question, if I might.

Sometimes we read in the newspapers that everything in Latin

America is now wonderful, the cold war is over, poor people are

doing just fine, democratic institutions are very strong. So why do

we need an agency like yours anymore? Is that the case in Latin

America? Are there still one or two poor people in the continent?

What is going on?

Ms. OTERO. I think what is important is to understand the context in which the Inter-American Foundation is operating today, 25

or 30 years after it was created. We have in Latin America countries that are trying to create democratic systems and to strengthen these systems. Many of these countries, especially in Central

America, have come out of civil wars and of internal conflicts that

have created huge rifts even within the country itself. We have efforts right now in Latin America on the part of governments to use

a market economy as a way of operating the economy in these

countries. All these things are relatively new in the hemisphere

and require continued support and continued activity of the sort

that the Inter-American Foundation provides.

We continue to see that the large majority of people in Latin

America are poor and remain poor in part because governments do

not have the distribution channels to be able to reach these populations effectively.

Mr. SANDERS. What countries in Central America do you function

in?

Ms. OTERO. We operate in El Salvador, Honduras, Nicaragua,

Guatemala, Mexico, and Panama. We do not operate in Costa Rica.

Mr. SANDERS. The city that I am from has a sister city relationship with a town in Nicaragua called Puerto Cabezas, and I recently met with the mayor of that town. I am told the unemployment rate in Nicaragua now is 60 or 70 percent. Is that correct?

Ms. OTERO. I would not be surprised by that. I think you can find

that the unemployment rate in most Latin America countries is

enormous by the standards the United States is used to. In fact,

for example, in a city like Lima, which has 6 million people, about

3 million of those people depend on informal sector activities to

sustain their families. Probably about 50 to 60 percent of the active

labor force is employed in activities outside of the formal economy.

This gives you a sense of the difficulties of being able to bring

these countries toward a functioning market economy.

Mr. SHAYS. If the gentleman would yield a second, I do not know

what you mean by informal.

Ms. OTERO. I mean that people have to employ themselves in

order to survive. Everyone from a woman that is selling oranges in

a marketplace to a man that is taking pieces of metal and turning

them into chairs or into pots and pans, all these activities.

Mr. SANDERS. Mr. Chairman, I raise these questions because one

of the concerns I have long had is, especially with the end of the

Soviet Union and the decline of communism, suddenly the concern

that this Nation has had for the poor people of the Third World

seems to be dissolving because we are not in competition with

Communists any more.

24

And I would point out Nicaragua in particular because I was

there on several occasions. When the Sandinista government was

in power, Nicaragua was on the front pages of The New York

Times every single day, but in the last many years we hear nothing

about Nicaragua. And I think the assumption on the part of many

people is there are no problems there. We got rid of the terrible

Sandinista government, and everything is doing well. And, in fact,

unemployment is beyond belief there. In the region that my city

has a sister city relationship, epidemic drug problems, horrible

drug problems.

So I would suggest that just because communism is no longer a

threat to the United States does not mean to suggest that the

United States should turn back a goal of trying to work with and

uplift the poor people of the region.

Did you want to ask a question, Mr. Chairman?

Mr. SHAYS. Yes, I have questions, but ask some more. I wanted

to understand her response to your question.

Mr. SANDERS. So I think what we cannot disagree on is that

there remain enormous economic problems in the region that are

not being effectively addressed.

Let me ask you another question, if I might, and that is my understanding is that IAF field workers are now required to work

with local governments or private corporations. Is that always a

good idea? Are some local governments not highly politicized? Are

some corporations not pushing their own interests? Should the IAF

abandon communities where it cannot find government or business

partners, even where local people have ideas for innovative

projects? How does the IAF’s new approach differ from what the

Agency for International Development and the World Bank do?

Ms. OTERO. Let me address the first part of your question. I

think, as you see civil societies evolving in Latin America and democracy taking hold, you also see other parts of the country, especially the business sector, becoming increasingly involved in the development of the country. I see this in my own work through

ACCION and through the work of the Inter-American Foundation.

We also see that central governments are making an effort to decentralize their power and to strengthen local governments to play

a larger role in the development of the country.

The work that the Inter-American Foundation is doing is an effort to recognize some of these changes that are taking place and

to enable nongovernment organizations and private sector organizations to be able to work alongside of these elements that are part

of growing democracies. The efforts of the Inter-American Foundation to leverage resources from the corporate sector in order to

channel them toward development is precisely one manifestation of

the importance of expanding the number of players in the development of a country from having it be just the government or outside

forces.

So from that perspective, I think the direction that the Foundation is taking is one that recognizes that the environment it is

working in has, in fact, changed and evolved, and that its government resources, in order to make a difference, have to leverage resources from other sectors, especially the private sector.

25

I do not know if the President or Mr. Franco would like to answer.

Mr. EVANS. I would like to just mention one. Our grants still go

to the nongovernmental organizations. We do not give grants to

municipal governments, and we do not give grants to the private

sector. What we are trying to do is to get the nongovernmental organizations, of the type we have been supporting for 30 years, to

work when possible and as closely as possible with municipal governments, most of which are now elected. We could not do this 10

or 12 years ago because they were not elected. They are now, in

most countries, elected or appointed by a city council that is elected. So they do have constituents.

And we also feel that like the private business sector should be

investing in development because they have a lot to gain from it,

and it will affect their bottom line. They need healthy, trained

workers. So what we are trying to do is to get the nongovernmental

organizations to recognize that in order to be sustainable over time,

they need to get these other sectors involved.

Sometimes the municipal government may donate money or office facilities. Sometimes they may just be able to give moral support. But we are trying to encourage that model because we believe

that that model will be more effective, that there will be more benefits accruing to the poor, and that it will be more sustainable.

Mr. FRANCO. Congressman, if I can add one thing that is again

important from the standpoint of Congress. Starting 3 fiscal years

ago, in fiscal year 1996, the Appropriations Committee inserted report language in our appropriations bill, in the foreign operations

bill, that required the Inter-American Foundation, by law, to seek

other sources of funding, private and public, to support the grassroots development efforts of the agency. So there has been a congressional mandate, that other sources of funding be provided for

those efforts supported by the Inter-American Foundation.

Mr. SANDERS. Mr. Chairman, if I could, let me read from an article that appeared in the L.A. Times, Wednesday, August 4, by Jim

Mann. The title of the paragraph is: Support Withdrawn for Cooperative, ‘‘in Mexico, for example, the IAF has withdrawn support

from a small farmers’ cooperative in strife-ridden Chiapas that

marketed its coffee by opening a successful chain of cafes in Mexico

City. Today, it is teaming up with Levi Strauss, JP Morgan Co.,

Green Giant and 3M to fund training programs in areas where

U.S. corporations do business.’’

Do you want to comment on that?

Mr. EVANS. Well, there is a history to that project. We do not

provide support forever for these organizations, and we had supported that organization for a number of years. When the grant expired, the grants expire. So we did not withdraw support for that

organization, nor did we cut the grant off. The grant expired.

Mr. SANDERS. What was the result? What happened to that

farmers’ cooperative in Chiapas; do you know?

Mr. EVANS. I do not have all of the details, but as far as I know,

the cooperative is still in existence.

Mr. SANDERS. Anybody else know any more?

Mr. FRANCO. Yes, I would like to comment on two points. Just

as the President of the Foundation has noted, the Inter-American

26

Foundation provides seed capital. Our program is not designed to

provide long-term support to these organizations, nor has it been

advisable from the development standpoint to do that. The InterAmerican Foundation provides seed capital for organizations to get

on their feet, to have an initial investment, and then be self-sustaining.

Second, to address your question directly, the goal of the InterAmerican Foundation is to influence U.S. corporations working in

the region that have a responsibility, we refer to it as social investment and social responsibility, to invest in those programs and

those projects that the Inter-American Foundation seeks to support.

So, therefore, just to be very clear, the objectives and certainly

the activities of the Foundation are not to subsidize or support the

efforts of U.S. corporations. On the contrary, it is to seek support

from these institutions, and they are private businesses, to invest

in those projects we have historically supported.

Mr. SANDERS. Thank you, Mr. Chairman.

Mr. SHAYS. Thank you very much.

I think I come down on wondering about two issues. One is the

uniqueness of the program and if the IAF has not succeeded in getting USAID to be more like you are, and whether or not USAID

can do this and whether private groups can.

And also the whole issue of critical mass. I noticed from past

budgets that at one point in 1989, it was $6.6 million, then it grew

to $25 million in 1992 to basically $31 million in 1993 and 1994

and 1995, and then down to $20 million. And I understand that

there is only $5 million in the budget that passed the House, which

I think will be changed again.

It seems to me it gets to a point where if you do not get enough,

we should just fold you into USAID. That is kind of what I am

wondering. So I wanted to share that with you.

My sense is that you went from about 70 employees to about 56,

but I also wonder why 56 employees? I have an organization that

is private in New Canaan, CT called AmeriCares, and they give out

hundreds of millions of dollars of medicine that they get from companies, literally hundreds of millions. They have given out billions,

or a billion in aid, and they do it with so few employees, and I am

wondering why 56?

When we looked at your roster, it seemed like you had a number

of well-paid employees, seemed to be top-heavy. So that is when I

look at it on the surface, and those are the kinds of questions that

I will want to address.

I am also interested just to know how, Ms. Otero, you have spent

a lot of time on this, but this is your oversight responsibility. The

agency is run by Mr. Evans and Mr. Franco and others. Let me

just begin by saying, Mr. Franco, how many times have you been

overseas? First, how long have you worked for the agency?

Mr. EVANS. Are you speaking to me or Mr. Franco?

Mr. SHAYS. Mr. Evans.

