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MATCHING CAPITAL AND

ACCOUNTABILITY—THE MILLENNIUM

CHALLENGE ACCOUNT

HEARING

BEFORE THE

SUBCOMMITTEE ON 

DOMESTIC AND INTERNATIONAL 

MONETARY POLICY, TRADE AND TECHNOLOGY

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

JUNE 11, 2003

Printed for the use of the Committee on Financial Services

Serial No. 108–36

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa 

DOUG BEREUTER, Nebraska 

RICHARD H. B.A.KER, Louisiana 

SPENCER B.A.CHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

ROBERT W. NEY, Ohio 

SUE W. KELLY, New York, Vice Chairman 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

DOUG OSE, California 

JUDY BIGGERT, Illinois 

MARK GREEN, Wisconsin 

PATRICK J. TOOMEY, Pennsylvania 

CHRISTOPHER SHAYS, Connecticut 

JOHN B. SHADEGG, Arizona 

VITO FOSELLA, New York 

GARY G. MILLER, California 

MELISSA A. HART, Pennsylvania 

SHELLEY MOORE CAPITO, West Virginia 

PATRICK J. TIBERI, Ohio 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

TIM MURPHY, Pennsylvania 

GINNY BROWN-WAITE, Florida 

J. GRESHAM B.A.RRETT, South Carolina 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

B.A.RNEY FRANK, Massachusetts 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

B.A.RB.A.RA LEE, California 

JAY INSLEE, Washington 

DENNIS MOORE, Kansas 

CHARLES A. GONZALEZ, Texas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

KEN LUCAS, Kentucky 

JOSEPH CROWLEY, New York 

WM. LACY CLAY, Missouri 

STEVE ISRAEL, New York 

MIKE ROSS, Arkansas 

CAROLYN MCCARTHY, New York 

JOE B.A.CA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

RAHM EMANUEL, Illinois 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

BERNARD SANDERS, Vermont

Robert U. Foster, III, Staff Director 

Page

III

SUBCOMMITTEE ON DOMESTIC AND INTERNATIONAL

MONETARY POLICY, TRADE AND TECHNOLOGY

PETER T. KING, New York, Chairman

JUDY BIGGERT, Illinois, Vice Chair 

JAMES A. LEACH, Iowa 

MICHAEL N. CASTLE, Delaware 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

DOUG OSE, California 

JOHN B. SHADEGG, Arizona 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

TIM MURPHY, Pennsylvania 

J. GRESHAM B.A.RRETT, South Carolina 

KATHERINE HARRIS, Florida 

CAROLYN B. MALONEY, New York 

BERNARD SANDERS, Vermont 

MELVIN L. WATT, North Carolina 

MAXINE WATERS, California 

B.A.RB.A.RA LEE, California 

PAUL E. KANJORSKI, Pennsylvania 

BRAD SHERMAN, California 

DARLENE HOOLEY, Oregon 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

JOE B.A.CA, California 

RAHM EMANUEL, Illinois 

(V)

C O N T E N T S 

Page 

Hearing held on: 

June 11, 2003 .................................................................................................... 1

Appendix 

June 11, 2003 .................................................................................................... 33

WITNESSES 

WEDNESDAY, JUNE 11, 2003

Larson, Hon. Alan, Under Secretary of State for Economic, Business and 

Agriculture Affairs, Department of State .......................................................... 10

Natsios, Hon. Andrew, Administrator, United States Agency for International 

Development ......................................................................................................... 11

Taylor, Hon. John, Under Secretary for International Affairs, Department 

of the Treasury ..................................................................................................... 8

APPENDIX 

Prepared statements: 

Oxley, Hon. Michael G. .................................................................................... 34

Larson, Hon. Alan ............................................................................................ 36

Natsios, Hon. Andrew ...................................................................................... 45

Taylor, Hon. John ............................................................................................. 53

(1)

MATCHING CAPITAL AND 

ACCOUNTABILITY—THE MILLENNIUM 

CHALLENGE ACCOUNT 

Wednesday, June 11, 2003

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON DOMESTIC AND INTERNATIONAL, 

MONETARY POLICY

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to call, at 10:14 a.m., in Room 

2128, Rayburn House Office Building, Hon. Katherine Harris [acting chairwoman of the subcommittee] presiding. 

Present: Representatives Ose, Kennedy, Feeney, Hensarling, 

Barrett, Harris, Maloney, Watt, Waters, Lee, Sherman, Frank (ex 

officio), Baca, and Crowley. 

Ms. HARRIS. [Presiding.] The hearing of the Subcommittee on Domestic and International Monetary Policy, Trade and Technology 

will come to order. 

Without objection, all members’ opening statements are made 

part of the record. 

This morning’s hearing provides us with an outstanding opportunity to learn about President Bush’s historic initiative to comprehensively reform our nation’s financial assistance to the developing world. 

We are fortunate that several of the Bush Administration’s distinguished leaders have joined us to explain how the President’s 

Millennium Challenge Account, the MCA, will achieve this objective. 

Treasury Secretary John Snow appeared before the full Financial 

Services Committee in May to describe the Administration’s international economic policies. The MCA played a prominent role in his 

testimony. I look forward to hearing specific examples that will illustrate the vision he outlined during this morning’s testimony. 

On behalf of Chairman Oxley, I wish to express our appreciation 

to the Honorable John Taylor, Under Secretary for International 

Affairs in the Department of the Treasury; the Honorable Alan 

Larson, Under Secretary for Economic, Business and Agriculture 

Affairs at Department of State; and the Honorable Andrew S. 

Natsios, the Administrator of the Agency for International Development, for their insights. 

The Millennium Challenge Account is aptly named. Helping eligible countries help themselves presents them and us with an extraordinary challenge. Eligible nations can prompt the challenge of 

2

improving their governance, investing in their people and promoting economic freedom. We face the challenge of helping them 

succeed while holding them accountable. We believe that the construction of thriving, prosperous societies is inseparable from good 

leadership, economies based upon sound market principles and 

major investments in health and education. 

In short, for a country to be successful, its people must be successful. As illustrations of this axiom, Americans can point to our 

own experience, as well as to the transformations that have occurred in South Korea, Chile and Botswana. 

The MCA constitutes a bold initiative that demands responsibility, transparency and accountability. It builds upon, rather than 

detracting from, our other bilateral and multilateral aid programs. 

It represents a way forward, not backward. It creates a model of 

interagency corporation without a bloated new bureaucracy, relying 

upon the expertise of the Departments of Treasury and State, as 

well as the Agency for International Development. I understand 

that the Office of Management and Budget will serve in the corporation as well. 

The challenge is not just extended to the applicant countries, but 

also to our government guiding this process forward. The jurisdiction of the Treasury Department, International Finance and Multilateral Development Banks, I am particularly concerned how coordination is undertaken so that duplication of efforts or overlapping is avoided. 

Like any sound investment strategy, the MCA is based upon a 

long-term outlook. The President takes a positive step forward by 

proposing $1.3 billion for the MCA in its first year and ramping up 

to $5 billion by its third. 

The Administration and our taxpaying constituents can rest assured that Congress will be very involved in this process. Sixteen 

performance indicators proposed by the Administration will gauge 

just how seriously committed countries are to ruling justly, investing in their people and promoting economic freedom. 

With indicators from regulatory quality, to political rights, to 

public expenditures on health and primary education, the range of 

indicators is expansive and objective. We are talking about routing 

out corruption, establishing respect for human rights and adhering 

to the rule of law, as well as investing in better schools and health 

care. 

These are long-term solutions and goals, but with the leadership 

of an MCA corporation, I am confident that applicant countries, 

which develop successfully, will provide a strong civil society and 

a sound, market-driven economy to guide future international development. 

Thank you again for your testimony today, and I look forward to 

your comments. 

Are there additional opening statements? 

Mrs. MALONEY. I thank the Chairlady for yielding. 

And I thank very much our witnesses, Mr. Taylor, Mr. Larson 

and Natsios, for being here. 

And I just want to share with you, I just came from a Joint Economic Committee, where I submitted the Freedom From Debt Act 

legislation that I will be introducing today to require the United 

3

States to negotiate in the IMF, World Bank and other appropriate 

multilateral development institutions for the IMF and World Bank 

to relieve the debt owed by Iraq to these institutions. 

And I feel that this is in line, really, with many of the MCA’s 

priorities and challenges, and certainly would benefit the Iraqi people. So I will be forwarding a copy of this legislation to you to see 

and discuss with the Administration, and I am hopeful that you 

will be supportive in a bipartisan way. 

I very much look forward to your testimony today. And in reviewing the MCA, I think the goals are laudable. It is very important, 

but basically, I would like to see more of an emphasis or inclusion 

in it on women, children, families, and, I would say, reproductive 

health, all of which are very much tied to the stability of countries, 

the environment and, really, the health and well-being of families. 

If you have a strong family, you have a strong village. If you have 

a strong village, you have a strong country. 

But I would, in a broader way, just like to thank this Administration for their increasing commitment to increasing foreign aid to 

the world’s poorest nations. This is truly a historic step, and if fully 

implemented, is one of the largest increases in foreign-aid spending 

in the past 50 years. Clearly, we need full funding and a full commitment to getting the aid to those countries who need it most. 

I look forward to hearing about the concept of the program and 

the criteria for country eligibility. I agree that it is important to 

discuss the political and economic development when we discuss indicators for aid recipients. However, I notice one area that is directly related to economic development which is missing from this 

debate: demographic change. 

October 12, 1999, was designated by the United Nations as the 

day the Earth’s population would reach 6 billion. By reaching the 

global milestone of 6 billion was a testament to the significant 

progress we have made in improving the quality of life for each of 

the world’s citizens, one-third of the world’s people still face a 

world of poverty, poor health and pollution. 

As the third most populated country on Earth, I strongly believe 

that the United States must affirm its status as a world leader and 

meet its financial responsibilities. The needs of 6 billion people cannot be met unless the United States fulfills its promise to help provide population and development funding in countries that cannot 

afford it themselves. 

