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[Senate Hearing 111-354]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 111-354
 
                       USAID IN THE 21ST CENTURY

=======================================================================

                                HEARING

                               BEFORE THE

                     SUBCOMMITTEE ON INTERNATIONAL 
                        DEVELOPMENT AND FOREIGN
                   ASSISTANCE, ECONOMIC AFFAIRS, AND
                 INTERNATIONAL ENVIRONMENTAL PROTECTION

                                 OF THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 1, 2009

                               __________

       Printed for the use of the Committee on Foreign Relations

  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html

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                COMMITTEE ON FOREIGN RELATIONS         

             JOHN F. KERRY, Massachusetts, Chairman        
CHRISTOPHER J. DODD, Connecticut     RICHARD G. LUGAR, Indiana
RUSSELL D. FEINGOLD, Wisconsin       Republican Leader designee
BARBARA BOXER, California            BOB CORKER, Tennessee
ROBERT MENENDEZ, New Jersey          JOHNNY ISAKSON, Georgia
BENJAMIN L. CARDIN, Maryland         JAMES E. RISCH, Idaho
ROBERT P. CASEY, Jr., Pennsylvania   JIM DeMINT, South Carolina
JIM WEBB, Virginia                   JOHN BARRASSO, Wyoming
JEANNE SHAHEEN, New Hampshire        ROGER F. WICKER, Mississippi
EDWARD E. KAUFMAN, Delaware
KIRSTEN E. GILLIBRAND, New York
                  David McKean, Staff Director        
        Kenneth A. Myers, Jr., Republican Staff Director        

                         ------------          

           SUBCOMMITTEE ON INTERNATIONAL DEVELOPMENT        
           AND FOREIGN ASSISTANCE, ECONOMIC AFFAIRS,        
           AND INTERNATIONAL ENVIRONMENTAL PROTECTION        

             ROBERT MENENDEZ, New Jersey, Chairman        

BARBARA BOXER, California            BOB CORKER, Tennessee
BENJAMIN L. CARDIN, Maryland         ROGER F. WICKER, Mississippi
ROBERT P. CASEY, Jr., Pennsylvania   JIM DeMINT, South Carolina
JEANNE SHAHEEN, New Hampshire        Republican Leader designee
KIRSTEN E. GILLIBRAND, New York

                              (ii)        

  

                            C O N T E N T S

                              ----------                              
                                                                   Page

Corker, Hon. Bob, U.S. Senator from Tennessee, opening statement.     3
Lancaster, Hon. Carol J., professor of politics, Mortara Center 
  for International Studies, Georgetown University, Washington, 
  DC.............................................................     4
    Prepared statement...........................................     6
Menendez, Hon. Robert, U.S. Senator from New Jersey, opening 
  statement......................................................     1
Natsios, Hon. Andrew S., distinguished professor, Edmund A. Walsh 
  School of Foreign Service, Georgetown University, Washington, 
  DC.............................................................    18
    Prepared statement...........................................    22
    Responses to questions submitted by Senator Jim DeMint.......    43
Radelet, Steven, senior fellow, Center for Global Development, 
  Washington, DC.................................................    10
    Prepared statement...........................................    13
    Responses to questions submitted by Senator Jim DeMint.......    47

                                 (iii)

  

                       USAID IN THE 21ST CENTURY

                              ----------                              

                        WEDNESDAY, APRIL 1, 2009

        U.S. Senate, Subcommittee on International 
            Development and Foreign Assistance, Economic 
            Affairs, and International Environmental 
            Protection, Committee on Foreign Relations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 9:32 a.m., in 
room SD-419, Dirksen Senate Office Building, Hon. Robert 
Menendez (chairman of the subcommittee) presiding.
    Present: Senators Menendez, Casey, and Corker.

           OPENING STATEMENT OF HON. ROBERT MENENDEZ,
                  U.S. SENATOR FROM NEW JERSEY

    Senator Menendez. The hearing will come to order. Let me 
welcome everyone.
    Let me first start off, sort of, by saying this is the 
first meeting of the Subcommittee on International Development, 
Foreign Assistance, and International Environmental Protection, 
and Economic Affairs, and I want to say we can't start with a 
better issue, and I want to acknowledge and say I look forward 
to working with the distinguished ranking Republican, Senator 
Corker, who we have the privilege of serving on a couple of 
committees together, and one of our very thoughtful members, 
and I look forward to working with you throughout, not only 
today, but through a series of hearings as we move forward.
    We want to welcome all of our panelists, who are here today 
to discuss ``USAID in the 21st Century: What Do We Need for the 
Tasks at Hand?''
    Foreign assistance is something that is of, obviously, 
great interest to the members of this committee. While we may 
disagree on the overall resources that should be devoted to 
development assistance, I think we all agree that the resources 
we do provide should be used in the best, most powerful way. 
Congress needs to see results. The American people need to see 
results, and so do millions of people around the world whose 
lives literally depend on our ability to carry out these 
programs in the smartest way possible.
    I have long believed that foreign assistance is a critical 
part of our overall engagement overseas, as well as our 
national interest, in the pursuit of our national interest and 
our national security, and I have been a consistent advocate of 
stepping up our efforts in this area. In recent years, I've 
focused on building USAID from the inside out. I've called for 
building up the staff of USAID in a coherent and strategic 
manner, and called for increased accountability of programs, 
and clear and tangible results. We have seen some progress, but 
we need to move faster, and we need more clarity of purpose in 
Washington.
    The culture of USAID needs to better adapt to the current 
context in which it works. Just as our military had to undergo 
a period of transformation after the fall of the Soviet Union, 
we can't have a development agency that is building for 
fighting the last war.
    Now, the USAID is working alongside the Department of 
Defense in places like Iraq and Afghanistan, immersed in 
complex situations, like those in Pakistan, Sudan, or Sri 
Lanka. We need an agency that is nimble, responsive, and ahead 
of the curve. From staffing, resources, and training, our 
development tools need to be, at the very least, at par, if not 
ahead, of our diplomatic and defensive efforts.
    First, one way to start us along this path is to focus on 
USAID's leadership. It needs credible and high-profile 
leadership that can work in partnership with the Congress, the 
Department of State, the Department of Defense, and the 
National Security Council. The development voice in our 
government needs to be a heavyweight voice that commands 
respect, both in Washington and around the world. This voice 
needs to be counterpart to diplomacy, not a subset. From the 
senior leadership of the agency to the resources it controls to 
its key staff in the field, we need the best possible advocates 
for our programs on the ground.
    Second, USAID needs to take back resources and programs 
that have slowly been moved over to the Department of Defense. 
Having the Department of State or the Department of Defense 
control development strategy and resources, with USAID simply 
serving as an implementing agency, has caused confusion and 
ambiguity. We ask our military to plan and execute a lot of 
missions. Development shouldn't be one of them. Civilian 
resources should be appropriated to civilian agencies.
    And third, the staff at USAID needs to be rebuilt; not just 
more people, but we need to make sure we have the right people, 
and make sure we are attracting and retaining the best possible 
candidates.
    So, how do we tackle these challenges? In terms of 
legislation, I pledge to work on any legislative components to 
advance a joint executive-branch/legislative-branch set of 
reforms that will help shape our institutions to carry out 
their missions. I stand ready to support President Obama, 
Secretary Clinton, and the next USAID Administrator in 
reforming and reshaping USAID in a bold and unprecedented way, 
not just for the tenure of this administration, but for decades 
to come. Such reform is clearly in the national security 
interest of the United States.
    In this spirit, I look forward to hearing a frank and open 
discussion and your ideas for how to shape USAID. I think most 
of us in the room today have a clear sense of the problems. I 
want to spend today talking about solutions. Let's think about 
what we need, rather than what we think we can get. In other 
words, let's approach this, not from what we think we are 
prepared to supply, but, rather, what we think the challenges 
overseas demand.
    Also in that spirit, many of us are familiar with the many 
questions about the future of USAID. Let's use today to talk 
about answers, regardless of whether or not these answers are 
ultimately feasible or ultimately adopted. Let's get on record 
the options that we think are a necessary part of the debate.
    With that, let me turn to the distinguished ranking member, 
Senator Corker, for his opening remarks, and then I'll 
introduce our panelists.

             OPENING STATEMENT OF HON. BOB CORKER,
                  U.S. SENATOR FROM TENNESSEE

    Senator Corker. Well, Leader, I want to thank you--or, 
Chairman--for calling this hearing. And I--we couldn't be from 
more different places in the world, and yet, I know that we 
share the desire to make sure that our foreign aid works in the 
most appropriate ways. And I want to thank you, again, for 
calling this hearing, and thank our witnesses.
    I'm usually very short, to nonexistent, on opening 
comments, but I do want to say that it doesn't take many trips 
abroad or to other countries to realize that we really do need 
to go through the process we're going through right now. You 
look at the age of many of our USAID folks, and realize that a 
lot of them are going to be retiring. You look at the migration 
of effort that takes place. You look at--much of our focus, it 
seems, is on the urgent, and not the important for long-term 
benefit. And it seems that every administration, on both sides 
of the aisle, comes in with a different set of priorities, and 
we end up being whipsawed and not dealing with things on a 
long-term basis.
    The whole of the military becoming involved, I think, was 
very positive. Secretary Gates mentioned that we needed to, 
certainly, look at this in concert. Obviously, some of the 
missions that we perform in military zones have to be done with 
strong support from the military. At the same time, I do know, 
in many cases, the State Department, USAID plays second fiddle. 
I've seen tremendous migration as I look at it--it's kind of 
the--I see many of our USAID folks pursuing a sort of where-
the-money-is, OK; and so, changing mission, if you will, to 
access money, which is only natural.
    And so, Senator, I really do look forward to working with 
you on this. I think this is something that, candidly, Congress 
has been irresponsible on in not being as focused on. I think 
we continue to be, again, whipsawed by new priorities and new 
administrations--all of which are good, but it ends up layering 
on top of layers, things that cause our foreign aid to be not 
as effective as it should.
    So, I look forward to listening to our witnesses and to 
your question, and hopefully we'll have a few, and I thank you 
very much.
    Senator Menendez. Thank you, Senator Corker.
    Let me introduce our panelists.
    The Honorable Carol Lancaster is the director of the 
Mortara Center for International Studies and a professor of 
politics at Georgetown University. She is a former Deputy 
Administrator of USAID, Deputy Assistant Secretary of State for 
Africa, and the author of numerous books and articles on U.S. 
foreign aid and development.
    Steve Radelet is the senior fellow at the Center for Global 
Development, a former Deputy Assistant Secretary for Asia and 
Africa at the U.S. Department of the Treasury. He is currently 
the cochair of the Modernizing Foreign Assistance Network, a 
nonpartisan group of experts working to modernize and 
strengthen our foreign assistance programs. Dr. Radelet has 
conducted extensive academic research on aid effectiveness, 
combined with many years of practical experience living in 
Africa and Asia, and working on aid effectiveness, debt relief, 
and poverty reductions.
    The Honorable Andrew Natsios is a distinguished professor 
at the Edmund Walsh School of Foreign Service at Georgetown 
University, former Administrator of USAID. He was chair of the 
U.S. Special Envoy for the Sudan between 2006 and 2007, and 
was, for 5 years, vice president of World Vision, the largest 
faith-based NGO in the world.
    In the interest of time, we ask all of you to, basically, 
take about 7 minutes. We're going to include all of yours 
statements fully in the record.
    And with that, Professor Lancaster, if you'd like to start.

 STATEMENT OF HON. CAROL J. LANCASTER, PROFESSOR OF POLITICS, 
     MORTARA CENTER FOR INTERNATIONAL STUDIES, GEORGETOWN 
                   UNIVERSITY, WASHINGTON, DC

    Ms. Lancaster. Thank you very much, Senator Menendez and 
Senator Corker, for inviting me to come today and share some 
views with you about this important topic, the future of USAID 
in the 21st century.
    I think the hearing is both timely and fitting, because we 
are, I think, all of us in government, out of government, in 
the public, very much aware of the importance of development in 
U.S. foreign policy. We have heard a great deal about the three 
Ds--development, diplomacy, and defense--in the Bush 
administration, and now in the Obama administration. And I 
think we all probably recognize that foreign aid is one of the 
principal tools--the principal tool, in many ways--for 
promoting development abroad.
    USAID has long been the lead agency in this endeavor. At 
present, we need, desperately, a strong aid agency, and at no 
time has USAID been weaker in its role. And I'm not talking 
about the very qualified staff that are employed by USAID, but 
the situation of the agency itself, many conditions of which 
you touched on. And I will just touch on a few of them very, 
very briefly.
    We know the size of the staff is a problem. When I served 
in the Clinton administration, and even before, there was 
always pressure to do more with less, and it can become a 
mindless kind of a pressure that squeezes down the numbers of 
staff in agencies. And that's certainly happened to AID, until 
the staff was almost in a death spiral.
    That's been turned around now, and we see staff being 
hired, and being brought on, and the numbers being expanded. We 
still need to reconstitute the training programs in AID, which 
probably we can't do for a couple of years until the new staff 
get to the level where they need the training. Under budget 
pressures, we got rid of training in the Clinton 
administration. That was a very shortsighted decision.
    I think there are some questions in regard to AID's 
internal organization which relate to how AID wants to shape 
its future mission and its future priorities and strategies. 
There have been some very odd organizational changes, which I 
don't blame Andrew Natsios for, but for example, why did the 
democracy program end up in the conflict bureau, when the 
democracy program's impact is obviously much broader than that.
    You mentioned the capacity of USAID. And I think here is 
one of the most troubling things that's happened. We're all 
familiar with the transformational diplomacy reforms that were 
implemented in the last administration. There were lots of good 
ideas in those reforms, but I think many of us have been very 
troubled by where they went and how they went there. I know you 
were, Senator Menendez, as well. And I think, with the 
departure of Randall Tobias, the reforms were sort of put on 
ice, and so, you have a sort of netherworld in which budget and 
policy capacities of USAID were moved to the State Department 
and, I think, largely remain there. So, the agency does not 
have the capacity to develop strategies and its own budget. 
That needs to be addressed.
    Of course, we don't have any leadership yet, and I think 
that's also troubling, because things happen anyway, whether 
there's a leader of USAID or the other agencies, or not. And as 
they begin to happen, they begin to become institutionalized, 
other people start taking responsibilities for what might be, 
logically, in the purview of the Administrator, so obviously 
that is a big concern.
    And finally--you mentioned this--AID has become, I think, 
in the eyes of many, more of an implementer than a leader. And 
that's how it's seen abroad, from what I hear, as well as 
within the administration.
    These are all serious problems, but they need to be 
addressed after two basic issues are resolved. And one of them 
is the relationship of USAID to other aid programs in the U.S. 
Government, which I think we've all talked about a great deal. 
But, the second and really big issue is its relationship with 
the Department of State. And I think that becomes really 
crucial.
    As I see it, AID is partially integrated into the 
Department of State. Planning and budgeting are pretty much 
integrated with the Department of State. Personnel is not. But, 
in my view, that undercuts the ability of the agency to operate 
as an agency with its own mission, which is a rather different 
mission from the Department of State. And this is a very 
important source of concern.
    AID has lost even the small measure of autonomy that it had 
in previous administrations. When the Ambassador wanted to use 
development assistance moneys for things that may not have been 
in AID's mission or purview, there was always the opportunity 
to appeal to Washington. When AID came under pressure from the 
Department of State, there was always the opportunity to appeal 
to the White House. And, ironically, the current Secretary of 
State was one of USAID's key partners, if you like--quiet 
partners in the Clinton administration--and from my own 
observation and experience, we probably wouldn't have a USAID 
right now if she hadn't, on repeated occasions, stepped in and 
slowed the effort that was underway in the Clinton 
administration to merge the two agencies. She, better than any 
other Secretary of State I've observed or served with, 
understands the development issues. The only problem is that 
she's a very busy person right now, and she's not going to be 
there forever. So, there is an institutional relationship here 
that needs to be sorted out.
    USAID is neither fully in, nor fully out, but it has lost 
its autonomy. I don't think USAID people can appeal for help, 
when they're under pressure, to other agencies, because it is 
now much more firmly in the State Department command structure.
    And so, that autonomy issue is one that needs to be 
decided, needs to be worked on, needs to be explored, and I'm 
hoping that Congress will do so. And it's particularly 
important, in terms of the next USAID Administrator.
    Now, it may be that this administration does not wish to 
expand the autonomy that USAID has, but, rather, leave it 
partially merged into the State Department. If that should be 
the case, then I think we have another issue before us, and 
that is, How do we arrange a full merger, including the 
personnel system, of USAID into the Department of State? And 
that's a big piece of, if you like, bureaucratic material to 
swallow. How do we do that and maintain the development mission 
of USAID? That requires a more fundamental rethinking of AID 
and the State Department and the relationship between the two. 
But, right now I fear that AID is in a situation where it has 
neither autonomy nor protection, and does not have the capacity 
to lead in the way that we all wish it to do so.
    To conclude, let me just say that I think the Congress has 
an enormously important role in keeping these issues on the 
agenda, where I think there may be a tendency for them to slide 
off, given all the other things that the U.S. Government and 
the Congress are facing, in terms of financial crises, and 
budgetary pressures, and the very uncertain relationship that 
still exists between USAID and the State Department. And I 
haven't mentioned the Defense Department relationship, but I 
think my colleagues will take a look at that.
    I hope and trust that this will be in your competent hands 
to keep us attentive and moving forward.
    Thank you very much.
    [The prepared statement of Ms. Lancaster follows:]

 Prepared Statement of Carol Lancaster, Professor of Politics, Mortara 
Center for International Studies, Georgetown University, Washington, DC

    Chairman Menendez and committee members, thank you for the 
invitation to testify this morning on the future of USAID. It is a 
fitting and timely topic; there has never been a time when the U.S. has 
needed a strong voice and leadership in development. And, I fear, there 
has never been a time when that voice has been more uncertain.

           THE IMPORTANCE OF DEVELOPMENT IN THE 21ST CENTURY

    There is more consensus today than ever before among our political 
leadership, public officials, scholars, and policy analysts and the 
American public that promoting development abroad should be a key 
element in U.S. foreign policy--along with diplomacy and defense. 
Helping the 2 billion people in the world to help themselves emerge 
from poverty and deprivation is not only the right thing for the U.S. 
to do--even in this time of financial crisis at home and abroad--but it 
is very much in the U.S. interest to do so. Poverty is often associated 
with instability, conflict, environmental stress, the spread of 
infectious disease, and other ills that in our globalized world can 
race across borders and meet us not just in our living rooms but in our 
lives and affect our well-being and our future. We need a strong U.S. 
Government development agency to lead our government's efforts to 
promote development abroad, both as an end and as a means to other ends 
of U.S. foreign policy.

