Copyright 2002 Federal News Service, Inc.  
Federal News Service
April 24, 2002 Wednesday
LENGTH: 17269 words

HEADLINE: HEARING OF THE SUBCOMMITTEE FOR FOREIGN OPERATIONS OF THE HOUSE COMMITTEE FOR APPROPRIATIONS
 
SUBJECT: TREASURY APPROPRIATIONS
 
CHAIRED BY: REPRESENTATIVE JIM KOLBE (R-AZ)
 
LOCATION: 2359 RAYBURN HOUSE OFFICE BUILDING, WASHINGTON, D.C.

WITNESSES:
 
PAUL O'NEILL, SECRETARY, DEPARTMENT OF THE TREASURY;
 
JOHN TAYLOR, UNDERSECRETARY, DEPARTMENT OF THE TREASURY
 


BODY:
REP. JIM KOLBE (R-AZ): The subcommittee on Foreign Operations of the House Appropriations Committee will come to order.

We're very delighted this morning to be able to welcome secretary of the Treasury, Paul O'Neill, to the subcommittee to testify on the president's Fiscal Year 2003 request for Treasury's international programs, and John Taylor, the under secretary is also with us and we thank -- we welcome both of you here before our subcommittee.

The president's request to the subcommittee for Fiscal Year 2003 is $1.4 billion to fund U.S. contributions to the Multilateral Bank and $10 million for the Treasury's International Technical Assistance Program. The request is approximately the same as last year but the details of it are quite different. For the first time, the Treasury budget contains no requests for multilateral and bilateral debt relief. With the 229 million (dollars) that was provided in the Fiscal Year 2002 bill, U.S. has fulfilled its commitment to the multilateral Heavily Indebted Poor Countries Initiative or the HIPC trust fund. I understand we've also completed our HIPC bilateral debt relief program as well, with the exception of Congo and Kinshasa -- I will have a question dealing with that.

Taking the place of 229 million are increases for the Multilateral Development Banks, the MDBs. The largest increase is a contribution in our regular contributions of $50 million increase to the IDA, the International Development Association. And that, of course, as we know, is the concessional lending facility of the World Bank.

Additionally, the president has requested a third of the total arrears of the -- of what the U.S. owes to the MDBs. I hesitate using the words 'arrears'. It implies that it's an obligation -- a contractual obligation, treaty obligation of status that commitments to the MDBs do not carry. But I use it to describe commitments that have been made by this administration and previous administrations that were not funded by Congress. And these arrears or these shortages in those commitments total $533 million. The president has asked for a third of that, $178 million, with the majority of it going to the funding for the global environmental facility.

Now, having the necessary budget business here out of the way, let me state -- say my -- state my tremendous respect that I have for Secretary O'Neill. I think there are some members of Congress that sometimes object to this very forthright style but I find it charming, not only charming but good. Something that we need to see more of. And I see Secretary O'Neill and his team as one of the shining lights of this administration. I really admire your willingness to tackle tough issues and tackle them head on and speak very candidly and openly. The sessions that I've had with you have been just for me very inspiring, the kinds of information that I've gleaned from them and knowing of your commitment to dealing with these issues.

Together with Secretary Powell, Secretary O'Neill has been designated to -- by the president, to more fully develop the Millennium Challenge Initiative that was proposed by the president last month in Monterey of Mexico and I was there along with the secretary at that conference. His keynote address at the Texas A&M forum last week put the millennium challenge of spreading the benefits of globalization. The millennium challenge has the potential, I think, to change for the better the way the United States cooperates with poor countries. It has the potential to change for the better the way Congress and the executive branch allocate the resources in our bill.

I look forward to working closely with Secretary O'Neill, with the administration and other members of Congress to move the millennium challenge from this concept of design that we're talking about now to rapid implementation of the -- I hope even as a pilot project in the 2003 appropriations bill.

There is already special -- there are special interest groups that are already trying to satisfy for themselves percentage shares of any new millennium challenge account and I certainly hope we don't allow that to happen or we don't allow waivers to be made and if we do, we defeat the very purpose for it.

We'll have some questions for the secretary about the president's request for 2003 and I'm certainly interested in the IDA negotiations, especially the grants versus the loans issues. They seem to be dominating the negotiations.

I was in Africa during the Easter recess and it reaffirmed for me the tremendous, tremendous problem that we face, the intermediacy of the HIV AIDS epidemic or pandemic in that continent. While I could talk about the necessary health social programs that Africa needs, this is a Treasury hearing. So let me mention instead the affect HIV and AIDS is going to have on the economic growth in these countries.

It's already having a devastating impact as you know, Mr. Secretary, on the labor force and the public finances of these countries. It's seriously affecting their ability to make their debt payments.

Additionally, many of these countries are dependent on primary commodities for their revenues. The fall of commodity prices across the border, the sustainability of even basic levels of debt is inconceivable.

One of the countries we visited was Ethiopia. It has the third largest number of AIDS -- of people infected with HIV AIDS in the world. There are over a million AIDS orphans in that country. It's largest creditor is the World Bank and just recently, Ethiopia was approved for $62 million, 30 year loan for basic health needs. The paradox of Ethiopia's situation startles me and it really bewilders me. Why are we encouraging the World Bank to lend money to a country as poor and desperate as Ethiopia when it has this dreadful HIV AIDS problem? It seems to me to be immoral. The MDB spends -- or I should say, lend large amounts of money. Yet the one thing theme that was reinforced by my visit to Africa is that money isn't enough.

Money is not -- if there's -- is not enough to tackle the basic issues when governments fail. Money can't buy leadership or conditions, or the conditions where jobs can be created. Money doesn't impose the rule of law. Money doesn't solve the problem of corruption. Money isn't going to increase basic access to education or healthcare in and of itself. One looks -- one look at the most petroleum exporting country has forced, I think, the point that I'm making.

We have a long road ahead of us -- both the Congress and the administration as we find a way to ensure that U.S. taxpayers -- of the assistance we provide is not just feel good money but a catalyst or change that can bring about the most -- bring the most desperate people out of poverty and I appreciate the work that you have been doing to bring that about.

We have a limited time for the hearing this morning and so I'm going to end and ask Ms. Lowey for her opening statements and then we'll go to your statement and then to questions.

Ms. Lowey.

REP. NITA M. LOWEY (D-NY): Thank you, Mr. Chair. I too welcome Secretary O'Neill to our hearing today on the Fiscal 2003 request for $1.4 billion for the Department of Treasury's International Assistance Program. The request before us not only meets current United States obligations to the international finance institutions. It also begins a three year process to wipe out U.S. arrears to these institutions. Given that we are now more than $500 million in arrears, this is a welcome step.

I will begin by complimenting you, Mr. Secretary, in your efforts to seek changes in the International Development Association replenishment that would specify that up to 50 percent of financing for the poorest and least creditworthy countries be provided as grants rather than loans. This effort follows up on report language from last year's bill and would provide another way for the poorest countries to lift themselves out of their quagmire of debt. In fact, it is my understand that a recent GAO report concludes that the 50 percent grants plan would help poor countries more than HIPC debt relief. I realize that our allies continue to be reluctant to go along with this proposal and that the eventual result may be that significantly less than 50 percent of IDA resources from the next replenishment will be provided as grants. This is unfortunate in my view and I would remind other bank partners that it is Congress that makes final determination about appropriations levels.

If their concern is future U.S. commitment to World Bank funding, I will state unequivocally that increasing the amount of IDA resources devoted to grants would increase support in Congress for additional IDA resources. I would also remind our friends that it is the United States Congress that provided the impetus for HIPC debt relief. Having granted this relief, it is unwise in my judgment to put these same countries immediately back in debt.

I suspect, Mr. Secretary, that at least some of our allies reluctance to go along is based on your blunt characterizations of the bank's performance over the years. The fact that the United States is the only contributor to IDA, that is willing to increase its contribution over the next years, however should counter balance that criticism. I intend to seek clarification from you today and just how you intend to assess achievement of specific measurable results that will trigger these increases. I'm hopeful that such clarifications from you will allay some concerns and move your proposal forward.