Mr. EVANS. Well, I have worked for a total of about 18 years. I

was a member of the team that started the agency in 1971. I

worked there for 10 years. I went to the Peace Corps after that and

served in the Peace Corps in staff positions for 81⁄2 years under DiVerDate 11-MAY-2000 07:47 Jul 28, 2000 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 C:\DOCS\63746.TXT HGOVREF1 PsN: HGOVREF1
27

rector Ruppe and returned to the Inter-American Foundation in

1991 as executive vice president.

Mr. SHAYS. Mr. Franco, how long have you worked?

Mr. FRANCO. Since 1985, Mr. Chairman.

Mr. SHAYS. Since 1991, how many trips overseas have you had,

Mr. Evans?

Mr. EVANS. I would say about seven or eight.

Mr. SHAYS. So you average about one a year?

Mr. EVANS. About one a year.

Mr. SHAYS. In the last 3 years how often have you been overseas?

Mr. EVANS. I think, two or three times.

Mr. SHAYS. You would remember. How many times?

Mr. EVANS. In the last 3 years? Twice, to the best of my knowledge.

Mr. SHAYS. Twice. Where were those trips?

Mr. EVANS. To Chile.

Mr. SHAYS. And where else?

Mr. EVANS. And to Argentina.

Mr. SHAYS. Mr. Franco, since 1991, how many times have you

been overseas?

Mr. FRANCO. Countless. I can’t give you a number, but it would

probably be 100, 50 or 100, a very large number.

Mr. SHAYS. Just the disparity between you being 100 and, Mr.

Evans, for you not even being overseas, how would you be able to

really have a handle on your agency if you simply stayed home?

Mr. EVANS. Well, obviously, with the number of operations we

have in the different countries, we have staff members that are directly responsible for those countries and those projects, and I have

to depend on them because I cannot possibly cover the number of

countries and projects that we have.

So the staff members, you were talking about the number of staff

members that we have, do have to do a great deal of traveling and

monitoring of projects, which they do, and they then report back

to me. So I have to rely on my staff.

Mr. SHAYS. It just strikes me that, given the kind of agency that

you are, that you would need to be out in the field on more than

just two occasions in the last 3 years.

Let me deal with the whole issue of uniqueness. My sense is—

and first I concur with my colleague, there is more poverty today

than there ever has been in Third World, so-called nonwestern

countries. And so I concur that there is need to be of assistance,

tremendous need to be of assistance. But I look at the number of

employees and wonder how do we justify 56 employees with an

agency that basically is working to give $20 million out?

My understanding is that we have gone from 11 percent to about

22 percent of cost. So over 20 percent, say, gets gobbled up by the

agency for administrative cost. Is that an accurate number?

Mr. FRANCO. May I?

Mr. SHAYS. Let me ask Mr. Evans.

Mr. EVANS. I think the program support costs are about 22 percent for the last fiscal year. So it is in excess of 20 percent.

Mr. SHAYS. Why?

Mr. EVANS. Well, most of that cost is for staff and travel. If you

look at the way that we operate, you just asked me the question

28

about how we keep apprised of what is going on overseas on the

projects. We have to visit the projects, we have to have staff members responsible for what we call Project Find in each country.

Mr. SHAYS. In other words, you have staff in each of the countries?

Mr. EVANS. No, we have no staff stationed in the countries. All

of our staff are stationed in the office in Arlington, VA, but they

travel quite a bit, and they have to in order to investigate the

projects when we get a proposal. Last year we got over 1,000 proposals. These proposals have to be reviewed. We do not give a

grant to an organization unless there is a field visit by the Foundation representative responsible for that country.

And once the grant is awarded, then we have to monitor the

grant; they have to make trips down to the countries to visit the

organization, onsite periodically, to be able to keep up with what

is going on. And that is a little bit different than operating here

in the States.

We also are a government agency, and we have to comply with

government regulations. We have to have a personnel department,

we have to have a financial management department. We are

under government regulations, and that, of course, adds to our

overhead. We also have a learning department.

Part of our mission is to learn from our projects. So we have to

evaluate the projects. We have to have some people to do that.

Mr. SHAYS. I have a number of organizations in my greater district, outside organizations, like Trickle Up and others, that basically try to do a lot of what you do. One of the things I will be asking my staff to do is to determine whether or not we are getting

enough money to the people in need of whatever we are appropriating.

Did you want to say something, Mr. Franco?

Mr. FRANCO. Yes, if I could, Mr. Chairman. First, to be clear here

for the record, in 1996, the administrative obligations, or overhead,

for the Inter-American Foundation reached a record high of 25 percent, and that was a consequence of a dramatic reduction in our

appropriation. By one-third, by Congress.

So in 1996, our overhead was 25 percent. In 1997, it was 24 percent, and in fiscal year 1998, it was 21 percent. So it has gone from

25, 24, 21. We think it is still too high. We are conducting a grade

review, in terms of your question about being top-heavy in positions, and having them reviewed to make sure that positions are

not only properly classified, but also are needed.

I will say this: In terms of employees, before the congressional

reductions beginning in 1995, with contractors, which we have

eliminated, our staff was, in reality, nearly 100. All those contractors or consultants——

Mr. SHAYS. What did you say?

Mr. FRANCO. It was nearly 100 with contractors. Those positions

were eliminated beginning in fiscal year 1996. So we’re looking at

franchising some of our functions. And we are conducting a review

of what activities, since this has become the norm in government,

of having some administrative functions being carried out by other

agencies, and we can do so less expensively to bring our overhead

lower.

29

We don’t disagree our overhead is high. It is a concern. And, also,

to be candid with you, you have referred to our budget and our size

and our impact, there is a point where if the budget is too small,

considering the requirements of running an institution, that the

overhead will necessarily be higher than we like, but it is an issue

that we are addressing.

Mr. SHAYS. The bottom line is at a certain point, if Congress

doesn’t and the White House doesn’t fund you at a certain level,

it does become a question as to—and I am not saying it becomes

your fault, I am just saying there is a point where integrity would

demand that we just simply say, given what Congress is funding,

we need to just take this money and give it to another organization. I am not saying we should reduce it, because I do not know.

I am just saying there is this point, and I would be interested to

know where it is.

What would happen if we gave all the $20 million to USAID and

required that they give all that money out with no overhead at all,

using their existing infrastructure? What wouldn’t happen that we

want to happen?

Ms. OTERO. Let me try to answer that.

Mr. SHAYS. I am going to ask the two employees here first.

Ms. OTERO. That is fine, and then I will give you mine.

Mr. SHAYS. Because, frankly, one of the criticisms we have had

of the organization is that there is a lot of problems with the running of the organization.

Mr. Evans.

Mr. EVANS. Your question, Mr. Chairman, is that what would

happen if you just gave the money to AID and let them give it out?

Mr. SHAYS. With the same mandate; that it go to grass-root organizations, a trickle-up kind of attitude, not for big projects, which

they are starting to do. They have copied a lot of what you all did.

They really have.

So I guess what I am trying to understand is why couldn’t they

do it and use their overhead?

Mr. EVANS. Well, one thing, they are not in every country in

Latin America. That is one thing that they do not.

Mr. SHAYS. You are not either, in the sense that you don’t have

people there.

Mr. EVANS. We don’t and never had any people in all of these

countries.

Mr. SHAYS. So they could just go to these countries as well.

Mr. EVANS. That is a possibility.

Mr. SHAYS. But your point is that they do not have expertise in

some of these countries?

Mr. EVANS. That is one point that I would make. If they administered the program the way that we do, which is what I was just

talking about in terms of the staffing that we have, that they

would have to have someone that would go and visit the projects,

look at the proposals, do the assessments in order to make sure

that the organization was capable of carrying out the project, and

they would also have to have someone to monitor the project. We

audit the projects. They would have to have somebody to audit the

projects.

30

So I am not sure that they would be able to do it without any

overhead whatsoever. As a matter of fact, I think they would have

to expend some funds on overhead or program support, the kind of

activities I just mentioned, unless they just gave the money out

blindly and didn’t do a thorough analysis and didn’t followup or

monitor the project, which I think would be a mistake.

Mr. SHAYS. Mr. Franco.

Mr. FRANCO. Mr. Chairman, I think that the mandate of the

Agency for International Development is wholly different than that

of the Inter-American Foundation, and, therefore, an earmark of

$20 million to reach the same populations and the same groups

would not be possible simply because the agency is designed, and

properly so, to work government-to-government programs. It works

very closely, although it works with the nongovernmental

associations——

Mr. SHAYS. You are saying USAID?

Mr. FRANCO. Yes. Although it works with the nongovernmental

organizations in Latin America, it does so in tandem with our State

Department and host governments. And there is nothing wrong

with that, it is just a different mission. So to simply state that $20

million could be earmarked for smaller projects, I think, would

change the character of the types of organizations that would ultimately be funded, meaning by that, I do not think the groups we

reach and work with today would be reached.

And I believe AID would attest to that, or the assistant administrator for Latin America would. Therefore, I think a $20 million

earmark to AID would really represent, ultimately, $20 million to

very similar programs AID works with today, which are of a different character.

Second, I do agree with Mr. Evans, and that is that any program

that would be established, there would be a minibureaucracy established with it even at AID.

Mr. SHAYS. Well, some of the administrative costs wouldn’t, but

I hear what you are saying.

Ms. Otero.

Ms. OTERO. I have had opportunity to work with AID at the mission level quite a bit through my own work, and I would say that

the capacity of AID to do this kind of work is really not in place.

AID, if it has taken on some of the learning that the Foundation

has provided, it has been to apply it to providing grants, relatively

large grants, to some of the best known nongovernment organizations in the country.

But primarily its work has been and continues to be governmentto-government. In fact, AID in Latin America right now is working

very closely with governments to help them strengthen the capacity

of local governments. That in itself is complementary to what the

Inter-American Foundation is doing.

I think what would happen, Mr. Chairman, is that AID would

not really be able to deploy grants as small as $7,000 or $25,000

to organizations that are quite far away from the capital and that

really do not have the capacity to interact with an organization like

AID. AID would not have the staff to be able to visit those places.