            THE CHALLENGES OF DEVELOPMENT IN COMING DECADES

    But helping to further development abroad is no simple task; 
indeed, it has never been more complex and changing. We have seen 
greater volatility in world economic conditions than at any time in 
recent memory with not just a financial crisis with ramifications for 
world production, consumption, incomes and employment but also an 
energy crisis and a food crisis in which rapidly rising and then 
falling prices greatly complicated the challenge of development. How, 
for example, can small farmers in Africa--or farmers anywhere--plan for 
the next planting if they see the prices of their inputs as well as 
their products rise and fall and rise again?
    The impact of the financial crisis and a drastic slowing of 
worldwide economic growth are not the only challenges of supporting 
effective development in the world today. Several others are longer run 
and equally important. One involves the relationships between 
development, terrorism, drugs and crime. Many believe that stable and 
prosperous economies with effective states are the best insurance 
against terrorists establishing training and operations. It is clear 
from a look just south of our borders to Mexico and Guatemala that it 
takes especially strong states to resist the threats and blandishments 
of narcotraffickers. I fear we are moving close to the establishment of 
two narcostates very near the American heartland. These problems are 
not solely about development as traditionally conceived. But they are 
big and very threatening problems that involve development as well as 
the effectiveness of states. We need to be far better positioned to 
address these problems than we are today. An agency with not only a 
strong development mission but one that can connect that mission with 
other U.S. interests is essential.
    A further set of challenges and opportunities confronts USAID in 
the 21st century: There are many more agencies and organizations in the 
development business today than there were just a decade ago--NGOs 
which have mushroomed in number; philanthropic foundations large and 
small; corporate foundations; major corporate enterprises themselves; 
venture capitalists looking for double and triple bottom lines (doing 
good as well as doing well with their investments) and even internet 
portals that now make it possible for individuals to provide private 
aid directly to worthy causes abroad.
    In addition to all these new and not so new actors in the 
development scene, we are now observing new governments becoming 
sources of development aid. All the new members of the European Union 
are required to undertaken aid programs. Formerly (and still) poor 
countries like India and China--not to mention Korea, Thailand, and 
Turkey--are also in the aid-giving business. China has become a 
significant source of aid in Asia, Africa, and Latin America--though we 
remain unsure of just how large Chinese aid actually is.
    Finally, there is the technology factor, especially the spread and 
rapidly evolving uses of information and cell phone technology. We have 
all seen the pictures of Masai warriors in the African bush standing on 
one leg talking on their cell phone. That is not just something 
imagined by clever advertising executives. Even the poor are 
increasingly part of the global information highway. The information 
now available to almost everyone informs the fishermen off the coast of 
India or the cotton farmers in Mali what the daily prices are for their 
products and empowers them as never before. The Chinese have found ways 
to connect with one another and share information that allows them to 
organize and put pressure on their government for reforms. We can now 
bank, do medical consultations, organize demonstrations in support of 
political change with these cell phones. Ultimately, the greater 
knowledge available will empower the poor as well as others to be more 
productive, have more control over their lives and be better informed 
and educated. (I can imagine young people in rural areas in poor 
countries eventually being able to gain high and college degrees 
through distance education obtainable through cell phones.) The IT 
revolution and the cell phone that increasingly utilizes it may be the 
most important revolution in human history.
    We need a strong aid agency that understands the details and 
implications of these changes and is agile and flexible enough to 
respond to them to realize its mission of furthering development and 
reducing poverty in this 21st century.

                    USAID: THE CURRENT STATE OF PLAY

    USAID suffers from several problems that in my view prevent it from 
providing the leadership needed in U.S. development policy in the 21st 
century. These problems, I should emphasize, do not exist because of 
USAID's staff which is committed and experienced but despite its 
excellent staff. They are structural problems that I very much hope 
will be addressed soon by the Obama administration and Secretary of 
State Clinton.
    1. USAID's staff has been severely reduced over the past decade and 
a half, with the training so necessary to rise as effective managers 
and leaders also much constrained. At the same time, the Agency has 
taken on the management of much larger amounts of assistance. This 
situation is not sustainable. These problems were recognized at the end 
of the Bush administration and Secretary Rice together with partners in 
Congress supported an expansion of USAID's staff. This expansion should 
continue but should be keyed to the future organization and functions 
of the Agency. For that, we need a sense of the future direction of the 
Agency. I have students who ask me frequently whether it is worth 
working for USAID given the uncertainties facing it at present.
    2. USAID has become little more than an implementing agency for 
programs decided in the Department of State (the ``F'' Bureau and 
elsewhere). During the reforms associated with ``Transformational 
Diplomacy'' in the Bush administration, most of the policy and 
budgetary expertise in USAID was relocated to the F Bureau, taking away 
from the Agency the capacity to analyze and develop U.S. development 
policies and link budgets to policies. Apart from a few policy staff in 
the office of the Chief Operating Officer dealing mainly with process 
issues, USAID today is no longer the administration's lead ``thinker'' 
on development. This deficiency limits U.S. leadership in development 
abroad and at home. This must change if USAID is to have any role in 
U.S. development policy in the future and if the U.S. is to regain its 
past position as a leader in the international development field.
    3. Somewhat related to the previous point USAID is now one of three 
major bilateral aid programs that also include the Millennium Challenge 
Corporation and PEPFAR. There is a notional division of labor between 
them but also some overlap regarding what they work on and where they 
work. There are many more U.S. Government agencies with their own 
(mostly relatively small) bilateral aid programs and responsibility for 
U.S. contributions and policies vis-a-vis the international financial 
institutions located in the Treasury Department. There is no reason why 
all aid should be managed in the same place--indeed, there are 
arguments against such an arrangement. But the many U.S. Government aid 
programs makes the U.S. the world leader in fragmented aid programs--
even surpassing the French Government (and probably the Chinese) which 
are also highly fragmented. There needs not only to be greater 
coherence and collaboration among all these programs but a clear 
division of labor among them. USAID should be the leader in shaping 
development policies with input and collaboration with other programs; 
it should also identify its particular functions--including but not 
limited to taking an overview of development needs in recipient 
countries and providing advice on economic and political reforms to 
willing governments; working directly with poor communities and civil 
society organizations on projects and programs involving education, 
health (not including HIV/AIDS, TB and malaria which are addressed by 
PEPFAR and not including infrastructure which is part of MCC's remit); 
working on food security and agricultural development--essential to 
economic progress in many poor countries; providing humanitarian 
assistance and post-conflict reconstruction; and developing an 
expertise on helping to strengthen weak governments with potential 
security problems (in collaboration with the Department of Defense).
    4. If USAID is to be a truly 21st century development agency, it 
needs the funding and the staff to permit it to be agile and flexible 
in collaborating with other development agencies and programs, private 
and public alike. It is no longer possible for the U.S. Government to 
lead by fiat; it must lead by finding the opportunities to collaborate, 
sometimes to follow others' initiatives, to innovate and leverage where 
possible resources to address common problems. The Global Development 
Alliance created by the Bush administration was an admirable effort in 
this direction. That effort needs to be extended into other innovative 
directions. The Agency needs flexible funding to be the innovator and 
leader it must become, either from fewer earmarks on its development 
assistance moneys or an earmark for flexible funding. It also needs 
funding to support research in areas important to development but not 
funded by private enterprises--for example, in agriculture. The 
pressures within USAID, from other parts of the administration and the 
Congress are to allocate funding to service delivery abroad, preferably 
with visible, direct impacts on people. This is an important function 
for an aid agency. But expenditures on research can make enormous 
differences in growth, poverty reduction, and the quality of lives for 
everyone--the Green Revolution in agriculture is but one example. 
However, the results of investment in research are often long term and 
uncertain; it is thus important but often very hard to preserve funding 
such expenditures. I hate to recommend another earmark--there are too 
many already--but I wonder if funding for research might not warrant 
one.
    5. My greatest concern about the future of USAID is not about any 
of these internal challenges or about interagency collaboration. It is 
about where USAID is now located--integrated into the Department of 
State in most essential ways (planning and budgeting) except for its 
personnel service. Secretary Clinton understands the nature and 
importance of development better than any other Secretary of State I 
have observed or worked with. But Secretary Clinton is only one person 
and she will not be Secretary of State forever. The pressures within 
the Department of State--where I have served as a Deputy Assistant 
Secretary of State for Africa--are on dealing with immediate issues and 
crises, usually in U.S. relations with other governments. There is 
seldom the luxury of taking the long view, of withholding development 
aid from governments whose cooperation we need but who are incompetent, 
corrupt, or uncommitted to the betterment of their populations, or of 
working with pesky NGOs who can drive our allies abroad to distraction 
by their criticisms. These latter functions are all part of USAID's 
work abroad with development assistance. (USAID also implements other 
aid programs for State--for example, Economic Support Funds--which are 
intended to support U.S. diplomatic efforts and are very important in 
that regard.) The danger is that the more USAID is drawn into the State 
Department orbit, the more its development assistance programs and the 
more all U.S. aid programs become tools primarily of diplomacy. One key 
reason for this tendency is that not only USAID's autonomy but its 
development voice will be lost. Indeed, its autonomy is already lost. 
When I served in the Agency, we could always appeal to the White House 
for help when State wanted U.S. to do something we thought ill advised. 
Ironically, we avoided being merged into State during the Clinton 
administration because we were able to appeal to then-First Lady 
Hillary Clinton for help. And I have every reason to think we got that 
help.
    That channel of appeal to others outside of State is now 
extinguished. The USAID administrator reports directly and only to the 
Secretary of State. (The Administrator reported both to the Secretary 
of State and the White House in the past.) USAID directors in missions 
abroad report to ambassadors and these arrangements, I fear, are a 
recipe for the eventual loss of USAID's development mission in the 21st 
century. There is at present a letter circulating urging the 
administration to create a seat on the National Security Council for 
the USAID Administrator. But how long will it be before someone points 
out that at present that will likely give the Secretary of State two 
votes on the NSC--for what USAID administrator will openly oppose and 
even vote against policies favored by the Secretary of State in such a 
body?
    There is considerable support for combining MCC, PEPFAR, and USAID 
in some form in the Obama administration. This makes a lot of sense--
but not until USAID's relationship with State is clarified. If USAID 
gains control over these other agencies but has no autonomy of its own, 
these agencies will also be moved into State's orbit. And this 
decision--whether made consciously or as a result of other decisions--
will be potentially momentous for the future of U.S. development aid.
    Finally, should USAID remain partially merged with State in the 
future, is there anything that can be done to preserve the development 
mission and ensure that it is truly a strong element in U.S. foreign 
policy generally? This is an issue that the development community has 
avoided tackling but it is time to consider it now. If USAID is not to 
have a measure of autonomy from State, it must have a measure of 
protection for its mission within State. Its personnel system should 
become a new cone for State Department officers with appropriate 
training, rotation, promotion and other elements of an effective career 
system. There should be a new Deputy Secretary of State in charge of 
development--the post of Administrator of USAID is at the Deputy 
Secretary level and needs to have that degree of status and clout if 
development is to be an important pillar of U.S. foreign policy. 
Ideally, there should be legislation that preserves the development 
mission of U.S. aid and oversight that ensures the mission is followed 
and realized.
    The current relationship between USAID and state is confused and 
unsustainable if USAID and the U.S. Government generally are to be 
leaders in development in this century. The most urgent task facing the 
administration in the area of development is to clarify this 
relationship and strengthen USAID itself. I hope this committee will 
keep this issue on its agenda until we have the strong development 
agency we need, the strong voice for development within the 
administration, and the expertise to back up that voice. We are in 
great danger of losing it at present.

    Senator Menendez. Thank you, Professor.
    Dr. Radelet.

 STATEMENT OF STEVEN RADELET, SENIOR FELLOW, CENTER FOR GLOBAL 
                  DEVELOPMENT, WASHINGTON, DC

    Mr. Radelet. Good morning. Thank you, Chairman Menendez and 
Ranking Member Corker, for holding this hearing and for 
inviting me to participate.
    With all of the challenges that we face in the world today 
in the immediate issues that we have to confront, it may seem a 
little odd to spend time thinking about the rather, what might 
seem, the mundane issue of USAID reform. But, actually it's 
directly because of those challenges that it is so important 
that we get the foundation correct and strong, in terms of how 
we engage with countries around the world. We face many issues 
around the world, from hunger to disease, to instability in 
Pakistan and Afghanistan, to piracy off the coast of East 
Africa, and many other issues, and we cannot achieve our 
objectives of our own strong national security and in 
encouraging and stimulating prosperity around the world and 
stable governments around the world, without a strong and 
robust development agency that can lead the way in how we 
engage with these countries.
    People around the world, especially because of the crisis, 
are looking to the United States for leadership. Whether we 
like it or not, whether it's accurate or not, they blame the 
United States for the crisis. And whether it's accurate doesn't 
matter; they do. And they're looking for us to step up and to 
help out. And we need to do so, for our own good, but also 
because if we don't, someone else will. There are lots of 
others that are willing to step up and take the lead if we're 
not willing to do it. So, we're at a very critical time.
    As we think about AID reform, it's important to put that in 
the context of broader development capacity. Foreign assistance 
is only one tool, and only one approach, in how we engage in 
supporting development. Our trade policies, our migration 
policies, our policies on international finance, remittances, 
many other things, relate to the development challenge.
    And, more broadly, before I speak about AID reform, it's 
important to think about the steps we need to strengthen our 
broader development capacity. And I think there are four broad 
ones that we need to think about:
    First, we need a development strategy to work in parallel 
with our national security strategy and other strategies. We 
don't really have a strategy for this important tool of how we 
engage. So, first we need a strategy, led by NSC, an 
interagency process to strengthen the way that we engage to 
support the development process.
    The second piece is legislative reform, the Foreign 
Assistance Act, relative to USAID, but others, as well. We need 
the legislative basis to think about our development, not just 
foreign assistance, but development process.
    Third is funding. Not only the amount of funding, which is 
crucial, but how we allocate that funding to our bilateral 
programs, to our multilateral programs, and across the 
different agencies, and to which countries do we allocate.
    And fourth is the organizational piece. AID, which is the 
focus of our attention today, but also the MCC, PEPFAR, and 
also the relationships between these agencies and the 
Department of Defense.
    So, we have this broader set of issues that we need to keep 
in the back of our mind as we talk about one specific issue 
here, which is strengthening USAID.
    Let me focus now specifically on USAID. We all know that, 
over the last many years, it has become increasingly weakened 
and does not have the capacity, at the moment, to really step 
up and take the lead on development issues. Let me suggest five 
steps that can be taken to rebuild USAID in the coming years:
    No. 1, put someone strong in charge. We want to urge the 
administration to name a new, strong leader at USAID as quickly 
as possible. As Carol Lancaster pointed out, things happen. We 
have our strategy, going forward, on Pakistan and Afghanistan, 
and we do not have someone at USAID, at this moment in time. We 
need a strong leader that can lead the charge, not only on the 
day-to-day issues for USAID, but to lead the reform issues, 
going forward. And that person needs to have a seat at the NSC. 
It needs to be part of those broader debates of government 
policy and how we engage with developing countries. Senator 
Menendez pointed out that development is not a subset of 
diplomacy. We need a separate person at the NSC to give that 
input with the professional development perspective. So, No. 1 
is strong leadership.
    No. 2 is that smart power requires a smart division of 
labor between State and USAID, in particular. Over the last few 
years, more and more of the responsibilities have moved toward 
State. And, while our development programs need to be aligned 
with diplomacy efforts at State, they are separate from and 
require a degree of autonomy and a distinct set of skills. The 
skills and expertise required at State for diplomacy, foreign 
policy, and communications are quite different from the 
economic development, poverty reduction, and long-term program 
management skills that are needed at USAID. And if that 
relationship is too close, with too much of the responsibility 
and authority at State, it actually undermines, over time, the 
strength and credibility and capacity at USAID. While it might 
make sense on an organizational chart, it actually does 
undermine and weaken our development capacity over time.
    The F process is a good example of that. While well 
intentioned, in that there were some good parts to it, in the 
end it further weakened USAID by further taking away some of 
its responsibilities.
    A couple of things in particular, I think, that need to 
move back to AID. One is the budget responsibility. You can't 
have a strong USAID unless the direct reporting relationship 
from USAID to OMB is restored, and that USAID actually has 
direct responsibility over its budget.
    In addition, the capacity for developing strategies for 
strategic thinking and policy formulation on development issues 
need to reside at USAID, not at State. That's where the 
capacity should be. It should be done in cooperation and 
consultation with State, but those main responsibilities need 
to be at USAID. In recent years, they've moved to State, and 
they need to move back. So, that division of responsibilities 
is key.
    Three, you need to build the right team. The professional 
capacity at USAID has been weakened considerably, and we need 
both the right numbers and the right technical skills for USAID 
to function as a premier development agency. The goal should be 
for USAID to be the premier development agency in the world. 
And it used to be that. And it's not anymore. But, you need 
more staff--a lot more staff--and you need staff with the right 
skills--in economics, in finance, in agriculture, in agronomy, 
in education, in health--skills that, again, are not going to 
be found in Foreign Service officers, who have wonderful and 
specific skills in other areas, but they don't have the 
specific development skills.
    Fortunately, in the last couple of years, this has begun to 
turn around, and there is the beginnings of bringing back that 
capacity to AID, but that needs to be supported and 
stimulating, going forward. So, that's the third piece.
    Fourth is the legislative foundation. The Foreign 
Assistance Act is weak and largely out of date. It was meant 
for a different set of challenges that we faced nearly 50 years 
ago, at the beginning of the cold war. And over the years, it's 
been burdened with more restrictions, earmarks, and multiple 
objectives that really make USAID's job much more difficult. It 
is really a burden on the agency, and it undermines its ability 
to respond effectively in the field to the most important 
issues that it faces at hand. So, if we're going to strengthen 
AID, we need a strong legislative foundation for that, which 
would rebuild the relationship between the executive branch and 
the legislative branch, providing the executive branch with the 
authorities it needs, but, at the same time, giving a rightful 
oversight and effective oversight role to Congress. So, that 
relationship needs to be rebuilt.
    Fifth, and finally, is more money, better spent. More 
money, by itself, will not solve these problems. But, more 
money, better spent, is a big part of the challenge, going 
forward. These steps that I've outlined earlier, and others 
that my colleagues will lay out, are important steps to making 
sure that every dollar we spend is spent as effectively as 
possible. And we need to focus, as much as possible, on doing 
that. But, it's also a matter of more money. There's been 
increases in the last few years, and those are welcome, but 
they're off a small base, and they are not sufficient to 
address the big challenges that we face around the world.
    In terms of making sure that we spend our money more 
effectively, two specific steps. One is that we need to 
strengthen our monitoring and evaluation capacity. It's far too 
weak. We don't have a good handle on what activities are 
effective and what activities are not effective. And if we're 
going to be serious about spending our money more effectively, 
we need a much stronger monitoring and evaluation capacity. And 
second, we need to streamline and reform USAID's procurement 
process, which adds to the bureaucracy and ensures the money is 
not spent as well as it could be.
    Taking on these reforms is not going to be easy, 
particularly in today's context of building USAID into a modern 
development agency is going take time, resources, and effort. 
But, the challenges we face require a strong development 
agency. It's time to take advantage of the opportunity that we 
have and the consensus that is formed around the importance of 
development to modernize and strengthen our U.S. foreign 
assistance programs, particularly USAID, so that it can serve 
as a critical pillar of our foreign policy and our national 
security.
    Thank you very much.
    [The prepared statement of Mr. Radelet follows:]

Prepared Statement of Steven Radelet, Senior Fellow, Center for Global 
                      Development, Washington, DC

    Thank you, Chairman Menendez, Ranking Member Corker, and other 
members of the subcommittee. I am honored that you have invited me to 
offer some perspectives on the role of USAID in the 21st century.