I also congratulate the administration on the president's proposal to increase bilateral foreign aid to combat poverty by linking greater contributions by developed nations to greater responsibility by developing nations. This is a further indication that we have finally achieved the broad consensus here at home that our foreign assistance programs are vital to our national security.

This recognition which I have long thought is overdue. In that regard, I have to repeat what I told Mr. Armitage last week. The president's recent commitment demonstrates that he too recognizes that there are emergency needs in developing countries. However, waiting until 2004 to begin the increase in resources means that no impact will be felt on the ground for at least two years.

I understand you are about to embark on a trip to Africa. What you find is that even with the additional resources in place for HIV programs, access to counseling, testing, treatment remain unavailable in most areas and infection rates are continuing to rise.

Illiteracy rates in many African countries remain above 50 percent and access to basic education is still illusive in many areas. As the continent attempts to recover from a decade of internal conflict, basic food security is still an issue. Although the international banks have devoted more resources to these problems, the affects of these new resources are just beginning to be visible. We should not wait until 2004 to initiate these increases.

I'm also concerned about the direction of current planning for the millennium challenge account and will address this in my questions today. Essentially, I'm unconvinced that we need to set up an entirely new structure, with new criteria to justify spending more to help impoverished countries. We don't need an excuse to do the right things. The present structure for our bilateral assistance is not perfect but it certainly gives you the flexibility to set whatever criteria you wish and to reward those countries that choose to cooperate.

The problem, therefore, is not a lack of performance criteria. It is simply that there have never been enough resources available to reward performing countries. This can be dealt with by providing those resources, rather than developing an elaborate set of new criteria, to layer on top of all the other existing IMF, World Bank and aid criteria now in place.

I have no disagreement with the broad principles that the president has elaborated so far but I remain skeptical on the framework. It's also unclear to me, at this stage, how the administration intends to deal with the implied mortgage created by the supplemental we're now considering. That is, we're increasing our assistance, both military and economic, to many of the frontline states with the expectation of a new partnership in the war on terrorism.

Having granted larger increases in 2002 to these countries what happens to levels of assistance to these same countries in 2003 and 2004? Do they revert to pre-2002 supplemental levels? Do they receive funding from the Millennium Challenge Account based on cooperation in the war on terrorism?

I also understand that the numbers released by the president, in his statement -- increases of $1.7 billion in FY 2004, $3.3 billion in FY 2005, $5 billion in FY 2006 are considered only elective by OMB. I hope this doesn't mean that we'll see less than a $1.6 billion increase in 2004.

Finally, I want to address the issue of debt relief. There are several new proposals being floated on how to provide additional debt relief to poor countries. Most discussions center around what kind of additional relief should be granted after the relief planned under the HIPC program has been completed. It's my understanding, however, that there is significant financing gap in completing the debt relief under the HIPC initiative, which is in the order of $700 million to $1.5 billion. This gap has apparently been caused by serious cost miscalculations, falling commodity prices and the practice of topping up debt relief for countries as they reach their completion point.

This financing gap is a huge mortgage that is hanging out there, that has been ignored by contributing nations and I would appreciate your comments on how this gap has come about and how it will be addressed. I have other questions, Mr. Secretary, but I'll save them for questions.

Thank you, Mr. Chairman, and thank you, Mr. Secretary, I look forward to your testimony.

REP. KOLBE: Thank you Ms. Lowey.

Mr. Obey, do you have a statement.

REP. DAVID R. OBEY (D-WI): No, we might as well get on with it.

REP. KOLBE: (Laughs.) Okay. In that case, Mr. Secretary, would you like to -- your full statement, of course, will be placed on the record. If you would like to summarize or add anything to it, you may do so.

MR. PAUL O'NEILL: Mr. Chairman and ranking member Lowey and members of the committee it's a pleasure to be here, and indeed I do have a prepared statement -- it's -- I think it's complete, it's five and half pages and with your permission, as you indicated, I'd just be happy to put it onto the record.

You noted that under secretary Taylor is here with me. He spends all of his time working on the issues that are of interest to this committee and I thought it would be useful for him to be here today, as well, because we're both finding there are enormous challenges and lots of interesting work to do and I thought it would help to have him here to see if there are detailed questions you'd like to ask him as well.

And I think I won't have more to say. I'm happy to respond to questions. There were many questions in the statements that were read and I'd be happy to deal with any of those in whatever order you propose.

REP. KOLBE: Thank you very much, Mr. Secretary, I appreciate that. I think -- as I said to you before this is kind of a first to not have a long opening statement here so we're delighted to be able to have time for the questions. You can see from the members that are here that there's a great deal of interest in this hearing this morning.

I will begin and we will recognize members after the ranking members in the order in which they came and then we will go -- and we will try to stick to the five minute rule so that we can get to as many rounds of questioning as possible in the time that the secretary has.

Let me begin by asking something I've mentioned in my testimony about the IDA loans and the renegotiations there. I understand they've been contentious and so far there's been no real agreement. The issue, as I understand it, is the loans were grants issued for the poorest countries. We've been urging the -- this and the previous administration -- this subcommittee's been urging administrations to change this for a long time.

Of course, the proponents of moving to grants to the poorest countries are worried about re-flows, as they call them, and the World Bank relies on repayments from foreign countries to replenish the IDA. About 45 percent of the current lending, I think, is from re-flows. But IDA is continuing to lend to many HIPC countries that suffer from AIDS epidemic where re-flows are inherently questionable.

So, Mr. Secretary, could you give the subcommittee an update on the current IDA negotiations and -- we'll go ahead with that one?

SEC. O'NEILL: Mr. Chairman, this is an ongoing subject. Over this last weekend we had here in Washington the G7 group and the International Monetary Fund. The World Bank people were here for the weekend as well, and so we had lots of opportunity for continuing engagement on this subject.

For those of you who don't know, this is a subject that has divided the G7, and more broadly, the interested IDA community since last year President Bush proposed that we should move from a two percent grant funding to 50 percent grant funding. Frankly, when the president proposed it, it didn't seem -- it didn't seem to me that it would be so controversial that we wouldn't be able to agree fairly quickly to do this. Because when you look at the subjects of these money flows and you see countries with 1.2 billion people living in countries with incomes of an average of less than $1 a day and you see the spreading HIV AIDS epidemic and you see hundreds of millions of people living without clean water and you see more than 100 million children without any access to any primary education at all, it seems on the face of it, that it makes sense to give grants.

But with a special understanding -- the grant doesn't mean you wrap -- you roll the money up into a ball and throw it over the fence and hope it somehow does some good. Rather, to the contrary, with the expectation, with the notion of grant, that there be specific performance expectations going with the monies so that, contrary to what I think, frankly, our experience has been regrettably to a significant extent over the last 50 years.

Yes, we've had a criteria, as the ranking member indicated, and we have lots of criteria and non of it seems to have mattered very much because if you look at the conditions that exist in the developing world, today, there are many places where the conditions are worse today than they were 50 years ago, before we started having all this compassionate flow of money.

So I think there is a really good reason to have a new criteria that we mean and that we insist on. Not that we just talk about and parceling this -- wouldn't it be nice if? And so I think there is a very good case for new criteria and so we have engaged with the other nations that are contributors to meet to agree to the change in these flows of money and I, frankly, thought we were at agreement a couple of weeks ago. I've been doing a lot of traveling and I've made a trip to Europe and was in Germany and France and the U.K. for a week, and in going to the capitals and talking with people I thought we were there, because, every place I went people agreed that the categories that I just mentioned were obviously reasonable categories where grants should go instead of loans.

When we got the U.K. there was a dispute about what was in the numbers roll up of the tables and I said -- they were okay with the categories -- and it added up to 18 percent. The consequence of these categories would be a movement to a level of 18 percent in the form of grants instead of loans and I said, on the basis of the information John Taylor had provided to me, that the categories seemed perfectly agreeable to me but the numbers that they were using weren't the right numbers and when the numbers were re-done it turned out they're 22 percent or something in the order of 22 percent.