When we address poverty eradication, we must address access to 

modern contraceptive methods. As Mr. Natsios knows, USAID investments in family planning helps stabilize population growth in 

strategically important countries and resulted in the creation of 

strong U.S. trading partners such as Korea, Taiwan and Thailand. 

More than 99 percent of population growth is occurring in the developing world, where population pressure is contributing to deforestation, water and food shortages, global warming, wildlife dying 

and other environmental concerns. 

Expanding populations undermine developing-country efforts to 

provide citizens with adequate health care, food, education and 

jobs. These conditions slow economic and social development, thereby jeopardizing the potential for these countries to be reliable allies, good trading partners and growing markets for U.S. exports. 

4

Supporting voluntary international family planning programs, 

universal access to reproductive health care and other services 

means stable populations, growing economies, improved environmental conditions and a better world for everyone. 

We should be considering these issues when we discuss performance measures for eligible countries for the Millennium Challenge 

funding. 

And I want to close just with one brief story. I visited India once, 

and I was very much taken by the world’s largest democracy that 

had a strong independent court system, a form of democracy, and 

spoke English and an industrious population. 

And I asked the American Ambassador, ‘‘What would be most 

important thing that we could do to help India?’’ I just loved the 

country. I thought he would say economic development, I did not 

know what he would say. I was stunned at his answer—and this 

is Ambassador Wristen, and he was a professional career ambassador. And his statement was, ‘‘family planning.’’ He said that 

women and men and families gathered in lines at villages, lined 

up, asking for support and information about family planning. 

So I feel that that should be something that I hope that you will 

consider in the criteria and information that you put forward with 

the MCA accounts. It is a good first start, but I think this should 

be included. 

Thank you. 

Ms. HARRIS. Are there any additional opening statements? 

Mr. FRANK. Madam Chair? 

Ms. HARRIS. The gentleman from—— 

Mr. FRANK. Do you have one on the other side? 

Ms. HARRIS. I did not see anybody from this side. 

The gentleman from Massachusetts is recognized. 

Mr. FRANK. Thank you. I appreciate the fact that we are having 

this hearing, and I am delighted that we have this really impressive panel of high-ranking officials. 

I think one of the greatest gaps in our international policy over 

the years has been the absence of a forceful and sustained economic development strategy. It has been too often subordinated to 

other political considerations. Those are important, but they ought 

to be pursued on their own. 

And alleviating desperate poverty is, first of all, important for 

itself; secondly, because it does, if we are successful, create a less 

unsafe world. I do not think—the direct relationship people try to 

draw between terrorism and poverty is clearly wrong. Terrorists 

are not hungry. They are not dealing with poverty. Osama Bin 

Laden is not a social worker and has, as nearly as I can see, no 

decent instincts at all. 

But what happens when you have this sense of despair and poverty, I think, is that the climate for terrorism increases. That is, 

more people are supportive, less are willing to join in the effort 

than would be in their own interest. 

So there is a self-interested argument here, but it seems to me, 

you know, we should not denigrate ourselves. We too often, when 

we want to do something because it is the right and moral, correct 

thing to do to alleviate human suffering, we think we have to come 

up with a more instrumental reason. I think we ought to acknowlVerDate 0ct 09 2002 13:11 Nov 05, 2003 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 C:\DOCS\90109.TXT MICAH PsN: MICAHW
5

edge that the richest society in the world’s history can spend some 

fairly small percentage of its wealth trying to alleviate desperate 

poverty, and we will also benefit from it. 

I just have a couple of questions, and I mentioned this to Under 

Secretary Taylor, and I hope you will be able to address it, and 

that is: There are criteria, as there should be, but we obviously do 

not want people bouncing in and out. If people join in—and particularly I am concerned because the criteria, it is a relative thing, 

you are being graded on a curve here. Technically, if a country does 

the right thing, it qualifies, it gets into the program, and it continues to do well, but other countries start doing better, its eligibility might be in question. And I think we obviously need to have 

some guarantees of continuity. 

Secondly, I did have a concern because I was glad to see the criteria. Corruption is an absolute. Human rights and freedom is not. 

And that troubles me some. 

There was a period when we were hoping that economic development would, in itself, lead to greater political freedom. Sadly, that 

does not seem to be empirically carried out. The People’s Republic 

of China seems to be showing that you can progress economically 

without necessarily progressing in human rights. Others in the 

Asian area seem to, sort of, show that as well. 

So I would hope that the human rights and freedom part would 

get a kind of equal treatment. And the notion that, technically, 

theoretically, you could be very bad on those and still qualify is 

somewhat troubling. 

Gentlemen, I welcome the initiative. I look forward to being supportive of it, and I think that it has a great deal of promise. 

Thank you, Madam Chair. 

Ms. HARRIS. Thank you. 

Are there additional opening comments? 

The gentleman from California is recognized. 

Mr. SHERMAN. Thank you. 

I strongly support foreign aid in general and this Millennium 

process in particular. But it will be difficult to explain to our constituents why one criteria is missing from the proposal, and that 

is the degree to which the country seeking aid has cooperated with 

us in the war on terrorism. 

Now, there are some countries that, blessedly, are simply irrelevant. There are not any international terrorists there. We have not 

asked them to do anything. 

But in the Committee on International Relations, I will be proposing, and I hope that this subcommittee generally supports, the 

idea of an amendment to this proposal—and perhaps the panelists 

could focus on this—that would add as a criteria the degree to 

which the country, upon request, if it has been requested, has 

aided the United States in preventing international terrorism and 

apprehending terrorists. 

Otherwise, you may see a circumstance in which a country meets 

all the qualifications, gets a grant or a loan, and has refused to extradite, refused to cooperate, refused to trade information. And 

when that happens and that hits the headlines, support for further 

appropriations will shrivel. 

6

So to think that we can take our desire to help the poorest and 

divorce it from the expectation of our constituents, that we will do 

everything possible to protect them from terrorism—even if you do 

not want those two things married, they will be married. And best 

we do it at the outset than do it in an unfortunate program development later. 

I yield back. Thank you. 

Ms. HARRIS. Thank you. 

Are there any additional opening statements? 

Mr. FEENEY. Madam Chairman? 

Ms. HARRIS. Yes, the gentleman from Florida is recognized. 

Mr. FEENEY. Thank you, Madam Chairman. 

I am very interested in the Millennium Challenge Accounts because of the way it reforms the historic pattern of foreign aid in 

America. The truth is that foreign aid, in terms of the effect it has 

had on the companies that we have worked with, historically, in 

my view, reminds me of Franklin Delano Roosevelt’s description of 

the welfare system. And that is that it tends to become like a narcotic and creates dependency rather than good behavior. 

And to the extent foreign aid has done anything for us positively, 

it has been because of the geopolitical interests that we have and 

basically buying friends for a temporary period of time. But even 

that, ultimately, it seems to me that historically the countries we 

help the most with foreign aid, on the long run, turn around and 

bite the hand that feeds them the most aggressively. 

And so there is this inverse, and directly inverse, relationship between the amount of money we give countries and how bad off they 

are, in terms of prosperity. 

The nice thing about the Millennium Challenge Accounts is that, 

for the first time, we are going to try to, in a coherent manner, tie 

future behavior to the amount of foreign aid that we hope to deliver. 

And it seems to me, what we have done historically is to carve 

out a part of the Americans’ prosperity and wealth and take money 

from taxpayers in America and give it to other countries. What we 

want to do here, I think, is to share the recipe for success and prosperity that has led us to be the shining light. 

And one of the things that I am very interested in is the way 

that we are going to define countries that are moving in that direction, because, by definition, the 74 or 75 countries that we are talking about participating in this have the worst record of creating 

prosperity. 

So it is going to be very interesting how you incentivize people 

and how you stay on them on a regular basis to do things like create a rule of law that respects property rights, both real property 

rights and intellectual property rights. How are you going to repeatedly insist on transparency and lack of corruption, low marginal tax rates for both investment and for earner’s free trade? 

For example, we do not give much directly, in way of foreign 

trade, to Hong Kong, Taiwan, South Korea or Thailand, but we 

have given them the recipe for success. They do not need foreign 

aid because they know what it takes to create prosperity. 

And finally, I hope that we will address the issue of democracy. 

Hong Kong was hardly a democracy for the last 50 years, but they 

7

finish number one routinely on the Heritage Foundation’s list of 

free nations because of their economic approach to prosperity. And 

they now have a higher per-capita income than even Great Britain, 

who was the parent of the economic freedom in Hong Kong. 

So, I hope you will basically tell us how we are going to change 

from a system of, in my view, failure in foreign aid to maybe success and ultimately weaning these 75 nations and other nations off 

of the burden on American taxpayers. 

Ms. HARRIS. Excellent. 

Are there any further additional opening statements? Very well. 

I would like to welcome a couple of new faces who are appearing 

before this subcommittee and one familiar face. We welcome again 

Dr. John Taylor, Under Secretary of Treasury for International Affairs, at the Department of Treasury. 

Dr. Taylor has a very distinguished academic and professional 

record. He received his undergraduate degree from Princeton University and his Ph.D. from Stanford University. He has taught economics at Columbia, Yale, Princeton and Stanford Universities. 

In addition to these academic positions, Dr. Taylor was a member of the President’s Council of Economic Advisors during the Administrations of President George Herbert Walker Bush. Moreover, 

he has also served in the private sector as an analyst for Alan 

Greenspan’s Wall Street firm, Townsend Greenspan, in the later 

1970s and early 1980s, where he studied world commodity markets. 

I also welcome Dr. Alan P. Larson, Assistant Secretary of State 

for Economic and Business Affairs. Dr. Larson was sworn in as Assistant Secretary of State for Economic and Business Affairs in 

July 1996. Prior to his appointment by President Clinton, Mr. 

Larson served as Deputy Assistant Secretary for International Finance and Development. He served in that position for more than 

two years. 

From 1990, Mr. Larson served as America’s ambassador to the 

Organization for Economic Cooperation and Development in Paris. 