           I. INTRODUCTION: WHAT HAPPENS THERE, MATTERS HERE

    Today we find ourselves at a critical juncture. The challenges our 
country faces at home and abroad are serious and emblematic of a new 
era. An era where the world's challenges--disease, human and food 
insecurity, climate change, financial crises--do not respect borders 
and are truly global problems requiring global solutions. Trade, 
remittances, and private investment tie rich and poor countries 
together, creating shared opportunities for prosperity in plentiful 
times, but also shared instability and strain in times of financial 
crisis. Outdated and inefficient policies, instruments, and 
organizational structures must be brought into the 21st century. The 
new Obama administration is confronting a perfect storm of domestic 
economic concerns at home and multiple challenges overseas: Continued 
wars in Iraq and Afghanistan, escalating instability in Pakistan, 
emerging sanctuaries for terrorism and piracy in unstable regions of 
Africa, and, in the wake of the global economic downturn, deepened 
poverty and threats of heightened political instability in countries 
across the world.
    All of these global threats pose direct and grave challenges to our 
national security at home and to fighting disease and poverty around 
the world. In each and every case, cutting-edge development policy and 
an empowered development agency are critical to an effective solution. 
As President Obama outlined in his administration's new strategy for 
Pakistan and Afghanistan, stability in these crucial areas will remain 
elusive unless development outcomes are achieved. Part and parcel of 
the administration's strategy in these countries are core development 
activities: The delivery of basic health and education services, 
efforts to bolster the capacity of both states to govern effectively, 
the introduction of alternative sources of livelihoods for Afghan poppy 
growers, building infrastructure, and stimulating robust economic 
growth in the impoverished border regions of Pakistan that are home to 
extremists, to name a few.
    For these reasons, President Obama has pledged his commitment to 
elevate development as one of the three ``D's'' of our national 
security--alongside defense and diplomacy--and to leverage development 
and foreign assistance as key ``smart power'' tools of statecraft. So, 
too, have a host of public officials across government:

   Secretary Clinton, in her Senate confirmation hearing, said 
        ``Investing in our common humanity through social development 
        is not marginal to our foreign policy but integral to 
        accomplishing our goals.''
   Retired Marine Corps General Anthony Zinni has said ``We 
        know that the `enemies' in the world today are actually 
        conditions--poverty, infections disease, political turmoil and 
        corruption, environmental and energy challenges.''
   Defense Secretary Gates said ``It has become clear that 
        America's civilian institutions of diplomacy and development 
        have been chronically undermanned and underfunded for far too 
        long--relative to what we spend on the military, and more 
        important, relative to the responsibilities and challenges our 
        nation has around the world.''
   Former Secretary of Agriculture Daniel Glickman urged this 
        committee just last week to strengthen U.S. development 
        leadership and USAID to address the global food crisis.

    Furthermore, global development was part of the political discourse 
in the 2008 Presidential elections, spurred by an informed, supportive, 
and growing constituency of Americans who asked Republican and 
Democratic candidates alike how they would strengthen U.S. development 
programs. There has been no greater moment in recent history to 
modernize and strengthen our development programs to address the 
challenges and opportunities of the 21st century.

II. INVESTING IN A MODERNIZATION AGENDA: WHAT ARE WE TRYING TO ACHIEVE?

    As the Obama administration, Congress, military leaders, and 
American voters have recognized, strong development policies and 
programs are critical to enhancing the U.S. image in the world, 
achieving our foreign policy goals and increasing our national 
security. To reap these benefits from development, however, we must 
have a greater impact on the ground and demonstrate that we are 
reaching our key objectives in developing countries: Stimulating 
economic growth and poverty reduction, promoting political stability, 
and responding to humanitarian crises.
    Our current development programs deserve more credit than they 
usually receive. PEPFAR has put 2 million people on life-saving 
antiretroviral treatment through PEPFAR; the MCC has spurred policy 
reforms and paved the way for supporting economic growth in 18 
countries through investments in agriculture and essential 
infrastructure; and USAID has many examples of large-scale successes, 
from the substantial reductions in deaths from maternal and child 
mortality and diseases like river blindness and polio, to efforts to 
bring peace and security to countries such as Bosnia and Liberia.
    At the same time though, the U.S. development voice is more like a 
choir, without a conductor. We have 20-some different agencies with 
different policy objectives, structures, and bureaucracies and little 
strategic oversight and coordination. And that is just our foreign 
assistance. Policies affecting trade, migration, climate change, 
capital flows, governance and others also influence America's standing 
in the world and our relationship with other countries, and at present, 
these policies often contradict each other and undermine our 
development objectives.
    We can, and must, do better. Getting a bigger bang for our 
development bucks requires being smarter about our development 
strategy, legislation and organizational apparatus.

            III. STEPS TOWARD MODERNIZING FOREIGN ASSISTANCE

    While it may be tempting to consider partial changes that make 
small improvements in our current development architecture, marginal 
reforms will only lead to marginal improvements, which will fall short 
of achieving our objectives and may not be sustained over time. More 
fundamental changes are needed to meet our foreign policy objectives. 
In particular, four broad steps should be taken to modernize our 
foreign assistance programs:

   Craft a development strategy. The administration should 
        prepare, under the leadership of the NSC, a National Strategy 
        for Global Development, distinct from but consistent and 
        coordinated with the National Security Strategy. A strong 
        strategy is essential for clarifying goals and objectives, 
        coordinating development-related activities spread across the 
        government, and increasing the efficiency and effectiveness of 
        key programs.
   Rewrite the Foreign Assistance Act. The FAA is unwieldy and 
        outdated, and adds significantly to the costs and 
        inefficiencies of many of our programs. While using the 
        authorities in the current act more strategically is a good 
        first step, it is no substitute for reaching a new 
        understanding and alliance with Congress on the goals, 
        objectives, and modalities of foreign assistance programs.
   Increase funding for and accountability of foreign 
        assistance. While foreign assistance funding has increased in 
        recent years, it is still a tiny share of the budget, and very 
        small relative to the amounts needed to meet today's 
        challenges. As our HIV/AIDS program has shown, relatively small 
        investments can pay big dividends for both showing strong U.S. 
        leadership abroad and effectively fighting disease and poverty.
   Build a strong, consolidated, and empowered development 
        agency. Our programs are spread across too many agencies, and 
        USAID has been significantly weakened over the last decade. 
        President Obama had it right during the campaign: To meet 
        today's challenges we need an elevated, empowered, 
        consolidated, and streamlined development agency.

    Action on all four fronts is needed to elevate development and 
modernize U.S. foreign assistance programs. Our discussions today focus 
on the fourth area, and in particular the next steps for USAID, but 
these discussions should be seen in the context of the need for other 
complementary steps to truly make our programs more effective.

      IV. AN AGENDA FOR BUILDING A 21ST CENTURY DEVELOPMENT AGENCY

    The five most important action steps to rebuild USAID include the 
following:

1. Put Someone in Charge, With a Seat at the NSC
    To concretely signal President Obama's commitment to elevate 
development as a ``smart power'' national security approach alongside 
defense and diplomacy, the administration should name a strong, capable 
leader as USAID Administrator as soon as possible to exert leadership 
on development policy and transform USAID into a 21st century 
development agency. Over time, USAID would be strengthened and 
reprofessionalized to serve as the base for consolidation of other 
major foreign assistance programs such as MCC, PEPFAR, and perhaps even 
the multilateral development bank programs currently housed at 
Treasury. The ultimate objective would be to have the USAID 
Administrator be the one voice of the U.S. Government on development 
policy and development assistance, the one point of contact for the 
field for questions on development impact of programs and of other 
government policies (trade, migration, investment, etc.), and the one 
person accountable to Congress for delivering the development and 
development assistance agenda.
    As a real signal of the importance of development in national 
security, the USAID Administrator should be included as a member of the 
National Security Council and other high-level interagency deliberative 
bodies. At a minimum, the administrator should be invited to all NSC 
Principals Committee meetings dealing with international economic 
issues. This will provide professional development perspectives and 
policy input at the highest policy-setting table, independent from but 
complementary to diplomatic and defense.

2. Smart Power Requires Smarter Division of Labor
    For our development policies and programs to contribute to the U.S. 
smart power agenda, we need to be smarter about who sets our 
development policies, how they inform the decisionmaking process and 
where they sit within the U.S. Government. Over the last 15 years, we 
have seen a consistent and substantial reduction in USAID technical 
staff, a sharp rise in the reliance on private contractors and overall 
decline in the agency's ability to fulfill its development mission. The 
creation of the MCC and PEPFAR outside of USAID was viewed as an effort 
to work around USAID dysfunction instead of rebuilding its capacity. 
And in 2006, USAID's budget, planning, and policy functions were 
transferred into the State Department through the creation of the 
Director of Foreign Assistance (DFA) further relegating USAID to the 
status of a contract manager and pass-through for foreign assistance 
funds. Although the F Bureau was created in part to better coordinate 
and elevate foreign assistance, it has come at the expense of a 
weakened USAID and has divorced on-the-ground implementation of 
programs from the important policy and budgetary decisions that 
underpin them. As a result, we now know better where and for what our 
foreign assistance dollars are going, but the ability to better plan 
for the most effective use of those resources to meet U.S. objectives 
have been diminished.
    Building a strong and effective development agency will require 
providing our development programs with a certain degree of autonomy 
from our diplomatic and defense efforts alongside distinct authority 
and responsibility over the development budget and policy.

   Autonomy. While development programs should be closely 
        aligned with our overarching foreign policy objectives--
        diplomatic and defense--development is a distinct set of issues 
        requiring very different professional skills and background to 
        address economic development, poverty reduction, and long-term 
        management of development programs. Too close of a relationship 
        between State and USAID runs the risk of confusing the two 
        skills sets and not necessarily doing better at either. Some 
        separation between the two objectives will help attract the 
        right experts for each institution and strengthen the core 
        technical development skills required to be more effective with 
        our development dollars. Moreover, direct oversight by the 
        State Department of foreign assistance programs raises the 
        concern that the development mission will be subordinated to 
        the short-term political pressures and diplomatic objectives of 
        the State Department, which could undermine the achievement of 
        key development objectives over time.
   Budget. A strong development agency must have budget 
        responsibility to enable the agency to provide a meaningful 
        voice for development (and contribute field perspectives) 
        during the budget preparation and interagency budget 
        negotiations, currently managed by the Office of the Deputy 
        Secretary of State. Many broad budget responsibilities may 
        appropriately lie within the State Department--including 
        responsibilities for reviewing and coordinating budgets across 
        many foreign affairs agencies, reviewing proposals for reducing 
        inefficiencies and nonperforming programs, consulting with 
        Congress on the need to rationalize earmarks, and mobilizing 
        financial resources. But USAID's authority over its own budget 
        should be restored, including control over the final allocation 
        of development resources across countries and programs based on 
        input from country teams.
   Policy. Development assistance strategies, including 
        sectoral and country strategies, should be developed at USAID. 
        The policy function (formerly PPC) currently resides in the F 
        Bureau and should be transferred back to USAID to facilitate 
        long-term thinking and planning on development policy. Capacity 
        should also be restored to USAID to enable it to design its 
        programs in-house to best meet strategic objectives, ending 
        over time the current practice of outsourcing program design to 
        contractors.

3. Build the Right Team
    One of the key resources needed at USAID is people: Both the right 
numbers of staff and the technical skills required to function as a 
premier development agency, as well as the capacity to hire and train 
staff. Over the past 15 years USAID's professional capacity has been 
weakened, not only compared to the past, but also compared to the 
Departments of Defense and State. In recent years, administrative 
resources and staffing for USAID have been slashed, at the same time 
that responsibilities and budgets have grown. Today USAID faces a 
critical shortfall of experienced career officers and a dearth of 
technical expertise within USAID in such areas as science, economics, 
and agriculture, rendering the institution ill-equipped to address the 
myriad development challenges of the 21st century. This combination of 
staff reductions and scarcity of technical expertise has weakened 
USAID's capacity to provide strong development input in policy 
formulation and decisionmaking, adequately manage projects, and provide 
appropriate technical oversight.
    Fortunately, during the last year this trend has begun to change, 
with commendable efforts underway to rebuild USAID's staff. But there 
is still a long way to go. To fill this gap, it will be important to 
ensure that net increases at field posts are significant, above and 
beyond conversions of Personal Service Contracts (PSCs) and Foreign 
Service Limited positions (FSLs). To pave the way for an increase in 
permanent staff hires, it is critical that the constraint on Operating 
Expenses (OE) be relieved. Other important measures include filling 
USAID's management gap with an increase in permanent staff, including 
mid-level managers, possibly through the expansion of the Development 
Leadership Initiative into civil service and FSN positions, and 
shifting the balance of USAID human resource from an overwhelming 
concentration of general management experts to a larger percentage of 
technical experts.

4. Provide a Strong Legislative Foundation
    USAID's legislative foundation is the Foreign Assistance Act of 
1961. But that foundation is weak and largely out of date. The FAA is 
nearly 50 years old, grounded largely in cold war threats, and not 
focused on meeting today's challenges. Over time hundreds of amendments 
have added multiple objectives and priorities that in some cases 
conflict with one another, rendering it ineffectual as a rational 
policy framework. It has become laden with multiple earmarks that are 
administratively burdensome, undermine USAID's ability to respond 
effectively on the ground to greatest needs, and weaken its ability to 
achieve strong results. The foreign assistance authorization process, 
which once reviewed and modified the FAA nearly every year, has not 
functioned in over 20 years.
    Rewriting the FAA is central to building a strong and capable 
development agency. Although several critical pieces of foreign 
assistance reform can be achieved without legislation--creating a 
national development strategy, strengthening monitoring and evaluation 
system, improving procurement and contracting procedures, building 
human resource capacity--no broad-based foreign assistance 
modernization initiative can be fully implemented without major 
legislative modifications.
    Rewriting the FAA will require a ``grand bargain'' between the 
executive branch and Congress, reflecting a shared vision of the role 
and management of U.S. foreign assistance, providing the executive 
branch with the authorities it needs to respond to a rapidly changing 
world, and ensuring rightful and effective legislative oversight. Done 
purposefully, inclusively and transparently, this bargain would 
reestablish confidence in the foreign assistance system among the U.S. 
public and nongovernmental development organizations and reduce the 
ability of special interests to secure self-serving earmarks. Partially 
amending the FAA, rather than rewriting it, would run the risk of 
exacerbating the fragmented and incoherent nature of the existing act, 
continuing to layer modernized legislative provisions on top of 
outdated and irrelevant policy authorities. As part of this process, 
the administration and Congress should consider renaming USAID to 
signal a break from the past and its intention transform it into a 21st 
century development agency, perhaps naming it the Development 
Investment Agency to emphasize our investments in the development 
process.
    The bottom line is that without a restructuring of authorities and 
a rationalization of restrictions, whether they be congressional 
earmarks or Presidential directives, all the personnel and 
organizational reforms undertaken will not make a truly material 
difference in the effectiveness of U.S. foreign assistance programs.

5. More Money, Better Spent
    More money by itself will not help the U.S. to better achieve its 
foreign policy goals. But more money, better spent, is an important 
part of the answer. In today's difficult economic times, we must ensure 
that every dollar we spend is used as effectively as possible on the 
ground, and the steps outlined above are central to spending U.S. funds 
more effectively. So, too, is allocating our funds more wisely, with 
more funding going to low-income countries with the biggest needs and 
to better governed countries that can use it well. We can also allocate 
funding toward promising new innovations, such as Advanced Market 
Commitments (AMCs) for vaccines and other applications, and cash-on-
delivery programs that provide payment only after the provision of 
goods and services has been verified.
    But additional funding also will be necessary. President Obama's 
commitment to doubling foreign assistance is critical for the U.S. to 
meet some of its most important foreign policy and national security 
goals. The increased funding of recent years is a good start, but it 
was on top of a very low base, and is inadequate for the United States 
to fight poverty, state failure, and instability in low-income 
countries around the world. If we invest in solving global problems 
early--like halting the spread of new infectious diseases before they 
reach the U.S., and easing the suffering and indignity that foster 
anger and violence--we save both lives and money.
    To ensure stronger accountability for funds spent, we must 
establish much stronger monitoring and evaluation (M&E) and impact 
evaluation processes aimed at keeping programs on track, guiding the 
allocation of resources toward successful activities and away from 
failures, and ensuring that the lessons learned--from both successes 
and failures--inform the design of new programs. USAID--once a leader 
in this area--has lost much of that capacity, and is behind MCC and 
PEPFAR in terms of transparency.
    One important step would be to establish an independent office for 
monitoring and evaluating foreign assistance programs. This office 
should be responsible for setting M&E standards, training, conducting 
external studies, and collecting and making public all evaluations for 
the sake of transparency and learning. The MCC model is a best-practice 
in this regard and could be applied more broadly to USAID and other 
agencies. It is crucial that measures of ultimate impact be conducted 
independently of the designers and implementers of the programs. For 
that reason, the United States should support and ultimately join the 
International Initiative for Impact Evaluation (3IE), which brings 
together foreign assistance providers from around the world to provide 
professional, independent evaluations of the impact of development 
initiatives.
    Finally, a key component of ensuring that funds are better spent 
will be streamlining and reforming USAID's procurement processes and 
capacity--both in Washington and in host countries. To promote local 
ownership, procurement management capacity of host countries should 
also be bolstered. USAID should prioritize regular publishing of 
procurement plans, as well as program implementation to apprise 
partners of USAID's achievements and best practices. The timeframe of 
contracts should be long enough to achieve sustainable results. An 
expansion of contracts to 5 years would help reduce transaction costs 
and create incentives for implementing partners to focus on longer 
term, complex challenges. The establishment of a unified set of rules 
and regulations for foreign assistance funds would help reduce the cost 
of regulatory compliance and risk of noncompliance. To the extent 
possible, these rules and regulations should be harmonized with other 
bilateral and multilateral donors.

                             V. CONCLUSION

    Taking on these reforms will not be easy. Rebuilding USAID into a 
strong, modern development agency capable of addressing the myriad 
challenges of the 21st century requires investments in resources, 
organizational change, and real reforms. Yet change we must, and delay 
we cannot. The impact of the financial crisis--on our budget at home, 
and on escalating poverty abroad--reminds us of the imperative of using 
each and every one of our foreign assistance dollars with the maximum 
effectiveness, to achieve the greatest possible impact in poor 
countries. Likewise, the national security threats posed by fragile 
regions abroad--in Pakistan and Afghanistan and in unstable countries 
that tomorrow might be at the top of the U.S. agenda--point to the 
imperative of bolstering our ability to deliver development on the 
ground, and along with it stability and peace. It is time to take 
advantage of this unprecedented opportunity to modernize and strengthen 
U.S. foreign assistance and to deliver on the promise of development to 
serve as a critical pillar of our national security.

    Senator Menendez. Thank you, Doctor.
    Ambassador Natsios.