And they said, well we'll have to adjust the categories to get back down to 18 percent, and I said, you know, over my dead body, you know. If you all want to go make a case to the people, that we're going to make them loans for HIV AIDS programs in order to keep at 18 percent, go ahead. I'm not going to be a party to that.

And, so over the weekend, we had further engagement with the folks that were in the decision-making roles on this and they asked for a little bit of additional time, in fact, until the next meeting of the G7 in Halifax where the finance ministers, indicated they would try to work with their development ministers to get some agreement.

The hang up in all of this is the development ministers really believe that somehow giving people grants will diminish the flow of funds. And just as the ranking member said, the U.S. has shown it, the faith already, by indicating an increase that the president wants to add above where we are to completely take care of this question for a significant period of time.

So, at the moment we are being hard headed, I suppose you would say. But we think it's being hard headed over a matter of principle. It's not being hard headed for the sake of having our way. It just doesn't make any sense to retreat on this important issue.

REP. OBEY: Thank you, Mr. Secretary. My time has obviously expired. But I'm going to just to try to ask one quick follow- through, if I may.

SEC. O'NEILL: Sorry, Mr. Chairman.

REP. KOLBE: No, no, that's fine. It was an important response that we needed to get on the record here. The GAO has just done a study here, which I'm sure you're familiar with, about this whole issue. And they say that we could alleviate the fears about the reflows if -- I think 1.6 percent is the World Bank contributions by the developed countries were to increase by 1.6 percent, less than the inflation rate, you'd be able to cover all of that. Do you agree with that?

SEC. O'NEILL: Absolutely. I think it's a very profound figure. And we shared it with the members who were here over the weekend.

REP. KOLBE: Ms. Lowey.

REP. LOWEY: Thank you, Mr. Chairman.

I know you dealt with criteria a little bit, but I'd like to pursue it, following up on my statement. We established that the Treasury is in charge of developing our eligibility criteria for the millennium challenge account. And that these criteria will be developed around the principles of a country's political will, policy reforms, efforts to meet people's needs and willingness to engage partners.

If you could please address why this initiative should have to wait until 2004, and why new criteria are needed at all. You touched on it a little bit. How will new criteria be melded in with other IMF World Bank and aid criteria? And how will cooperation in the war on terrorism be factored in?

SEC. O'NEILL: I'm going to do this as fast as I can, but this is a really important question. And so bear with me as I tell you maybe more than you want to know. I think there's a good reason not to rush what we're doing here because the identification of the expectation levels that we have for countries, and the measures that we would use, that we decide now, will determine in the long term whether what we're doing works or not.

My experience is you get what you measure. And you have to be really careful in deciding what you measure, because the secondary and tertiary consequences sometimes can defeat the purpose you thought you had in mind. And so, let me give you an example. And it's related to an action that the G7 took over the weekend. We took an action over the weekend to agree that as a matter of policy we were going to work with developing countries to move them in a direction where, hopefully, in the not too distant future each of them will be in a situation where they have sovereign investment grade debt.

Now, let me tell you why that's important. The interest rate that a sovereign has to pay, tells you an enormous amount about the degree to which there is a rule of law, and enforceable contracts, and the level of corruption in the country, and the fiscal and monetary policy of a country. And so this one measure, the notion that every country in the world, poor or not, should be in effect a bankable debt, is the kind of expectation indicator that we're looking at for these millennium challenge grants.

And I only offer to you as a suggestion, of the kind of thought process we're going through, because again underneath this one notion, one number that the market can tell you about every place in the world, are all the connections that make conditions that will create the flow of foreign direct investment, which is absolutely essential to real lasting meaningful economic development every place in the world.

Okay. And, again, it's just a suggestion. It's not a decision yet. The president said to Secretary Powell and myself, "Go work with people in the world who care about these issues, and come back to me with the best thinking you can muster on what these essential measures should be, so that we can get it as nearly right as possible, because getting the front end right will determine whether what we are doing really begins to make a difference".

REP. LOWEY: Fine. I have more questions, so I won't pursue that. If you can discuss with us what form the assistance will take? Will a recipient country get more for bilateral health or education programs, or infrastructure needs? Or will the assistance be in the form of budget support? Will it be used for military assistance?

One other questions to add to it. How many countries will be eligible in a given year? What magnitude of resources? Are we talking about -- let me just stop with that, and ask you those two follow-ups.

SEC. O'NEILL: Well, these are obviously all important questions. And, again, as a matter of principle, I would say to you I don't think we should decide these questions that you're raising in the traditional way of saying, "Well, we're going to have this hard and fast rule, and that's how we're going to do it".

I'm sure you all have traveled around the world, as I have, and you know every country has its different cultural heritage and history and economic circumstance. And I think one of the mistakes, frankly, that we have made is we've tried to create cook books for economic development. I must tell you, I think it's nonsensical. And I also think it's part of the reason we haven't made much progress, is because we have these far away abstract ideas that don't have anything to do with what life is really like on the ground.

And so I think, yes, we're going to have answer those questions. But I would hope we would maintain enough discipline not to fall into the trap of knowing more than we really do from thousands of miles away, and imposing things that don't work on the ground.

So I think we have to be really careful as we proceed. And maybe that's not a satisfying answer. But I think we need to specify what we're trying to do in terms of the expectation for rising real jobs, and the average level of income in countries. And that will take a different kind of infusions of money and resources and expectations, depending on the economy.

If we had more time I'd tell you about education, because I think education is a critical aspect of this. I think we've never correctly measured the most important thing about education. It's one of the things we're thinking about again in connection with establishing criteria for how to make this different, and really spectacularly successful.

REP. LOWEY: I'm out of time. But, as you know, education has been a key issue of Chairman Kolbe and myself, and I hope we can pursue this thinking. Thank you.

REP. KOLBE: Mr. Obey.

REP. OBEY: Thank you, Mr. Chairman.

Mr. Secretary, I would like to talk to you about something else, about the supplemental request the administration has before the Congress, at least in part before the Congress. We haven't received a lot of documentation that we need yet.

We have a $27 billion supplemental to deal with a lot of things, especially Afghanistan. So far, my understanding is we've spent about $12 billion on that effort, and the expectation is that we'll spend about another $18 billion for the rest of the year. And my concern is that despite the tremendous investment that we've made to dump the Taliban and put in a new regime over there, that in contrast to the maximum efforts we made up front, we are making rather minimalist efforts right now that risk our -- are not achieving our goals.

I don't see -- I mean, I see that the president has cut significant amounts of money from the agency requests for dealing with these problems. DoD, for instance, if you look at another point, I'm talking of the Pentagon, it appears to me that the White House request is about $3 billion short of what the Pentagon is actually going to need, unless we are going to have another supplemental.

The cost of mobilizing the Guard and Reserve, it appears, is underestimated by at least $1.5 billion. The president has said in the past that he would veto any bill that did not meet his definition of responding to the war on terrorism. And yet, as I see it, his own request is significantly lacking in asking for the resources that the agencies are clearly going to need before the year is out. And I guess I'd simply like to ask you as the senior adviser, or certainly a key senior adviser to the president, if this committee chooses to add those billions of dollars above the president's request through the supplemental, will you be recommend a veto?

SEC. O'NEILL: Well, you told me about things that I honestly have not paid detailed attention to in the Defense Department's budget and other aspects of the supplemental and I honestly have not looked at the totality of what's been sent. If I'd known you wanted to talk about it and expected me to be responsive I would have done so but frankly I've got --

(Cross talk.)

-- a big enough brief already without dabbling in Secretary Rumsfeld's business. I think -- I will tell you what I do know. I went with Colin Powell and we helped to co-chair the Afghan fundraising conference in Japan in January and I think we had 59 nations were present for that, and I thought the response both from the U.S. and from the world community was very forthcoming.

We have a treasury person in Afghanistan working on these complicated subjects. I don't know about you but my own view is that the problem of creating a sustainable, stable government in Afghanistan, maybe the biggest challenge anyone could ever imagine.