Mr. Larson has a B.A., MA and Ph.D. degrees from University of 

Iowa. He also attended John Hopkins’ School of Advanced International Studies. 

We are also pleased to welcome the Honorable Andrew S. 

Natsios, Administrator of the U.S. Agency for International Development. Andrew S. Natsios was sworn in on May 1, 2001. 

For more than 40 years, USAID has been the lead U.S. government agency providing economic and humanitarian assistance toward transitioning and developing nations. President Bush has 

also appointed him special coordinator for international disaster assistance and special humanitarian coordinator for the Sudan. 

Mr. Natsios is a graduate of Georgetown University and Harvard 

University’s School of Government, where he received a master’s 

degree in Public Administration. After serving 23 years in the U.S. 

Army Reserves, Natsios retired in 1995 with the rank of Lieutenant Colonel. He is a veteran of the Gulf War. 

Without objection, your written statements will be made part of 

the record. And you will each be recognized for a five-minute summary of your testimony. We will start with Secretary Taylor, then 

Secretary Larson and Administrator Natsios. 

8

Thank you. 

Welcome. 

STATEMENT OF HON. JOHN TAYLOR, UNDER SECRETARY FOR 

INTERNATIONAL AFFAIRS, DEPARTMENT OF THE TREASURY 

Mr. TAYLOR. Thank you very much, Congresswoman Harris and 

other members of the committee, for inviting us to testify. My testimony follows that of Secretary Snow, as you indicated in your 

opening remarks, on May 13th, where he described our overall 

international economic policy and the Millennium Challenge Account in particular. And we are going to focus on the Millennium 

Challenge Account today, of course. 

I am very pleased to be on this panel with Alan Larson and Andrew Natsios. The three of us, and many others in the Administration, have worked together since the President announced this initiative in March of last year, spent many hours working together. 

I think it is a good example of interagency cooperation, and I expect that that is going to continue very much as we move into the 

operational phases of the Millennium Challenge Account. 

I want to focus on how the Millennium Challenge Account fits 

into our overall economic strategies, economic development strategies, in my testimony. 

As you know, there are 3 billion people in the world living in 

what most Americans would call extreme poverty. The United 

States has worked to combat this problem of poverty in many ways. 

This Administration, under President Bush’s leadership, has developed a new economic strategy—I would call it a growth agenda—to deal with the poverty around the world, and the Millennium 

Challenge Account is part of that strategy. 

The strategy is to channel more funds, more resources, into countries that are following pro-growth policies, policies that we know 

are essential for reducing poverty—poverty will not be reduced unless countries grow more rapidly—but also to channel funds in a 

way that we can measure the results. So it is more funds, focused 

on pro-growth policies, and measuring the results that are the driving force behind the policy. 

We are following this policy with respect to the multilateral development banks, as this committee knows well. For example, we 

have advocated an incentive contribution scheme to IDA, the arm 

of the World Bank that deals with the poorest countries. 

And I would hasten to add that we appreciate the work of this 

committee in moving ahead on the very important authorization for 

IDA, for the Asian Development Fund and the African Development Fund, which still are very important for our Administration’s 

policy. And we will work with the committee as much as it requests 

in moving ahead with these authorizations. 

This pro-growth poverty-reduction agenda is also the driving 

force behind the Millennium Challenge Account. As I indicated, 

poverty reduction requires stronger economic growth. 

And I would focus on productivity growth. Poverty cannot be reduced unless workers can earn more, be employed. And they earn 

more by producing more. It is as simple as that. Productivity rises 

because there is more capital, more tools for people to work with, 

for workers to work with, and because they have better technology. 

9

More tools, better tools, better ideas, is how workers can produce 

more and therefore earn more and be removed from poverty. 

As you look around the world, there are barriers to both the use 

of capital, the movement of capital and the transfer of technology. 

Those barriers have to do with poor governance, a lack of rule of 

law. 

A second barrier has to do with poor education, poor health, lack 

of investment in people. 

And the third barrier to the transfer of technology in growth and 

capital is restrictions on economic transactions or restrictions on 

economic freedom. 

The Millennium Challenge Account attacks all these barriers. Its 

strategy is to support countries which do the things that will lead 

to economic growth. 

And as President Bush has said, and as you said in your opening, Congresswoman Harris, that is governing justly, it is investing 

in people and it is encouraging economic freedom. 

So what we have done, the people in front of you today and many 

others in the Administration, is worked hard to find specific measures of economic performance that fit into these three categories 

that President Bush highlighted. 

What we have looked at, in consultation with many people, inside and outside of government, is we have focused on a total of 

six indicators that represent governing justly. Two of those indicators come from Freedom House. They measure civil liberties, and 

they measure political rights. 

Four of the indicators, four of those six, come from the World 

Bank Institute. They are indicators that measure voice and accountability, the effectiveness of government, the rule of law and 

the control of corruption. Just the things that we need to address—

countries need to address if they are going to increase growth and 

reduce poverty. 

There are four indicators that have to do with investment in people. Two of them focus on the inputs to education and to health—

that is, the fraction of GDP spent on education and health. Two of 

the indicators focus on measures of output: What do you get from 

your investment in education? What do you get? You get completion rates, more kids getting out of elementary school and learning 

things. What do you get for your health expenditures? Better immunization rates. So those are two of the measures of output that 

we focused on. 

And then with respect to encouraging economic freedom, there is 

a total of six indicators. Some of them are more macroeconomic; 

some of them are microeconomic. On the macroeconomic side, having a low inflation rate, a budget that is not in a great deal of deficit. On the microeconomic side, countries that find ways that 

makes it easier to start a business, countries that are open to foreign trade, countries where regulatory barriers to starting businesses is low. 

So focusing on these indicators, we have tried to put in a great 

degree of objectivity in what the criteria are from policies that raise 

growth. 

10

What we would like to do is say that countries that are above 

the median in half of the indicators in each category would qualify 

for funds under the Millennium Challenge Account. 

There will be a board, a committee, to make the decisions ultimately, and that committee will exercise judgment in using these 

indicators, because no indicator is perfect, no indicator is free from 

some error. So the idea is the committee will ultimately make the 

decisions. 

Ms. HARRIS. Mr. Secretary, could you—— 

Mr. TAYLOR. And then, finally—— 

Ms. HARRIS. Thank you. 

Mr. TAYLOR. ——finally, we are going to insist that every single 

contract, every single form of assistance has strict, measurable results, where we say what should be done and measure what is done 

in developing the aid. 

So I urge you to support this important legislation, and will conclude with that. Thank you. 

[The prepared statement of Hon. John Taylor can be found on 

page 53 in the appendix.] 

Ms. HARRIS. Thank you. 

Mr. Secretary Larson? 

STATEMENT OF HON. ALAN LARSON, UNDER SECRETARY OF 

STATE FOR ECONOMIC, BUSINESS AND AGRICULTURE AFFAIRS, DEPARTMENT OF STATE 

Mr. LARSON. Madam Chairperson, Congresswoman Maloney and 

distinguished members, last March, President Bush caught the attention of the world when he called for a new compact for global 

development that would link greater contributions from developed 

countries to greater commitments and responsibility from developing countries. 

The Millennium Challenge Account is intended to focus on countries that govern justly, invest in the health and education of their 

own citizens, and encourage economic freedom. And by focusing on 

those countries whose own policies encourage growth and lasting 

poverty reduction, the MCA will deliver better development results. 

And for those countries that do not initially qualify, it is offering 

a very, very strong incentive to adopt growth-enabling policies. 

The MCA is based on a partnership in which developing countries, with a strong involvement of their own citizens, would set 

forth their own development priorities and propose MCA-funded activities. The MCA will insist on results. We will have business-like 

contracts with each partner. We will invest taxpayer resources only 

in well-implemented programs that have clear objectives and builtin performance benchmarks. 

The MCA will promote economic growth in countries with good 

policies. The private sector will be a focus from the outset. And one 

of the criteria will really be having a healthy climate for entrepreneurship, including respect for private property and limits that 

rein in corruption. It is only with strong private sector growth that 

a country will be able to sustain, over time, investments in health, 

education and achieve other development gains. 

The MCA will complement and not replace other forms of assistance. In fact, President Bush has sought to increase other types of 

11

assistance programs, including those that focus on famine relief, 

HIV/AIDS or providing help for strategic partners. 

MCA activities will be transparent, and they will promote accountability. The selection criteria, the board decisions, MCA contracts, and program evaluations will all be public and will be posted on the Internet. 

To implement this radically new approach, the MCA must be administered by a separate corporation with a very focused mission. 

An independent Millennium Challenge Corporation with a highlevel board will signal that the MCA partnerships are not business 

as usual. A lean Millennium Challenge Corporation would be headed by a chief executive officer nominated by the President and confirmed by the Senate. The CEO would report to a board of directors, chaired by the Secretary of State, including the Secretary of 

the Treasury and the Director of the OMB. 

The Secretary of State’s participation will help ensure strong supervision and ensure coordination in foreign policy consistency. The 

Secretary of the Treasury, among other things, is going to make 

sure that there is consistency with our multilateral assistance policies and our foreign economic policies. And the Director of OMB, 

as a member of the board, can help ensure that the board implements the President’s management agenda priorities of increasing 

and improving transparency, performance and accountability. 

The MCA needs a clean and flexible legislative mandate. If it is 

going to respond to developing-country priorities, it cannot be earmarked. If it is going to attract the best and the brightest personnel in the public sector, the private sector, the not-for-profit sector, the MCA must have special personnel authority. If it is going 

to be lean and efficient, it has to have the ability to contract broadly for goods and services. 

As the MCA improves itself, we expect that multilateral and 

other bilateral assistance programs will emulate many of its core 

concepts. 

Madam Chairperson, I believe the MCA is the most important 

American assistance development initiative to be advanced in the 

last 32 years. As we fight to defeat terrorism, it is also important, 

in the words of President Bush, to fight for the values that make 

life worth living: education, health, and economic opportunity. 

We welcome the strong interest of the Congress, of NGOs and of 

the business community in the Millennium Challenge Account. We 

would encourage the committee to give the Millennium Challenge 

Act of 2003 its full support. And we pledge our cooperation in working with the Congress on this important initiative. 