 STATEMENT OF HON. ANDREW S. NATSIOS, DISTINGUISHED PROFESSOR, 
     EDMUND A. WALSH SCHOOL OF FOREIGN SERVICE, GEORGETOWN 
                   UNIVERSITY, WASHINGTON, DC

    Ambassador Natsios. Thank you, Mr. Chairman. I would like 
to thank the committee for the invitation to speak this 
morning.
    Two former USAID Administrators, Brian Atwood and Peter 
McPherson, in two different administrations, and I wrote an 
article on foreign aid reform which appeared in Foreign Affairs 
in December of last year. I stand behind the analysis and 
recommendations we made in that article, which has been widely 
circulated in the development community and in the State 
Department, but I want to cover a few of those issues that are 
in that article.
    I am convinced no great power can maintain its preeminence 
without a robust foreign aid program. Given what defense 
intellectuals call the asymmetrical threats facing American 
vital national security interests since 9/11, we are likely 
entering a period in international affairs where foreign aid, 
humanitarian assistance, and long-term development may be the 
most important instrument of national power available to our 
policymakers, more important than diplomacy or military power. 
And I served as a diplomat for a while, and I was a military 
officer for 23 years; I retired as lieutenant colonel. My son 
is in the military. I'm very pro-military. The Defense 
Department is not a development agency, and neither is the 
State Department.
    President Bush accomplished three important tasks in 
foreign aid. He increased funding from $10 to $23 billion; he 
placed heavy focus in foreign aid on our foreign policy; and he 
made changes in doctrine and theory. However, the 
organizational structure is a different matter. It remains 
dysfunctional and very confused.
    Let me begin by talking about mission and mandate. Some 
will argue, in Europe and in the national system, that poverty 
alleviation should be the only mission of our assistance 
programs. I think that would be a mistake. While poverty 
reduction must be one of its central objectives, it is 
insufficient, as a mission alone for AID, given the threats 
facing America and our other friends around the world. The 
need, particularly of developing countries, to move away from 
aid dependency requires us to move beyond poverty reduction as 
an exclusive focus. We must also be engaged in state-building, 
and that is helping countries build the public and private 
institutions necessary to keep order, administer justice, 
provide public services, such as schools, health services, and 
roads, facilitate and encourage economic growth, and improve 
democracy to protect human rights and democratic principles.
    I want to just add, here--this is not in my testimony--we 
actually reorganized AID in 2001, prior to 9/11, to create a 
bureau focused on fragile and failed states. And when we did 
that, we made a whole series of reforms. If anyone's 
interested, either of you Senators, I'd be glad to, in the 
questions and answers, to go into the details of that. Much of 
that is still in place, and it's becoming more enriched.
    We moved democracy and governance--I moved democracy and 
governance--Carol, you know, wanted to be polite here--to the 
conflict office, which we created. There was no conflict office 
in AID before I was there. We created an Office of Conflict 
Mitigation because of this fact: We did a survey of the 70 
USAID missions in the field, and we asked them how many had had 
civil wars or major conflicts that traumatized the country in 
the preceding 5 years. I thought maybe five, six, seven, eight. 
Sixty percent of USAID missions were in countries that had 
civil wars in the preceding 5 years from 2001. Many of them had 
destroyed the countries. That needs to be a central focus--
state fragility and state failure--of what AID does. And that 
bureau was designed to do that, and people in the bureau know 
that. We moved democracy and governance there because 
governance is the reason for state failure, and it's the major 
threat to national security interests. The State Department and 
Defense Department call this ``ungoverned spaces.'' Ungoverned 
spaces mean state failure.
    Where was bin Laden's headquarters before he went to 
Afghanistan, a failed state? It was in Sudan, another failed 
state. And before that, in Somalia, another failed state. We 
are threatened by failed states. We must deal with this from a 
developmental standpoint, because it's a failure--essentially, 
a failure of governance.
    Because AID has been traditionally associated with the 
State Department organizationally, development and diplomacy 
somehow have become conflated. They are alike in every 
unimportant way, to paraphrase Wallace Sayre. While diplomacy 
is all about managing our relationships with other countries, 
development is about changing and transforming countries 
internally. That's not what diplomacy is about. USAID is a 
program management organization that hires, promotes, rewards, 
and trains staff to develop their skills as technical leaders 
in their disciplines, as good program managers, and highly 
operational people who get things done.
    The State Department is an information collection and 
analysis foreign policy coordination institution which values 
good writing, interpersonal political and negotiating skills. 
It hires and promotes generalists, not technical specialists, 
which is what AID does. Most career people in AID privately--in 
my own observations as a political appointee--would tell you 
the agency has far more in common with the Defense Department, 
in terms of organizational culture, than the State Department. 
The current gradual absorption of USAID by stealth, a term I 
borrowed from my friend Carol Lancaster, into the State 
Department to the merging of the agency's budgeting system, 
procurement system, which they're trying to get a hold of now. 
I hope they don't do that; it'll be very destructive to AID if 
State takes control of that. The electronic e-mail system--its 
logistics in the field, its office space in the field, its 
motor pools in the field, reduction of AID's field presence and 
warehousing capacity in the fields--all have been merged in the 
embassies. There's a whole focus on downsizing AID in the 
field. You cannot win a war by withdrawing from the 
battlefield, which is what we're doing now. And it's been done 
through three administrations. It is, in my view, a disaster. 
If this continues, it will paralyze the agency and we will not 
have a development function.
    This has nothing to do with political party or ideology. If 
you want a functional aid agency, you have to put them in the 
field, where they belong, and that's not what's happening.
    AID and the State Department are like oil and water. This 
is not an attack on the State Department. I served as a 
diplomat for a year and a half. I have great respect for our 
diplomats; they do excellent work. The two institutions do 
completely different things. State is now managing development 
programs that, I have to tell you--the only Federal agency, 
when I left AID, that did not do program audits in their IG 
office is the State Department. There's a reason for that. If 
they did program audits of their programs that they manage out 
of State, there would be a lot of very serious problems in this 
body. There's a reason they don't do program audits. They do a 
terrible job of managing programs. I remember, at one point, 
when the--what's that program in the Middle East--Middle East 
Partnership Initiative was set up. There was an instruction 
from Washington, ``Do not ever let anybody from AID manage the 
program. State's going to manage it.'' In one mission, the 
Ambassador said, ``I am not allowed to give AID this money. I 
must have the embassy mission,'' so they--she called in the 
U.S. Embassy nurse--not the nurse for the country, the nurse 
for the diplomats--to run the program. She quietly went to the 
AID mission director and said, ``I'm going to get in serious 
trouble. I have no idea how to manage health programs. I'm a 
nurse. Why are they giving me this program?'' Because there's 
no one else in the embassy to run these programs. The 
instructions to have AID not be involved in the MCC is one of 
the reasons the program is so slow in implementation in the 
field. These kinds of decisions make no sense, operationally, 
at all.
    While I support a Cabinet-level position, I am not certain 
there is political support for a change in Washington, so I 
believe in a good compromise. Senator, you properly said we 
need to be politically realistic; I completely agree with you. 
Complete organizational independence, with a dotted-line 
relationship from the Administrator of AID to the Secretary of 
State, not for the whole agency. I used to have desk officers 
who were 23-year-olds, trying to give assistant administrators, 
confirmed by the Senate, instructions on what to do, because 
everybody at State thinks everything in AID is completely under 
their control. I've had people--career people at State say, 
``It's a wholly owned subsidiary. You do what we tell you to. 
And don't make any comments. We know what we're doing.'' They 
know what they're doing in diplomacy, they're excellent 
diplomats; they do not know anything about development.
    I think the statutory responsibility of the AID 
Administrator should be, in law, as the chief international 
development officer for the United States Government for all 
agencies. That is the case, by the way--we already have 
precedent in the Foreign Assistance Act--in terms of disaster 
response. And it does make a difference. When we have a major 
international disaster, like the tsunami, I would say, ``I have 
a letter from the President of the United States, under Federal 
law, saying, I, as Administrator of AID, am in charge of 
disaster response for this,'' and the military carried out 
orders. You show that letter, they do what you ask them to. We 
didn't used to have fights in natural disasters, as a result of 
that. I think giving that authority to the AID Administrator, 
in law, would make a great deal of difference.
    I might also add that the legal authorities in the Foreign 
Assistance Act are to the Secretary of State, not to the AID 
Administrator. That's a big problem. If you're going to rewrite 
the Foreign Assistance Act, gentlemen, I think you should 
seriously consider vesting those authorities with whoever is 
the AID Administrator, statutorily. We now have 20 Federal 
agencies, like we did in 1961, when Jack Kennedy created AID, 
running our AID program. The way in which we're dealing with 
this is by having interagency meetings of four different 
Federal Cabinet departments coordinating $20 million programs. 
I mean, it's one thing to coordinate a $50 billion program, but 
$20 million? And the way we used to do it, and it's been done 
through several administrations, is lowest common denominator. 
If anybody objects to what anybody else is doing, they veto the 
program. So, it slows everything down. It means that domestic 
agencies that have no experience in the developing world can 
veto an AID program.
    During the cold war, OMB enforced an administrative 
discipline on the Federal system that all program moneys spent 
in development projects had to go through, and be managed by, 
AID. I asked career people at OMB, ``Did it work?'' They said, 
``Yes, it did.'' It collapsed in the early 1990s. If you want 
to discipline this properly, go back to the old system. That 
did not mean we didn't use other Federal agencies, but it 
meant, if the U.S. Geological Survey, which OFDA, the Office of 
Foreign Disaster Assistance, which I ran in the early 1990's, 
needs help in earthquakes, they contract with the U.S. 
Geological Survey, which has expertise in this area, to work 
for AID in the field. And so, they would join the technical 
teams, but there was never any doubt who was in charge. Now 
everybody does their own work with no real coordination.
    There's two Federal agencies and two different 
administrations that signed 20 to 30 agreements with sovereign 
governments in other countries to do development programs, when 
they had no resources to do it. And the mission directors would 
come back to AID--the ministers in the governments in the Third 
World--come back to AID, saying, ``Why aren't you implementing 
these programs?'' ``Well, we didn't even know the agreements 
had been signed.'' Neither did the ambassadors, I might add.
    I'd like to suggest two immediate reforms. PEPFAR office 
should be moved from State to AID.
    Senator Menendez. If you can wrap up for----
    Ambassador Natsios. Yes.
    And finally, I think the MCC Board should be kept in place, 
but the MCC field presence should be merged into field 
missions. And once the contracts--or the compacts are approved, 
the implementation should be done with the AID mission and the 
ministries in the governments in the countries, not in the 
separate--we have all these separate entities implementing 
programs; it doesn't make any sense.
    Thank you very much.
    [The prepared statement of Ambassador Natsios follows:]

  Prepared Statement of Andrew Natsios, Professor in the Practice of 
Diplomacy, the Walsh School of Foreign Service, Georgetown University, 
                             Washington, DC

    Mr. Chairman, I would like to thank the committee for the 
invitation to speak this morning. This is a matter of great importance 
for the United States. Two former USAID administrators, Brian Atwood 
and Peter McPherson, and I wrote an article on aid reform which 
appeared in Foreign Affairs in December 2008. I stand behind the 
analysis and recommendations we made in that article, but will review 
this morning a few of the issues we covered.
    I am convinced no great power can maintain its preeminence without 
a robust foreign aid program. Given what defense intellectuals call the 
asymmetrical threats facing American vital national security interests 
since 9/11, we are likely entering a period in international affairs 
where foreign aid, humanitarian assistance and long-term development 
may be the most important instrument of national power available to our 
policymakers, more important than diplomacy or military power, or at 
the very least, of equal importance. I know that members of both 
parties of this committee for some time have been trying to rewrite the 
Foreign Assistance Act to correct the current chaotic organizational 
structure, inadequate staffing, and confused mission of our current 
U.S. foreign assistance program which is spread out across 20 agencies. 
President Bush accomplished two important tasks in foreign aid: He 
increased funding from $10 billion to $23 billion, placed heavy focus 
on the foreign aid in our foreign policy, and made major changes in the 
doctrine and theory of our aid program. The organizational structure 
is, however, a different matter: It remains confused and dysfunctional.
    Let me begin by talking about the mission and mandate. Some will 
argue that poverty alleviation should be the only mission of our 
assistance programs. While poverty reduction must be one of its central 
objectives, it is insufficient alone as a mission given the threats 
facing America and our allies, and the need of developing countries to 
move away from aid dependency. We must also be engaged in state-
building, that is, helping countries build the public and private 
institutions necessary to keep order and administer justice, provide 
public services such as schools, health services, and roads, facilitate 
and encourage economic growth, and improve governance to protect human 
rights and democratic principles. This goes beyond an exclusive poverty 
focus.
    Because of the demand in this city (which has grown stronger over 
the past 15 years) for quicker, measurable, and quantifiable results 
our aid program has gradually moved away from institution-building, 
program sustainability, and capacity-building toward the delivery of 
services directly to poor people in developing countries. The HIV/AIDS 
PEPFAR program is one example of this. Building institutions takes a 
long time and a great deal of patience, requires local political will 
and leadership, and sustained funding, but it ought to be the ultimate 
objective of aid programs. Progress in building states can not be 
easily quantified as required by Federal law, OMB, GAO, and IG audit 
requirements. One of the major reasons that OMB phased out funding for 
USAID scholarship programs, one of the most successful programs in 
doing institution-building, is that its outcomes can not be easily 
measured, particularly over the short term. The focus on measurement is 
now mandated under Federal law, called GYPRA (Government Performance 
and Results Act). This is also one reason USAID programming has become 
increasingly risk averse, avoiding experimentation and innovation, 
because new approaches increase the risk of project failure which the 
regulatory apparatus in Washington was designed to minimize.
    We can correct some of these problems through reform. The 
grantmaking portion of USAID's portfolio should be redefined and 
overhauled to encourage new nontraditional partners, more indigenous 
organizations and institutions, and new experimental approaches to 
development, a clear exemption of grants from results measurement 
requirement for all aid programs (allowing that there will be failures 
sometimes), with a more lenient standard for IG audits, GAO 
evaluations, and OMB oversight (so long as there is no malfeasance).
    Much of what people say is wrong with our aid program regardless of 
which agency is running the program is more a problem with the Federal 
Government broadly and this has to do with the regulatory environment 
in which all Federal agencies must do their work. Our aid programs must 
conform to the 1,982 pages of the Federal Acquisition Regulations which 
govern all Federal procurements. It has no control over the 
contradictory demands made on it by the Congress, State, OMB, IG, and 
the GAO. I found the most frustrating element of my job was getting 
agreement among overseers to do anything complex took a very long time 
and this was because stakeholders and overseers often disagree with 
each other even on mundane matters. As the committee, I am sure knows, 
unlike most other Federal departments the work of our aid agencies is 
not done in the United States but developing countries of very 
different culture, norms, and worldviews which do not always see things 
exactly the way people do in countries contributing the funding. If we 
are to undertake successful development programs they must be tailored 
to the local circumstances or they will fail.
    Because USAID has been traditionally associated with the State 
Department organizationally, development and diplomacy have somehow 
become conflated. They are alike in every unimportant way, to 
paraphrase Wallace Sayre. While diplomacy is all about managing our 
relationships with other countries, development is about changing and 
transforming countries. The State Department focuses on managing 
external relationships and short-term crisis management; USAID focuses 
on long-term transformational change inside other countries through its 
development portfolio. Certainly over the past 15 years USAID has 
become much more skilled at assisting our military officers and 
diplomats in crisis management, but at the heart of it the three D's 
are very different instruments of national power. The tools of the 
development professional in USAID are technical expertise in 
development sectors, country strategy papers, procurement instruments, 
assessment and evaluation tools, financial spread sheets, and 
implementation plans. USAID is a program management organization which 
hires, promotes, rewards, and trains staff to develop their skills as 
technical leaders in their disciplines and as good program managers.
    Conversely, the State Department is an information collection, 
analysis, and foreign policy coordination institution which values good 
writing, interpersonal, political and negotiating skills. The current 
gradual absorption of USAID by stealth into the State Department 
through the merging of the agency's budgeting system, procurement, 
electronic mail system, its logistics, office space, motor pool, 
reduction in USAID field presence, and warehousing capability in the 
field, is gradually eroding the Agency's capacity to carry out its 
mission. OMB has been facilitating this merger using the argument of 
efficiency, ignoring the program consequences of this merger. I believe 
the result will be organizational failure. Unless this trend is 
reversed the foreign aid program of the U.S. Government will end up the 
way our public diplomacy program did when State absorbed USIA. USAID 
and State are like oil and water. This is not an attack on the State 
Department. I served as a diplomat for a time and I must say I have 
great respect for our diplomats and for the fine work the State 
Department does around the world, but that work should not be confused 
with development. If the Congress intends on having a competent 
international development agency, its independent policymaking 
authority over the allocation of its budget with a direct-line 
relationship to OMB should be restored and its business systems made 
once again independent. Structurally a reformed foreign aid agency 
should be organizationally independent of the State Department.
    While I support a Cabinet-level position I am not certain there is 
political support for such a change in Washington, and so I believe a 
good compromise would be organizational independence with a dotted-line 
relationship to the Secretary of State for the Administrator of the 
Agency with an independent statutory seat on the NSC, statutory 
responsibility of the USAID Administrator as the chief U.S. 
international development officer, as the coordinator of international 
disaster assistance for the U.S. Government, and independent legal 
authorities for the Agency under the Foreign Assistance Act.
    Having foreign aid programs run by 20 different Federal agencies 
embarrasses the U.S. Government abroad with contradictory programming, 
endless transactional costs in program implementation, time delays, 
interagency fighting, and unclear decisionmaking. For example, over the 
past 12 years two Federal departments have written Memos of 
Understanding with dozens of countries to provide technical assistance 
without funds to carry out the programs, no staff, no field presence 
and no coordination with the embassies or USAID missions. None of the 
agreements have been implemented which has been an embarrassment to the 
U.S. Government. Inevitably the country Cabinet Ministers who signed 
the agreements end up in the USAID mission director's offices asking 
why the program hasn't started, which the USAID mission were not party 
to. During the cold war, OMB enforced an administrative discipline on 
the Federal system that all program money spent in development projects 
had to go through and be managed by USAID, a discipline which ended 
with the cold war. We should restore the discipline now that we have a 
new war on our hands. One of the principles of war I learned as a 
military officer was unity of command; that should be equally true for 
aid programs with the U.S. Government as well.
    I would like to suggest several organizational changes to improve 
the structure of our aid program. One immediate change would be for the 
PEPFAR HIV/AIDS Office in State to be moved to USAID where it properly 
belongs. The independent MCC board should be kept in place, along with 
the indicators and central staff to review proposals and do 
evaluations, but the field presence of the MCC should be merged into 
the USAID mission abroad and have a reporting line back to Washington. 
The sector earmarking by both the executive and legislative branches of 
all development spending outside the MCC has come at the cost of local 
ownership, local leadership, and decentralized decision making. The 
World Bank, U.N., and European aid agencies are now generally moving to 
much greater degree of decentralization, while our aid program, which 
had been for decades the envy of the development community because of 
its high level of decentralization and heavy field presence, is being 
centralized in the State Department through the F process. This has 
been further aggravated by the sector earmarks of OMB and 
appropriations process which now absorb any remaining discretionary 
funding in the accounts. I think the abolition of sector earmarks is 
unlikely, and thus I would suggest this committee consider giving USAID 
mission directors transfer authority of up to 10 percent (or more) of 
the country budget allocation out of one or more earmarks to another 
priority demanded by the local situation, with full disclosure to 
Washington. This would mean total sector earmarks spending levels would 
not be exactly the same as required by law. I would urge Congress to 
support the tripling of the size of the USAID Foreign Service to 3,000, 
which would require a relaxing of embassy restrictions on the size of 
USAID field staffs, the rewrite of the embassy security statute to 
allow more flexibility to get staff to the field and then let them 
leave the embassy compounds more regularly. The Embassy Security Act is 
now a serious impediment for USAID getting its work done.
    Finally I would add that USAID did its job exceptionally well 
during the cold war and was regarded as the preeminent development 
agency in the world 20 years ago. When the bipartisan coalition behind 
foreign aid ended with the collapse of the Soviet threat, the base of 
support eroded and led to the current weakened agency. If the United 
States is to have a robust development agency to match its diplomatic 
and defense capability, a bipartisan coalition is needed to sustain the 
program over the long term. My hope is that the Congress will move to 
form the bipartisan coalition support base once again.