I am talking about places where you travel by land in jeeps and

that you don’t find easily.

31

From that perspective, what you would find, Mr. Chairman, is on

the one hand the elimination of the presence of a U.S. Government

agency at the grass-roots level, and I think that this is an essential

component of the interests of the United States in the hemisphere.

Second, you would do away with a very important repository of

learning and of expertise that the staff of the Inter-American Foundation has developed over the years. They may seem to be 56 people who are deploying only $20 million, but in addition to that they

are bringing important knowledge and disseminating important

learning into development. And some of that learning is being accepted and implemented even by the World Bank or by AID or

other agencies.

So I think you need to look at the Inter-American Foundation

and its uniqueness not only in terms of the funds that it is providing to these institutions, but also to the learning that it is able to

amass and then to disseminate to other institutions. And for that

purpose it really needs to be able to operate in the independent

way that it has in the past.

Mr. SHAYS. I think this will be my last question, unless your answers generate another question. I want each of you, start with

you, Mr. Evans, and then you, Mr. Franco, to tell me the best

project in the last year and the worst project.

Mr. EVANS. I would say one of the best projects that we have

supported in the past year is a project in Brazil in which they are

using sisal. It is a cooperative. It is a business. They are manufacturing carpets which they are selling for a profit. The proceeds

from this business is being used not only to increase the income of

the workers, but also to support community projects that improve

the health and education of the community.

Mr. SHAYS. How much was that grant for?

Mr. EVANS. I think that that project—I don’t recall exactly, but

I think the project is about—it was about $250,000 over 3 years.

But I do not have that exact figure. I can certainly get it for you.

Mr. SHAYS. Tell me the worst project.

Mr. EVANS. Let’s see, I’d have to think about——

Mr. SHAYS. I’m not saying you shouldn’t have funded it, I am just

saying——

Mr. EVANS. I’m not trying to avoid——

Mr. SHAYS [continuing]. In the last 2 to 3 years. Obviously, I

can’t say the last year.

Mr. EVANS. Well, the worst project, as far as I’m concerned, is

the one in Ecuador, in which the grantee deviated from what they

were supposed to be doing and got involved in detaining two Americans and threatening——

Mr. SHAYS. What was that project?

Mr. EVANS. That was the COICA.

Mr. SHAYS. What was it funding?

Mr. EVANS. It was an indigenous group in Ecuador, and the

grant was supposed to go for educational purposes to improve the

education of these indigenous people, who are very poor and, in

many, many cases, illiterate.

Mr. SHAYS. So your mandate isn’t just economic?

Mr. EVANS. Pardon?

Mr. SHAYS. Your mandate isn’t just economic?

32

Mr. EVANS. No, no.

Mr. SHAYS. How much was the grant for?

Mr. EVANS. The grant in that particular case, do you

remember——

Mr. SHAYS. No, I want to ask you, Mr. Evans.

Mr. EVANS. I think that that grant was about $190,000, I think,

again, for 3 years. I’m sorry, we have hundreds of grants.

Mr. SHAYS. No, no, no, the good grants and the bad grants

should stand out to the person running this agency. You shouldn’t

have to ask anyone for assistance on that.

Mr. Franco, the worst.

Mr. FRANCO. I would say, Mr. Chairman, based on kind of a prejudice for the grants I have visited, because there might be very

good grants, we make 240 a year, so we can’t see them all, but

there is a grant that sticks out in my mind. It is in Brazil, and it

is in Porto Alegre, and the name is Portosol, and I like it for a couple of reasons.

It is a revolving fund that we have established where it generally

works—a lot of these revolving loan funds encounter difficulties because we are dealing with poor people. But this is a very good fund

that doesn’t just provide capital, but also provides technical assistance in conjunction with it. The administrators are very committed

people, but they are also business-minded people. They are not just

people that have a good charitable instinct, but have a business

acumen. And they are businesspeople that have come together,

with local leaders in Brazil and Porto Alegre, to provide seed capital in the marginal neighborhoods of the city and also the technical assistance to make the revolving fund actually work effectively.

I think the project has a lot of potential, not because I say so,

but because it is being replicated in other places in Brazil. People

have come from Rio and Sa ̃o Paulo, which have huge problems, and

are replicating this approach.

Mr. SHAYS. How much is that grant for?

Mr. FRANCO. $197,000 for a 2-year period. So it is illustrative of

not only a successful grant, but one that shows the impact of the

program and how it can be replicated at a national level well beyond its $197,000.

Mr. SHAYS. Worst grant.

Mr. FRANCO. The worst grant, I would say—well, we don’t have

any worst grants, but if I have to tell you one that has a

problem——

Mr. SHAYS. I said the worst grant. You mean you have a few bad

grants?

Mr. FRANCO. Well, we have grants that do not meet our expectations.

Mr. SHAYS. Let me say something to you. If you didn’t, I would

be amazed.

Mr. FRANCO. No, no, we do. We have an audit committee, and we

look at grants.

Mr. SHAYS. Give me one.

Mr. FRANCO. Let me give you one that has been a problematic

grant. The name of it is CANDELA. It is in Peru. I became involved with the problem, and it was an ambitious grant to harvest

33

Brazil nuts in a remote area of Peru. Actually, there is a processing

plant in Lima itself in the south, and they are nut gatherers and

so forth.

Now, this grant had our good intentions of bringing the business

community in direct contact with poor people with the goal of doing

two things. First of all, the businesspeople had an interest in harvesting these Brazil nuts. Unfortunately, based on our review and

monitoring reports of this project, there was not the kind of social

commitment the IAF expects of grantee organizations. We provided

funding for a school, a daycare center, and generally improved conditions for project beneficiaries. Our investment, as we have described it before, was designed to be seed capital so this organization, CANDELA, would continue to do these activities, and not just

use the funds for its business purposes. This organization didn’t

live up to our expectations and didn’t follow through.

Why it is troublesome to me is because it left a sour taste in my

mouth. There is a difference between something that didn’t work;

people have tried their best and it just didn’t work out and——

Mr. SHAYS. How much of an investment was this one?

Mr. FRANCO. This was a total of about $188,000.

Mr. SHAYS. For how long?

Mr. FRANCO. For 3 years. And we did extend it once, I believe,

for 6 months.

Mr. SHAYS. Let me just conclude, Ms. Otero. There are good

grants and bad grants. There has to be. If everything is an average, then you are not taking risks and so on. So I accept there are

going to be good and bad. What I want to know is the confidence

to know that you all have a system to identify the good and the

bad, and duplicate the good and eliminate the bad.

Tell me what you have learned since you have worked there on

how to eliminate bad funding.

Ms. OTERO. I think several things are important in any process

of reviewing proposals that come to you from the outside which

have been designed by people on the outside.

I think the review internally has to be done by a group of people

rather than by one or two people. It has to be done by people who

have some level of expertise and knowledge about the country, the

context in which the project is taking place, and what the results

the grantee organization it is planning to undertake are.

So in the process of reviewing the grant before you approve it,

you do need to have a serious and systematic process. And I think

the Foundation, certainly since I have been Chair, has improved

that process dramatically.

The second part is the monitoring of the grant. And this is really

where a lot of the administrative costs go, is to keep track of

whether the activities are going on according to the goals that they

have established and if the resources are being spent accordingly.

And I think the Foundation not only is doing that effectively, but

it is also gathering impact data to find out if, in fact, this deployment of a grant is increasing incomes, is changing the capacity of

people to work, and is enabling them to really improve their lives.

And in gathering that information, I think the Foundation is also

determining what makes a good project and what does not.

34

So I personally think the Foundation has a great deal to offer on

that perspective.

Mr. SHAYS. OK, thank you.

Do you have any other questions?

Mr. SANDERS. Only this, Mr. Chairman. I don’t claim to be the

expert on the function of the IAF, and I share some concerns on

the issues you raise. We want to make sure that the money we appropriate goes to the people who need it and does not go, for example, to a bureaucracy.

But the concern I have, whether it is the IAF or any other agency, is that we in the United States, and certainly in the U.S. Government, do not believe that it is appropriate with the end of communism simply to withdraw our concern for the poor people in the

world. It would be the height of hypocrisy to say that we were

there because Fidel Castro might take advantage of the poverty,

and now that communism is weak, we don’t have to pay attention

to that.

You indicated, and I think you are right, that in many ways in

Latin America and Central America for the poorest people the economic situation is worse than it used to be. I do know Nicaragua

is an absolute disaster. And it is an outrage to my mind that when

we were worried about Daniel Ortega, everybody was concerned

about Nicaragua, and now when we have 17 percent unemployment, nobody is concerned.

Now, whether these guys are doing the job that needs to be done,

I cannot say, but I do think just because Jesse Helms has a concern is not a reason for all of us to suggest that we should be cutting back on our programs that help the poorest people in the

world.

Mr. SHAYS. Let me say this. I do think there has to be critical

mass, otherwise then it doesn’t make sense. But I always make an

assumption when we have these hearings that we give you the opportunity to present your case. And, who knows, we could argue

that funding should be increased, not decreased. So, obviously, that

changes, too. So I don’t pass judgment one way or the other on that

issue.

I thank you all. I would welcome any of you to make a closing

comment before we get to the next panel. If you have any comments you would like to make?

Ms. OTERO. No.

Mr. SHAYS. All set? OK, then, thank you very much.

Ms. OTERO. Thank you, Mr. Chairman.

Mr. SHAYS. We will call our next panel, which is Patrick Breslin,

representative for Colombia Inter-American Foundation; Daniel W.

Fisk, Deputy Director, the Kathryn and Shelby Cullom Davis International Study Center, Heritage Foundation, DC; and Alvaro

Rengifo, executive director, Inter-American Development Bank.