Thank you. 

[The prepared statement of Hon. Alan Larson can be found on 

page 36 in the appendix.] 

Ms. HARRIS. Thank you, Mr. Secretary. 

Administrator Natsios? 

STATEMENT OF HON. ANDREW NATSIOS, ADMINISTRATOR, 

UNITED STATES AGENCY FOR INTERNATIONAL DEVELOPMENT 

Mr. NATSIOS. Thank you very much, Madam Chairwoman. 

12

I would like to submit my longer testimony for the record, if I 

could. 

I would like to thank you and the members of the committee for 

holding this hearing on the MCA. For us in USAID, the Millennium Challenge Account is the most significant development initiative since the establishment of the International Cooperation Administration during the Eisenhower Administration. We subsequently became the U.S. Agency for International Development 

(USAID) under the Kennedy Administration 50 years ago. 

The MCA will provide close to a 50 percent increase over current 

development resources and will firmly reestablish U.S. leadership 

in international development. I might add, with the $2.5 billion increase—we are already spending $1 billion on HIV/AIDS, but there 

is a $2.5 billion increase in bilateral assistance the President has 

proposed. So between the Millennium Challenge Account and that 

$2.5 billion increase, there is a 70 percent increase over three years 

in foreign assistance, which is clearly large. We actually went back 

in our historical records in USAID, which goes back to its roots in 

the Marshall Plan, and this is the largest increase since the Marshall Plan. 

I want to make a second point, and that is that the MCA is a 

direct outgrowth of the single most important lesson coming out of 

USAID’s experience, other donor bilateral agency experience, the 

World Bank and the U.N. agencies, and that is this: The single 

most important factor to successful development is a country’s commitment to good policies that are conducive to growth. 

Our experience has confirmed this year after year in country 

after country. And the fact is that it is not the quantity of aid that 

counts. No matter how much money you invest in a country, if the 

country has bad policies, it is difficult to make progress. At best, 

aid can play a supportive role. A country’s commitment to help 

itself is a primary determinant of success. 

If you have good policies and you invest money, you can accelerate the growth process and the process of developing sustainable 

institutions in the society. 

This is the heart of the Monterrey consensus that was forged last 

year and which the MCA embodies by focusing on countries that 

have proven their commitment to good governance, investing in 

people and promoting economic freedom. 

I might add that my own experience—and I have traveled to 

around 80 countries over the last 14 years since I have been doing 

this sort of work—my experience is personally that there are reformers in every country in the world. And in some countries, those 

reformers are in charge, driving the country, and those are the 

countries that are making substantial progress. In other countries, 

the reformers are in the parliaments or might be in the media or 

universities, but they are not at the center of events, and they are 

certainly not driving them. 

What the MCA does, by creating this criteria, is to give these reformers a giant stick. And I can give you one example. I recently 

told a speaker of a parliament in a country that was doing very 

well in all the indicators except one. There were huge levels of corruption, and it was damaging the country’s economic growth. I told 

that to the speaker. I said, ‘‘I have to be very frank with you. You 

13

are not going to make it, because you just are not doing what is 

necessary.’’ 

I recently visited that country, in fact, a few weeks ago. I will 

not tell you the country; I do not want to embarrass them. And I 

asked the speaker when I met with him again. I said, ‘‘Have you 

made progress?’’ He said, ‘‘Well, we took what you told us, and we 

beat back the people who have been opposing the corruption reforms for the last four years. And the thing whizzed through the 

parliament, because everybody knows in the parliament and the 

government, and all the ministers, what the MCA is, and we want 

to qualify. And if that is what is preventing it, we want the reformers in charge instead of the people who defended the old order.’’ So 

it is already having an effect, and the MCA legislation has not even 

passed yet. 

The third point I want to make is that the MCA will complement USAID’s own mission for the existing $10 billion bilateral aid program of the U.S. government. USAID has been and will continue 

to play a central role in President Bush’s campaign to attack poverty by stimulating growth, promoting democracy and investing in 

people. 

But as you know, USAID is only one piece of what is a much 

more complicated and diverse U.S. development strategy. We have 

different challenges now than we did during the Cold War, and 

there are many more actors involved in providing assistance. The 

MCA gives us the opportunity to articulate and implement a more 

coordinated strategy than we have had in the past. 

The MCA will continue to assist a wide range of developing countries, but it will allow us to have what we think is a complementary relationship to the existing USAID bilateral program, which 

the President has committed will not decline as this Millennium 

Challenge Account increases in size. 

The fourth point is that USAID will reorient its existing assistance programs to support and to take into account the principles 

driving the MCA. Basically what we are going to do is divide countries that we have presence in—and we have presence with USAID 

officers in 79 countries in the world—into four categories. 

The first category is countries which we are investing in for purely geostrategic reasons. They are countries that are necessary to 

the protection of the United States’ interests in sensitive areas of 

the world. And those countries are primarily and almost exclusively financed out of the Economic Support Fund (ESF) account, 

which is controlled by the State Department. We administer the 

programs with that money. But those are geostrategic categories. 

The second is countries which just barely failed to make MCA 

status but want to make it. I recently met with a head of state in 

Africa. The country is doing very well in almost all of the indicators 

except a critical one. The head of state said, ‘‘Can we get help in 

correcting these problems so we will qualify the second year in this 

one area?’’ So we are going to refocus in those countries that almost 

made it but did not make it, and focus our attention on those weaknesses. 

The third is in failed and failing states. We have a $2 billion program in countries that are not even close to making it. The Democratic Republic of the Congo has a central government, but it does 

14

not control much of the country. There is no central government, 

and there has not been for 12 years, in Somalia. They are failed 

states or failing states, and we need to treat those in a separate 

category. But we will not abandon them. In fact, we have increased 

substantially the amount of money we are providing to those countries. 

Then finally, there are countries that are not close to making it 

but we still have programs in those countries. We will work in 

countries that are not disposed toward reform in areas that we can 

work with nongovernmental organizations (NGOs) rather than 

through the government itself. 

So that is how we will reorient our program. 

Thank you very much, Madam Chair. 

[The prepared statement of Hon. Andrew Natsios can be found 

on page 45 in the appendix.] 

Ms. HARRIS. Thank you, Mr. Natsios. 

The chair recognizes herself to ask the first question. This committee has an interest in the adoption of a provision of MCA that 

is currently before the IR Committee that improves the coordination and avoids the overlapping and duplication of efforts as we 

begin our bilateral and our multilateral aid programs and they 

start to interact. 

Are you prepared to support these provisions, since we believe 

MCA will affect how we do business with our multilateral development banks and international financial institutions? 

I would direct my question to Secretary Taylor. 

Mr. TAYLOR. We are very supportive of making sure that the 

MCA interacts well and is coordinated with the Multilateral Development Banks and, of course, with USAID, as Andrew Natsios has 

indicated, and for that matter, with bilateral aid from other countries. And we are very, very supportive of any efforts that will help 

us do that. 

I could say already we have actually done a lot to communicate. 

We have made presentations at the World Bank and at the other 

MDBs. Under Secretary Larson and I had a long session with the 

board of the World Bank. We are sort of in daily contact with the 

G-7 about what we are up to in this area. So I expect that there 

will be a lot of coordination and communication. 

Ms. HARRIS. Excellent. Thank you very much. 

The chair recognizes the gentlewoman, the ranking member of 

the subcommittee, from New York. 

Mrs. MALONEY. I thank the chair for yielding. 

After 9/11, President Bush worked very, very hard to bring the 

world community together with the United States to combat terrorism. And I truly believe—and he was terribly successful, wonderfully successful. And I truly believe that one of the reasons he 

was successful was because of the hard work of USAID, the State 

Department and all of our agencies in a multilateral way, our 

friendships with countries, the goodwill that we had spread. 

And one of the things that I want to ask you is, how will this 

new account of bilateral aid impact funding of multilateral aid? In 

other words, will our multilateral aid contributions decrease with 

this new source of funding? 

15

And I, for one, raised this question with Secretary Rumsfeld 

when he addressed Congress, because we are funding many, many 

organizations to go into Iraq. And it seems that it would be in our 

interest to let the United Nations in. I am not talking about the 

weapons inspectors, although I understand they are in now, but 

the humanitarian aid groups that are willing to go in and work 

with us. I would think, particularly from Arab countries that are 

our allies, to help our armed services, et cetera, to get them in 

there so it is Arab to Arab working so that you might be more successful. 

Then there is also the aspect of burden-sharing of our economic 

dollars. We are galloping toward a $500 billion deficit. To the extent that we can get other countries to work with us, share the 

burden and work with us, it seems like a stronger approach. 

So I just wonder, will this program in any way contribute to an 

American policy of decreasing our participation in the multilateral 

organizations that we have been funding, such as UNICEF, United 

Nations, UNFPA and others? 

Mr. TAYLOR. Well, let me answer that question with respect to 

the international financial institutions. 

Mrs. MALONEY. World Bank and IMF, too, yes. 

Mr. TAYLOR. And then my colleagues will address the others. 

I think right now we have asked for increased funding for our 

assistance to these institutions. For example, the IDA funding was 

an increase in the past. 

And, in fact, what we have tried to do is make these contributions very consistent with the Millennium Challenge Account. The 

increase in funding we are asking for IDA for this year has a $100 

million increment that is there to make sure that we get measurable results. 

So it is an increase in funding. And President Bush always made 

clear that the Millennium Challenge Account was meant to be an 

increase over existing funding. 

So it is certainly our intent to continue to support these other institutions. But, again, we want to be very specific. We are demanding a focus on policy, a focus on measurable results, because that 

is the only way the money is going to work. 

Mr. FRANK. Would the gentlewoman yield for 10 seconds? 

Mrs. MALONEY. I would always yield to the distinguished ranking member. 