    Senator Menendez. Thank you. Thank you all.
    Let me start a round and then turn to Senator Corker, and 
we'll go from there.
    I think it was a very thoughtful beginning, here. And, Dr. 
Radelet, I know you started off with a broader view, and I 
think that the chairman of the full committee will, hopefully, 
be holding a hearing soon that will start there, and we'll 
continue to work with him on these other issues. But, we wanted 
to start with AID.
    And in the context of so many varying opinions, I had my 
staff do a little chart for me about various organizations and 
significant individuals who have made key recommendations for 
foreign assistance reform. So, I did a little chart. And, you 
know, it varies. There are some that are fundamental across-
the-board common views, but with so many studies having so many 
varying opinions, I'd like to ask all of you, for starters, on 
the best--you know, on those overall studies, on the best way 
to reform foreign aid's structure. What, in your opinion, are 
the two top reforms? And how would they affect USAID in that 
context?
    You have had several--several of you have listed several, 
but if I were to say to you, ``What are the two top reforms, in 
priority order, and how will they affect USAID in that overall 
structure?'' what would you say? Any one of you who choose to--
--
    Professor Lancaster.
    Ms. Lancaster. Yes. Well, I am of the opinion, both from my 
scholarly background, but also, importantly, from my many years 
in the U.S. Government, that organization is politics. Where 
you put something organizationally has a great deal to do with 
how it functions and what its mission is, no matter what's 
written down on paper. The most pressing concern I have is the 
relationship between AID and the State Department. That has to 
be, as both of my colleagues have said, a relationship that is 
compatible, but leaves enough autonomy for USAID to protect its 
development mission.
    I remember, just as an anecdote, when I was hired as the 
Deputy Assistant Secretary of State for Africa, the Assistant 
Secretary--then-Assistant Secretary said, ``Your job is to raid 
the aid budget.'' And--in those words--and I tried. And often I 
failed.
    Senator Menendez. To what? Raid?
    Ms. Lancaster. Raid the aid budget.
    Senator Menendez. Raid the aid budget, OK.
    Ms. Lancaster. I tried, and often I failed.
    Senator Menendez. Like the pirates off the----
    Ms. Lancaster. Sorry?
    Senator Menendez. Like the pirates off the coast----
    Ms. Lancaster. Yes, that's right. Except that they're more 
effective than I was. [Laughter.]
    And the reason I was so often ineffective was that there 
was enough space, if you like--bureaucratic space--between 
USAID and the State Department so that when I had to go out on 
a particularly stupid mission, I could be resisted. The only 
way I could make a real dent was if I could engage the 
Secretary of State. That's a lot harder--it would not be a lot 
harder to keep me contained if, ultimately, everything is under 
the same chain of command. So, that has always been a concern 
for me. That's No. 1. Where that ends up is going to make a 
huge difference into what we do with foreign aid funding.
    The second thing is the capacity of USAID. Even an 
autonomous agency cannot do the job we needed to do if that 
capacity isn't greatly, greatly strengthened. And AID needs to 
be able, not just to implement and evaluate--and I so much 
agree with Steve, that's an important thing--but, to think, to 
be able to engage in policymaking.
    The relationships with the other agencies are very 
important, but I think these two are my top priorities.
    Mr. Radelet. I would suggest, as No. 1, the legislative 
reform with the Foreign Assistance Act, for a variety of 
reasons, on the restrictions and earmarking; but, as a key part 
of that foreign assistance reform, to get the relationship 
between USAID and State correct, as part of that legislation. 
So, I completely agree on the core issue of the division of 
responsibilities between State and AID, and my concern that, 
over time, as things move toward State, that that is 
fundamentally weakening. So, that's No. 1.
    And second is the capacity issue of getting the right 
numbers of staff and the right kinds of skills at AID, which 
has been so significantly diminished over the last 15 years, 
and needs to be very seriously rebuilt.
    Ambassador Natsios. Mr. Chairman, I completely agree with 
my two colleagues, but let me add one other thing, and that is 
the staffing levels. We cannot run AID with 1,000 Foreign 
Service officers and 1,000 civil servants. The budget doubled 
and our staff declined. This doesn't make any sense. If you 
want AID to do the work itself, you need to increase the size 
of the career service--and that's happening now.
    But, there's something else that has to happen. And 
unfortunately, I'm not sure it's in the control of the 
committee--the Senate Committee on Foreign Relations--I wish it 
were. And that is, there is an act which has told the embassies 
to downsize the U.S. Government presence in the field. After 
the 1998 embassy bombings, the Government--the Senate--the 
House and Senate committees that deal with government 
operations wrote an Embassy Security Act, which basically 
creates huge walls around the embassies, puts the AID compounds 
inside the embassy. By the way, that's isolating us from civil 
society, which is the lifeblood of AID in the field. People are 
afraid to go see AID now, because they--I mean, people from 
local civil societies see all of the security barriers, they 
don't even want to come into the compounds anymore. We used to 
have separate buildings. And I might add, they were secure 
buildings, too. And our staff has been reduced in size. If you 
increase the number of Foreign Service officers, they're all 
going to stay in Washington unless that law is changed.
    And there's another problem, and that's the merger of the 
business systems that is happening in the field and in 
Washington. OMB is pushing this, under the guise of efficiency.
    Let me tell you what really happens. AID motor pools are 
being merged into State's all over the world--or was abolished. 
So, we must now wait in line for five other bureaus within the 
State Department--that always have priority, because they're 
within the State Department--for the drug-control people, the 
economic counselor--to get out to see a project. We used to 
have our own motor pools. We don't have those anymore. They are 
being gradually phased out.
    We used to have our own warehouses run by Foreign Service 
nationals. It costs very little to run this. They're being 
merged into State. We don't even have control over our 
warehousing. That's a serious problem; and unless that's 
corrected, it seems to me, the operational capacity of AID to 
get stuff done is already compromised; is going to be 
compromised further.
    Senator Menendez. Let me ask one quick followup question, 
Dr. Radelet. You've mentioned the rewrite of the Foreign 
Assistance Act several times. And I think that is a very worthy 
goal. I also think it is a significant challenge to ultimately 
achieve. So, as--and I know that Congressman Berman, on the 
House side, is very much focused on this, and we share his 
desire. But, while we seek to attain that goal, you've all 
mentioned that the train is already leaving the station in some 
critical issues, of which AID is not there at. So, how does 
one--does not one need to move on this now? While we seek the 
greater aspirational goal of having a rewrite of AID, do we 
need to seek to create certain authorities now within that 
context? Otherwise, I think we're in trouble. That's one 
question, specifically to you.
    And all of you have mentioned capacity. Ambassador Natsios 
actually quantified it. I wondered if you both would quantify 
for me, and, to some extent, qualify it, as well, and then I'll 
turn to Senator Corker.
    Mr. Radelet. On the first question, I think you're 
absolutely right, and I think the answer is to move as quickly 
as possible on the things that can be done today--and there are 
many things that can be done with the current legislation--but, 
at the same time, to set the foundation in to work, over the 
time required, which will be a while, to move forward on the 
Foreign Assistance Act. But, we've been waiting for 48 years, 
so if it takes another few months or a year or two, that will 
be OK.
    But, there are certain things that can be done. Staffing, 
for example, can be increased. A stronger monitoring and 
evaluation capacity can be rebuilt, within the legislation. 
Although there are restrictions, there are ways that those can 
be used more flexibly. Some changes can be made on procurement. 
There are a number of things that can be done now, while the 
foundation is laid to move forward on the deeper reforms. So, 
it should absolutely not wait, it cannot wait, it should not 
wait.
    But, at the same time, to only do the rather modest reforms 
that can be done without the broader legislative reform will 
only lead to modest improvements. And those modest improvements 
can be easily reversed by whoever--in the future. So, I think 
we need to take advantage of this opportunity that we've had, 
which last for decades to really make the fundamental changes 
that will last for decades to come. Modest changes won't do it, 
in the long run.
    Senator Menendez. Professor.
    Ms. Lancaster. At great risk to my reputation, I'm going to 
disagree with Steve a little bit, here. I think it's a very 
good idea to rewrite the Foreign Assistance Act. But I think 
it's going to be a huge political lift, both in the Congress 
and on the part of the White House. And I hope it happens, but 
I realize the world we're living in. I think we can do more 
than modest reforms, otherwise. We did not rewrite the Foreign 
Assistance Act to create the Millennium Challenge Corporation. 
And I think some of the things we're talking about here can be 
done in other ways, whether it's a small piece of authorizing 
legislation or, God forbid, through the appropriations process.
    On capacity I think it's very hard to put numbers on 
capacity, at this point. I think we can identify functions. The 
policy function ought to be in AID for AID. The same for 
monitoring and evaluation. But, the size of those functions, I 
think, will depend on resolving some of these other issues. 
What is the role of AID going to be? Where is its strategy 
going to take us? A lot of that, we'll have to sort out as a 
result of some of the organizational issues, because they're 
all wrapped up together there.
    So, numbers, if that's what you are seeking, are hard to 
estimate at this point, until we sort out the fundamental 
questions.
    Senator Menendez. Senator Corker.
    Senator Corker. Thank you, Mr. Chairman. And I thank each 
of you for your service and testimony.
    Mr. Natsios, I know, mentioned that the mission of USAID 
ought to be more than poverty alleviation, it ought to also be 
state-building, and I'd love to--neither one of you, I don't 
think, specifically mentioned that in your testimony, and I 
guess, before we move down the path of how to organize USAID, 
is there an agreement, I guess, among the three of you, that 
that dual mission is what USAID ought to be about?
    Mr. Radelet. I agree, I actually think of three missions. 
One is economic growth and poverty reduction. The second is 
state-building, building capacity, including encouraging 
democratic governments, over time, to emerge. And the third is 
responding to humanitarian crises, which is a little bit 
different from the other two. But, I think those three, I would 
put at the top as the core objectives.
    Senator Corker. Professor.
    Ms. Lancaster. I'd just like to add one thought--two 
thoughts, actually. I would add another priority, which is 
already there, and we need to----
    Senator Corker. They're sort of getting watered down, 
aren't they?
    Ms. Lancaster. There are only four. Only four, not 50. 
[Laughter.]
    And that's addressing global issues, which I don't think we 
can avoid. I think it's already a great deal of what we do. 
Things like the spread of infectious disease--HIV/AIDS is led 
by PEPFAR, but USAID inevitably comes in behind to help that 
work. And, of course, I think we're moving into an area where 
we're going to be concerned about adapting and mitigating 
climate change. So, I wouldn't put those off the table. And 
there may be more of a coordinating function than an aid 
function, but I think it needs to be there.
    I just have one other thought with state-building. I think 
it's great to put state-building in there. I think we have a 
lot of work to do before we figure out how to do it right.
    Senator Corker. So, on that note, there was a recent long
op-ed, I guess, in the Wall Street Journal by a lady named Ms. 
Moyo, talking about our foreign aid to Africa has actually 
helped corrupt many governments there. Again, I say this--I'm a 
very strong supporter of foreign aid. I think we have got a 
long ways to go to get it right. So, we talk about, you know, 
USAID being involved in state-building, and we talk about it 
being separate from the State Department. And yet, there is a 
conflict, I think, there between the relationship of State 
Department to these foreign governments and the work that USAID 
might build--might be involved in, within these states, in 
trying to build a government that is less corrupt, is more 
transparent, and builds on democratic principles. So, I'd love 
for you all to sort of help us understand how that conflict, 
which would be major conflict, could be resolved, and also any 
editorial comments you might have about the op-ed itself.
    Ambassador Natsios. If I could just make a comment about--I 
haven't read her book yet. I'm writing my own book now. And I 
need to read it. But, there is a series of books, that Bill 
Easterly has sort of encouraged, that is the opposite of 
Jeffrey Sachs' sort of utopianism. I think they're both wrong. 
I've read reviews of her book. She seems to be talking more 
about aid programs that go through the governments of sub-
Sahara Africa. AID does not do any budget support in sub-Sahara 
Africa, so there's very little corruption in aid programming in 
Africa, because it doesn't go through the governments that she 
says are corrupt. There is criticism that AID has built a 
parallel structure of contractors, universities, and NGOs to do 
their programming. We do work with the governments, but we 
don't put the money through them, because we had a lot of 
problems of the kind she talked about.
    She's more criticizing the European budget approach, which, 
instead of doing their own programming, they go through the 
government ministries, through just giving them a check. And 
the World Bank, of course, always goes through governments, 
because they are dealing with sovereign debt, in most cases.
    I actually agree with her that, in countries that have very 
weak institutions, it's very unwise to put large amounts of 
budget support. We stopped doing that, 15, 20 years ago. So, I 
think some of her criticism is misplaced. It's making 
generalizations about all aid programs, when they're not all 
alike. They're very different from each other, depending on the 
country running the program.
    Mr. Radelet. Ms. Moyo has an opinion that is shared by some 
in Africa, but it is a decidedly minority opinion. As on just 
about any issue in the world, there are people with a range of 
wide reviews. I spend a lot of time in Africa these days, 
mostly working in Liberia or working with President Sirleaf and 
many others there, and this is a very--Ms. Moyo's views is 
decidedly a minority.
    I have read the book. I think it is very weak analysis. And 
I think it does not do justice to the facts. The idea that aid 
has not worked as effectively as possible is absolutely right. 
The idea that aid is the cause of Africa's slow growth over the 
last three decades, which is her thesis, just has no--I don't 
think there's any academic, intellectual, or other support for 
that view.
    Mr. Natsios is right, these extreme views, as with extreme 
views on any issue, are not particularly helpful to moving 
forward.
    There is a challenge----
    Senator Corker. But, let me--I mean, I expected that you 
might say that, and I understand the difference between 
budgetary support and----
    Mr. Radelet. Right.
    Senator Corker [continuing]. And direct aid to citizens. 
But, the conflict also that exists between USAID and State 
Department still seems to be an--and that was not addressed; if 
you could also speak to that as you're answering.
    Mr. Radelet. Yes. There is the conflict between the two, 
and I think that this requires the real development expertise 
that can balance the objectives of needing to work with weak 
states that are not perfect, that do have corruption problems, 
that do have weak governance; but, at the same time, they are 
places where we have goals and objectives, where we need to 
work. I think what this means is that we need a development 
agency that can--that has more flexibility to work with 
different kinds of countries in different ways, and getting 
away from kind of a one-size-fits-all. The MCC is a terrific 
first step in that direction, where, in the better-governed 
countries, where there is less corruption, we give longer term 
commitments, we give those countries more say in making sure 
that what we're doing is consistent with their objectives, and 
we're working with their systems to try to build those systems 
up. That kind of approach would not work in a Zimbabwe or other 
places, where there's a completely, not functional, or 
government that's creating many problems, where we would never 
give the President of Zimbabwe or leaders in other countries 
the say in where our U.S. funding should be allocated. There we 
would work through NGOs and nongovernment types of agencies, 
try to address the immediate needs, as we can, have a shorter 
term perspective, and work in a very different way. And then 
there are countries in between.
    We need to have a different set of approaches for different 
countries, based on their level of governance, their commitment 
to strong development and poverty reduction; and, in countries 
that are moving in the right direction, we need to give them 
stronger support, longer commitments, and more scope to work on 
it; whereas, countries where there is greater corruption, we 
need to work around the governments and try to support NGOs and 
nongovernment actors that can meet more immediate needs.
    Ms. Lancaster. Senator, could I just take another----
    Senator Corker. Sure.
    Ms. Lancaster [continuing]. Shot at this question? Because 
I see your question in bit of a different light.
    Pakistan is actually the interesting case right now, but 
you could take Egypt, as well, where there is a potential 
conflict between how much aid we give and what we do with it 
for diplomatic purposes and for development purposes. And I 
think we have to recognize that it's absolutely essential that 
the Department of State have funding that backs up its 
diplomacy. I don't think anybody contests that. And sometimes 
that money goes to countries whose governments are not the 
best. Zaire was the poster child for poor governance in the 
1960s and the 1970s. The volume of aid and sometimes its uses 
are decided based on diplomatic purposes, because we are 
strengthening an ally or rewarding a country that's obviously 
done us a favor even though that aid is often implemented by 
development agencies. That kind of money, economic support 
funds, ought to be used and identified as something separate 
from development assistance funds. What I think worries a lot 
of us is when development assistance funds are allocated 
primarily for diplomatic purposes.
    Senator Corker. My time is--thank you, and my time's up. 
And I'm--keep going? Sure. Thank you, Mr. Chairman. [Laughter.]
    That's post-partisanship. I thank you so much. [Laughter.]
    So, let me follow up a little bit on--I mean, do you think 
that, the three of you--you know, we have, you know, an 
expanding mission as we move from right to left on the table, 
from whence I'm looking--do you think there is a--is it that 
same sort of internal discussion that takes place between State 
and USAID that sort of drives us to end up having 20 different 
organizations that are carrying them? And how--what--the three 
of you have a sort of a different vision. I know that they're 
little microdivisions, but do you think the three of you could 
quickly--and I'm not asking you this, but--come up, in a day or 
so, with a mission that you all agree upon, the three of you, 
coming from different backgrounds? So----
    Ambassador Natsios. The mission that Steve mentioned, I 
agree with. I ran the humanitarian aid functions for many 
years. I've written many books about it. I didn't intend to 
leave that out. I was adding in state-building to poverty 
reduction and economic growth, because it's not discussed 
enough in the literature. But, Steve is correct. AID is the 
preeminent emergency response agency in the world. I mean, 60 
percent of all of the emergency response funding for the 
disaster in Darfur comes from AID. So, we don't want to 
compromise that. It works very well.
    Senator Corker. And then--so, we'd move on out into, you 
know, issues--climate change, the effects, adaptation issues--
we'd move on out into PEPFAR and all--we would all agree that 
those things would come under the same umbrella.
    Ambassador Natsios. Well, I believe--Carol and I would 
disagree on this--I think the notion of global issues--global 
issues are dealt with in countries. There's no such thing as a 
PEPFAR program, except in the countries in which people have 
HIV/AIDS. And we use the health ministries, we use the church 
community and Muslim groups to help us. We use civil society 
and private hospitals, but we work in the context of the 
institutions of the country. That's state-building.
    So, I think--state-building includes the Ministries of 
Health, it includes civil society in those societies. So, I 
think you can include those global issues, in terms of building 
up the state structures to deal with these global issues. It's 
not that we should ignore them, it's the context in which we 
deal with them.
    Ms. Lancaster. Yes, I think that Andrew and I are probably 
differing on packaging rather than anything else.
    I think that all of us, probably would share those goals.
    Mr. Radelet. I think so. There's no way that we can ignore 
global issues, like HIV/AIDS and climate change, but those 
need--our support for those issues need to be developed in the 
context of specific countries and, I think, come under part of 
the rubric of poverty reduction, frankly, because if we don't 
address those kinds of issues, that gets right at the heart of 
poverty.
    What the global issues call for is coordination across our 
different programs in different countries, particularly 
neighboring countries, but sometimes even beyond neighboring 
countries, to make sure that the approaches that are being 
taken in one country on endemic disease are consistent with the 
approaches taken in the country next door, because disease does 
not honor international boundaries.
    So, I think it is--I think we are consistent.
    Senator Corker. Mr. Chairman, thank you for the time. I 
know Senator Casey has arrived. I have a number of other 
questions. I don't know how long the hearing will last, but I 
know it's time for Senator Casey.
    Senator Menendez. We'll--depending upon members, we'll 
see--we'll see if we can stay a little longer.
    Senator Casey.
    Senator Casey. Thank you, Mr. Chairman. I appreciate you 
calling this hearing.
    This is a topic that so many people who care about how the 
United States conducts its foreign assistance have been 
concerned about for an awful long time, and are worried about 
how we deliver that and the reforms that need to take place.
    I wanted to, first of all, thank each of the witnesses for 
your testimony, for the perspective that you bring to this 
issue from long years of experience. And I guess I wanted to 
start with the issue of organizational reforms. And some of 
this, I know you've covered in your statements and you may have 
responded to by way of answering questions of my colleagues, 
Senator Menendez and Senator Corker. But, it doesn't hurt to 
repeat yourself, if you have to, on this.
    First of all, with regard to the suggestions as to how to 
streamline Federal agencies that currently handle our foreign 
assistance, I wanted to--first of all--refer to Ms. Lancaster's 
opening statement. You said there's only a notional division of 
labor between USAID, the Millennium Challenge Corporation, and 
PEPFAR, and the latter two programs, obviously established 
under the Bush administration, and work on different 
development models than that of USAID. How would--the basic 
question I have is, How would coordination between these three 
major bilateral aid programs work? What's the balance that we 
need to strike, here?
    Ms. Lancaster. Well, there is a little bit of a crossover 
between USAID and PEPFAR in dealing with international health 
issues. And in particular, I see PEPFAR as facing a challenge 
to its effectiveness if some of the elements that are needed to 
make HIV/AIDS campaigns effective are not there, including 
nutrition and adequate food and so on. So, there is a notional 
division of labor there. I am a little concerned, though, that 
the enormous size of the PEPFAR budget could really absorb a 
lot of the development budgets in the countries where PEPFAR is 
operating, because of its gravitational pull.
    There has been a little bit of a division of labor between 
AID and MCC. AID is doing some of the threshold work in 
countries teeing up for an MCC compact. However, I think there 
are still places where two or three of these agencies are still 
working. I would think, together, they might be able to find 
synergies that would make each of them a little more effective.
    Senator Casey. Yes?
    Ambassador Natsios. If I could just add. PEPFAR does not 
exist in the field. There are only two agencies, basically, 
spending the money--the Center for Disease Control and AID. And 
HHS got into this, with CDC, using the same AID contractors, 
the same AID health experts, the same AID partner NGOs, doing 
the same thing in the same countries. It actually makes no 
sense, organizationally, and there's constant conflicts in the 
field. The ministries of health don't know who to go to 
sometimes, and there's all these turf wars. It's useless. 
PEPFAR is simply a coordinating office in the State Department. 
It has no business being in the State Department. What does the 
State Department know about disease prevention and program 
management? Those functions belong in AID.
    You know, the three functions that AID still is a leader 
in, intellectually, in the world are the ones Steve mentioned. 
If you ask European aid agencies or the World Bank, Where is 
AID preeminent? It's in disaster response, civil wars, 
conflicts, natural disaster; it's in economic growth and 
poverty reduction from a private-sector point of view; and it's 
in international health. The preeminent international health--
bilateral or multilateral--is AID.
    This was done for political reasons. PEPFAR could be moved, 
with no effect in the program, simply into the International 
Global Health Bureau in AID.
    In terms of MCC, the MCC board, the way the Congress 
designed it, is protecting the program from use of the money 
for other nondevelopmental purposes. Let me put it in a 
diplomatic way. I've watched attempts to raid the budget, 
because I used to sit on the board. And the fact that you have 
all these people making these decisions on which countries get 
their compacts approved makes great sense. I would not touch 
the board. It protects the integrity of the program. The local 
control of this makes sense. What does not make sense is having 
an education program in the country where AID has an education 
program and there's a compact program in the same country.
    And you know who's hiring--being hired to run the AID 
program--the MCC programs in the field? Retired AID officers. 
When they started the MCC, they said, ``We want nothing to do 
with AID. AID's the problem.'' Then everything got all screwed 
up and people were removed from positions, and now the rule 
is--``we want retired World Bank people and retired AID 
officers.'' If you look at a current roster, they're mostly 
retired AID officers. So, it's not as though there's a culture 
conflict, because they're the same officers who ran both 
programs.
    So, putting the AID--the implementation of the program in 
the AID--as a separate division in the USAID missions in the 
field would not be any kind of a stretch, organizationally. And 
in many countries, do you know where the office space is and 
the technical support for the MCC, informally, is? It's in the 
AID missions. They physically sit there.
    Mr. Radelet. The Office of the Global AIDS Coordinator and 
the MCC were set up as separate entities from USAID because of 
the belief that USAID did not have the institutional strength 
to take on these responsibilities. The better solution would 
have been to address that problem several years ago, but that 
wasn't taken on. Now we have the opportunity to do that.
    It is exceptionally odd that we have an HIV/AIDS program at 
the State Department. It has nothing to do with diplomacy. It 
is a technical health problem with much broader implications, 
beyond HIV, into nutrition, into health systems, into 
agriculture and livelihoods, that affect people's capabilities 
to prevent HIV and to deal with it, if they happen to contract 
it. That needs to be moved back into AID. And the MCC, as a 
fundamental economic growth program, also obviously, properly 
belongs in a strong development agency.