To start with no system of discipline and cultural heritage of a democratic society and to go from where they are, which they've deteriorated over the last 20 or 30 years to what we call stable and sustainable, is not going to be easy at all. And it's not going to be mostly about money, I don't think. It's about leadership which is perhaps the scarcest characteristic in the world.

And so I think this is a very big job and I don't think we know how much it will cost but I really do not think money is the most difficult issue. The most difficult issue is creating an organized society out of chaos with no traditions.

REP. OBEY: Well, I would agree with that with respect to Afghanistan but nonetheless while money isn't the only consideration, you can't do it without it and I am deeply concerned that we're going to be setting ourselves up for yet another supplemental. And every time you do that you wind up spending more money in the end than you do if you're honest and 'fess up and face up to a cost that you're likely to incur the first time around.

And I would simply to note this. If you look at DoD or whether you look at the Afghanistan situation or whether you look at a guard and reserve, or whether you look at the custom service, or the FBI, in my view, the administration has seriously underestimated the funding that is required, now, to deal with these problems. And for what it's worth I would urge you as one of the people closest to the president, to use your influence to see that we don't have a repeat of what we had last year. Last year we had an unnecessary fight between the Congress and the president because the president decided it was going to be his way or no way, and threatened to veto the additions that we wanted to provide to the homeland security package before he even heard what we wanted to add which I thought was kind of a quaint way to deal with people.

But I would like to point out, for instance, coming from the northern part of the country, that we were told by the customs department after September 11th, that a key crossing point at the Canadian border was being guarded by bees, they don't do you much good. And so we wound up that despite the president's threat to veto the bill, we wound up adding enough money so that we could add some, I believe, it was around -- there were about 1,400 agents who have been added this year for customs and -- let me check the number. No, it's a 1,075 more customs inspectors and agents and we were able to add them this year. If we had not done that we would have waited until the Year 2003 and 2004 to deal with that. And we wouldn't have the FBI with its new computer system up and running this summer. It would have been another year and we would have been stuck with the fact that the FBI had computers that couldn't even transmit pictures of suspected terrorists to other FBI computers around the country.

So, I would simply urge you to urge the White House to work with us because I think you're going to find that on both sides of the aisle this committee is going to find that there is a need to add significant funds above the amount provided by the president, if we're to meet our responsibilities to protect the country from potential terrorist attacks, be it in ports or across the border or you name it. There are serious holes which -- and I think OMB and the president and seriously and unnecessarily risking some unpleasant things because they're downsizing some of these requests.

MR. OBEY: May I respond, Mr. Chairman?

REP. KOLBE: Certainly you may respond then we'll go on to the next question.

REP. OBEY: Since you mentioned specifically the customs service, which is my responsibility and the orange cones, I want to respond to that.

After September 11th, indeed, I like -- I think all of my cabinet colleagues had requests from bureaus and agencies for huge amounts of additional funds and additional people and what I said to my people in the customs service is, I believe that whatever I send to the president I need to be able to defend because I'm the last stopping point in the way before the request goes to the Congress and they dispose of it. And I think I have a fiduciary responsibility to the American people to run this place the way I would run it if I was on the outside, and you haven't given me any basis for adding more resources. You've simply told me another 1,000 people cost ex number of dollars and we need 700 million more dollars and I said, not on my watch.

And I also said, I know something about how to create value and I would say that this is a broad general point, public services are operating at 25 or 30 percent of what their real economic potential is and part of the reason they do is because there are not enough people who will say, stop it.

I want to give you an example of the change that we've made in seven months and five days in the customs service. A congressman was with me last week under the bridge, under the Ambassador Bridge in Detroit and we were there to witness a system that's been created in seven months and five days after September 11th, which does this. Before this time, this is a bridge that's a bottleneck from Canada into the U.S. for those of you who don't know. Before this innovation it took 54 minutes on average for goods to come across the Canadian U.S. border to go through the inspection process and checking the bills of lading and all the rest of that.

And since September 11th in order to improve the security -- to substantially improve the security and at the same time not cause economic harm to our society, we've invented a new system with the private sector that puts the security at the manufacturing site, and then secures the transportation vehicle and puts all the information into a computerized form, so when a truck approaches the customs stations at the Ambassador Bridge, there's a transponder on the cab of a truck that sends all the information to the control booth. It's displayed on a flat screen television in front of a customs inspector, the drive gives the card with his identification picture to the inspector. All the information is there. It tells where the goods came from, where they're going, consignments, how much money, how much weight, all the rest, and this transaction takes 17 seconds, not 54 minutes.

So that we have defeated the terrorists by creating better security with a lot fewer people with a lot less time which accrues to a reduction in the whole inventory chain for creating goods in this country. That's how we're going to beat the terrorists. We're not going to beat the terrorists by simply taking practice as a team from Thomas Jefferson's time and doing the arithmetic extensions of how many more hundreds of millions of dollars we'd need.

REP. OBEY: Mr. Secretary, that's a nice story and I'm glad to hear that it happened. But the fact is that today -- this year, we're going to have over a 1,000 additional people on the border protecting us that we needed. And I assume that if you don't think you needed them that they would have been included among the president's request for rescissions. They weren't, so I assume that you think it's a good thing to have those people. If you don't, then we respectfully disagree.

SEC. O'NEILL: As we get better, we will have a need for fewer people, and it's not because of technology. I want to make a point. This story is not about technology. These ideas are around for 20 years. It's for a lack of leadership to understand how to put together available technology and human resources that the public sector is in fact the drag on our economic performance and so long as I'm here, I am going to push as hard as I know how to bring modern leadership ideas to bear on how we operate the government so when people come and say to me, you know, the train is moving and we've got this event and let's go get a bunch more research is I'm going to say wait.

REP. OBEY: I'm glad to hear that but as long as I'm here I'm going to see to it that we've got human beings guarding the border rather than traffic cones. And I'm going to see to it that if we've got additional responsibilities in the area of the Pentagon budget to the Guard and Reserve, we're going to meet those responsibilities.

REP. KOLBE: Thank you, very much.

Mr. Lewis.

REP. JERRY LEWIS (R-CA): Thank you, very much, Mr. Chairman.

Secretary O'Neill, welcome.

SEC. O'NEILL: Thank you.

REP. LEWIS: I welcome very much your testimony and the emphasis upon improving the way we might deliver assistance to the developing world, especially the throwing your description of this -- throwing of a Boston made baseball over a fence and hope that it might have some positive results. Only this side is very apt.

A long time ago, I joined this committee for a while before they threw me off -- this subcommittee. David Obey for most of that time was the chairman of this subcommittee. In those days, I spent a lot of time looking at the MDBs. I haven't done that in a long time. But the emphasis then from our perspective was that -- try to figure out the way you better impact the monies flowing through the MDBs in terms of the way they really affect the economics of those developing countries.

We looked at the regional banks and among all of them, the Asian Development Bank seemed to have the better among best measurable results. And at the end of that, I personally came to the conclusion that much of it centered around the fact that they were more emphasized than that regional bank, money flows that impacted the private sector development of those countries. So we began hammering away at the MDBs from the World Bank down, attempting to change those attitudes on policy. We found great resistance within our own departments, Treasury as well as the State Department et cetera, horribly great resistance within the MDBs.

Nonetheless, we began to have an impact in terms of those attitudes and those views. I mean, even the interim American Development Bank began to pay lip service, but there's some values in monies flowing to private sector development.

I would be very interested -- I don't know if can comment for the record today, but I'd be very interested if there's been a reversal of that pattern over a decade and a half since I've been doing that stuff. I mean, my guess is there has been a reversal and I'm personally convinced that more money flowing in a fashion that causes delivery by way of government to government loans rather than emphasizing the private sector, is money that's likely to be caught from over the -- a small ball from over the fence. Would you like to respond?

SEC. O'NEILL: I tell you, I think there's something very important going on and it's a much more open discussion of challenging how we create the conditions and realize the prospects of real economic growth that benefits average human beings in other countries.