Mr. FRANK. Just to underline the importance of our markup next 

week, because the Under Secretary referred to IDA, and I just 

would remind people we have what I think is a very important 

markup next week in which I hope this subcommittee will endorse 

that request, send it forward to the Appropriations Committee, also 

for the other, I guess we have the African Bank and the InterAmerican Bank. 

So I just want to say that I hope we will be able to do that, and 

we have talked to the appropriators, and I am hoping we will be 

able to get that one squared away. 

Mrs. MALONEY. Mr. Larson, where is the money going? Is it 

going directly to country governments? Or is it going to NGOs, 

local NGOs or U.S.-based NGOs working in eligible countries? 

16

And who monitors how the money is being spent? Is the U.S. 

government going to monitor the money, or are countries going to 

send reports? What is the accountability in this aid program? 

Mr. LARSON. One-sentence answer to your first question, as well: 

The same answer that Secretary Taylor gave on IDA and so forth 

would extend to the United Nations programs. And, in fact, we are 

looking to the United Nations to work with us on Iraq reconstruction. 

On the money, the idea is that countries that have qualified—

and this would only be those that have shown the strongest commitment to development—would come forward with project proposals which would be negotiated with very clear performance 

benchmarks. The actual Administration of a program or an activity 

would be something that would have to be built in. 

In some cases, it may well be that USAID would be an implementing agency. It could be implemented by an NGO, but it would 

have to be something that was consistent with the country’s development strategy. These are countries that are supposed to be committed to development, so we want to work with the countries and 

with their governments, even though the government may not be 

the administrating agency in every respect. 

We are committed to a very high degree of accountability, which 

is going to require, of course, accountability from the country. But 

that has to be checked. And that would have to be checked with 

outside consultants, with auditors who are not only looking at exactly where the money is going, but also whether the results that 

we are looking for are actually being achieved. 

Mrs. MALONEY. My time is up. 

I just want to close by thanking Mr. Feeney for his really beautiful opening statement and the values he expressed in it. I agree. 

Thank you. 

Ms. HARRIS. Thank you. 

Mr. Feeney, do you have any questions? 

Mr. FEENEY. Well, I do. 

And I want to thank the gentlelady. I don’t know, the more I 

talk, I am sure, the more she will disagree with. 

Mrs. MALONEY. I was surprised I agreed so much. 

[Laughter.] 

Mr. FEENEY. But, you know, I again am very pleased with the 

concept of reforming foreign aid. And I was also extremely pleased 

to hear Mr. Taylor suggest that productivity is the key. Ultimately 

that leads to higher consumption on a repeated basis, as opposed 

to one-time pump priming. And I am very grateful for the direction 

that you are going. 

But as I look at the specific criteria, I am not sure that we have 

exactly articulated it the way I would. And I think that 435 members of Congress would come up with their own prescriptions. 

I would like to have Mr. Taylor maybe comment on some 

thoughts. 

As I look at this, I certainly agree that you cannot bail out bad 

policy with enough American taxpayer dollars, no matter where we 

are talking about in the world. And I certainly agree that inflation 

can be bad and deficits can be bad, which were two of your major 

criteria on the Economic Freedom Account. 

17

But they are very easy to handle. I mean, inflation you can stop 

pretty quickly by deflating your currency. You handle the M-1 or 

the M-2 or the M-3 supply, you quit printing bills. The deficit is 

fairly easy to handle in most places. You just tax the people that 

are producing and working sufficiently, and ultimately you can 

wipe out a deficit pretty quickly in most countries, although I know 

developing countries are a little different. 

But it seems to me that the recipe that you have put together 

here, when you combine that with the second major principles, 

which is investing in the public, the way to qualify 100 percent for 

principles three and four that you are trying to get here is to basically have 100 percent tax rates and 100 percent expenditure rates 

on education and health care. At least as I read the criteria that 

are set out here, that would be one way to comply. 

And I think, going back to Mr. Taylor’s ultimate goal, that we 

start with enhancing productivity in a county, what we really want 

to measure is the percentage of gross domestic product that is confiscated by the government and used not according to individual 

wishes, which would be the economic freedom that ultimately that 

you have laid out. 

And so I am concerned that maybe some of the specific factors 

that we have talked about actually are undermining the ultimate. 

I would like to hear some descriptions there. 

I mean, arguably, for example, public expenditures on health 

care, I am just guessing at this, but nations that have a higher percentage of private health-care spending and insurance probably 

have much better health-care records, life expectancies, et cetera, 

than nations that rely entirely on public health-care expenditures. 

I think you could make the same argument with respect to education. Legitimate home schooling in countries that have legitimate 

private and competitive systems actually have better public school 

systems. 

So I guess I am a little worried, in terms of how we are actually 

going to apply all of this concept. 

And then finally, I would ask you to deal with some of the—I 

was a little disturbed that, aside from the Millennium Challenge 

Accounts, we are increasing spending for nations that are abject 

failures under any criteria. And, again, we go back to charity is important, and we want to be charitable. But it sort of cuts against 

the grain of what we are trying to do with the Millennium Challenge Accounts. 

And already, myself and my colleagues have referred to things 

other than productivity, going back to economic productivity as the 

be-all and end-all of ultimately enhancing the quality of life in developing nations. But we have talked today about the importance 

of family planning, reduced terrorist threats, democracy. And 

again, I argued that Hong Kong is probably the principal example 

of economic success, and it has had little or no political freedom, 

in terms of elections, over its brief history. 

We talked about the importance of health care and public education. And of course, we have talked about, and I mentioned it 

myself, corruption within a government and our geopolitical interests. There are times when we simply want to buy favors from nations who are strategically placed. 

18

So how this all fits together in a foreign-policy scheme is interesting to me. But the Millennium Challenge Accounts, itself, which 

we are talking about today, I think it is important that we develop 

criteria that are legitimately designed to create productivity on the 

front end. 

And I want to, I guess, maybe just have—I have just been rambling, but if you can just respond to some of those thoughts. 

Mr. TAYLOR. Yes, thank you very much for those observations. 

I would say at the start—and, you know, we discussed all sorts 

of possible indicators and had lots of suggestions. And the points 

you are making are ones that have been on our mind. 

There is a sense in which the indicators are objective, observable, 

they can provide input to the decision-makers who are going to 

make the judgments. So if there is a case which is even close to 

as bizarre as the one you indicated, where taxes are extraordinarily 

high and anybody could see would be defeating the economic 

growth, that would not be what you would be looking for, in terms 

of good policy performance. 

There is an alternative, to just look at the fraction of government 

spending as a share of GDP. That is another measure. We considered that. Many different possibilities were considered. This one 

seemed to be—the budget deficit itself seemed to be one that 

brought things together as much as possible. 

With respect to public expenditures, you are right, that is an 

input measure. That is why we thought this output measure was 

important to add to it. The focus should be on, really, the investingin-people aspect, whether it is public sector or private sector. 

So these are things which we think are good indicators. I do not 

want to indicate that they are not at all. But there is no indicator 

without some problems. But I think, as a whole, they work well, 

they are robust, they cover different areas. 

With respect to the other reasons for foreign aid, which there are 

and will be, we have other sources of funding. This is an increase 

in funding over existing sources. And so this MCA is meant to 

focus on these areas. Humanitarian support, as Mr. Natsios has indicated, is a very important part of our foreign policy. So is our 

strategic issues. And maybe my colleagues want to address that. 

But I think what we have got here with the MCA should focus 

on the growth and productivity, as you indicate. And I think it does 

that, considering all the different issues that we have looked at. 

Mr. LARSON. Could I—— 

Ms. HARRIS. Mr.—— 

Mr. LARSON. I am sorry. I just want to make two quick observations on the congressman’s questions. 

One is that I think that some of the indicators in this last basket 

of economic freedom and supporting entrepreneurship are interesting and important ones: days to start a business, the free trade 

orientation, regulatory quality and the country credit rating, which 

is sort of a composite view of the doing-business characteristics of 

this country. 

And then I think this is an attempt to give more weight than any 

other assistance program I know of to the factors that are friendly 

to entrepreneurial initiative. 

19

The second point would be, we tried to do this in a way that no 

country would get in simply by being good in one of the three baskets. We have come up with a structure that emphasizes the importance of being a strong performer on economic freedom, a strong 

performer on empowering one’s own people through education and 

health, and also a strong performer in the area of political freedom 

and governing justly. 

And so the idea is to not have a country get in because they are 

a strong performer in only one or two of those areas. 

Ms. HARRIS. Yes, Mr. Natsios? 

Mr. NATSIOS. If I could just add a couple of comments. When we 

talk about whether foreign aid has been a success or not, we have 

to talk about which category of foreign aid. Are we talking about 

disaster relief? We have actually had remarkable success in preventing famines when they were sweeping across countries, and 

our assistance has, in fact, resulted in the prevention of mass starvation in many countries. 

India has not, for example, had a famine since independence. 

And one reason was, in the 1960s, when they were faced with massive agricultural failure, there was massive amounts of food aid 

that went into the country from the United States. They are now 

a net importer of U.S. food commercially, because they liked our 

food so much that they now buy it. 

And the type of assistance we have increased for failed and failing states is disaster assistance. It is to keep people alive. It is not 

to reform the economy. We are not under any illusions in those 

countries. But we are keeping people alive. We are reducing the 

child mortality rates, that sort of thing. 

Secondly, in the category of social services, where we have put 

a lot of focus the last 30 years since the early 1970s, we have been 

actually very successful. The child mortality rates and health indicators right now in the developing world are the same as they were 

in the United States in 1950 and in Canada. So their rates now are 

what our rates were 50 years ago. 

And the literacy rates in the developing world right now are 

what they were in the United States in 1950. 

If you look at where the developing countries were in 1950, they 

have made enormous progress in the social services. The problem 

is, social services are important; but they are not sufficient to ensure economic growth. 

All of the international institutions—the World Bank, the regional banks, the United Nations and all the donor aid agencies got 

out of doing two things, which, in my view, were a disaster: One 

area is they stopped doing agriculture. Beginning in the 1980s, mid 

1980s, after Peter McPherson left as administrator of USAID, we 

stopped investing in agriculture. Two-thirds of the poor people in 

the world live in rural areas. They are farmers. If you do not invest 

in agriculture, there is going to be a lot of poverty in rural areas, 

and hunger. And there still is. We are now reinvesting in those 

areas. 