    The right way forward is not to merge those in, today, but 
to rebuild AID and give it the capacity and the strong 
professional--the leadership and the professional capacity that 
it needs, and then, at the appropriate time, move those back 
in, as separable entities within a strong development agency, 
so they can continue to do the great work that they are doing, 
with the special characteristics that the MCC and PEPFAR have, 
but under a strong leadership so that they can be better 
coordinated and better integrated with the other development 
programs that will make them, ultimately, more successful. 
That's the right way forward. It'll take us a couple of years 
to get there, but having them as separate entities with 
everyone stepping on each other's toes and poor coordination 
doesn't make sense and won't work in the long term.
    Senator Casey. Well, thank you very much, that's very good 
advice. Thank you.
    Senator Menendez. Let me indulge the panel just for a 
couple more questions, here. I don't know if Senator Corker 
will have some more, but--you all listed--when I asked you 
about the two major reforms, and how they would interface with 
AID, pretty much came up with a consensus view that 
independence and capacity were important. Let me ask you a 
broader question, Which agency should take the lead on 
coordinating all U.S. foreign aid?
    Mr. Radelet. Let me answer that in terms of development, 
more broadly, because it's a slightly different answer, here. I 
think, in terms of development, more broadly, and U.S. 
engagement to support development, I think the NSC has to play 
a strong role in developing a strategy that brings together 
agencies that talks--that brings together, strategically, 
foreign assistance, trade, migration, other development 
policies. So, at that development level, NSC.
    In terms of foreign assistance, AID should be the premier 
organization under which many of our foreign assistance 
programs are consolidated. Whether we bring all of those 
together, one can debate whether every little thing should be 
brought together, or not. But, certainly what is now in AID, 
much of which is what is now done by the Defense Department, 
the MCC and PEPFAR should be brought under the umbrella of a 
strong development agency. And also, arguably, our multilateral 
development policy, which is at Treasury, which, therefore, is 
somewhat divorced from our bilateral programs that are 
elsewhere. So, I think those core things should be brought 
together under a strong agency. It can't happen now, but if AID 
is strengthened in the way that all of us would like to see it 
strengthened over the next couple of years, that should create 
the opportunity to bring at least those core programs together.
    Senator Menendez. Anyone else, or you all agree on that?
    Ambassador Natsios. Let me just add one comment about the 
notion of the use of foreign aid for diplomatic purposes. Carol 
has spoken to it, and I agree with what she said. But, the 
Defense Department--I, you know, lecture a lot at the National 
Defense University, and read their journals, and publish in 
their journals, so I know the Defense intellectual world a 
little bit. And they have an interest in this that's very 
direct. You know, my son is training to become an officer, and 
he will be shortly, and I'm a little worried. And I know that 
what we do in development is going to affect him in the field 
when he goes--and he's going to go into combat, I'm sure.
    So, we can't say to the Defense Department, ``It's none of 
your business.'' We created an Office of Military Affairs. It 
was very controversial when we created it. State didn't want me 
to do it. They said, ``You go through us to get to Defense.'' 
We put Foreign Service offices, for the first time, in all the 
regional combatant commands, which we never had before. There 
are 66 AID officers or staff on the PRTs, Provincial 
Reconstruction Teams, in Afghanistan right now, including 18 
professional Afghans working for AID. So, we're involved in 
doing planning all over the world on this.
    I think the Defense Department actually has something we 
need, which is--when I talk about the $3 or $4 billion they're 
spending on development, they don't know how to spend it. They 
privately admit to me they don't want to spend it, but they 
want it spent in the countries. For example, there's no AID 
mission in Mauritania, in Niger, or Chad. There are serious 
terrorist threats to those countries. They want programs there. 
And State Department does, too. The Defense Department has an 
account, the 1206 account. It says they can't spend the money, 
but they can give the money to another agency.
    I think what they should be allowed to do is decide which 
country to spend the money in, and the overall level of 
spending out of those accounts, but the programming of the 
money, the management of the money, the policy decisions on how 
it's spent in the country should be done by AID.
    And the British have a system where they have people from 
the foreign ministry--one person from the foreign ministry, one 
person from the development agency, one person a military 
officer--sit and decide, in these special funds that focus on 
counterterrorism and on conflict zones, where there are 
national security issues, how to allocate those funds. And that 
makes a lot of sense to me. In fact, frankly, it's going on 
now--no one knows it--at an operational level.
    Senator Menendez. One of the--I understand what you're 
saying, Ambassador--one of the concerns I have, I just read 
Secretary Clinton's comments in the Post about development 
assistance in Afghanistan. She said there are so many problems 
with them that there are--problems of design, problems with 
staffing, a problem of implementation, problems with 
accountability, go down the line, I think was her quote, and 
then she ended up referring to the amount of money spent 
without results there is heartbreaking. And, you know, I get 
concerned--and she went on to talk about that there's very 
little credibility among Afghans. And I know that Oxfam had a 
report that charged that much of U.S. aid in Afghanistan is 
wasted on consulting costs, subcontractor fees, and 
duplication. So, my concern, here, is that, in fact, so much 
has been shifted to the Department of Defense. Also, to 
Secretary Gates's credit, he has talked about how, in fact, 
he--you need a robust, you know, foreign diplomacy, as well as 
a foreign--foreign assistance, so I give him all the credit in 
the world. Transforming--making that shift from those words is 
going to be, you know, one of the things that we need to see 
happen.
    But, I don't even think that we have the same 
accountability or scrutiny for those funds as we do, for 
example, AID. I think scrutiny is good, by the way. I'm not 
suggesting there should be less for AID. But, I also think that 
that type of scrutiny should be looked at, in terms of what's 
been happening in the use of these funds at the Department of 
Defense. So, I'd like to see this transition out to, you know, 
what is, in essence, a civilian agency, working in 
coordination----
    Ambassador Natsios. Yes.
    Senator Menendez [continuing]. Working in coordination. 
But, you know, I think that when a civilian agency goes to a 
population somewhere else in the world, since we, as Americans, 
are here to be a partner--I think when the Department of 
Defense goes someplace in the world and, you know, tries to do 
the same thing, it is much more suspect as to what the purpose 
is. You may be winning hearts and minds for the moment, but I 
don't know that you're winning hearts and minds for the long 
term, at the end of the day. That's just a personal reflection 
that I have.
    Senator Corker, do you want another round?
    Ambassador Natsios. Could I just add one comment about----
    Senator Corker. Sure, sure.
    Ambassador Natsios [continuing]. What you're talking about, 
Senator? Because I think you're right. I am not suggesting the 
Defense Department should be spending any of that money. And 
they shouldn't be. And I've said, repeatedly at NDU, ``You 
should not be engaged in this, but we need to plan with you and 
talk with you.'' And so, that's what I'm proposing, here.
    But, if you want some strategic reforms that don't require 
massive rewrites of anything, make the USAID IG responsible for 
auditing all spending of all foreign assistance for all Federal 
agencies. You'll see a huge change, because Federal agencies 
will not want to spend this money. Most of the other Federal 
agencies have no audit people abroad. Most of the IG for AID, 
their people are all over the world. They live in the Third 
World, doing audits. Make them be placed in charge of all the 
Defense Department spending, particularly if it goes through 
AID, by statute. Do it even for the State Department. That 
would shock the State Department, because there's no real 
auditing going on, from a programmatic standpoint, now.
    Let me just--I should probably say this publicly, because I 
don't think most people know this. Do you know who the Defense 
Department sent to oversee the AID reconstruction program in 
Afghanistan? The former chief operating officer of General 
Motors, who had never been a Third-World country or a war zone 
or done reconstruction. We were told that they had skills from 
the industrial sector that would be useful in reconstruction, 
which is utter nonsense, with all due respect. And I'm a 
Republican, I love the business community. Government and 
business are alike in every unimportant way.
    Some of the most stupid decisions I have ever seen were 
made by people who have never been to a war zone, never done 
reconstruction in Iraq and Afghanistan. I mean, they weren't 
malicious, but they didn't have any expertise.
    This is a separate discipline. It requires professional 
career officers to run it. And if we had made some of these 
allocation decisions in both countries, I don't think we'd have 
had some of the issue we've had. We did what we were told, as 
best as we could under the circumstances, but the structure 
needs to be changed so we are no longer subordinated.
    No one should be sent to run--the AID mission director's 
supposed to be in charge of these reconstruction programs.
    Senator Menendez. I think you should be more passionate 
about how you feel. [Laughter.]
    Senator Menendez. Senator Corker.
    Senator Corker. It's very good testimony, and I'm really 
glad you're having this hearing, and you can see that, walking 
through all of these issues, we're just beginning. It's going 
to take a lot of tough sledding, if you will, to actually come 
to an end that makes sense.
    But, let me just follow up on the whole issue of the 
Defense Department and aid, and the rub that's there, and some 
of the suggestions that have been made.
    In visiting Iraq and Afghanistan--and, I think, soon, 
Pakistan's going to be in similar situations, in some parts of 
the country--but, in visiting there, there seemed to be--the 
reason the Defense Department subsumed this, was the urgency of 
getting money out. OK? And I realize that sometimes urgency 
doesn't lead to the long-term benefit. But, there were also 
some cultural issues, it seemed. Look, the military basically 
can tell people where they're going and when they're going to 
be there, just like they will with your son, soon. The culture 
at USAID and State is different than that, to some degree.
    And so, as we talk about aid, especially aid during a time 
of conflict, and security needing to be provided, which seems 
to me an incredibly difficult task, no matter who's carrying it 
out, are there not some built-in issues that make it difficult 
to do exactly some of the things that you all have said about 
USAID in these conflict zones? I'd just love to hear your 
response.
    Mr. Radelet. There are some things that are built in, but I 
think they can be changed, on both counts. What your point is--
both on the money and the people, is the flexibility that 
Defense has that AID does not have, and the ability to respond 
very quickly. Partly, AID can't respond very--it doesn't have 
the flexibility, for the reasons around the Foreign Assistance 
Act and the heavy restrictions, and that every dollar is 
determined, how it's going to be spent, long in advance. So, 
when something happens quickly, mission directors don't have 
the flexibility and the resources to move, just on the money, 
to allocate money to an urgent crisis.
    Second, on the personnel issue, you're right, but that's 
partly because AID's professional capacity has been so 
decimated over the last 15 years that they're not able to move 
people quickly. That's beginning to change, because they're 
hiring people, and they're also, my understanding is, 
developing a rapid-response capability with a staff of people 
that will be available for exactly this purpose, that when 
something comes up, that they can move people quickly to the 
field, that have the background, that have the experience doing 
this in other countries, to address these problems.
    So, at the moment, Defense filled the void because AID 
couldn't do it, but there are steps that can be taken to give 
USAID both the resources and the flexibility so that they can 
adapt, with professionals with the right background, to address 
these issues in the future.
    Ambassador Natsios. Well, let me--I understand what you're 
talking about, Senator, and you're right. This is not written 
down, but I'll tell you the story. I used to ask, annually, of, 
not just the career staff, the 2,000 people, Civil Service, but 
our 6,000 Foreign Service nationals, in a confidential survey--
we'd ask a set of questions. And we got huge response rates--
like, 60 percent of the workforce would respond. At the end, I 
would say, ``Do you have advice to say to me?'' Fifty of the 
career Foreign Service citizens would ask me to resign, because 
I was ruining the agency by dealing with the military, being in 
conflict zones, your--and the career--the senior people running 
the agency said, ``You know, they're from the old order, and 
they just don't get it.'' They all retired. They got sick of me 
and that I wasn't going to change where I was moving the 
agency.
    We created a specialty in the Foreign Service, Backstop 76, 
for dealing with emergencies. Out of the 1,000 Foreign Service 
officers, 130 officers, including very senior people, 
volunteered to change their specialization into this field to 
deal with reconstruction, conflict, and civil wars dealing with 
the military. I was stunned, because I thought no one would 
join it. Everybody wanted it. We had to actually cut back the 
number of volunteers to get into these positions. We're not 
having any problem getting people. In fact, when we created 
OMA, I thought no one in the career service would join. They 
had a waiting list of career people who wanted to join the 
office.
    So, there is--there was, in the old order, a bunch of 
people from the 1960s who couldn't take the--and they left, 
they retired, and they were angry when they retired. They were 
angry at me. They kept asking, every year, for me to resign. 
So, by the time I left, no one asked me to resign, in these 
surveys, and I thought maybe I converted them. They said, no, 
they just retired.
    So, the agency made the conversion--both of you, Senators, 
at the beginning, asked--already; and they're doing this issue, 
and they're doing a very good job. And the military respects 
them much more now.
    One, just, quick question. At the beginning of Afghanistan, 
the military sent e-mails to Colin Powell, saying, ``Oh, AID 
takes forever to build a school. We can build it in a month. It 
takes them 6 months.'' Because we have a rule, we never build a 
school unless the Ministry of Education agrees where it's going 
to be built, how big it is, and whether they will put teachers 
in it. There were a dozen military schools built that are now 
barnyards, because the Ministry of Education was never 
consulted, had no intention of sending teachers there, sent no 
textbooks, and, in fact, there weren't even enough kids to go 
in the school. Some of them are police stations now.
    When they had those disasters, one good thing about the 
military is, they're very flexible. If they make a mistake, 
they shift. Right now, in the field, DOD funds cannot be spent 
unless the AID officer approves them. It's not a DOD edicts but 
a practice of field commanders. All the commanders said, 
``We're not making any of those mistakes again.'' The AID 
officers know what they're doing. They have to approve 
everything that's done in the PRTs, even if it's DOD funds, 
because they know what they're doing.
    The military respects our officers in the field. That is 
being dealt with operationally. You know why? Because they want 
to survive, and they want to get the mission done. All of our 
employees are dedicated to doing this right--including our 
diplomats.
    Senator Corker. Professor.
    Ms. Lancaster. I just have a footnote. I watch young people 
coming through master's programs, interested in doing 
development. And I am seeing an uptick in master's students who 
have some military background and want to shift into the 
development field. They will span those two cultures.
    There is a very can-do military culture, which makes you 
feel really good, when things can be done quickly and 
expeditiously. I think the AID culture is one that sees more 
complexities in the world, because, in fact, that's what they 
have to face. Those two cultures exist.
    There are actually two cultures in USAID right now. I think 
Andrew might have touched on it. The humanitarian response, 
which is a real can-do culture, and, again, the longer term 
how-do-we-do-this-right, let's-take-enough-time-to-do-it.
    But, I don't think that the cultural differences are 
insuperable, and I think Andrew's sense is that they are being 
bridged.
    I do think there are real issues, though, with the 
involvement of the Defense Department. And, again--we've talked 
about it already--what is that relationship going to be with 
AID and with State, and how directly involved will they be in 
delivering assistance? I say to people, I wouldn't want to 
drive a tank down Pennsylvania Avenue, the military is not my 
profession. There is also a profession that involves 
development work. And I think somehow we have to--and hopefully 
you all will take a lead to sort out those difficulties there.
    Senator Corker. Mr. Chairman, I know my time is up. I just 
want to make a statement about PEPFAR. I think many of the 
statements made were dead-on. You know, what I've seen in 
PEPFAR that--you know, look, that's where the money is, right? 
And so, as you watch USAID and, just, in-country teams dealing 
with PEPFAR, there's this migration of mission creep. I mean, 
all of a sudden everything is about HIV. Everything. I mean, 
economic development--I mean, you can--there's a chain of--
there's a progression that says that everything in the world 
contributes to HIV, and the reasoning is there, because that's 
where the money is and that gives us access to money.
    So, I think the comments you made about MCC, and being able 
to separate out those moneys so they're actually spent exactly 
in that area, is applicable to PEPFAR, also. OK? And I think we 
have this undefined creep that's taking place. I don't 
criticize the people in the field, because they're being 
entrepreneurs. I mean, they're figuring out a way to get their 
hands on money to do things that they think are important. But, 
I think as we move through this, we've got to figure out a way 
to, again, have people working together, but actually stovepipe 
the money in such a way that it's being spent on those things 
that we are allocating to be spent on. Otherwise, I think we 
come back, in a decade, and we're going through this all again, 
because there's not specificity, if you will, in these 
programs.
    So, I'll stop there. And, Mr. Chairman, I may leave, but I 
really do thank you for your leadership. I look forward to 
working with you and Senator Casey and others, and truly 
believe, as you stated in your opening comments, that this is 
something that's very important to the security of citizens in 
this country, too. I know that we do focus a lot of domestic 
issues, as the professor mentioned, because that's what our 
constituents call about, and that's what is on their minds, but 
somehow or another we've got to elevate the consciousness in 
this country that the things you're working on indirectly are 
equally important to their well-being. And I thank you for what 
you do.
    Senator Menendez. Thank you, Senator Corker.
    Senator Casey.
    Senator Casey. Thank you very much.
    I wanted to just focus on one bill, one issue. Senator 
Lugar and I introduced the Global Food Security Act, and it was 
just moved out of committee yesterday. As many of you know, 
it's really focused on a couple of areas. One is improving or 
enhancing the coordination between USAID and the Department of 
Agriculture, as well as other agencies. We're attempting to 
expand U.S. investment in the agriculture productivity of 
developing nations. The bill also is an attempt to make food 
assistance programs more flexible. And we have authorization 
language for a $500 million fund for U.S. emergency food 
assistance.
    I was wondering if you could put that in the context of 
your own experience on aid, generally, just in the context of 
food aid, some of the problems you've seen, and react to the 
bill, as well. I'm not sure I'm looking for a lot of 
amendments, at this point, but we're always open to listening. 
But, to put that in perspective, the problems you've seen with 
food aid and how this or other legislative remedies could help. 
And anything, in addition, that you would have, based upon your 
own experience.
    And, Mr. Natsios, I know that you haven't been shy today, 
or bashful. [Laughter.]
    Ambassador Natsios. Well, sir, I ran----
    Senator Casey. My wife's a Massachusetts----
    Ambassador Natsios [continuing]. The food aid program.
    Senator Casey [continuing]. Native, by the way. So----
    Ambassador Natsios. Pardon me.
    Senator Casey. My wife is a Massachusetts native.
    Ambassador Natsios. Is she really? Where is she from in 
Massachusetts?
    Senator Casey. From Belmont.
    Ambassador Natsios. Belmont, not too far from Hollister, 
where I come from. Yes.
    Senator Casey. Yes. So, we're--I'll tell her about our 
meeting today.
    Ambassador Natsios. OK. [Laughter.]
    I ran the food aid programs 20 years ago, in AID, and when 
I was at World Vision, I was in charge of World Vision's food 
programs, funded by the U.S. Government, so I know them, I've 
written articles on food aid issues.
    We proposed, in AID, an amendment, which didn't get 
through, to allow local purchase of food aid. Food aid now has 
to be purchased in the United States. And about 30 to 40 
percent of the cost of food aid is transporting it from the 
United States to Ethiopia or Afghanistan. We put a lot of food 
aid in Afghanistan. And I don't want to have the whole program 
local-purchase, but I think a portion of it needs to be 
flexible.
    Now, I'll tell you a story, and it's--this is a true story. 
We had, in Afghanistan, after 2001--after we took control, we 
defeated the Taliban, Karzai took over--we introduced a new 
seed variety of wheat. It's actually not that new, but it's 
drought-resistant, high yield, and we tripled production in 
many areas of Afghanistan in early 2002; so much so, they had 
the biggest wheat crop in history. Farmers stopped harvesting 
it, because the price dropped to 20 percent of the normal 
level. And it started to rot in the fields. Meanwhile, we 
introduced 200,000 tons of wheat from our Food for Peace 
Program. My economist said, ``Andrew, you know, if we could 
purchase the 200,000 tons in Afghanistan, the price would have 
gone back up again.'' You know what happened the next year? 
Those farmers who lost money in wheat, moved to poppy 
production for heroin, because they said, ``We can make more 
money, we won't have this happen.'' And our staff said, 
``Andrew, why can't we local-purchase the food that we grew in 
Afghanistan for the Afghan people?''
    Dr. Norman Borlaug, who probably saved more lives than 
anybody in human history--he got the Nobel Peace Prize in 1970 
for the Green Revolution--he and I wrote an article, for the 
Wall Street Journal, on the local purchase of food aid. If 
there's one change I would make in the Food for Peace--the 
agriculture--the farm bill, which just went through, it would 
have been to allow this. Congress allowed a $12 million program 
over 5--$60 million program over 5 years as a test, run by 
USDA, overseen. Now, I have to say, USDA has a little different 
interest than AID in this. Their view is they market American 
products abroad. I was troubled that it was structured this 
way. But, it's a plus.
    I don't know what's in this bill. Senator Lugar, who I have 
great respect for--I understand there's more flexibility for 
our officers in that bill, to spend this money. If that's the 
case, it would be a big boon, because we can marry, then, the 
food programs with the agricultural programs and stimulate 
local production that we then purchase for our emergency 
programs. It makes great sense, developmental sense.
    Senator Casey. We'd invite your comments on it, thank you.
    Mr. Radelet. If I can add to that, I applaud your efforts 
and Senator Lugar's efforts. And Andrew has spoken on the food-
aid side. I just want to underscore--and I'm--I know he would 
agree, and I think Carol would agree, as well--the emphasis on 
agricultural productivity. It is remarkable and distressing how 
there has been a drop in funding--from all donors, not just the 
United States--for supporting agriculture, in the last 20 
years, which is just at the core of so many development issues, 
from rural poverty to food, nutrition, to, frankly, mitigating 
HIV/AIDS, both in terms of prevention, to give people a 
livelihood, but also to strengthen people's nutrition and their 
ability to withstand the virus. Funding has dropped enormously, 
and it's time that we get back into it. We have such tremendous 
expertise in our land grant universities and other places, 
where we can move both on the technological front, but also in 
terms of getting those technologies out to the field.
    Now, we can't do this alone. And here is a great place 
where we need to coordinate our bilateral assistance with our 
multilateral assistance, because one of the keys to 
agricultural productivity and fighting rural poverty is 
infrastructure, is roads, is getting roads out to the rural 
areas to connect people to markets, both to make their inputs 
cheaper, but also to give them markets so that they can sell 
their goods. I'm not sure it makes sense for USAID to get back 
into major road-building, but the World Bank and the African 
Development Bank and the Asian Development Bank should have 
those kinds of expertise. And it's--I think it's a good example 
where--but, they don't have the expertise in developing new 
agricultural technologies, which we do. So, there are 
opportunities here to work together.
    And a great example of the beginnings of this is with the 
MCC and the Gates Foundation. I happened to be at a reception 
last week where Bill Gates was there and was talking about the 
beginnings of their partnership, the Gates Foundation 
partnership with the MCC in Tanzania on, particularly, this 
score. Here, the MCC is actually building the roads, but 
doesn't have the technological capacity. The Gates Foundation 
is working on ag technology, and they're working together. We 
can do that more broadly to really try to address, much more 
significantly, the problems in agricultural production.
    Ambassador Natsios. I agree with everything that Steve 
said.
    Ms. Lancaster. Yes, can I just----
    Senator Casey. Thank you
    Ms. Lancaster [continuing]. Say a word?
    Senator Casey. Sure.
    Ms. Lancaster. Just two quick points.
    U.S. support for agriculture used to be very high. It was 
in the 1980s that it came down, down, down. And the reason is, 
the world food crisis that we talked about, in the 1970s, 
vanished. And so, the interest in it diminished, and the 
political support for putting efforts into promoting 
agricultural production in poor countries diminished. And I saw 
it happening when I was in AID, too.
    I don't want to be an advocate for congressionally mandated 
programs, but I think interest in Congress in this issue is 
important.
    The one piece that I don't think anybody quite mentioned 
was agricultural research. It's probably had the biggest payoff 
of any aid moneys anywhere, but it's often a long-term 
investment, and sometimes it's risky.
    I think we came close to eliminating U.S. contributions to 
international agricultural research, a year or two ago, just 
before the recent food crisis, broke. There needs to be some 
more attention to that, because it's an ongoing problem. You 
solve one agricultural problem, and you've got another one 
right behind it for further research. I hope there will be a 
piece in that bill that talks about that.
    Thanks.
    Senator Casey. Thank you very much.
    Senator Menendez. Well, thank you, Senator Casey.
    Thank you all. Let me thank the witnesses for their 
testimony. I think it's a great start to our work. It was very 
thoughtful.
    Ambassador Natsios, on behalf of all of us, thank your son 
for his service to our country.
    The record will remain open for 2 days so that committee 
members may submit additional questions to the witnesses. And 
we ask the witnesses to respond as expeditiously as they can to 
these questions.
    Senator Menendez. And seeing no one else seeking 
recognition, the hearing is adjourned.
    [Whereupon, at 11:18 a.m., the hearing was adjourned.]
                              ----------                              