That’s it. I’m having to remember that an ‘‘I’’ in Spanish is an

‘‘E.’’ Is that correct; an ‘‘I’’ in Spanish is an ‘‘E?’’

Mr. REGNIFO. Yes. Double E for you.

Mr. SHAYS. I’m taking Spanish lessons.

Mr. SANDERS. And you are going to conduct the rest of the hearing in Spanish; right?

35

Mr. SHAYS. No hablo ingles, sen ̃or. Hablo en espanol, por favor.

That’s about it.

We have to give you the oath. So I would ask all of you. Is there

anyone else who will be responding? All three of you have testimony. If you will raise your right hands, please.

[Witnesses sworn.]

Mr. SHAYS. All three have responded in the affirmative. We will

do it as I called you, and we would like you to keep within the 5

minutes, and if you need to go over a minute or two, that’s fine,

and then we will ask questions.

Mr. Breslin.

STATEMENTS OF PATRICK BRESLIN, REPRESENTATIVE FOR

COLOMBIA, INTER-AMERICAN FOUNDATION; DANIEL W.

FISK, DEPUTY DIRECTOR, THE KATHRYN AND SHELBY

CULLOM DAVIS INTERNATIONAL STUDY CENTER, HERITAGE

FOUNDATION; AND ALVARO RENGIFO, EXECUTIVE DIRECTOR, INTER-AMERICAN DEVELOPMENT BANK

Mr. BRESLIN. Thank you, Mr. Chairman. My name is Patrick

Breslin. I have been involved in issues of development in Latin

America since I was a Peace Corps volunteer in 1963 in Colombia.

I have been associated with the Inter-American Foundation since

the early 1980’s, first as a freelance writer, later commissioned to

write a book about the Foundation’s first 15 years.

Mr. SHAYS. We are not picking you up well. Can you bring that

mic a little closer and just a little lower.

Mr. BRESLIN. Is that better?

Mr. SHAYS. I think you probably just need to speak a little louder.

I heard Peace Corps, and that obviously warms my heart, but

other than that I didn’t hear anything else you said.

Mr. BRESLIN. OK. Since Peace Corps and Colombia, I have studied Latin America, I have lived in Latin America, I have been with

the Inter-American Foundation in one capacity or another since the

early 1980’s, first as a freelance writer, visiting projects, writing

about them, later writing a book called Development and Dignity,

which recounts the first 15 years of the Inter-American Foundation, and, most recently, as the Foundation representative for Colombia.

Mr. SHAYS. Does that mean, basically, that that’s your desk job?

In other words, you have the Colombia desk?

Mr. BRESLIN. I have the Colombia portfolio. I am the single representative in the Foundation responsible for the Colombia portfolio. That means I travel to Colombia frequently, I look for

projects, I analyze projects, I present projects for funding within

the Foundation, and then I continue to visit projects.

Mr. SHAYS. If you will indulge me just a second to understand.

About how much goes through your desk? And then we will get on.

Mr. BRESLIN. Something on the order of $800,000 to $1 million

a year currently. That is down because the overall budget is down.

Mr. SHAYS. Sorry to interrupt you. We will let you get on with

your statement.

Mr. BRESLIN. I wanted to start off by saying that I am very excited about this oversight hearing. I am excited about some of the

36

issues you are raising. I think they are very healthy for the Foundation. And I think it is particularly healthy that these questions

come from Congress, because uniquely in the U.S. Government, the

Inter-American Foundation is a creature of the Congress.

In the course of the discussion, I wanted to take issue with your

opening statement about the Inter-American Foundation being a

cold war institution. I think that really, uniquely in the field of foreign assistance from the U.S. Government, the Inter-American

Foundation was most specifically not a cold war institution. I think

it, in many ways, anticipated the end of the cold war in the way

that it began to work and has worked for almost 30 years now in

Latin America.

And I think that this identification of the Foundation with the

Congress, particularly in the early years, was extremely important

to the success of the Foundation. In the late 1960’s, the 1970’s,

Latin America was incredibly conflictive: ideological battles, political upheavals, and along with that a very deep-rooted suspicion of

the United States among many sectors of Latin America society.

The basic hurdle that the Inter-American Foundation had to overcome when it began to work was to convince Latin Americans that

it was not a front for the CIA. That was the common suspicion of

any initiative coming out of the United States at that point.

The fact that Latin Americans saw the Foundation as being a

creature of the Congress, a creation of the Congress, made a major

difference. It was something that helped the representatives make

contacts, get access to people, and learn about what was going on,

because people in Latin America tended to see a distinction between the administration policies that they might have been suspicious of and the Congress, which they thought was representing

much more directly the people of the United States. And I think

that identification really eased the path for the Inter-American

Foundation, particularly in the early years.

There is another whole set of very relevant questions that should

be asked about the Inter-American Foundation, and you touched on

many of these already. They have to do with the impact of the

projects that we have funded. That is, in my experience, a difficult

thing to measure. There are several basic things regarding the

Inter-American Foundation, and one of them is we do not plan

projects. We have no project design capability within the Foundation. That is not the way we go about the work. What we have always tried to do is to be responsive to the ideas that are coming

out of Latin America. We fund ideas that people bring to us. We

don’t go with preconceived ideas about what they need.

There is another characteristic of the Inter-American Foundation

philosophy which, I think, is also unique. AID, the World Bank,

Inter-American Development Bank, everyone is working with

NGO’s now. I think that there is still a major difference in terms

of the way the Foundation works. We start with the idea that poor

people in Latin America know what they need.

The first book the Foundation ever published was titled, ‘‘They

Know How,’’ and it tried to make that argument. Our approach to

poor people, to the problem of poverty in Latin America, is not to

view poor people as a kind of undifferentiated mass for whom

projects have to be planned to bring them into the mainstream. We

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start with the idea that they need to come up with their own ideas,

to form their own organizations, and to go about improving their

lives on their own. And if what they are doing makes sense to us,

if they can sell us their idea, then we put in the resources. But the

initiative is theirs; the responsibility for the project is theirs.

And that is the basic reason why, and you asked about staff overseas, there was a conscious decision not to place staff overseas, to

maintain that distance between the Inter-American Foundation

and the projects it was funding. We did not want to have project

managers in the field. We didn’t want to have local people ask us

well, what do you think we should do? Our whole point is you need

to know what you want to do. And if you can convince us that what

you are doing makes sense, we will back you up.

Is the Foundation still relevant? As I suggested, because I don’t

think the Foundation really had anything to do with the cold war,

I would argue that, yes, it is, and actually more relevant than

many other institutions that I think really did pursue cold war

aims more than we did. The basic idea about the Foundation was

to work directly with poor people and their organizations and not

to go through their governments, because for many years U.S. assistance was used as leverage. It was a stick to beat people with.

It was a leverage to get something we wanted.

There are many cases in the history of AID and Latin America

where funding for projects was cutoff because the government was

not supporting us in the U.N. or because the government had

taken a position we opposed. The whole point of the Inter-American

Foundation was to have a continuity of contact with poor people

and their organizations and not to be affected by short-term U.S.

foreign policy. That was built into the legislation.

The other point I would like to make, and I think I am running

out of time, is that when Congress created the Foundation, it created a very complicated institution. Congress was really looking for

a lot of different things. The board of directors is a structure that

Congress decided on. It was meant to buffer us from the government. It was meant to make us a semi-independent agency. It was

meant to give us the flexibility that is more characteristic of the

private sector, but, at the same time, the identification of the Foundation as a government agency was to be clear and enduring. We

are an agency of the U.S. Government. We represent the U.S. Government. When I am in Colombia, in a small town someplace, I’m

the U.S. Government. I’m representing it.

But because Congress was looking for a lot from this agency, I

think the way it is structured has built-in tensions. And I think

that the real test for board and management of the Foundation has

always been how well do they deal with the built-in tensions of the

Foundation. How do they balance the need to follow government

regulations with the need to be innovative, to take risks, to take

chances, and to bet on people.

Because, ultimately, what we do as a Foundation is we bet. We

are venture capitalists in that sense; we bet on people’s ideas, and

we try to talk with them, and we try to analyze what they are talking about. But we are really making a bet that they know what

they are doing and that they have the commitment. We stay with

them, we talk to them, we engage in a conversation with them over

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the life of the project, but that involves an element of risk and uncertainty, and a lot of people are uncomfortable with uncertainty.

For me, the challenge to the Board of the Inter-American Foundation, to the management of the Inter-American Foundation, has always been how well do they deal with the challenges of uncertainty?

I think because I have used a lot of time, I could just leave it

there.

Mr. SHAYS. Thank you.

[The prepared statement of Mr. Breslin follows:]

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Mr. SHAYS. Mr. Fisk.

Mr. FISK. Thank you very much, both on behalf of the Heritage

Foundation, my new institutional affiliation, and as someone who

has personally followed Latin America for roughly the last 15

years, either in terms of a policy job here in Washington or in the

last 2 years from an academic viewpoint. For 5 of the years in government I had staff responsibility for oversight of both USAID and

IAF on both the House and the Senate side.

In preparation for this, I thought it was useful to go through the

congressional presentation documents for both USAID and the IAF,

as well as review some of the sample congressional notifications, so

my conclusions and comments are based on both professional experience and then this most recent review.

It is clear from my reading of the legislative history that the

Inter-American Foundation was created to remedy a gap in programs implemented by USAID, namely the Alliance for Progress,

which was part of the cold war architecture of the United States

and Latin America. At the time of the Foundation’s establishment,

economic development was primarily defined in government-to-government terms with the focus on large infrastructure projects. The

Inter-American Foundation’s focus was to be people-to-people,

working with and through nongovernmental organizations, a tradition the IAF has continued.