Most developing-country heads of state will tell you, if they had 

a choice, they would not put money into places where we put 

money. They want more money in the rural areas where all their 

20

poor people are, because those poor people are going to the cities 

now, and the cities do not have the infrastructure to accept them. 

The second area we stopped putting investments in is infrastructure, particularly roads. You know, if you are a farmer and grow 

more surplus and you cannot move it, the food rots. So farmers do 

not grow surpluses because they cannot move what they grow out 

of the area and the village they are in. 

That was another major mistake, because you cannot have industrial growth, commercial growth and agricultural growth without 

some kind of infrastructure, particularly in the rural areas. 

Most of the people we talked to privately in countries that may 

qualify will tell you, ‘‘The first thing we are going to do is build 

more roads into the rural areas, because that is what we need to 

do our development.’’ 

Ms. HARRIS. Thank you, Mr. Natsios. 

The ranking member of the full committee is recognized for questions, the gentleman from Massachusetts. 

Mr. FRANK. Thank you. 

I want to begin by expressing my appreciation for the remarks 

we have just heard from the Administrator of USAID. I think it 

was an important distinction that he made. Keeping children from 

starving is about as good a use of my time as I can think of. And 

the people I represent, if I take a small part of the taxes they pay 

to do that, I think they are happy. And I think our record as humanitarians, it is very important, and we ought to recognize the 

importance of doing that. 

Secondly, I was very pleased to hear my former Massachusetts 

legislative colleague—back in the old days, we used to agree more 

there than people thought we might—talk about agriculture, because, you know, I am one who has voted in the past against some 

of the trade agreements. And when people have been critical because they say I am not supporting free trade, my answer is I 

voted against the agriculture bill. And I think, in voting against 

the agriculture bill, I took a stronger stand in favor of the right 

kind of trade than everything else put together. 

And I think you have just underlined the extent to which our agricultural policy goes so counter to what we are trying to do, because when we subsidize our food growth, we undercut particularly 

what the Administrator was talking about. 

I do have just a couple of questions. First, I did want to say with 

regard to the question the ranking member of the subcommittee 

asked about cooperation with the international financial institutions, I was struck to note, of the 15 criteria here, in 12 of the 15 

instances, it is the World Bank or the IMF to whom you refer for 

the grading. So that does show, it seems to me, a good integration 

of those. 

I also want to note, I am very pleased to have this threesome 

here. And maybe I am speaking against committee interest here, 

but one of the things that has bothered me with regard to the 

World Bank, the IMF, et cetera, is—and then we have foreign aid—

we have got two different international economic policies. We have 

the State Department’s international economic policy, with USAID 

basically aligned there, which deals with our bilateral assistance, 

and then we have our participation in the multilateral entities, 

21

which is under the jurisdiction of Treasury. And I think we need 

a mix in both cases. I have felt that it was a shortcoming to have 

that kind of bifurcation. 

So one of the advantages of this is, this is the first time that I 

can recall where we are talking about international economic activity and we have both State and Treasury here. And I hope we will 

build on that. 

Now, just a couple of questions, and I raised this one before. Corruption is pass-fail—you absolutely have to pass on corruption—

but civil liberties and political freedom is not. And that troubles 

me. You know, maybe because I grew up in New Jersey City in the 

1950s and 1960s, and, you know, we did not get rid of corruption 

but we had political freedom. I am not sure, if we had been asked 

to do the tradeoff, where we would have gone. Although under 

Frank Hague, actually, they had neither, you may remember. 

But why is that the case? And is there—I mean, some corruption 

versus no freedom, that troubles me. Mr. Larson? 

Mr. LARSON. Well, thank you, Congressman, and I was beginning 

to get at your question in response to the last one. 

In other words, a country is not going to rise to the top for consideration by the board unless it is above average in at least three 

of these governance criteria. And so we did that very deliberately, 

because we did not think it would be appropriate or good use of 

taxpayers’ money to be supporting countries, even if they were the 

star performers in investing in their people and the star performers 

in terms of economic freedom, if they were not, you know, at least 

above average in these broad governance criteria. So they have to 

be above the median in at least three of them. 

The corruption one, I think, is a very important one because it 

is so endemic. Corruption does undercut democratic institutions, as 

I know we all appreciate. It really saps the development success in 

the countries where it is endemic. 

And it was the Administration’s view that in a country that really was a poor performer on corruption that it would be impossible 

to have support for investment of taxpayer dollars and that we 

could not get the results that we wanted. 

Mr. FRANK. I appreciate that. 

Actually, it also gets at one thing that troubles me, and to some 

extent, as I read this, I get the sense that I am in Lake Wobegon 

where all the children are above average, Garrison Keillor’s term. 

I mean, that does—what troubles me is that you could have people 

doing very well, but because they are not above the median that 

they could be in trouble. 

And I would wonder why we could not have a more—but let 

me—one last question, then I will be glad to get the answer. And 

that is, when we talk about—one of the criteria is you cannot have 

a deficit, a three-year budget deficit. And I think we said 3 percent 

was the number, is that correct? I mean, how do we explain to 

them why this applies to them and not to us? 

[Laughter.] 

Yes, go ahead. 

Mr. TAYLOR. Yes. On the deficit, this is an average over time. 

And it is meant to be what happens not just when you are in a 

22

slow-down period, but when you are averaged across the cycle. 

So—— 

Mr. FRANK. Like, say, five years? 

Mr. TAYLOR. Yes, it is meant to be an indication of overall fiscal 

stance, soundness over a long period of time. 

Mr. FRANK. So, it does not just mean deficit. When it says deficit, 

that is—— 

Mr. TAYLOR. Clearly, when you are going in a slump—— 

Mr. FRANK. I mean, in other words—Okay. Because it does seem 

to me we are going to be ineligible. Lucky we do not need this. 

But let me go back to the—if I could just get an answer on absolute versus grading on the curve. I mean, that is the troubling aspect. 

Mr. LARSON. Well, we want to focus on the countries that have 

an overall policy framework that is going to get the best development return. I think Andrew Natsios pointed out that is the one 

big lesson that we have got, is—— 

Mr. FRANK. But question, what if we have a good—what if this 

succeeds and they all start getting good? Why do we then—are we 

going to run out of money? I mean, only half of them, are we sure 

that—— 

Mr. LARSON. If we are able to show extraordinarily improved developmental outcomes as a result of this approach, I think there 

would be a lot of us that would believe we should go to the Congress and say, ‘‘We are getting such extraordinary returns, we 

ought to be prepared to make larger investments.’’ But we need to 

test this, and that is why we are beginning with—— 

Mr. FRANK. If Administrator Natsios could respond to this, because he seemed eager to. 

Mr. NATSIOS. Yes, if I could. We would love to have this succeed 

so much that every country is going to be pushed into this account. 

I have to tell you, in my own experience, that is not going to happen. 

The impediments to reform in most of these countries are as substantial as they are in the United States. The only difference is, we 

are already rich, so reform does not mean the difference between 

complete deprivation for the whole society and prosperity. In these 

countries, it does. 

And this is the fact, this is the one statistic that is most disturbing, and I think goes back to Congressman Feeney’s point 

about the failure of foreign aid. In terms of the elimination of poverty as opposed to social services, in humanitarian assistance, 

which is a different category, we have a poor record. All the donors 

do—all of the banks, the U.N. And why is that? 

Since 1980, only one country has graduated from LDC status, the 

least developed country status. There are forty-eight of them. My 

first conference I went to after I took over as the USAID administrator was the head of the delegation to a conference on the least 

developed countries, which they have every 10 years. 

The one country is Botswana. And they did not do it from foreign 

aid, although we had a big foreign aid program there. They did it 

from preventing the elite from stealing the revenues from the diamond mines, and using those revenues to build the country. In 

other words, it is a democratic country, they respect human rights, 

23

it is a parliamentary democracy, it is well-governed, and they have 

relatively low levels of corruption. They took the diamond revenues, 

and they used the funds to develop the country. That is why they 

graduated. 

No one else has graduated from the poorest countries in the 

world. If we have 15 countries, which is our goal to get into this 

program—and this is geared toward our criteria, the poorest countries in the world—if we have 15, which would be one-third of the 

LDCs, graduate, it will be miraculous. We will have made more 

progress than is conceivable under the legislation. 

So, we only wish more countries would qualify, but I am not sure 

that is going to happen. 

Ms. HARRIS. Thank you. 

Mr. Hensarling? 

Mr. HENSARLING. Thank you, Madam Chair. 

As one member who has had the benefit of traveling extensively 

in Latin America, I certainly applaud the goal of poverty reduction, 

because if you truly want to see some real poverty, there are places 

in Latin America where you can see it. 

Obviously, though, and I do associate myself with my colleague, 

Mr. Feeney’s, comments that historically there seems to be a very 

poor correlation between poverty reduction and U.S. aid. So, first, 

I would certainly like to applaud the Administration for this initiative, for actually trying to tie aid to demonstrable policy changes. 

I do believe the world works off of incentives, so, to incent these 

people to engage in better policies that will lead to poverty reduction is a noble goal. 

I have several questions that I would like to ask. One is, I believe on your indicators of encouraging economic freedom, one is 

trade policy. It takes two to trade, so I am curious, what proposals 

or initiatives does the Administration have to increase trade with 

potential MCA nations? 

And I am not sure who is best qualified to answer that question. 

Perhaps we will start with you, Mr. Taylor. 

Mr. TAYLOR. The measure of trade that we have included is the 

country’s openness to trade, the country’s reduction in trade barriers. 

Mr. HENSARLING. No, I understand that, but my—— 

Mr. TAYLOR. And that is, of course, important. 

One of the possible ways that the funds could be used is to improve capacity to trade—port facilities, airports, things like that. 

That is very much, in the sense of capacity building, could be a 

source or a use of some of these funds. And we will very much be 

supportive of that, if that is what countries want to do. 