              Additional Material Submitted for the Record

Responses of Professor Andrew Natsios to Questions Submitted by Senator 
                               Jim DeMint

                       FOREIGN AID ADMINISTRATION

    Question. It has been suggested that USAID should be elevated to an 
independent Cabinet Agency, as in Great Britain. But the result there 
indicates that such a step would make it more difficult to shape 
development programs in a way that would advance the national interest 
and make for a coherent strategy. What are your views?

    Answer. I believe that development is an instrument of national 
power, soft power, with profound implications for U.S. national 
interest and that its subordination to the State Department means the 
necessary development voice of USAID is not being heard. Some of the 
worse mistakes made by the USG in Iraq and Afghanistan were because the 
USAID policy voice was never heard (because we weren't in the meetings) 
or went through State or DOD and became hopelessly muddled and 
emasculated before it got to the White House for decision. I could give 
many practical examples of why this is the case. The DFID model would 
avoid that. The early years of the DFID reorganization in 1998 led to 
the agency trying to stay independent of the British foreign policy 
apparatus, but the past 3 or 4 years it is much better integrated. I 
think the way to organize the U.S. system is to put a much stronger and 
larger USAID at the policy table with a seat at all national security 
council meetings involving developing countries. That would ensure 
their views and expertise are used properly, but also that they are 
held accountable for carrying out the aid portion of a national 
security strategy. But to make this work USAID would have to be 
independent of the State Department Diplomacy and development are 
completely different from each other, while they both need each other 
to be successful one should not be subordinated to the other.

    Question. What are your thoughts on the F Bureau and the Director 
of Foreign Assistance position, and how would you optimize the 
relationship between USAID and the State Department to ensure an 
appropriate balance between priorities and resources for development 
and diplomacy?

    Answer. The F Bureau did some very damaging things and some very 
good things. The Bureau was created by cutting the policy and budgeting 
head of USAID off--the PPC Bureau within USAID was gutted and all the 
staff moved to State to the F Bureau which deprived the agency of its 
intellectual and strategic nerve center. This was a disaster for the 
development function in the U.S. Government as the F Bureau is not 
being used for strategic purposes but for budgeting. The F Bureau did 
build a new budgeting system (which I had started the year before I 
retired as Administrator) and management information system which is 
excellent and badly needed. In any reorganization these new budgeting 
and information management systems should be kept in place--but 
transferred to USAID. Gordon Adams, who I believe teaches at American 
University and may have helped design the new system, but certainly is 
a defender of the system, has spoken and written widely about it. He is 
a fine scholar, but no development expert, and has written some deeply 
flawed things about the F Bureau. The things he likes most about it are 
the most destructive. For example, the decentralized nature of the 
USAID program which allowed us to have a very influential role in the 
development of poor countries has been compromised by this new system 
of highly centralized decisionmaking. All development like all politics 
is local, having people in the State Department making decisions on 
what should or should not be done in rural Tanzania is crazy and 
violates all of what we know about good development practice. What in 
heaven's name does the State Department know about food security in 
India or rural Africa, and yet they are making profound decisions about 
resource allocation that are completely outside their technical 
expertise. In this respect the F process is a disaster. That does not 
mean the new budgeting and management information system should be 
eliminated, it is the one good thing that came out of an otherwise bad 
experience.

    Question. How should the President organize the administration to 
support the three pillars of national security, defense, diplomacy, and 
development to best support U.S. interests abroad?

    Answer. Recentralize all foreign aid programming and resource 
allocation back into a much better staffed USAID as it was during the 
cold war. Separate USAID and its business systems from the State 
Department as it was during the cold war. Put USAID on the national 
security council, and create an interagency coordinating committee of 
DOD, State, and USAID to decide on resource allocation by region and 
country for the geostrategic portion of our aid budget. Much of what 
USAID does by law and practice is not supposed to be driven by DOD or 
State. For example, the HIV/AIDS program, polio eradication, famine 
relief budget allocations are decided by a need-based formula based on 
infection rates or mortality rates in the case of famine relief. Why 
DOD or State would be involved with this makes little sense to me. It 
ought to be a clinical and quantitative measurement matter, not 
diplomatic or defense driven. But we clearly have situations where 
foreign aid is essential to implementing a peace agreement, or stopping 
the spead of terrorist networks, shoring up friendly governments under 
attack by terrorist or narcotics syndicates. In these cases clearly 
there is a need to have State and DOD drive the broader process of 
resource allocation, but not the management of the program in the 
country itself. This should be based on the account (ESF in the case of 
State and the section 1206 in the case of DOD) out of which the money 
is being spent, as it was during the cold war. Aid is allocated based 
on four criteria: Need (of the people or society we are trying to 
help), performance (how productive is the aid and how reformed is the 
country we are assisting), risk (are their future risks we are trying 
to protect against such as an Avian flu pandemic) or interest (the 
foreign and strategic policy interest of the U.S. Government). It is in 
the last area State and DOD must be involved in aid decisionmaking.

    Question. It has been demonstrated that our U.S. ambassadors have 
the ability to distribute only 5 percent of U.S. aid in their 
respective countries. Do you believe that our ambassadors, in close 
coordination with regional experts at the State Department and USAID, 
should have control of a larger percentage of assistance?

    Answer. I don't know what you mean by this question. What do you 
mean by the word ``control''? If you mean should ambassadors decide how 
much money the country they are posted to should get, this makes no 
sense since every ambassador would ask for massive increases in their 
aid budgets. If you mean the allocation by sector of aid money once it 
gets to the field, that would require OMB and the Congress to end all 
sector accounts and earmarking (HIV/AIDS, child and mother health, food 
aid, education etc.) and leave these decisions to be made in the field 
which is unlikely to happen (we could abolish much of the F Bureau if 
we did this). I would support a process by which developing countries 
(if they are governed reasonably well) once they knew how much their 
country was getting in over all aid would negotiate with the USAID 
mission how the money would be allocated by sector and by strategic 
objective, and then get the ambassador's approval for this. That would 
be the ideal process, but it is unlikely to happen because of the F 
process (which has centralized whatever local decisionmaking discretion 
existed in the old system). The only aid program like this is President 
Bush's MCC which leave decisionmaking to the countries getting the aid 
(with some limitations of course), which is the best system. If you 
mean of ambassadors controlling aid, that they should decide how aid 
money is spent in terms of partner organizations and implementation 
mechanisms it would probably lead to serious abuse of funds, it would 
mean we would not achieve strategic development objectives 
(congressional oversight committees, the GAO, OMB, and the inspector 
general's demand that aid be managed based on country strategic plans). 
Most ambassadors are reactive, that is local groups come to them asking 
for a grant or financial help and they like to say yes. This is hardly 
a way of making aid decisions.

    Question. USAID and DOD Provincial Reconstruction Teams fall under 
different rules of engagement complicating and sometimes preventing 
partnership in development and reconstruction efforts in Iraq and 
Afghanistan. Ambassador Crocker, under the advice of General Petraeus, 
adjusted some of the rules of engagement enabling USAID and FSOs to 
accompany DOD teams on patrols. Despite USAID and FSOs volunteering to 
participate on the patrols, mid-level management prevented their 
participation. How should the government transform the culture of the 
State Department and USAID to address the 21st century environment and 
eliminate barriers to cooperation with the DOD?

    Answer. The culture of State and USAID is driven by Federal law, 
and congressional demands to minimize risk to our embassies and aid 
missions abroad. The Federal law passed after the Embassy bombing of 
1998 makes security, not getting the job done by our aid officers and 
diplomats, the first priority. USAID officers refer to the USAID 
mission in Kabul as the prison because it is so difficult for officers 
to leave the compound and as a result they can't get out to see the 
projects in the provinces. The law needs to be completely overhauled as 
it is a major impediment to restaffing our aid programs and embassies 
abroad and getting aid work done in insecure environments. Ryan Crocker 
and General Petraeus were right in what they did. The law is being used 
to downsize our diplomatic and aid presence abroad, when we should be 
increasing our presence. The notion that every time an aid or state 
officer is murdered abroad there has to be a commission of inquiry is 
crazy--if we did that to DOD we might as well withdraw from the 
battlefield. The world has changed since 1998 and the law is caught in 
a time warp.

                           FOREIGN ASSISTANCE

    Question. President-elect Obama made commitments to ``elevate, 
empower, consolidate, and streamline'' U.S. development programs. With 
foreign assistance programs scattered across more than 20 different 
Federal agencies, how should the government address inefficiencies and 
incoherence within the current structure in order to help maximize the 
impact of U.S. assistance and instability that threaten prosperity and 
security globally and at home?

    Answer. During the cold war, OMB and the White House enforced a 
standing rule that no aid money could be spent abroad unless it was 
controlled and managed by USAID. If USAID needed a technical expert on, 
say, seismology from the U.S. geological survey to help with earthquake 
monitoring they would sign a PASA interagency agreement (in fact USAID 
has had such an agreement for 30 years). I would return to the old 
discipline which worked quite well from what OMB career staff told me.

    Question. What metrics should the U.S. Government use to gauge the 
success of U.S. foreign assistance programs? If the metrics are not met 
would you advocate for the elimination of a program?

    Answer. The F process has created metrics for every item in the aid 
budget, so the metrics exist. I do not like them myself. This is not 
the place to critique the use of metrics as it would take pages. I have 
a chapter in a book I am now writing on the very damaging affect 
metric-based management of aid programs has on innovation, creativity, 
and new thinking. Some of the best aid programs are not easily measured 
by metrics. Some of the worst aid programs have very appealing metrics 
but are developmentally very unsound and counterproductive. Metrics is 
seriously overrated and yet the aid community is moving toward them.

    Question. Over the past five decades, the Foreign Assistance Act of 
1961--which was originally written and enacted to confront the cold war 
threats of the 20th century--has swelled into a morass of rules, 
regulations, objectives, and directives. Foreign policy experts on both 
sides of the aisle--including former USAID administrators from both 
Democratic and Republican administrations--have said writing an 
entirely new Foreign Assistance Act is central to clarifying the 
mission, mandate, and organizational structure for U.S. foreign 
assistance. The Project on National Security Reform also recently 
recommended a ``comprehensive revision of the Foreign Assistance Act of 
1961.''

   How do you propose we redesign the foreign assistance of the 
        U.S.? Who do you believe are the key players that could ensure 
        reforms meet the needs of the 21st century?

    Answer. The Foreign Assistance Act should be rewritten, but I think 
it will be politically very difficult to get through the Congress. 
USAID has the most expertise in the area, but State and DOD clearly 
have a major role as well. The NGOs, contracting firms, and think tanks 
have some expertise that should be used.

   Where do you believe the Millennium Challenge Corporation 
        fits into any new restructuring?