However, over the last decade, I would say that the gap in philosophies on how to approach development has dramatically closed,

reflecting dramatic changes in the hemisphere. The increasing

focus of U.S. bilateral aid programs, specifically those implemented

by USAID, is assistance to nongovernmental organizations, with a

growing emphasis on local and municipal programs. There is no

doubt that AID continues to give money to governments. They do,

and they will probably continue to do that. But there is no doubt,

as well, that the increasing focus is nongovernmental organizations.

I conclude that it is difficult to distinguish how NGO development projects supported by the Inter-American Foundation are different from those——

Mr. SHAYS. Could you just suspend one moment?

Mr. FISK. Yes.

Mr. SHAYS. I’m sorry.

Mr. FISK. I can work however you want to.

Mr. SHAYS. No, no, you just keep going. We have time. What we

will do is we will just keep it rolling. Since there is only one vote,

we will just keep it rolling. If there were a few, we would have to

adjourn, but let us keep going.

Mr. FISK. Thank you, sir.

As I was saying, it is difficult to distinguish how NGO development projects supported by the Inter-American Foundation are different from those supported by USAID. In some cases you have situations in which, at least in the recent past, IAF and USAID have

supported the same NGO; maybe not the exact same program within the NGO, but the same nongovernmental organization. There is

duplication of effort, and I would argue that this is neither necessary nor efficient.

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Now, there is one area where the Foundation’s agenda is different from that of USAID, and that is the Foundation’s pursuit of

partnerships with U.S. corporations. These partnerships, understandably, raise the comfort level of U.S. corporations investing in

Latin America and, frankly, are smart corporate activity, as the

IAF in its own annual report acknowledges, ‘‘Where corporations

gain better-informed business decisions, loyalty, enhanced corporate and brand reputation through their social investments.’’

Now, for the Foundation, the partnerships are an innovative

means of maximizing resources. There is no doubt that compared

to what USAID does, these partnerships are out of the norm. In

fact, AID does not do these kind of things. The Foundation does

offer a unique group of experts and expertise and an on-the-ground

perspective that, frankly, is not replicated within the U.S. Government. The question, though, is whether the Foundation is supplying a service to U.S. corporations for which the Foundation should

be funded or compensated by the corporations and not the American taxpayer.

Given the large duplication of effort by the IAF and the USAID

at this point in time, and the presence of a clear corporate interest

in local development, I think it is fair to ask what are the options,

given the 30-year mark for the Foundation. I would argue there are

basically three: One is clearly the status quo. But it seems that everyone is in agreement that the status quo is unacceptable, including the Foundation.

The second is some sort of merger, either the traditional development activities of the Foundation into USAID, or what I think is

more unrealistic just given the politics of the issue, is the AID,

Latin America bureau, being merged into the Foundation. The traditional development programs of both, are the same.

The last option is privatization. I would suggest that the Foundation’s partnership with U.S. corporations shows that there is a

need that should be addressed, and that the Foundation has expertise and can play a role in this. I would argue, however, that corporations should be willing to compensate the IAF for its expertise.

This should not be a taxpayer-funded entity or program. The IAF,

I believe, should be privatized and, frankly, let the market decide

its ultimate focus and fate.

Thank you very much.

Mr. SHAYS. Thank you very much.

[The prepared statement of Mr. Fisk follows:]

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Mr. SHAYS. Mr. Rengifo.

Mr. RENGIFO. My name is Alvaro Rengifo.

Mr. SHAYS. So I didn’t say your name correctly.

Mr. RENGIFO. No, you said it very well. I explained to your assistants that it was difficult to pronounce my R.

Mr. SHAYS. Can you lower the mic and speak a little louder?

Mr. RENGIFO. OK, thank you.

The reason why I am here today is, as we heard before by the

people that have worked with the IAF, and I worked with IAF

about 11 years ago, about 6 months, during my internship—I was

at that moment with a Fulbright grant from your government, and

I was doing a special program at the Johns Hopkins University,

and then I entered, during my stay here 1 year in Washington, in

four organizations. One was the IAF, which I stayed for 6 months,

and at the same time I was working with the World Bank in Bolivia, at the Hispanic Catholic Center, helping people from Central

America to learn and to read Spanish. And I also was working for

2 months or a little more, I don’t recall, with the USAID, working

with two of my professors that needed some help in the rural sector.

So the reason why I am here today, trying to, I would say, help

maintain this organization, this institution, is because I do believe

that you have, the U.S. parliament, the U.S. Congress, has a very

nice, very interesting organization that I think is worthwhile.

I have been reading and hearing tonight—or this morning, excuse me—many of the reasons why you are making this kind of examination of the interest of your country to devote to taxpayers’

money to it. I do believe there are many, many reasons. I cannot

agree with my predecessor in the word with the duplication or the

private sector driven—being able to do the job this institution does.

I have been working for the last 10 years in development. When

I left United States, I went to Ivory Coast of Africa, western Africa,

4 years, and then I stayed in North Africa and Morocco for another

2 years, and when I came back to Spanish Cabinet again, I ran into

problems of aid, of assistance aid to many parts of countries of the

world, especially to Latin America. And for the last 3 years under

the new government of Mr. Aznar, I have been Assistant Secretary

of Commerce dealing with financial aid in the Spanish system that

we have.

I do believe and I think that you have an institution which is

very interesting and very unique. We in Spain have tried to do

things very—I would say trying to tell our Parliament to do something in the same way, but we have not been as successful. I think

you are a good example that we have to follow.

But let me just say what I think is very different. First, they are

not an active actor in the sense that you respond to people’s ideas,

which is something we have little time to do in governments. What

we do in the system is we try to tell them and try to teach people

what to do. The philosophy which is behind IAF, which I think is

very interesting not only here, but also in their brother institution,

the Inter-African Development Foundation, IADF, or however you

say the name, is to hear people and see what they have to say and

then try to help them to do that, giving some guidance. So one idea

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is that no other institution, no other assistance agency in the world

likes to hear and just be passive.

I recall when I was there 11 years ago, I was impressed to see

how many letters at that time the Inter-American Foundation was

receiving every day proposing new projects. And one of my jobs was

to try to go and scrutinize and decide which was more interesting

or not. That is something in my 10 years working with development in Spain is very unusual. Normally you go to the government

or somebody else, but you try to push them, and you are the one

who makes the design. I think that is a very interesting point.

Second, you work, or the IAF works, with leaders; trying to look

for people who are capable in that country, in that part of the country to be a leader of that project. Otherwise you would never have

a sustainable project. When we talk about development, I think it

is like driving a car with a rear mirror. You will get the information of what you have done, 10 years later, when you get the development evaluation and see what has happened. So you are always

with a kind of black mirror in front of you, which is difficult to

drive. That is why this kind of grass-roots approach, having leaders

and responding to the needs, is the only way you can be more sure

that you are doing a good job and a sustainable job.

The third idea is that most of the projects, that I have followed

very little in the last years, but that you also need to put money

from the people there, so you are just a partner in the project. You

are not the only funder. The leader or the organization or the community or whatever who has on the other side giving this idea will

also put in his money.

So these three ideas are very interesting, and I think no other

institution have them.

Mr. SHAYS. Excuse me, Mr. Rengifo, let me interrupt you. I am

going to go vote. I will just have you continue to make your last

point. I will have Mr. Sanders reconvene us. So we are going to be

at ease for a few minutes. He will be back, and he will start us off,

and then we will come back.

Sorry to interrupt you.

Mr. SANDERS [presiding]. The chairman will be back, but he suggested that we continue, and, Mr. Rengifo, I gather you were in the

middle of your testimony.

Mr. RENGIFO. Yes, yes, I was just trying to explain why I was

here and why I have some positive words. I am trying to say that

is needed to help you sustain and maintain this institution, which

I think is a very interesting, unique, and good institution.

I thought it was good for its three main ways of working, which

is responsive to all good ideas, not designing them; looking for leadership, to be sure that this project will be sustainable in the future,

which is one of our main concerns, people who, like me, work on

development issues; and, third, that you always ask for a counterpart to be financed. That means you are not the only funder of the

idea, but you go with a partner in this kind of project.

You do it through grants, which I think is the only way you

should do that. They have done evaluations—I mean, the last years

I have been not participating, but in the late 1980’s and 1990’s, I

still received papers from the IAF, and there was always a permanent monitoring, which is not so very uncommon. And, finally,

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there is this very interesting job of publishing books and publishing

these kinds of letters, which I think are very insightful and enlightening for those of us who work in this field.

Just to end, which I think I have run out of time, I would say

you have a very unique institution with innovative ideas which has

helped all of us to know about grass-roots development and working through NGO’s and local NGO’s, not only NGO’s in our western

countries, but NGO’s in the local countries. It is a small agency.

It is very flexible and have given a lot of lessons and good practices

to do. And I do believe, and this is something that is very personal,

but I am very sure it has given a very good image of your country

abroad, in Latin America and good prestige.

I do also believe that when you talk about the size of projects,

that you need more money. That would be my first idea, not less

money, but more money for this institution. But, second, you are

doing projects which average about $100,000 to $200,000. I know

of no institution in the world in the western countries on the rich

continent that is able to do that. We not only work for the IDB,

Inter-American Development Bank, representing Spain and all the

countries like France, Austria, and the Nordics, we in the IDB, in

Latin America, we are unable to do projects below normally $5 to

$10 million. Normally. We can do some lesser ones, but I don’t

think USAID is able to go far below, $2, $3, $4, $5 million.

So this kind of institution which goes to $100,000 I think is a

very interesting institution. And I do not know how, but I would

say to you that I think it is a good idea to have it. Thank you.

Mr. SANDERS. Thank you very much.

[The prepared statement of Mr. Rengifo follows:]

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Mr. SANDERS. I guess I will begin with questioning. I think that

will be appropriate.

Mr. Fisk, I apologize for not having heard your testimony. Let

me just start off by asking you a question. Your point of view is

that the IAF was developed as part of the cold war?

Mr. FISK. That is my reading of the legislative history and, clearly, the late Dante Fascell’s focus.