In the meantime, of course, we have other trade initiatives. For 

Africa, we have the African Growth and Opportunity Act. We are 

moving with free trade agreements, et cetera. 

Mr. LARSON. Congressman, if I could just add one quick point. 

We are in the midst of the Doha development agenda, the WTO 

round that has a specific focus on development. And it is particularly important for all of the countries that could be beneficiaries 

in this program for that to succeed. Because multilateral trade liberalization is the most important trade tool we have. Seventy perVerDate 0ct 09 2002 13:11 Nov 05, 2003 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 C:\DOCS\90109.TXT MICAH PsN: MICAHW
24

cent of the duties that developing countries pay on their exports, 

they pay to other developing countries. 

So, we believe these preference programs such as the Africa 

Growth and Opportunity Act are important, but we also believe 

that it is very important, in order to stimulate development, to 

achieve a global trade-liberalizing agenda on manufactured goods 

and on agricultural products, as well as services. 

Mr. HENSARLING. Several Congresses ago, we passed welfare reform. It has been a hugely successful program in moving people off 

of welfare checks and onto paychecks, moving people off of lives of 

dependency into lives of independence and self-respect. And I think 

there is an analogy here. Part of what we did was tie welfare receipts to behavioral changes, but another thing we did is put a time 

limit on welfare. 

I am curious, given that once again my observation is that the 

world tends to work off of incentives, why would an MCA nation 

not, perhaps, the regime, be incented to make very, very small 

progress and string along their aid for a very long time, as opposed 

to eventually weaning themselves off of that aid? Is there any contemplation of a time limit for MCA assistance? 

Mr. LARSON. We definitely want to keep the incentives right. And 

we have been very clear that specific activities under the Millennium Challenge Account would be time-limited. In other words, we 

would want to build into any project or any activity a beginning period and an end date at which point the country could undertake 

any further responsibility that is necessary to make that project or 

activity succeed. 

Mr. HENSARLING. I will ask my last question, since I see my time 

is running out. Obviously, the two greatest challenges that I would 

observe in these countries in working their way out of poverty has 

to do with their policies and corruption, although I am not exactly 

sure how one gets their arms around corruption. 

For example, in our country, and I think we have had the Secretary of HUD testify before this committee, two years ago, HUD 

lost 10 percent or $3 billion, of their budget in overpayments. Is 

that a facet of corruption? In addition, we have the GAO who cannot certify 22 out of 26 major department accounts. 

So, if we cannot figure out where all the money is going in our 

government, how are we ever going to figure out where all the 

money is going in these governments? 

Mr. TAYLOR. Just very briefly, Congressman, there is a significant matter of degree here. If you take, for example, in many developing countries which you know where just to move goods down the 

road, across the border or around borders, there are checkpoints, 

there are people checking there, taking their charges, and that is 

a significant barrier to commerce and to trade. But it goes on and 

on like that. 

It is an order-of-magnitude difference. And nobody is perfect, by 

any means, but, you know, seriously, this is a very great impediment to development in these countries. 

Ms. HARRIS. Thank you. 

Oh, I am sorry. 

25

Mr. NATSIOS. We have evidence that the countries that have the 

highest levels of corruption are not only not making progress, they 

are regressing. 

There is one country in Africa that is very rich, potentially, and 

25 percent of the national income of the country is missing from 

the national treasury, and that is not from bad accounting. That 

is a World Bank estimate. The country itself could not possibly tell 

you how much is missing because they do not have accounting systems to do it. The bank had to go in and do their own audit of it. 

The difference between what you are talking about and what we 

are seeing there is not because human nature is any different here; 

it is not. I keep telling heads of state all over the world, Americans 

are no different than your people are. The difference is we have a 

whole set of powerful institutions that mitigate against fallen 

human nature in the American system. And that is what prevents 

the abuse from getting out of control. 

In many of these countries, there are no institutions that control 

corruption. The inspector general exists, they call it the general 

audit authority, but has no power at all to do anything. They do 

not even have any auditors, in many countries. And there is actually no way to prosecute the offenders. The courts do not function. 

No one ever gets indicted for corruption, in many of these countries. 

If you do not have even the minimal set of institutions, you will 

not control corruption, it gets completely out of control, it is part 

of the system, it is expected, everybody takes bribes. 

None of those things are true in our system. We have our scandals, as do the Western Europeans and the Canadians. That happens, but we have systems for controlling it. And that is what 

many of these countries need to establish, strong institutions to 

deal with fallen human nature. 

Ms. HARRIS. Thank you. 

The gentlewoman from California is recognized. 

Ms. LEE. Thank you, Madam Chair. 

Let me first say that this, the MCA proposal, I believe we are 

marking up in International Relations this week, and I serve on it, 

the International Relations Committee. And since it has been introduced, of course, I have had many, many concerns about it. 

And I say this, starting with the fact that once we learned that 

the Heritage Foundation and, I believe, the Freedom Fund had developed, for the most part, the criteria, this raised concerns with 

many members of the Congressional Black Caucus, because these 

two organizations do not reflect the diversity of thought in America, in terms of criteria that could or should be developed with such 

a magnitude of a program as this with taxpayer dollars. 

So having said that, I just want to say to you that we have been 

looking at this very carefully, and so I welcome your testimony 

today. 

And one of the areas that we have been concerned with, myself 

and many members of the Congressional Black Caucus, is the role 

of the United States private sector. What exactly is that role? 

I noticed in your testimony, Mr. Larson, you talk about possibly 

evaluations, technical assistance, auditing, monitoring. What exactly does the U.S. business community see, or how do you see this 

26

as it relates to the U.S. business community and where the connection is? 

Mr. LARSON. Thank you. 

With respect to your first comment about the indicators, what we 

have tried to do is go into the public domain for the best available 

public indicators so we could have the degree of transparency that 

we think the Congress and the American people would like. Most 

of these indicators were ones that are done by the World Bank Institute. 

There are some that where the best indicator of what we were 

looking at, like trade policy, we felt, came from an institution like 

Heritage House. We did not take it because of their political orientation. We took it because they had a good, publicly available indicator of trade policy. 

On the U.S. private sector, my sense is that there is strong interest and support from this from many of our businesses. Not because they see immediate opportunity, because many of these countries are very, very poor and where, at least in the short run, there 

are not going to be significant opportunities. But I think they do 

see an approach that they like, an approach that sort of marries 

compassion and a commitment to results and to accountability. 

I think that we may find that when we are trying to measure 

and assess results, that we may, you know, we want to have the 

freedom to go to all sorts of contractors, whether it is NGOs, businesses, accounting firms, international organizations, to sort of 

help us assess what our successes or failures are. 

Ms. LEE. In doing that, let me ask you, because I know the point 

is to fast-track a lot of this in terms of the board and the CEO having that kind of authority, how are you going to ensure that when 

you do go out in terms of going into the private sector, that there 

are non-discrimination aspects of the contracting procedures, that 

there is outreach as it relates to minority and women-owned businesses? 

I mean, how is that piece going to be secured in an operation 

such as this that is new and quasi-governmental, quasi-private. It 

looks like you do not have to comply with United States guidelines, 

as it relates to minority and women-owned business contracting. 

Mr. LARSON. We want to have this organization be a model of 

transparency and flexibility. I think that, among other things, will 

mean using the Internet to disseminate very, very widely opportunities for contractors to provide services. 

We believe that by focusing largely on subsidy here in Africa and 

the poorer countries of Latin America, we are going to find that 

there are many Americans who have links to those countries that 

will have very, very strong comparative advantage in bidding for 

these contracts or services that are required by the corporation. 

There is going to be a strong interest in reaching out to those people, because they will be in the best position to provide the services 

required. 

Ms. LEE. But aside from Internet access, I mean, how do you 

plan to do that? I mean, Mr. Natsios could tell you in terms of the 

lack of participation of minority firms in USAID contracting, and 

they have to comply. 

27

So what is it that you are going to do to make sure that the outreach, the technical assistance, the inclusion is there, rather than 

just posting it on the Internet and say, ‘‘Go for what you know.’’ 

This is a good—I will not say a good old boys’ network of firms 

out there, but this is a culture that is difficult to penetrate for 

women and for minority-owned businesses. 

And with an initiative with this much money involved, where 

there is a chance that contracting with U.S. companies will take 

place, what is it that you are going to do to make sure that access 

is provided, other than providing it on the Internet? 

Mr. LARSON. Well, again, one of the reasons for setting up a corporation that is different is to get fresh thinking about how to accomplish all of these things. 

I stress the transparency in the Internet aspects, because I think 

it is one of the most obvious tools. 

We are at work now trying to develop options for the types of 

management issues that you are raising. How can this corporation 

do innovative, flexible, effective contracting and reach out? How 

can it have a personnel policy that is flexible and results-oriented? 

I mean, this is some of the administrative and managerial spadework that the Administration is doing right now, as the Congress 

is considering authorization—— 

Ms. LEE. But will you be required to comply with existing law 

and regulations with regard to this, or not? 

Mr. LARSON. The Administration has proposed to have flexibility 

on contracting so we could go out and get the services at the best 

possible price and with the best possible—— 

Ms. LEE. So the answer is no. You can—— 

Mr. LARSON. Well, I am trying to tell you what it is that we are 

looking for. 

Ms. LEE. Yes, that is what I am asking you. 

Mr. LARSON. And—— 

Ms. LEE. You do not have to comply with current, existing laws, 

as it relates to the utilization of minority and women-owned businesses. 

Mr. LARSON. We would propose to do that through the sort of 

outreach efforts that I was just describing. 

Ms. LEE. So, you do not have to comply. Okay. I am trying to get 

a handle on that, and it has been very fuzzy up until now. But 

thank you for stating it very clearly. 

Ms. HARRIS. The gentleman from Minnesota is recognized. 

Mr. KENNEDY. In reference to the ranking member’s comments 

about Lake Wobegon, I am pleased to be the official representative 

of Lake Wobegon. 

[Laughter.] 