    Answer. The chair of the MCC Board should be the USAID 
administrator, but the board should be kept as an entity. The field 
offices of the MCC should be merged into the USAID missions where many 
of them sit physically anyway. Many of the MCC field directors are 
retired USAID officers, so this could happen without a big culture 
conflict in the field. I think the MCC Washington staff should be more 
narrowly focused on reviewing compacts for presentation to the board 
for approval and then conducting independent evaluations of how the 
compacts are doing. The technical assistance to local governments to 
prepare compacts, implementation and coordination with local 
governments in the field should be transferred to the field USAID 
missions.

    Question. Do you think the government should link U.S. foreign aid 
to human rights conditions? For example, Egypt, the second largest 
recipient of U.S. aid since 1979. They persist in major abuses of human 
rights and religious freedom. Should the government consider 
conditioning aid to Egypt based on the government meetings certain 
benchmarks like the release of political prisoners, lifting of media 
restrictions, etc.?

    Answer. Our U.S. Ambassador to Egypt, DOD, and the State Department 
would strenuously object. The Egyptian Government will simply not 
accept the funding and the aid program would be shut down. I think a 
better way would be to put into the new Foreign Assistance law that any 
government abusing human rights using some objective measurement should 
not get any budget or sector support from the U.S. aid program (money 
that goes directly into the local government's treasury), which means 
the aid program would be completely run through NGOs, contractors, and 
private universities not through the local government.

                           FOREIGN AID REFORM

    Question. Senator Clinton committed President Obama to ``enhancing 
our foreign assistance architecture to make it more nimble, innovative, 
and effective.'' What specific ideas and actions do you believe are 
necessary to achieve these goals?

    Answer. We would have to completely overhaul the very onerous 
regulatory apparatus in Washington set up to control the Federal 
bureaucracy run by OMB, GAO, IG, and congressional oversight committees 
which micromanage every aspect of our aid program. I am writing a 
chapter in my book on foreign aid on the consequences to innovative and 
effectiveness of this regulatory system which is a gotcha culture which 
penalizes risk taking, experimentation, and innovation. And has created 
an extremely complicated system of controls to avoid any problems--if 
you innovate you will have problems and failures which is in the nature 
of innovation.

                                METRICS

    Question. In addition to what metrics we should use to gauge 
success, what criteria should the government use to determine 
elimination or reduction of foreign assistance programs?

    Answer. I am a conservative, but I believe in the new world of 
threats this country faces cutting the aid budget makes as much sense 
as cutting the defense (I am a former army officer) budget. We should 
be talking about making aid more effective, not cutting it. It is a 
best defense against the darker forces of globalization (90 percent of 
globalization is very productive and good, but it has a very dark side 
of terrorist networks, drug cartels, human trafficking, illegal arms 
markets, money laundering, smuggling, etc.).

    Question. Some of the largest criticism regarding foreign aid 
regards distribution monitoring and management. What do you believe is 
the proper balance between rapid delivery of aid and accountability and 
oversight to ensure aid does not find its way to terrorist 
organizations? How can we build a monitoring-and-evaluation capability 
at USAID that is independent, rigorous, and reliable across U.S. 
foreign assistance activities, that will contribute to restoring the 
United States as a credible partner, and that will ensure U.S. taxpayer 
funds are invested well? Is there any way to leverage low-cost 
technology to track aid distribution?

    Answer. The State of the art in monitoring and evaluating the 
quality of aid programming according to many aid professional around 
the world was the CDIE in USAID which has been strangled by budget cuts 
and personnel losses from the mid-1990s on. I tried to revive CDIE but 
we could not get funding to do it. The monitoring of aid programs to 
ensure money is not stolen or falls into the wrong hands (which is 
different than the monitoring and evaluation function which is about 
the quality and productivity of aid programs) is already built into the 
aid system, which has probably less leakage than any aid program in the 
world. This function may be so developed it is reducing innovation and 
experimentation in programming aid funds. If you look at the more than 
100 audits done of recontruction in Iraq USAID did much better than any 
of the other Federal departments involved. You might also want to look 
at the SIGIR final report which again complements USAID on what it did 
right in Iraq under very difficult secure conditions.
                                 ______
                                 

   Responses of Steven Radelet to Questions Submitted by Senator Jim 
                                 DeMint

                       FOREIGN AID ADMINISTRATION

    Question. It has been suggested that USAID should be elevated to an 
independent Cabinet agency, as in Great Britain. But the result there 
indicates that such a step would make it more difficult to shape 
development programs in a way that would advance the national interest 
and make for a coherent strategy. What are your views?

    Answer. Currently, U.S. foreign assistance programs are spread 
across nearly 20 agencies with different objectives and implementing 
procedures. There exists widespread agreement that this fragmented 
organization undermines the ability of the U.S. Government to implement 
a coherent strategy and to shape development programs in a way that 
advances the national interests. Moreover, USAID, our lead development 
agency, has been significantly weakened over the years through a loss 
of professional staff and a shift toward contracting out services 
rather than directly overseeing and implementing programs.
    As a result, there is a clear need to build a strong, consolidated, 
and streamlined development agency to elevate our development programs 
and make our foreign assistance programs as efficient and effective as 
possible. There are several options that could help achieve this goal, 
including a serious effort to rebuild and re-professionalize USAID and 
fold into it other programs, create a strong successor agency that 
consolidates programs, or over time create a Cabinet-level agency for 
development, similar to the way in which the EPA consolidated many 
disparate programs and became a strong Cabinet agency over time. The 
key objective should not be a particular institutional form, but to 
build a strong and professional agency that consolidates programs, 
reduces redundancy and duplication, enhances coordination, and makes 
every dollar we spend more effective. Such an agency--with the 
budgetary authority and mandate to lead policy formulation, coordinate 
with programs and policy that remain in other departments, and to 
manage foreign assistance programs in the field--would help reduce 
bureaucracy, eliminate waste, increase efficiency, and streamline 
decisionmaking.
    A critical first step toward a longer term agenda of consolidation 
of the major foreign assistance programs is the strengthening and re-
professionalization of USAID. For USAID to serve as the ultimate base 
of future consolidation, its capacity must first be bolstered so that 
it can lead as the preeminent development voice of the U.S. Government.

    Question. What are your thoughts on the F Bureau and the Director 
of Foreign Assistance position, and how would you optimize the 
relationship between USAID and the State Department to ensure an 
appropriate balance between priorities and resources for development 
and diplomacy?

    Answer. The creation of the F Bureau and the Director of Foreign 
Assistance position in 2006 were well-intentioned first steps toward 
the goal of better coordinating our foreign assistance programs. 
Despite some achievements in framing and reporting of foreign aid, 
however, the creation of the F Bureau came at the expense of a weakened 
USAID and has divorced on-the-ground implementation of programs from 
the important policy and budgetary decisions that underpin them. As a 
result, we now know better where and for what our foreign assistance 
dollars are going, but the ability to better plan for the most 
effective use of those resources to meet U.S. objectives has been 
diminished.
    Building a strong and capable development agency will require the 
provision of autonomy of development from our (distinct) diplomatic and 
defense efforts; the restoration of USAID's authority over its own 
budget; and shifting the policy function from the F Bureau back to 
USAID, to enable long-term thinking and planning on development policy.

    Question. How should the President organize the administration to 
support the three pillars of national security, defense, diplomacy, and 
development to best support U.S. interests abroad?

    Answer. President Obama has expressed his commitment to elevate 
development as a ``smart power'' national security approach, alongside 
defense and diplomacy. As a real signal of the importance of 
development in national security, President Obama should name a strong, 
capable leader as USAID Administrator as soon as possible and name the 
Administrator as a member of the National Security Council and other 
high-level interagency bodies. At a minimum, the administrator should 
be invited to all NSC Principals Committee meetings dealing with 
international economic issues. This will provide professional 
development perspectives and policy input at the highest policy-setting 
table, independent from but complementary to diplomatic and defense.

    Question. It has been demonstrated that our U.S. Ambassadors have 
the ability to distribute only 5 percent of U.S. aid in their 
respective countries. Do you believe that our Ambassadors, in close 
coordination with regional experts at the State Department and USAID, 
should have control of a larger percentage of assistance?

    Answer. Currently, our foreign assistance is unable to respond 
flexibly to the priorities and changing conditions in country and on 
the ground. This lack of flexibility and adaptability undermines the 
effectiveness of our foreign assistance programs. Part and parcel of 
our efforts to make our foreign assistance programs more context-driven 
and effective should be the granting of more discretion of foreign 
assistance dollars to country missions and embassies. Such reforms 
would enable USAID missions to respond more effectively and swiftly to 
crises--whether they be violent conflicts, natural disasters, or health 
pandemics--and to evolving priorities on the ground. These reforms 
should also build in accountability measures to assure that funds spent 
are used effectively and help achieve broader U.S. goals.

    Question. USAID and DOD Provincial Reconstruction Teams fall under 
different rules of engagement complicating and sometimes preventing 
partnership in development and reconstruction efforts in Iraq and 
Afghanistan. Ambassador Crocker, under the advice of General Petraeus, 
adjusted some of the rules of engagement enabling USAID and FSOs to 
accompany DOD teams on patrols. Despite USAID and FSOs volunteering to 
participate on the patrols, mid-level management prevented their 
participation. How should the Government transform the culture of the 
State Department and USAID to address the 21st century environment and 
eliminate barriers to cooperation with the DOD?

    Answer. There is little doubt that civilian-military partnerships 
are an important reality in the efforts to bring stability and 
development to countries such as Iraq and Afghanistan, and increasingly 
Pakistan as well. The military's tremendous logistical, transport, and 
human resource capacity make it a natural partner in some global 
development initiatives, and in particular in immediate post-conflict 
and natural disaster situations. However, problems can arise in this 
partnership. When the line between military and civilian personnel 
becomes blurred, for instance, civilian development workers can be 
endangered. Coordination problems can also arise, as pointed out in the 
example of cultural barriers. To strengthen civil-military partnerships 
on the ground in countries on the ground will require a bolstering of 
civilian capacity and more active coordination in-country by the 
ambassador.

                           FOREIGN ASSISTANCE

    Question. President-elect Obama made commitments to ``elevate, 
empower, consolidate and streamline'' U.S. development programs. With 
foreign assistance programs scattered across more than 20 different 
Federal agencies, how should the Government address inefficiencies and 
incoherence within the current structure in order to help maximize the 
impact of U.S. assistance and instability that threaten prosperity and 
security globally and at home?

   What metrics should the U.S. Government use to gauge the 
        success of U.S. foreign assistance programs? If the metrics are 
        not met would you advocate for the elimination of a program?

    Answer. A key component of revamping the way the United States does 
development must be the establishment of a good system to evaluate the 
real, long-term impacts of our development investments. To ensure 
accountability for funds spent, a much stronger monitoring and 
evaluation (M&E) and impact evaluation process must be established, 
aimed to keeping programs on track, guiding the allocation of resources 
toward successful activities and away from failures, and ensuring that 
the lessons learned--from successes and failures alike--inform the 
design of new programs. At the performance level, a monitoring and 
evaluation system should be designed in close coordination with State, 
USAID, MCC, and PEPFAR to aggregate to top-line objectives and 
standardize indicators across foreign aid agencies to both effectively 
report on the impact of foreign aid and to reduce unnecessary data 
collection and reporting requirements from the field. Programs that do 
not meet objectives should be revamped and adjusted, using feedback 
from the evaluation process. Programs that continue to fail to meet 
objectives, even after efforts to adjust the program, should be 
discontinued, with funding instead going to programs that are achieving 
success.

    Question. Over the past five decades, the Foreign Assistance Act of 
1961--which was originally written and enacted to confront the cold war 
threats of the 20th century--has swelled into a morass of rules, 
regulations, objectives, and directives. Foreign policy experts on both 
sides of the aisle--including former USAID administrators from both 
Democratic and Republican administrations--have said writing an 
entirely new Foreign Assistance Act is central to clarifying the 
mission, mandate and organizational structure for U.S. foreign 
assistance. The Project on National Security Reform also recently 
recommended a ``comprehensive revision of the Foreign Assistance Act of 
1961.''

   How do you propose we redesign the foreign assistance of the 
        United States? Who do you believe are the key players that 
        could ensure reforms meet the needs of the 21st century?

    Answer. Rewriting the FAA is central to building a strong and 
capable development agency. Without a restructuring of authorities and 
a rationalization of restrictions, whether they be congressional 
earmarks or Presidential directives, no broad-based foreign assistance 
modernization initiative can be fully implemented without major 
legislative modifications. Fundamentally, rewriting the FAA will 
require a ``grand bargain'' between the executive branch and Congress, 
reflecting a shared vision of the role and management of U.S. foreign 
assistance. The executive branch must be provided the requisite 
authorities to respond to a rapidly changing world, while at the same 
time the rightful and effective legislative oversight is ensured.
    To be successful, creation of a new FAA will require significant 
leadership and investment from the executive branch, where the 
legislation should originate, but only in active partnership with 
congressional champions of foreign assistance modernization. 
Responsible and interested parties in both branches must own this 
process if it is to succeed. It should also help forge a more positive 
and constructive relationship through which Congress will be more 
willing to extend greater flexibility to the Executive, while receiving 
greater administration attention to their priorities and better tools 
for exercising policy and program oversight.

   Where do you believe the Millennium Challenge Corporation 
        fits into any new restructuring?

    Answer. The Millennium Challenge Corporation (MCC) was described by 
Secretary Clinton in her Senate confirmation hearing as ``a very 
creative and innovative approach to foreign aid.'' Launched 5 years 
ago, the MCC is one of the U.S. Government's most promising ``smart 
power'' national security tools, and its innovative approach to foreign 
assistance complements other key U.S. development programs, including 
USAID, PEPFAR, and the Multilateral Development Banks. The MCC has made 
considerable progress since its inception, and is showing great 
potential toward fulfilling its mission of supporting poverty reduction 
through sustainable economic growth.
    In the absence of significant reforms to USAID and the Foreign 
Assistance Act, the MCC should remain where it is. However, a 
restructuring of foreign assistance programs could lead in the medium 
to long term--under the right circumstances--to a consolidation of 
foreign assistance programs, including the MCC, into a significantly 
empowered and strengthened USAID, or a successor agency. At the heart 
of this consolidation would be efforts to improve coordination, reduce 
bureaucratic costs, and provide cross-fertilization of ideas and 
innovations. To preserve the integrity of the MCC's innovative approach 
to foreign assistance and to ensure its effectiveness, the unique 
components of the MCC model (including country ownership, predictable 
financing, policy-based selectivity, and public-private governance 
model) should be maintained.

    Question. Do you think the Government should link U.S. foreign aid 
to human rights conditions? For example, Egypt the second largest 
recipient of U.S. aid since 1979. They persist in major abuses of human 
rights and religious freedom. Should the Government consider 
conditioning aid to Egypt based on the government meeting certain 
benchmarks like the release of political prisoners, lifting of media 
restrictions, etc.?

    Answer. Since the launch of the Millennium Challenge Account 5 
years ago, we have seen already a shift in our foreign assistance 
dollars being awarded to those countries with sound governance and a 
clear track record of investing in people and respecting human rights. 
In that sense, many of our development dollars are already being 
directed to those countries with proven performance in areas like 
control of corruption, sound governance, and human rights. In other 
instances, foreign assistance money is distributed by the State 
Department for purposes other than strictly development objectives, and 
often to countries with less sound human rights and governance records. 
In these situations, a different political calculus is made and issues 
like human rights are considered alongside other political and economic 
objectives. On ongoing challenge that must be considered on a case-by-
case basis is our support to countries that may not fully adhere to all 
of our principles, but at the same time provide vital actions in 
support of other key foreign policy objectives.

                           FOREIGN AID REFORM

    Question. Senator Clinton committed President Obama to ``enhancing 
our foreign assistance architecture to make it more nimble, innovative, 
and effective.'' What specific ideas and actions do you believe are 
necessary to achieve these goals?

    Answer. Other than actions already described above on strengthening 
USAID, possible restructuring of our foreign assistance agencies, 
rewriting the FAA, and strengthening our monitoring and evaluation 
programs, there are many promising innovations in foreign assistance. 
One such innovation is the Advanced Market Commitments (AMCs) for 
vaccines and other applications. Through an AMC, donors could make a 
commitment in advance to buy vaccines if and when they are developed, 
which would create incentives for industry to increase investment in 
research and development. New commercial investment would complement 
funding of research and development (R&D) by public and charitable 
bodies, accelerating the development of vital new vaccines for the 
developing world.
    Another promising innovation is cash-on-delivery programs, a new 
form of aid in which donors would commit ex ante to pay a specific 
amount for a specific measure of progress. In education, for example, 
donors could promise to pay $100 for each additional child who 
completes primary school and takes a standardized competency test. The 
country could then choose to use the new funds for any purpose: to 
build schools, train teachers, partner with the private sector on 
education, pay for conditional cash transfers, or for that matter build 
roads or implement early nutrition programs. This innovative approach 
would place full decisionmaking about the use of funds in the hands of 
developing country governments, letting them determine the best way to 
achieve the outcome recipient and donor both want: a quality education 
for all.

                                METRICS

    Question. In addition to what metrics we should use to gauge 
success, what criteria should the government use to determine 
elimination or reduction of foreign assistance programs?

    Answer. A stronger monitoring and evaluation (M&E) system would 
enable the Government to assess whether foreign assistance programs are 
achieving their objectives and impact on the ground, and make decisions 
on redesigning, refocusing, eliminating, or reducing funding 
accordingly. In addition to the evaluation of the impact of a program, 
the U.S. Government has begun to apply an additional set of criteria in 
determining eligibility and elimination of foreign assistance programs. 
Since the launch of the MCC 5 years ago, for instance, the United 
States has applied a very rigorous and objective set of criteria to 
determine eligibility and also elimination of MCC compact and threshold 
program assistance. These include 17 indicators that measure a 
country's commitment to promote political and economic freedom, invest 
in education and health, the sustainable use of natural resources, 
control of corruption, and respect for civil liberties and the rule of 
law. In several instances, the MCC has terminated program funding for 
countries that have failed to meet these objective indicators.

    Question. Some of the largest criticism regarding foreign aid 
regards distribution monitoring and management. What do you believe is 
the proper balance between rapid delivery of aid and accountability and 
oversight to ensure aid does not find its way to terrorist 
organizations? How can we build a monitoring-and-evaluation capability 
at USAID that is independent, rigorous, and reliable across U.S. 
foreign assistance activities, that will contribute to restoring the 
United States as a credible partner, and that will ensure U.S. taxpayer 
funds are invested well? Is there any way to leverage low-cost 
technology to track aid distribution?

    Answer. Quality monitoring and evaluation (M&E) are critical 
components of effective development assistance, paving the way for 
achieving better results, bolstering transparency, and sharing 
knowledge and learning. M&E informs program managers whether a desired 
result is or is not being achieved and also why.
    To pave the way for stronger, more rigorous, and more reliable M&E 
at USAID, an independent office for monitoring and evaluating foreign 
assistance programs should be established. The office should be 
responsible for: setting M&E standards, training, conducting external 
studies, and collecting and making public all evaluations for the sake 
of transparency and learning. The MCC model is a best-practice in this 
regard and could be applied more broadly across other agencies. An M&E 
system should be built that enables the aggregation to top-line 
objectives and standardizing across foreign aid agencies. All data and 
evaluations should be made public, including budget process data at 
each stage--request, passback, 653a, and final appropriation.
    It is crucial that measures of ultimate impact be conducted 
independently of the designers and implementers of the programs. For 
that reason, the United States should support and ultimately join the 
International Initiative for Impact Evaluation (3IE), which brings 
together foreign assistance providers from around the
world to provide professional, independent evaluations of the impact of 
development initiatives.

                                  
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