It's an old song but you know, there's a saying that says the operation was a success but the patient died. And I think for a lot of what's been done, if you look at the project evaluations over the last 40 or 50 years, you can find lots of projects and even lots of projects from the same country where people said these are wonderful projects, look at the great success we had. But if the average income doesn't go up, you have to wonder what have we really accomplished?

You know, it's not to gainsay giving children vaccinations to protect them against childhood diseases and things like that. Indeed, those are important things. But at the end of the day, if people live relatively short lives in misery, and I think you have to judge that what we've been doing is not succeeding. And I personally don't believe we have to live with the lack of success that we've seen.

I -- you know, from personal experience, I can tell you, every place in the world, people have the human capability to produce goods and services at the level we enjoy here in the United States. Now they need education and they need portable water and they need lots of the other things that we take for granted like the rule of law and to be sure you're neighbor's not going to slit your throat, and you know, all those other things that we do take for granted. But every place in the world, a human material is capable of living life at our level. And I think it is largely a matter or insisting, as we provide assistance, that certain conditions are created by sovereigns that creates a seed bed for a rapid growth in the average level of income in the developed world.

REP. LEWIS: Mr. Secretary, your testimony that says we are pressing the MDBs, the measured results is not enough that the MDBs are increasing funding for education, for example. That measuring results is another question. But I'm asking the question in kind of a different way. The president, using a small carrot and stick, suggested that by delivering some money for reading, for example, in the United States and assisting among testing that we might impact those individual school districts by the thousands across the countries -- small carrot and stick. Do you have any reason, I mean any real input from your staff that would suggest that -- that asking the MDBs to measure the results for reading, for example, et cetera, that there's anybody -- any organization or place that begins to suggest that it's not going to do anything for us? For them rather.

SEC. O'NEILL: If we can get the measurements right and hold our own and other people's feet to the fire of real measurements, even with the amounts that we're suggesting as incremental for either replenishment and then for sure for the millennium challenge grant, I think we can succeed in leveraging everything that's going on in the developing world. Because if the basic conditions are right, so that foreign direct investment comes, you begin to get in a multiplier effect. So that, beyond our ability to predict or plan because out there everywhere is latent demand that's just waiting for job creation that comes after their stability in a reasonable marketplace and a government that doesn't take everything away from you that isn't nailed to the ground.

And for example, in the education area, and I said earlier, I think we've been measuring the wrong thing. We've been measuring a number of children in primary school, not to say that it's not an interesting measurement but I can show you places around the world where there are 110 kids sitting under a tin roof with no walls and an older person than the children in attendance that has no basis for really teaching anyone anything and that's called primary education -- that's worthless.

You know, on the other hand, where you can see that 10 year olds have the competency to read and write and compute at a level that makes them lifelong learners.

REP. LEWIS: Of course.

SEC. O'NEILL: Then you have accomplished something really important.

REP. LEWIS: I must say that I have much less confidence than some within your organization are expressing about our ability to actually measure that, let alone MDBs measuring. You're suggesting that the interest rates that are paid on loans is evidence of a lot in terms of stability and otherwise. I would really push your people to give us -- give you some ideas how the increased money is really going to get results by measuring this effect.

SEC. O'NEILL: We'll do that, thank you.

REP. CAROLYN C. KILPATRICK (D-MI): Thanks Mr. Chairman and Mr. Secretary, again. Your visit to my district -- I wasn't there -- short notice I had to be in New York that morning. I certainly apologize but I do trust and have heard that both you and Governor Ridge were well treated and you did see something.

I know my colleague, Mr. Knollenberg, was there as well as my son and Mayor and others so I personally wanted to apologize for the rhetoric and please give me a little bit more warning when you come. I want to be there and I want to be with you, but thank you for coming.

I want to go back, and I wasn't going to go there, but since we did talk about the Ambassador Bridge which is one of the largest, most busy border crossings in the country, as far as commerce is concerned -- the Big Three and others use that border quite a bit. Over the last several years that I've been on this committee just for -- but prior to that as a member of the appropriations committee in the state, the three entities four, I might add -- I say four that are at the border -- Customs, INS, Border Patrol and Coast Guard have been sorely underfunded and really understaffed. When I came to this committee I always wanted to, okay, put more attention on our border because they said, oh Kilpatrick, the problem is the southern border.

Your border's fine, Canada's good neighbors and all of that.

Well, if I were a criminal, that's where I'd come across -- Canada -- because less attention was there, less staffing and the like. And I think September 11th kind of shook us all, all over the country, and all our borders, particularly the northern borders of which my district lies with Canada and some of the largest commerce in America crosses every day.

I heard what you said with Mr. Obey. I feel too -- not just this morning, and I know you come from the private sector but you really don't believe that public servants carry their load. You said it again this morning -- some bold percent, you said 25 or 30 percent of our capacity that we can do it, and I'm putting all of us in that. Not to label any particular job market or job specifications. It's probably higher than that. I think public servants perform their work. Of course, there's room for improvement. I think we have to get there.

The Ambassador Bridge that connects Detroit, U.S. and Canada is an important bridge. The technology just described - I'm very happy with that. We met with the Canadian prime minister and others trying to do just that and you came and met with President Bush to try to see what other state and areas might we use other than that bridge to do what -- just what you just said, with the technology that's available. And I'm happy to hear that that's been instituted and I hope that we can get it so that we can be more efficient and safe, on the one hand. So I appreciate that and want to work with you.

I want to switch just a bit to the HIPC countries. In last year's budget --

SEC. O'NEILL: Before we do HIPC, could I say just a word about the public service?

REP. KILPATRICK: Oh, please.

SEC. O'NEILL: You know, I'm really glad that you questioned me about public service. I think you probably know in my early life I spent the first 15 years of my career as a public servant, as a civil servant, not as an appointed official, because I really care a lot about public service.

And I want to be really clear about this point. Some of the most wonderful, caring people I've ever known work in the public service. I don't know any bad people in the public service and what I've said about performance of public service -- it's not because of the people, it's because of a lack of leadership that we don't do a better job.

As a matter of fact I would say to you, every place in the public sector and the private sector, the people are terrific, the ones that are able to perform well are able to perform well because their leadership creates a basis where they're using their full potential. There's so many things that we do in the government limit people's ability to really make a contribution because we won't let them re- think how to do things. We keep them mindlessly doing things the way we've been doing them and evolving them for 75 years, so please be sure to understand I think public service is a great, important work.

REP. KILPATRICK: Thank you for saying that, because I didn't get that earlier. Thank you very much, Mr. Secretary. But on those four agencies that I mentioned -- Coast Guard, INS, Border Patrol and Customs -- they meet, we met, we've met three or four times with the leaders in the region. They can't say very much because everything has to come from Washington, which we understand that, so leadership has to be -- has to go both ways. Those who are on those borders have to be able to at least, and I'm sure they talk to you all in the -- Captain Loy -- Admiral Loy and others here from Coast Guard on what they need, but they can't tell an appropriator what they need because they -- it will have to come from Washington. I don't know if that's a good thing in light of the terrorist economy that we live in or what? I think that needs to be looked at as well.

But, let me speak to HIPC -- I know my stands moving. Is it going Mr. Chairman?

(Laughter.)

Quickly. Okay. And HIPC countries getting ready to qualify for those debt relief monies. They can't get it because of them need technical assistance and are unable to get it. I was trying to increase those dollars amount -- they told me in Treasury -- no we've got $3.5 million, we've got enough to do. Have you done it? Have you got more countries qualified to do it with the money that you have had available to you last --

SEC. O'NEILL: We've asked for $10 million for technical assistance and I tell you, as I go around the world and talk with people, there are lots of areas where we need to provide technical assistance. Not just for HIPC but for working on the issue of terrorist finance. You know, right now there are 58 countries, I think, out of 189 that have set up financial intelligence units and many of them need technical assistance to understand what a financial intelligence unit is all about. So, yes, we have work to do on the technical assistance side.

REP. KILPATRICK: In this particular area? I --

SEC. O'NEILL: In the HIPC area, I think -- I think we've --

REP. KILPATRICK: Have any new countries qualified with the technical assistance --?