And yes, all of our children are above average, though a prior 

Kennedy chose to address international development and exporting 

those above-average children from Lake Wobegon as part of the 

Peace Corps. And I think this a great step forward to export the 

principles of what we stand for in Lake Wobegon and across the 

country, to try to get others to embrace those, because those principles have, indeed, been so successful for us. 

And I think I would also agree with the ranking member that 

there are few more important things we can do than try to address 

28

the needs, in this case, of people in your initial sample that have 

a per-capita income of $1,425. I mean, these are people that are 

really in need. 

And I think this does leverage—if it is successful, this can hopefully influence the way that the international bodies are addressing 

economic development and our other examples to try to leverage 

the successful track record that embracing the free markets, embracing open economies can really result in. 

I have a couple of criteria questions, though. The first one is, if 

you read the founding of our country in the Federalist Papers, and 

James Madison, he highlighted the importance of property rights 

to begin any real economic development. And although, you know, 

we have a couple of bankshots here toward property rights, I do not 

really see it listed as one of the criteria that needs to be preserved. 

Mr. TAYLOR. The property rights are certainly essential. Rule of 

law, property rights go together. The indicators that we have under 

the civil liberties and political rights do emphasize the rule of law. 

And, of course, the control of corruption relates to property rights, 

as well. 

So, it is definitely part of these measures in a number of different ways as you look through them. 

Mr. KENNEDY. Okay. And I would just encourage that, you know, 

we maybe look at that as being a bit more central and a bit more 

stated as part of those criteria. You can have a rule of law that still 

has a law that ignores property rights. And I think we need to 

make sure that we keep that central, given how important that is. 

Another key concern to us, particularly on the Financial Services 

Committee, is to make sure that there is a solid banking in a system that is out there, that is honest, that is sound, that is providing what it needs to the private industry, the entrepreneurs, to 

go. And do we feel confident that, again, the criteria we have established ensures that that is being encouraged to be developed? 

Mr. TAYLOR. I would say that is an area which we always focus 

on in our relationships with other countries, and the IMF in particular looks at that with their financial-sector assessment programs. 

There are some regulatory measures that are developed by the 

World Bank Institute. It is in the encouraging economic freedoms, 

called Regulatory Quality Rating, and it is an indicator that includes many—it is an aggregate of other indicators. 

I believe if you combine that with the credit rating index—the 

credit rating index is measuring financial stability to some extent. 

It is also fiscal stability. But the people who look at the credit rating will, of course, be looking at the soundness of the banking system. It is a very important part of a credit rating for a country. 

And one of the economic freedom measures we have is the country credit rating developed by Institutional Investor Magazine. So, 

those are a couple of ways where that factor comes into play. 

But that is going to require, I think, continued emphasis, because even countries that are not so poor still have improvements 

to be made in their financial sector. 

Mr. KENNEDY. And, Secretary Taylor, in your submitted testimony, you listed the criteria underneath each of the categories. 

And as I went through ‘‘investing in people’’ and ‘‘encouraging ecoVerDate 0ct 09 2002 13:11 Nov 05, 2003 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 C:\DOCS\90109.TXT MICAH PsN: MICAHW
29

nomic freedom’’ criteria, there was always an objective published 

data that could be used to develop that. As I go through the ‘‘governing justly,’’ no sort of existing indexes that are published and 

available were cited. 

Is that something we are creating, those indexes, or are we looking at outside entities to provide those? 

Mr. TAYLOR. The ‘‘governing justly’’ indicators are actually all 

available publicly. Freedom House does the two indices called Civil 

Liberties and Political Rights, and those are published annually. 

They have a nice little paperback book you can get out and look 

at the descriptions for each country, plus it is on the website. 

Now, the World Bank Institute developed the other four indicators, and those are also publicly available. Those four indicators 

are, in turn, based on lots of other measures that are put together 

by other agencies and other research firms, other surveys. But 

those are all publicly available. In fact, they are all on the websites 

right now. 

Mr. KENNEDY. That is great. 

And I just want to follow up on Congressman Feeney’s concern 

about the health expenditures. When we say ‘‘public expenditure on 

health,’’ does that mean just government spending on health? Or 

does that mean with the private sector spending on health in addition? 

Because, you know, when we talk about people are acting the 

way they are incented to act, I do not want to encourage people to 

have a single payer in a government health plan that certainly a 

number of us would not support, and have that be exported because of this criteria to other countries. 

Mr. TAYLOR. The measure now is public sector as stated. What 

we were looking for is good measures of a country’s intent to invest 

in people. When we get more and more data, perhaps some of these 

could be refined and revised. 

And I would also say that it is not just the expenditures, it is 

the results, those immunization rates, for example, that we focused 

on, and the completion rates for schools. So, it is not just the inputs, it is the outputs. 

And, finally, I would emphasize that the judgment about the 

country’s qualification is going to depend on these indicators, but 

also taking other things into account. So, for example, if there is 

some missing data, some judgment will have to be applied. 

Also, if you are in a situation where there is a clear intent, 

maybe measured by private-sector development of health, that is 

very significant in a country, and for that reason the public expenditures may be lower, that would be exactly the kind of thing 

that the Millennium Challenge Board would take into account. 

Mr. KENNEDY. Now, you talked about judgments, you talked 

about potentially revising these criteria over time. What role would 

you see Congress having, in terms of oversight in providing input 

as we go through this with the Millennium Challenge? 

And will there be an inspector general that MCA will have, to 

help make sure that these criteria are being applied and that we 

are being rigorous in our approach? 

Whoever wants to answer that. 

30

Mr. LARSON. There will be an inspector general. The Administration is still considering whether it should be USAID’s inspector 

general or a different inspector general, but there will be an inspector general. 

And I do think that—I know that Secretary Powell and I am sure 

that Secretary Snow would feel the same way. We expect to have 

very strong accountability to the Congress and oversight to the 

Congress for the results that we are achieving, and that the CEO 

will be someone who will want to work with the Congress. 

I think it is very important what Under Secretary Taylor was 

stressing. At the end of the day, the Cabinet-level board is going 

to take all of this information into account, and then make its best 

judgment on recommendations to the President about which countries really meet the underlying criteria of governing justly, promoting economic freedom and investing in their own people. 

And that board, that Cabinet-level board, will be accountable to 

the President, accountable to the Congress and accountable for the 

results that they are achieving. And that will entail any revision 

of these indicators, which are tools but not a replacement for the 

judgment of the board. 

Ms. HARRIS. Thank you. 

The gentlewoman from California is recognized. 

Ms. WATERS. Thank you very much. And I am sorry that I was 

not able to spend more time here. We have so many conflicts in 

scheduling. But I did want to come to show my interest. 

The one, I guess, major concern that I have, as I look at the 

makeup of the board, is the absence of USAID. What role will 

USAID play with this board? 

Mr. NATSIOS. I report to the Secretary of State. I go to Colin 

Powell’s morning meeting at 8:30 every morning. He is our representative on that board. So we have a representative, and he is 

the Secretary of State, or she, depending on the Administration. 

We expect, in the field, that if an MCA country is chosen and 

there is a USAID mission in the country, that USAID will be called 

on by the MCC corporation to help administer the program. But 

that is a decision that will be made based on the country in particular and the decisions of the board. 

Ms. WATERS. Am I correct in understanding that USAID has 

been the lead, historically, with these kinds of decisions? 

Mr. LARSON. In foreign assistance, the responsibility is divided. 

The Treasury Department handles the international financial institutions. In other words, our assistance that goes through those institutions is handled by Treasury. 

Except for the World Food Programme, most of the U.N. agencies 

that get money from the U.S. government get it through the State 

Department. The State Department also has an account called the 

ESF account. 

I would say that maybe 60 percent, 55 percent of the foreign assistance program of the U.S. government has been, historically, in 

the last 20 years, handled by USAID, and the other 45 percent by 

either State or Treasury and now some by HHS. So, it is divided. 

Ms. WATERS. Am I to—I have always understood that USAID, 

being involved on the ground, interacting with nongovernmental organizations, have an intimate knowledge of how things really work 

31

in many of these countries, and that is the kind of information that 

has helped us make some decisions about financial assistance and 

funding. 

How do you anticipate having that on-the-ground, interactive 

knowledge communicated to and acted on by this board? 

And do not tell me the Secretary of State, because I recognize 

that is your boss. 

Mr. NATSIOS. Sure. 

Ms. WATERS. But I also understand that he gets his information 

from the bottom up, and that he really cannot make decisions unless he knows what is going on on the ground and that the combination of work that is done by our embassies and all of that personnel and USAID—my husband was an ambassador, so I understand that very well. 

Now, so, how will they get this information? 

Ms. HARRIS. Could I ask the gentlewoman if she would yield a 

moment? 

In the latest information that we have, the USAID will be represented on the board. 

Ms. WATERS. I am sorry, what did you say? 

Ms. HARRIS. In the information, USAID will be on the MCA 

board. 

Ms. WATERS. Why doesn’t he know that? 

Ms. HARRIS. I am not sure if he is—— 

Mr. NATSIOS. There are some things I know I do not say, Congresswoman, because they are decisions of the Congress that have 

been made, but Congresswoman Harris has said this, and that is 

a decision of the Congress. 

The way our legislation was submitted, the USAID administrator 

is not on the board. But there are—— 

Ms. WATERS. Oh, but you are saying that you are going to be active in helping to make sure he is on the board. 

Ms. HARRIS. In the information that we received that will be presented in the markup, USAID is on the board. 

Ms. WATERS. I see. All right. Thank you very much. Just wondering. 

Ms. HARRIS. Great question. 

Well, I want to thank the members of the panel, Secretary Taylor, Secretary Larson and Administrator Natsios, for participating 

today. 

I understand that the chair notes that some members may have 

additional questions that they wish to submit to the panel in writing. So, without objection, the hearing record will remain open for 

30 days for members to submit written questions to these witnesses and place their responses in the record. 

This hearing is adjourned. 

[Whereupon, at 11:52 a.m., the subcommittee was adjourned.] 

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A P P E N D I X

June 11, 2003

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