Mr. SANDERS. The cold war is largely over, communism is largely

dead. What do you think; no longer need the agency? Is that your

point of view?

Mr. FISK. My point of view is that, in the traditional development

area, its programs are the same that USAID is implementing. So

there is a simple question of duplication. Are we, the American taxpayers, getting something different with IAF funds than we are

getting from USAID funds?

Just to give you an example, funding levels, the Ecuador IAF

program was referred to as a 3-year program at $190,000, roughly

$62,000 a year. The fact is that AID does this same thing. It will

fund cooperatives or a credit union cooperative in Nicaragua, for

example, $250,000, but it will do it over 3 to 5 years. So it is the

same funding approach. AID can and does fund such programs. I

have given grants as low as $16,000 to NGO’s for activities. So one

issue is duplication.

I would have a larger philosophical question which goes to the

issue of what is the best means of economic development; is it bilateral assistance? Clearly there is societal consensus on humanitarian aid. For instance, the response by the United States to Hurricane Mitch, I think, was entirely appropriate. But one can look

at the same set of countries, El Salvador and Nicaragua, with

which I know you are familiar. We have put $3 billion into Nicaragua since 1989, and we are still looking at a horrendous economic situation.

So I think one has to ask what is the better means of economic

development. I have a question that goes to the entire philosophy

of bilateral aid which goes beyond the IAF.

Mr. SANDERS. In other words, your basic point is that they are

duplicating what the other agencies are doing, and they should be

merged?

Mr. FISK. Yes, sir.

Mr. SANDERS. Mr. Rengifo, would you want to respond to that?

Is that true?

Mr. RENGIFO. Well, I am happy to hear that. The USAID, when

I was there 11 years ago, was unable to do that. But, still, I am

very sure that it is unable to go with this kind of philosophy where

you respond to the ideas of others.

At that time, where I was working in rural development, they

were most of the time designing projects. I think these ideas—it

will be difficult to merge this kind of philosophy of being responsive, looking after leaders and trying to search for counterparts,

and being a little inflexible. I think that is impossible in an organization like USAID.

I would not agree with Mr. Fisk, although I respect very much

his idea, because I think he has an interesting point about what

is development. That is the main issue most of us have been dealVerDate 11-MAY-2000 07:47 Jul 28, 2000 Jkt 000000 PO 00000 Frm 00069 Fmt 6633 Sfmt 6633 C:\DOCS\63746.TXT HGOVREF1 PsN: HGOVREF1
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ing with that in the last—since I started studying. And I know it

is very difficult.

Maybe it is better not to do any kind of bilateral aid. That would

be another question. But the point today, is about the IAF role, I

think it has a role, and I do believe that there is not duplication.

There is a lot of complementary, and maybe sometimes I think it

is even good news to see they have funded projects together or with

the same organizations. I think that would be helping to introduce

to some of these organizations a new role in which you can see how

this leadership and this sustainability, which are the projects of

the IAF, is even larger and better than others. So I would not

agree with the idea of merging them.

Mr. SANDERS. Mr. Breslin, would you want to comment?

Mr. BRESLIN. I would love to. I worked for 1 year at USAID. Actually, I promised to work for a year at AID, and I worked for 11

months. I burned out after 11 months.

I think that you have to go to the field. On paper all development

agencies basically sound the same. The rhetoric is very similar, everybody is doing good stuff. I think to see the difference you really

have to go ouit in the field.

I have been the representative of the Inter-American Foundation

in Honduras for about 3 years, and I have been the representative

for Colombia for a good part of the last year. When I go out to the

field, I don’t see AID people in the field. I see AID people in a mission, because on every trip I usually stop by the Embassy and

touch base with the Embassy and with AID.

There is a major difference. The people in the AID mission are

working at the governmental level. They are designing something

for, say, the health sector in a given country. They are talking

about millions of dollars. They are talking about health posts, and

different levels of assistance, and bringing in equipment, and

bringing in largely U.S. consultants. Most of AID money is spent

in this country for consultants who then go to the country and presumably impart their expertise.

The fundamental difference about the Foundation is what my

colleague mentioned a few minutes ago. We are out there listening.

Our meat and potatoes is what people tell us. It is their ideas. We

have funded a lot of health projects around the hemisphere. They

tend to be community-level projects where people have come up

with their own ideas, something as simple as just getting resources

to get a simple little health post to put in somebody’s house. We

fund at that level.

But the difference is not really in the size of the grants we are

making, it is that we are funding the local ideas, and, when we

fund health projects for example, we don’t think just about health.

We want to know, and this is a question we ask on every single

project, what is this project going to do for your organization? Does

it strengthen your local organization? Do you gain experience in

this? Does this allow you to move on to something else?

Our focus is on people, and their ability to solve problems

through their organizations, and the specific project, in many cases,

is not the key thing, it is how people are handling it, what they

will learn from it, what kind of contact this will give them with

other people, other groups in their societies. So I think that we

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really are doing something fundamentally different from what AID

is doing.

Mr. SANDERS. My last question is to Mr. Rengifo, and others.

Can you comment on the fact that in recent years the IAF has

changed its orientation a bit and now works more closely with corporations than was the case before? Do you want to comment on

the wisdom of that?

Mr. RENGIFO. That would be—from my perspective, I do believe

that it has been a strange thing that I have read yesterday and

today. I think there should be things with the private sector, but

I do believe that there are very, very different views.

In Spain, we have this very separate two bodies, one is the Minister of Foreign Affairs, what is here called State Secretary, and

the Ministry of Finance, which is called here Treasury, where we

have two kinds of philosophy to the approach of development. Foreign Affairs is more with grants and NGO’s and whatever, and my

job was more with the private sector and trying to do some kind

of aid related to tied aid, which was not that nice, but it was what

I was told to do by my Parliament.

I think that dealing with the private sector will always change

a lot of the design of any project. It would be very difficult if you

privatize this kind of institution to have the same results. You

would have a very different institution, or foundation in this case,

excuse me, a very different foundation and a very different code.

It is very difficult to meet and to try to eradicate poverty and

help self-improvement projects and self-done projects to do it

through a private-driven idea. It would be very difficult, and I

think it would be absolutely impossible. Very contrary goals. I do

not know how the IAF has done this kind of corporate strategy,

whether just the Foundation or other foundations helping them, or

because they have merged some interest in the private and public

sector.

But I do believe that is a difficult task, and maybe you can do

some kind of good merging and stay with your ideas and you being

the one who drives it. But I don’t think they will be able to do that

if the private sector is the one who is solely funding you. In the

end, I don’t think you will maintain the same kind of foundation

with the same goals. I don’t think so.

Mr. SANDERS. Mr. Breslin, Mr. Fisk, would you want to comment?

Mr. FISK. Go ahead.

Mr. BRESLIN. Yes. This is new for the Foundation, only in the

last few years. And, frankly, for me, it is not an ideological question. I am dubious about this policy in some ways.

Mr. SHAYS [presiding]. This policy being?

Mr. BRESLIN. Of looking for more working relationships with corporations to leverage more resources for the kind of projects that

we fund.

We do it in two different ways. We do it in Latin America, and

we do it with U.S. corporations in the United States. I think that

the real question is does it distort the kind of things that we think

we need to do in Latin America? Does it really get resources to people? Does it really increase the amount of resources going to

projects? And does it increase the education level of people in U.S.

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corporations about problems overseas? And, fundamentally, does it

change the relationship on the ground?

My concern about working with corporations is that I think there

is a tendency for it to bring us into a more top-down approach, the

approach I was talking about before, an approach in which we will

figure out what these people need, and we will do a project and

give it to them.

So I look at this kind of relationship with corporations—and I do

it a lot in Colombia because Colombia has a very long tradition of

philanthropy going back to early in the century, and Colombia has

some of the largest family foundations in the hemisphere, spun off

from family businesses that spun off with significant resources,

foundations that are working on social problems. I work directly

with those people, and, in most cases, I am incredibly impressed

with their commitment to the idea that their help should not to

overwhelm people with charity. Many of these people come out of

a background of charity and have grown out of that and are looking

for ways that they can channel resources to people in ways that let

people manage their own projects.

So my personal experience is I find a lot of exciting possibilities

in this link with corporations, but I think that, as a foundation,

given our mandate, it behooves us to approach this critically. When

we fund a group that comes to us for any kind of project, we subject that group to a great deal of analysis and constant questions.

And I think that our approach to working with corporations should

be to require at least the same level of analysis and of critical questioning before we go into a relationship.

Mr. FISK. Mr. Sanders, quickly, I approach your question a little

differently in terms of philosophy. I think ultimately the way people are going to get out of poverty is economic freedom and private

investment.

I think one of the things that has plagued Latin America in particular has been basically repressive regimes, both politically and

economically. Right-wing military regimes were just a corporate entity that benefited the military ruling junta. So there the masses

did not have economic opportunity. Hopefully, Latin America now

is at a point that is far different, even if issues of poverty and

health remain out there.

Whether this corporate partnership with the IAF is troubling or

intriguing, or just raises a question, is the Foundation effectively

becoming a mini Department of Commerce? Basically, these corporate partnerships are of benefit to the corporation. The IAF material makes that clear. I am not necessarily opposed to that, but

I just have a question about whether that is the role of the Foundation; should it be in effect, an on-the-ground Department of Commerce, saying here is a local community to invest in, and if you

pursue it with us, you are going to get more brand loyalty, you will

increase people wanting to buy, whether it is Cheerios or Dove

soap.

So, to me, that is the question: is this the role we intend the

Foundation to play?

Mr. SANDERS. Are you suggesting this is perhaps a bit of corporate welfare?

Mr. FISK. I would suggest that, yes.

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Mr. SANDERS. If I could, Mr. Chairman.

Mr. SHAYS. Sure.