SEC. O'NEILL: No, I don't -- I think we're still --

REP. KILPATRICK: Could you get back to me, Mr. Secretary, and let me know the status of that and how it's working?

SEC. O'NEILL: I will.

REP. KILPATRICK: I do think that to get the money they have to fill out these papers that are -- Reduction Strategy papers that are quite complex. We want to help them in that effort and hopefully we can work together.

SEC. O'NEILL: Okay. Mr. Chairman, I'll say just one more thing about the four agencies that the Congresswoman raises. Yeah, I quite agree with you and I think one of the things that we're working to do is to create an integrated basis for thinking about the borders. And, in fact, in some ways to eliminate the idea of border, if you use the example that I gave of the Ambassador Bridge -- what we've basically done is create a virtual border. We've said, an imaginary line on the ground is no longer the place where we do customs activity -- it's way outside of the -- it, the border now extends to the limit of where the factory is.

That's a really important conceptual breakthrough and the way we need to think about the border, again, is not related to the Coast Guard function and the Customs' function and the INS function. We need to think about it from the point of view of how do we provide security and improve productivity of commerce, which is the way we're going to really defeat terrorism, and it doesn't come in agency flavors and we're honestly working to try to create a unified basis for thinking about these things that's not bounded by bureaucratic --

REP. KILPATRICK: But they are right now. I mean, it sounds good, but that the Coast Guard's only going with their -- INS is only going to do the cargo, the Customs is only going to defeat -- well, I mean, that's how it's written. So to get to what you're talking about, which is a seamless kind of responsibility, we need to go back to that leadership that you talked about.

SEC. O'NEILL: We do. And we need to multi-task people. Instead of saying you only do what's related to your agency.

REP. KOLBE: Mr. Callahan.

REP. SONNY CALLAHAN (R-AL): Good morning, Mr. Secretary. I, for one, appreciate your candidness on every issue. I appreciate your willingness to come before the Congress and to speak out on issues that are important to you and to your area of jurisdiction in this administration.

I know that the administration frowns on anyone disagreeing with them, but I think President Bush, frankly, appreciates the fact that people, like you, are willing to speak their mind on issues that do impact the charge that they have been given to by the president.

You mention, and also let me also echo what most everyone here has said -- your position on IDA grants instead of loans.

It's ludicrous for us to try to fool ourselves. I don't know who we're fooling, or trying to fool, with loans that we know will never be repaid. Why not go ahead and give them the grants, up front, and create, if nothing else, a public relations of the grant versus the loan.

You mentioned that you had been in Japan, I think, or China or somewhere with Secretary Powell, and maybe my question may fall under Secretary Powell's jurisdiction, but in your negotiations on the Afghan contributions, do we have any system of monitoring whether or not these nations fulfill their obligations? Specifically in -- on the -- in the Colombian Plan when President Clinton came to us and asked that we put up $1.3 billion out of a total $7 billion contribution plan, we find that very little of the money has ever been contributed by the nation's that pledged it.

Do we have any system of monitoring this and do we have any wedge capability whereby we can tell these nations, and especially the European nations, who pledge so much money to Colombia -- do we have any wedge we can use to force them to put up the money that they promised us in these negotiations, that we talk about this as arrears. They're in arrears, too. And we need to find out how much money that -- and these national, international contribution stages has been fulfilled, or our commitments have been fulfilled. Do we have a monitoring system for that?

SEC. O'NEILL: I think we have learned a lot from the experience of the last 10 years, and therefore we have sought to put in place people and mechanisms to ensure that we know the issues that you're raising, we know what other people are doing, and we know where our own money is going, and we don't just write checks and assume that it's handled in a professional way. But we're putting in place a tracking mechanism to make sure that we get value for money spent, and that everyone comes along -- frankly, one of the complications in this Afghan pledge in this, you know, it sounds simple but it's not so simple because some of the contributions are made in goods, in boot products, in other physical goods. And there's a valuation question associated with that.

In their early identification of amounts, there was uncertainty about the staging, you know, on what calendar period would the funds flow, or would the goods flow. And so those details are now being sorted out. And on the other side of it, the Afghanis are working to create what you would say is a responsible receptacle for moneys and goods, and figuring out ways to distribute the --

REP. CALLAHAN: I know it's a little early on the Afghan to determine its accessibility. That's not it. It's not too early to determine on the Colombian plan, Plan Colombia. And whether it's goods or whatever, all we have to do is ask the country: "What have you--". If they want to say they've sent pork and beans, or whatever, that's all right. But whatever they have contributed, there should be some reporting process.

SEC. O'NEILL: I agree with you.

REP. CALLAHAN: Now the Administration is coming to us, they need another half billion dollars. Whereas we were told, if we put up our $1.3 billion, another $5.5 billion would come, and it has never come.

SEC. O'NEILL: Bill, is somebody here on top of Colombia, specifically? We'll get you something. Yes, I take your point. I have not personally looked at it. We will get you an answer.

REP. KOLBE: Mr. Knollenberg.

REP. JOE KNOLLENBERG (R-MI): Thank you, Mr. Chairman.

Welcome, Mr. Secretary, and again thank you very kindly for your visit last week. It meant a lot in a whole lot of ways in your assessment of what is happening, and your comments this morning were much appreciated. Existing technology was utilized to bring this about, bring about that fast lane, and that's very important. Thank you for that visit.

I want to talk about the deteriorating situation in Argentina, which I think is becoming an emerging energy crisis. Very likely you haven't received this letter. I sent a letter last week outlining some of the concerns that I had about it. And in particular there's a firm that's local to me in my state of Michigan that has about, well, it has several hundred million invested. And as you know, what took place down there, when they devalued the peso, the whole -- the problem began to develop. And now we have, what, a succession of five presidents.

And I just saw today, I guess, when we lost the economy minister yesterday, that succession of presidencies and governments didn't do anything except -- none of them have now paid any respect at all to those contracts that were negotiated some time ago. So these energy companies may, in fact, face possible collapse themselves by virtue of their investments down there. And certainly there will be -- they'll have to deal with this situation.

I'm wondering, and I appreciated the comments of, was it Dr. Sing (ph), the director of special operations for the IMF. He stressed the importance of restoring investor confidence, including resolving any issues faced by the private utilities. He felt that the U.S. should take a very strong stand in order to prevent serious long term damage, because it's not just damage within the country, it's damage outside the country, internationally as well.

So, my question to you is: What is your reaction to Mr. Sing's statement as it relates to the energy sector, and particularly the privatized utilities.

SEC. O'NEILL: Argentina has been in the center of our work pile now since we arrived. I think Dr. Taylor and I together have spent a huge amount of time, as have our staff people working on Argentina, largely behind the scenes, because we didn't think it made any sense to seek publicity on these things.

The president cares very much, and frequently asks "How are we doing on Argentina". He's had quite a bit of direct involvement himself, first with President de la Rua. And then there was a succession of changes over a very short period of time, and more recently with President Duhalde. And one of the things that we have been saying consistently to the leadership as its been there, is the importance of providing a sense of confidence to the private sector, and not scaring the private sector away.

At the Monterey conference, I had a bilateral meeting with Ramez Lenicov (ph) who is the finance minister who resigned yesterday, and talked to him specifically about these issues of driving private sector investment away by an unwillingness to negotiate, which I was hearing from all of the private sector people. They were perfectly prepared to negotiate sensible rearrangements of their agreements and contracts to help the Argentinean government, and they were not finding anybody that was willing to work with them in a constructive way.

And I don't know what we will face now with Remes Lenicov leaving. I think he was a person with an education and a background and an inclination, I think, that was pro-stability, and he seemed to know the right things to do. But for whatever reason it wasn't possible to convince their parliament, or their Congress, to make the changes that are necessary for stability. So I honestly don't know what they will do next.

But you can be sure we have been very forthright and, I think, clear in our statements to them about the importance for them to create the conditions of stability that would keep money in the country instead of driving it out.