Mr. SANDERS. Mr. Fisk, and maybe others would comment, what

is your assessment of the poverty situation in Latin America today?

Is the situation better or worse than it was 20 years ago?

Mr. FISK. The answer to whether it is better or worse, in some

ways, is that it is not much different. The majority of the population is still outside what Ms. Otero referred to earlier as the formal economy; they are engaged in the informal economy. That simply means they have to survive outside the normal mechanisms. A

lot of it is barter and subsistence.

My experience has been mostly in Central America, in El Salvador and Nicaragua, including some pretty remote parts where no

Nicaraguan Government official had been.

Part of the problem is an infrastructure problem; part of it is an

education problem. It is a situation in which I think opportunities

exist that didn’t exist 20 years ago for economic improvement,

where some fundamental questions of economic security remain.

Nicaragua is a classic case.

Mr. SANDERS. Am I correct in assuming that Nicaragua unemployment is 60 or 70 percent?

Mr. FISK. I have not seen recent figures. I would say between unemployment and underemployment, that is probably a fair assessment. If you get outside Managua, Leon and Esteli—I have been

to Puerto Cabezas, I know what the situation is like—you see poverty, and you see an increasing drug problem. Your comment earlier is accurate in that regard drug trafficking becomes a means of

employment. The drug traffickers bring in the drugs. They just

need people to do various manual labor tasks.

I would have to say, based on, my experience that the most effective instrument for development in that part of the world has been

the sister cities projects and religious organizations. I have seen

the Catholic Church do some phenomenal things. I have seen the

Moravian Church on the Atlantic Coast do some fantastic things

without any U.S. Government money. Maybe people here are getting a tax deduction, but they are the ones who seem to have the

presence. In fairness to both the Inter-American Foundation and

USAID, they have been deficient in a number of areas in terms of

actually bringing genuine long-term development to these areas. I

have seen American religious organizations do much more.

Mr. BRESLIN. I think the major difference in poverty, the conditions of poverty, in Latin America, from my experience, is that

Latin Americans are much more organized than they were. In actual numbers, there are more poor people now than there were 20

years ago or 30 years ago, just because of population growth and

the lack of really sustained economic growth in most of these countries. So the poverty is there.

This goes to one of the issues that was touched on earlier about

how many countries does the Inter-American Foundation work in;

are we getting out of countries? We have gotten out of countries

which are considered economically much better off: Chile, Uruguay,

Costa Rica. I have traveled in those countries. There is as much

poverty, if not more, than in the past. The GNP figures look good,

but poverty is still there. So that has not changed.

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What is different to me is that what you find in every place I

have been to in Latin America in the last 10 or 15 years are organizations. People are doing something about poverty. When I was

a Peace Corps volunteer, my job was to encourage local groups to

form. And in the town I lived in for 2 years, there were no local

groups. And when I left, there was one, because I kept nagging

people to do it. But I don’t think that really had any sort of lasting

influence.

What you find throughout Latin America now is this incredible

alphabet soup of groups. You can’t walk down the street without

tripping over four community organizations and six NGO’s. They

are just all over the place. So what you get coming out of that is

really an incredible creativity about dealing with economic problems.

Somebody mentioned the informal economy, which basically is

market women, it’s people trying to make a living on the fringes

of what we think of as the normal economy. But to me, again, the

striking thing about that is if you go into those marketplaces and

start talking to people, they are all organized. You don’t have individuals out there just trying to make it on their own. They’re members of groups. They have credit programs. They vouch for each

other’s repayment of loans. There are networks like this all over

the hemisphere.

Mr. RENGIFO. Yes, thank you. I just wanted to draw you a quick

picture of the is poverty situation in Latin America. I think that

we have had a very good decade until 1997, in which growth was

spread around and things were becoming better and better, not

only on the democratic side, but mostly on the economic side.

Unhappily, the last 2 years have been very tough. One of the big

issues is not only that growth is not there, but you can have some

growth in Mexico, you have some in Dominican Republic, Uruguay,

two or three more, but you have very huge strikes for many countries, like Brazil, and for some populace in Central America. You

have lots of problems in Venezuela. And maybe today the oil is

going up, so that’s a variable. What about Colombia, Ecuador?

Chile is having a lot of problems. The financial crisis and the Asian

crisis has hit very hard a place in the world which they have done

their job in doing many macroeconomic and very sound changes.

And thanks to that, they are better off than they would have been

10 years ago, but, still, that is one question.

Things are tough today in 1999 in the region, and it is very uneven in how it works. But the big question is that unhappily, even

with growth, we have been—and when I say we, I am talking about

all of us, all Latin America region countries have been able to serve

with these multilateral organizations like the World Bank or the

IDB to see how we can get this growth down to the poor people,

and that has been a very difficult task.

And one of the regions where we have less succeeded is in Latin

America. We have seen in Southeast Asia where this has been able

to get down in absolute and relative terms the poverty; whereas in

Latin America, relative poverty in those terms have been very disadvantaged. We have not been able to cope with that. That is one

issue.

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And the second issue, which is even more important, inequality

has grown. Which is something that has happened all around the

world, even in this country, I think.

So those are two huge issues. And I think organizations, coming

to what we are discussing this morning, like the IAF, is making big

changes in those things. A little one, because it has not much

money, but it is helping to disseminate the richness.

So I do believe the situation is bad and that this kind of grassroots approach and responsive approach is the only way you can

give sustainable hope to these kinds of communities in the region.

Mr. SHAYS. I am wondering about the general concept of being

a venture capitalist without charging any obligation to the recipient of the money. I like the thought that you are a venture capitalist. I think you made a case, Mr. Breslin, for the fact that you are

kind of getting underneath this system, and you are seeking out

the private kind of investment, but you provide a grant rather than

a loan. I am just wondering if maybe we should not see the IAF

move in that direction and end up being a private organization

eventually.

I happen to buy the argument that poverty was bad 20 years

ago, and it is bad today. So, I mean, there is more than enough to

do. So I take the argument, Mr. Fisk, that whatever is done on the

private side, we need more of it, because we just really are not

denting it enough.

But, that said, why shouldn’t we charge some kind of obligation

to the people that you are funding?

Mr. BRESLIN. That goes to the nature of the Foundation. We are

basically the face of the U.S. Government in poor communities

around Latin America. We are the ones who get out there and listen to people and express our interest in what they are doing and,

eventually, if they are convincing to us, our support for what they

are doing.

What we require of them, I think, was mentioned before. Eventually we ask them to present us a budget, and the budget contains

line items for which they need to expend money in the project. And

in all projects we ask them for their counterpart. It is a requirement. We do not do projects without counterpart funds from the

grantee.

We have historically been fairly flexible about what counterpart

is, and in many cases it is their labor. It is 100 days of hard labor

on a project, or 1,000 days, depending on what the project is. It is

providing rooms for meeting spaces. It is somebody contributing

their house to store seeds in before the planting season. And we try

to put a value on this, and we ask them to put a value on it. So

we really try to stay away from the idea that we are just going to

drop money on you out of charity. We think about these projects

as partnerships that we are going into with them on.

Most of the projects also have counterpart from other local organizations. Very typically we will fund a group of small farmers

someplace, and there will be at least one other organization which

provides technical assistance, or an organization that is an expert

in sustainable agriculture, ecologically sustainable agriculture, organizations that specialize in providing all these techniques, and

we ask them, give us a dollar figure for your contribution as well.

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Mr. SHAYS. So your bottom line point is that you are asking for

there to be a commitment; that you try to leverage other activities

with the money you give?

Mr. BRESLIN. Yes.

Mr. SHAYS. Mr. Fisk, does the Heritage Foundation basically oppose foreign aid?

Mr. FISK. The philosophical position is one of skepticism. If it is

an adjunct or component of a broader foreign policy agenda, the

Foundation has supported it. But just simply to presume or assume

that foreign aid it is the best means of economic development, the

Heritage Foundation disagrees with that conclusion.

Mr. SHAYS. I am almost thinking that if I were Heritage Foundation, I might actually have come to the conclusion that you would

ask the IAF to become larger in our budget and USAID to become

smaller. In other words, this would seem to me to be an almost

more compatible way from the Heritage standpoint.

Mr. FISK. From the Heritage Foundation standpoint it is a case

where other Heritage officials have testified against AID. My purpose here is not necessarily to say that AID offers the best alternative. I think I have acknowledged in my prepared statement that

there are deficiencies in that program.

Mr. SHAYS. But how do you react to my point that, even if consistent with your view, and I didn’t expect to be saying this, but

that you would actually—if I gave you a choice between IAF or

USAID, wouldn’t you lean closer to this type of funding than

USAID?

Mr. FISK. Given my newness with the Foundation, I would say

that that is a fair assumption and a fair statement. I would say

the one attraction of some of what IAF does is that it is more

hands-on, and its development programs are, or can be at times,

less bureaucratic.

Mr. SHAYS. At least they are getting out into kind of the private

marketplace in a way.

Mr. FISK. Ultimately, the philosophy would be, as I said to Mr.

Sanders, economic freedom and private investment. Private investment doesn’t necessarily mean foreign private investment. It could

be indigenous investment. To just pick up on Mr. Breslin’s comment that a lot of the grantees for either AID or the Foundation

are engaged in an economic activity, economic activity is going to

generate some sort of revenue.

Mr. SHAYS. Right. But I was thinking, in a sense, and, Mr.

Rengifo, first, I want to place your comments in some context. Are

you—you are a Spanish national?

Mr. RENGIFO. Yes, yes, absolutely.

Mr. SHAYS. Tell me very briefly about your bank.

Mr. RENGIFO. Where I am working now today?

Mr. SHAYS. Yes.

Mr. RENGIFO. OK. The bank, the Inter-American Development

Bank, is a regional development bank.

Mr. SHAYS. With assets of how much?

Mr. RENGIFO. It is $100 billion.

Mr. SHAYS. $100 billion. And your position in the bank is the executive director?

73

Mr. RENGIFO. Of the board, representing France, Austria, Finland, Denmark, Norway, Sweden, and Spain.

Mr. SHAYS. But you are the executive director of the whole bank

or of that part?

Mr. RENGIFO. No, no, it is a board of 14 members, and each

member represents some countries.

Mr. SHAYS. I have you down as executive director of the InterAmerican Development Bank. Are you the executive director?

Mr. RENGIFO. I am one of the 14 executive directors of the bank.

Mr. SHAYS. There are 14.

Mr. RENGIFO. We all represent our shareholders and the shareholders are the governments.

Mr. SHAYS. Now, have you funded projects that IAF has provided

the seed money for?

Mr. RENGIFO. Mr. Chairman, I do not know exactly what the IDB

has done with the IAF. I know they have had cooperation. When

I talked yesterday to here, it was that I could not talk on behalf

of the IDB.

Mr. SHAYS. I understand.

Mr. RENGIFO. I just came on a personal matter, because it was

a foundation that mattered to me and helped me understand many

things 11 years ago.

Mr. SHAYS. But I am making an assumption that since those 11

years you have seen IAF in operation, and so all I was trying to

do is to assess if IAF has a relationship with your bank.

In other words, one of the things——

Mr. RENGIFO. Yes, it does.

Mr. SHAYS. The answer is?

Mr. RENGIFO. They do have a big relation. I do not know if an

institutional relation. I am not quite sure of that. I tried to know

that yesterday, but I was unable to catch up with my people in the

bank to know if there was any kind of mixed cofinancing or something. But they were doing the same job in the region.

Mr. SHAYS. That you are doing?

Mr. RENGIFO. That we are doing, yes.

Mr. SHAYS. Except you are giving loans; they are giving grants.

Mr. RENGIFO. We have three branches in the bank. One is the

IDB, which gives only loans of about 7 to $8 billion a year. We are

the major loan bank in the region for a development bank, even

more than the World Bank today. We have then an ITC branch,

which is private-sector-driven, with small and medium enterprises,

which are loans and venture capital, or capital risk. I think venture

capital you call it. And then there is a little branch, which is a kind

of a foundation made by the United States, Japan and Spain in the

bank, which is called the MIF, Multilateral Investment Fund,

which is for little projects, for grants for little projects, which is a

little bit more than we are doing with the IAF.

Mr. SHAYS. That is helpful.

I want to kind of wrap up, but, Mr. Breslin, you wanted to add

something?

Mr. BRESLIN. Just to add a couple of items on your question. Historically, over the years, we have had relationships with the InterAmerican Development Bank. We work with them on the Social

Progress Trust Fund. But in the field there are several instances

74

where the Inter-American Foundation funded groups to the point

at which they were large enough and successful enough to be able

to deal with a loan from the IDB. That happened in Uruguay.

There is another way we worked, in a sense, with the bank:

There is a project in Bolivia, chocolate production, poor farmers in

a rural area of Bolivia. We had funded them for years. They got

to the point where they were qualified, really, for an IDB loan. But

the bureaucracy was taking so long that the loan fund was clearly

going to collapse, while they waited for the IDB loan money to arrive. We came in with a bridge grant of $50,000 to get them over

that period. That is the kind of flexible funding we have been able

to do in the past.

Mr. SHAYS. I should have asked the first panel about the Social

Progress Trust Fund. Tell me a little bit about that. And I am not

looking for a long explanation.

Mr. BRESLIN. The Social Progress Trust Fund is basically local

currency, repayment of loans made to——

Mr. SHAYS. Who is funding that? I am going to interrupt you, because I want to just get to my questions. Who has funded that, just

the United States?

Mr. BRESLIN. No, this is a fund into which repayments go. The

repayments are for development loans made to the Latin America

countries.

Mr. SHAYS. Let me do this. Do you mind if I just get the first

panelist here?

Ms. Otero, can you come here? Not that you cannot answer, but

I really should have asked the first panel. Maybe just pull up a

chair real quick.

Ms. OTERO. Yes, Mr. Chairman.

Mr. SHAYS. Just explain to me the fund. I should have asked.

Ms. OTERO. The Social Progress Trust Fund is a fund that actually is constituted of moneys that are being paid back in local currency by Latin America countries to the IDB for loans that the IDB

made to those governments.

Mr. SHAYS. The Inter-American Development Bank?

Ms. OTERO. Yes, the Inter-American Development Bank.

Mr. SHAYS. Your bank?

Mr. RENGIFO. My bank.

Mr. SHAYS. OK. So you can respond to this question as well.

Mr. RENGIFO. I have been here for only 2 months, but I will respond as best I can.

Mr. SHAYS. Good. I just did not want to follow protocol here.

I’m sorry, I should have asked this before.

Ms. OTERO. These are loans that are made through the InterAmerican Development Bank by the U.S. Government and are paid

back to the U.S. Government and set up in a trust fund, which is

the Social Progress Trust Fund.

Some of those funds are then allocated to the Inter-American

Foundation for the Inter-American Foundation to use those moneys

in making grants available to those countries. So those moneys are

earmarked by countries.

Mr. SHAYS. Why is the Fund running out; do you know?

I don’t mind your having assistance here, rather than having one

coming in one ear and out the other.

75

Ms. OTERO. These are funds that are being paid back by governments, and the repayments are coming to an end, and that is why

the trust funds are running out.

Mr. SHAYS. Well, then, there is money in the Fund to loan out

again. That is what I am not understanding. So I am missing some

basic fact here. Let me make an assumption here: We have a fund.

People borrow from it. They pay back.

Ms. OTERO. No, no, no.

Mr. FRANCO. Just very quickly, Mr. Chairman. These are loans

that were made out of the Alliance for Progress in the 1960’s by

our government. When the repayments were due, our government,

by act of Congress in 1975, decided that instead of having those go

back to general receipts to the Treasury, a fund would be established at the bank of which the U.S. Government would be the

trustee. Those funds would not be repaid as loans, but would be directed as grants.

Mr. SHAYS. As grants.

Mr. FRANCO. Exactly. It is called the Fund for Special Operations. And part of those repayments that come in are made available, by law, to the Inter-American Foundation.

Mr. SHAYS. OK. I understand now.

Ms. OTERO. To be used for grants.

Mr. SHAYS. I’m thinking of it like the Offshore Drilling Trust

Fund that we put a fund in and then we spend the money out of.

Mr. RENGIFO. Correct.

Mr. SHAYS. Bottom line, that is running out.

Ms. OTERO. Yes.

Mr. SHAYS. I am pretty much set in the questions that I wanted

to ask. I will just share with you my observation of this hearing.

I didn’t expect that I would be saying that, but my observation is

that I am told by various sources that we have some management

problems at the IAF, and we have some question of whether we are

too top-heavy. Those are not questions that are going to be answered for me in a hearing like this.

So I will share with you that I may have problems with what is

happening. I, obviously, recognize that when you go from $30 million down to $20, and you still have the bureaucracy for $30, that

you have problems that you have to iron out. I also know that Congress can be erratic in terms of whether it wants to fund or not;

i.e., we have $5 million, which is basically almost saying let us get

rid of the organization.

But if I wanted people in the field looking for the smaller kinds

of grants, I would conceptually—and clearly in my Peace Corps experience I want to see it happen more this way—I would rather

have it trickle up than kind of trickle down. So I am more comfortable with that. And I ultimately love to think of ways that we

can privatize and continue to seed other activities.

So my questions, I think, will end up being more on the management of it, not as much on the mission of the program. So I look

forward to working with you. I am summarizing my feelings. I

don’t usually do that, but I thought I would.

Do you have any comment you want to make?

Mr. SANDERS. I don’t.

76

Mr. SHAYS. Any closing comments any of the four of you want to

make?

Mr. Breslin.

Mr. RENGIFO. May I?

Mr. SHAYS. Well, I just thought of one thing as I was calling on

Mr. Breslin.

Mr. Breslin, how many people work under your oversight?

Mr. BRESLIN. Just me, sir.

Mr. SHAYS. So if I look at you, and I am thinking of why we have

so many employees, we have one person who handles each country,

give or take, which leaves me wondering why we get to 56.

Mr. BRESLIN. We currently have 13 program representatives,

who work in the field.

Mr. SHAYS. I consider you the people out in the field, you are the

most essential part, I would think, with all due respect to the others.

Mr. BRESLIN. Right. With the representatives, we have support

staff, we have people who help do the paperwork of processing the

projects that are eventually presented for approval.

Mr. SHAYS. I hear you. You have to have the back-up.

Real quick, any summations?

Ms. OTERO. Mr. Chairman, just one final comment is that I think

the Foundation has suffered in the last 5 years by the cuts that

have come its way and by the uncertainty of its level of funding.

And I think those are reflected in some of the management issues

and some of the other issues that are now problematic.

I think we have communicated in this hearing that the installed

capacity, if you will, of the Inter-American Foundation is considerable and perhaps being underutilized right now to address the

issues of poverty that we have in Latin America, and I would like

you to take that into account as you consider these things.

Mr. SHAYS. I accept that.

Sorry to interrupt you, but you get the last word, Mr. Rengifo.

Mr. RENGIFO. I do have something to add.

Mr. SHAYS. Well, you got them.

Mr. RENGIFO. Thank you. It wasn’t my idea to do that. I just

wanted to tell you that when I entered IAF, it was to try to copy

this institution in Spain. I have not been able to do that, so I hope

to do it in the future.

The one thing I can give you is that I think you need more hearings like this one, because only 15 years ago was the last one you

had. I think you need much more if you want to be coping with

this. And I do believe there is a lot of sense to this institution.

Mr. SHAYS. OK. Thank you very much. Appreciate all you being

here, and we will adjourn this hearing.

[Whereupon, at 12:25 p.m., the subcommittee was adjourned.]

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