REP. KNOLLENBERG: You feel that there is a -- the political will of the country simply isn't there?

SEC. O'NEILL: I think it's awfully easy to judge from afar, because it does seem to me that it's very clear the things that they need to do in order to create a foundation to go forward from. There has got to be some political explanation for why they can't get themselves together, to take the action that's necessary. As an example, they've had this long tradition of the provinces, in effect, having an ability to make obligations for the society at large, that is to say for the state of Argentina, without any responsibility to raise the revenues, which is just very hard to understand.

And it's clear that if they're going to have a new fiscal footing that is sustainable, that they've got to have an arrangement so that the national government is not at the mercy of whatever the provinces decide to do. And as clear as that seems to be, they're not able to politically pull it off.

REP. KNOLLENBERG: I think we have to ensure that there's some agreement between the IMF and Argentina that does provide some protection for these private utilities. As I say, some would be forced to consider insolvency. Thank you, Mr. Secretary.

REP. KOLBE: Mr. Sununu.

REP. JOHN E. SUNUNU (R-NH): Thank you, Mr. Chairman.

Let me pick up there, at least briefly. My concern would be that one of the reasons that the Argentinean government may not be willing to work more aggressively to engage in negotiations, and to take steps that might instill confidence in the private sector, is because they think they can avoid making those tough decisions. And the reason that they might think they can avoid making those tough decisions is because when they sit down with people at the IMF, or perhaps with the Treasury Secretary, and I'm not an expert on this, that they get reassuring tones, that they get a suggestion that "We really want to work with you, we want to find a way to help you and to support you".

And certainly one avenue of thought, which is the moral hazard created by the IMF in the first place, is what led to this. And unless it is made clear that the IMF is not willing to provide the safety net to the private sector in this case, that the government won't be willing to make some tough important choice that will lay the foundations for future growth.

My direct question with regard to this is: why not, or has the Treasury looked at making a firm stand? And saying that the IMF will not lend, will not step in, will not provide a safety net through this crisis for a specific period of time, and require that the Argentinean government work this out itself, and move more aggressively, you know, currency for treasury bonds, which is what the most recent resignation occurred over, is not going to instill confidence in anyone. Anyone in the country, it's not going to instill any private foreign investment and it's certainly going to -- not going to instill confidence in the domestic investment market.

Will the Treasury or through the IMF be a little bit more firm in laying down clear conditions for timing of getting re-involved in lending to Argentina?

SEC. O'NEILL: I'm just stunned. No one has ever suggested to me that I was vague or elusive in what I thought.

REP. SUNUNU: No, I didn't use those words, Mr. Secretary. You know I --

(Cross talk.)

SEC. O'NEILL: Excuse me. That's the implication that somehow we haven't been direct. Believe me, we have -- I think it's true to say this and this starts with the president. You know, all of us ache when we look at the television and see people getting killed on the streets of Argentina. You know, so we start with -- do we want them to succeed? You bet we want them to succeed. We want them to be a prosperous, growing country. So, yes we do have that feeling about them but believe me we have not left any daylight between ourselves and our view about the absolute essential condition that Argentina itself create a sustainable set of conditions, so that any IMF assistance that goes, goes to create a better future, not to pay somebody off who has been hoping against hope that somehow they were going to get bailed out.

And as you know, I have been maybe painfully critical of the IMF and the World Bank and the things they've done in the past. Believe me, Horst Kohler, I've watched him do this, Horst Kohler has been absolutely clear about the determination of the IMF that, yes, they want to help but they're only going to do it when Argentina takes the right steps. And over this weekend when we had the G7 and the IMF, World Bank people here, we had a session over lunch with the finance minister from Argentina with 25 of the finance ministers from around the world, sitting around the table with Wolfensohn and Horst Kohler, and we had a very direct exchange about what's required. And, frankly, I think the reason that Remes Lenicov resigned yesterday, is because it was really clear to him there were no daylight cracks in what he was being told from the people he met with here. And he wasn't able to convince the political system in Argentina to take the actions he knows are required for them to go forward.

REP. SUNUNU: Well, that is somewhat reassuring. Regarding the MDBs, you also indicated that you thought measurement was important in assessing progress. And you talked about education. Now, you talked about measuring a number of children in primary school settings and you also mentioned that that wasn't necessarily the best measure. You had to look at the structure, the curriculum, what they were learning. Are they getting skills in reading and writing and math that might be lifelong learning skills.

Well, I want to raise two questions. One, I don't know that the MDB should be setting metrics and measurements for education or social development. I don't know that they're the right organization to do that. I don't know to what extent that represents a real migration of their mission. But even if they were doing this measurement, I don't know that those metrics are even close to being what I would want MDBs to involve -- be involved in. And let me give an example.

If you went to Russia in 1978 and said, are they learning to read? Are they learning to write? Are they learning mathematics skills, not only would the answer be yes, but the answer would be yes, and they're learning it at levels that many primary schools in the United States aren't achieving. That's not the determining factor for economic growth and economic potential. Now, I would say from my perspective, fortunately I think I did find the right answer on page two of your testimony. What really needs to be focused upon by the MDBs, is the implementation of structure for the rule of law, for contracts, for transparent government in the elimination of corruption. If you have those things in place then you're going to have the opportunity to use whatever education skills you are, to create economic future. Schools and health care, those are very important and they ought to be part of the mission of our country and of course the work of our subcommittee here.

But I would emphasize in our effort to make sure that humanitarian relief and social infrastructures being put into place, we don't lose sight of the fundamentals that are necessary for future economic growth. And I think in the past, the World Bank and the IMF have spent too much time looking at measurements of social welfare or social well-being. But those aren't important. But from an economic perspective the things we need to focus on are contract, law, corruption, and political freedom. And I'd like you to comment on that.

SEC. O'NEILL: Well, those are certainly on the top of my list of things that are necessary preconditions. The point I, you know, and again let me say I offered the education example only as an example and none of these are decided yet, or what measures that we should use, but I would differentiate than what you said this way, that for too long governments, not just the MDBs, but governments generally including our own, have measured inputs as though it mattered. But I'm saying is if we're going to measure education outputs we ought to measure the right thing and attendance doesn't have much of anything to do with anything.

I will tell you of going to a Gulf country in the last six weeks, a Middle-East Gulf country, and going to their selected example of the best vocational education program in their country where they're having children, not children young men that are, let's say 16 to 22 or so, three years worth of engagement where they're paying them scholarships to attend this school, and I honestly believe that what they're being taught in three years, they could be taught in two weeks.

Okay. And now if you look at the standard measures that you see in that kind of a place it shows lots of good attendance. Everybody shows up because they're getting paid to show up and all the rest. What's it worth? Zero. Okay. And so I'm saying as we go forward, not only in this but in a lot of things we do in the government, we should insist that we get something for our money not just patting ourselves on the back for being compassionate.

REP. SUNUNU: And I appreciate that, but from an economic perspective I would be at least as concerned about that Gulf State's rules regarding foreign direct investment, free movement of capital --

SEC. O'NEILL: I agree with you.

REP. SUNUNU: -- you know, foreign ownership structure and the trade barriers that they've established. And I think those are things that the MDBs should be very reluctant to support if they're not trending in the right direction.

Thank you.

REP. KOLBE: Thank you very much.

Mr. Kingston.

REP. JACK KINGSTON (R-GA): Thank you, Mr. Chairman.

Mr. Secretary, we're glad to have you here, it's good to see you again.

SEC. O'NEILL: Thank you.

REP. KINGSTON: One of the questions that I want to kind of move away to a broader picture on whether it's the new millennium accounts, or whatever, is getting credit for what we're doing overseas. And I've raised this question with Richard Armitage last week, but you know, I mean, prior to September 11th, we gave $174 million in aid in various forms, to Afghanistan. And we're all over the world doing good deeds like this and yet we get an anti-Americanism, we don't get credit and you know, to me, I think it is a practical matter if you do something for some nation, you should just as a quid pro quo, be thankful for it.

But I understand those who don't think America should be appreciated for whatever reason but I do think that it is important for national security reasons for us and just building a better world, to let people know we are doing this, we are involved in it, we're interested in your growth, we're interested in helping you to find your way out of poverty. We want to help and then we could get input from them as to what we're doing right and what we're doing wrong. And so kind of in a big picture, can you address that for me?

SEC. O'NEILL: I think you're right. I think we need to figure out ways that we can better engage the American people and understanding what it is that's going on so that they know what's going on. I think, you know, we haven't done a good job of showing the American people themselves, all the things that are being done on their behalf. And I think we've not given the American people an understanding of what the problems really look like in some of these places that we're giving assistance to.

You know, it's not too hard to get the television to focus on the exploding bombs and things like that. It's harder to get them to do an educational job and giving people -- giving Americans a sufficiently intensive understanding of what a place looks like and what the problems are like so that they can compare it to their own life and understand what it is we are doing and what we should be proud of what we're doing. But I think we've got a big job to do.

Frankly, you know, when this trip to Africa came up, there's going to be 12 day adventure, I wasn't too sure about having a rock star go along, but in some ways this presents a real opportunity, I think, because there's a whole planeload of people from the media that have decided to go along. And if we can get the media to convey a story about what this is about and what America is doing out there, then I think taking the rock star along is really a very good idea if he brings with it an intensity and focus that provides some educational base in America and gives some sense of pride of what it is they're contributing to.

REP. KINGSTON: I think that is very important but I'm also less concerned about the American knowing where his tax dollars are because I think that's members -- the Congress, in order to vote for foreign aid, so to speak, all of us, I think, on this committee have to be able to sell it back home in terms of why it's important. But I'm thinking more in the other world the recipient.

SEC. O'NEILL: I'm thinking this, you know, CNN is even in the most primitive mud hut in the world when you go travel around the world CNN is there. If we can get CNN to show this story it will effect people all over the world.

Now, one thing I find, and I'm sure you do to as you travel around the world, I think we have not done a good job of telling our own story. And some of the things we have been doing have been distorted, you know. When I traveled to the Middle East I found lots of people, well-educated people, I think, who felt that what we'd been doing in the financial war on terrorism was aimed directly at them. And if you look at it from the point of view of the television that they see, you know, they do get CNN but they get a lot of other television too.

And if you look at it from the information they're getting it's not too hard to understand how they saw what we were doing about terrorist financing as an attack on their religious charities because we didn't have an American voice saying what I said to them, do you know how much money Americans contributed to charities last year? I don't know if you all know how much it is. Two hundred billion dollars. And you think we're against charities. It's our middle initial in the United States is charitable giving. We'd have a huge hole if we didn't have the charitable giving we have in the U.S.

You know, none of us who were involved in this ever imagined that you would see our going after where the money was going through some of these charities as an attack on your religious charity, but there was not an American voice who understood both what we were doing in terrorist financing attack, and what we do more broadly in our society to stand up and say wait a minute, you know. So I found spending a week with the media in the Middle East, I think we did some really important damage control and repair by telling people what the real facts are and making it clear we're not against charities, we're against terrorists, and we're going to chase the money wherever it goes.

So part of our problem is we're not doing a good job of telling our own story, and what we are doing is being distorted by people who have a different agenda.

REP. KINGSTON: Well, it's interesting, Mr. Chairman, and I'll close with this, prior to being here I was at a meeting with the National Endowment for the Humanities, and what one of -- our state director was telling me is that when they sent out a grant for years, the recipient of the grant would just take it and be thankful and that was kind of it. Now they actually have an in-house policy that before the money is transferred to the recipient, the recipient has to do a press release of thanking everybody in the chain for this, which is great politics on their behalf but it's not a bad idea if you do go to this grant concept simply because of national security. And that, if nothing else -- anyway, thanks a lot.

REP. KOLBE: Thank you.

REP. KINGSTON: I appreciate your good work.

REP. KOLBE: Thank you very much, Mr. Kingston.

Well, before we resume a second round of questioning, Mr. Wicker has just returned to the -- (off mike.) -- turn your microphone on.

REP. ROGER F. WICKER (R-MS): The difficulty we have today is shuttling back and forth between other appropriations subcommittee hearings. Has anyone asked you, Mr. Secretary, about your and Secretary Powell's new proposal in regard to credit ratings. You've been asked that already.

SEC. O'NEILL: No, no one has asked me that.

REP. WICKER: Well, okay, let me ask you about this. Well, I know it touches on some things you've already talked about. I noticed in the Financial Times today that the proposal was met with skepticism by some of the World Bank officials at your recent meeting.

If you could just tell us about this proposal, how many sub-Saharan African countries do you think might actually have that access to private capital and just the technical assistance to prove their credit worthiness? How many HIPC countries are interested in this type of proposal, and are you concerned about the possible implications for their overall debt sustainability, and are we just encouraging more HIPC nations to get into deeper debt? So if you'd just comment on that that will be my question.

SEC. O'NEILL: I believe this. Every country has a market- determined interest rate. Now, there are a lot of countries that don't have an official private sector credit rating, but make no mistake, every place in the world there is an interest rate that one has to pay if you're going to build a plant or create a business, and if you're going to borrow the funds in that country that's the rate that you will pay. If you borrow some other country they'll assess your ability to pay back the funds. And so there's already a worldwide capital market.

The notion behind this idea of moving toward credit ratings, more formal credit ratings, is linked to the idea of every country should have investment grade debt. Now, this is important because the determination of investment grade debt basically says that corruption is very low, that the rule of law works, that they're enforceable contracts, that monetary and fiscal policy are being conducted in a conservative, stable way. And that one major of market -- of how much money you've got to pay to convince the market to let you have money, is a way of quickly looking around the world and seeing where we need some attention to improve the underlying conditions.

I would argue that for a very long time the developed world has accepted the idea that if a country is a very low income country, it's okay for it to be financially derelict. I would submit to you that's a really terrible concession to make. Because it is not true that it is necessary to be financially derelict simply because you're low income. And if you are financially derelict, the difficulty is that when bad times come in the form of a commodity cycle or a weather cycle or something, you have no protection, you're immediately in a situation that's going to directly affect in a damaging way your population.

And so this idea of getting private sector credit ratings is part of a family of ideas and a philosophy about how to change the results that we're seeing in the world in improving the average living standards of people everywhere in the world. This is a piece of the puzzle that is necessary to nudge the world in the right direction. And it's also a way of signaling to the developed world that we've got to stop taking actions, i.e. giving loans to very low income places that make them more likely to be HIPC countries for the next generation.

REP. WICKER: And then with regard to my specific questions about how many sub-Saharan African countries you believe --

SEC. O'NEILL: I think they all ought to be investment grade debt. It's going to take some time to get them there. But they all ought to be investment grade debt. And they all ought to have a calibration about how far away from that standing they are.

And I think informally big companies like the one I came from, you know, we knew what the interest rate, what the real interest rate was for every country in the world, because it was our business to know how much money do you have to make here in order to offset the risk that's associated with government malfeasance and misfeasance and, you know, all the other things that you have to pay attention to around the world. So it already exists out there in a notional sense. It would be better if it was more than notional, and was kind of official.

REP. WICKER: I take it from your remarks that really are making this proposal beyond the African time?

SEC. O'NEILL: Everywhere.

REP. WICKER: And do you agree with the assessment of the Financial Times, that your proposal was met with skepticism and if so, what did you say -- what exactly were the conversations you had -- skeptics that led us in on it?

SEC. O'NEILL: Well, you know -- you and I take all of this with a grain of salt. There are a lot of people who don't know anything about world capital markets who have an opinion nevertheless and I don't take that too seriously.

REP. WICKER: Thank you, Mr. Chairman.

REP. KOLBE: For the record, let me just note that we have cleared that this subcommittee has cleared the funds for a conference to be held on this subject, that you're going to be doing with the African countries to prepare for this.

SEC. O'NEILL: Yes, sir.

REP. KOLBE: Let me if I might turn to, in my next round of questioning here to the issue of the HIPC debt relief program. We -- in last year we appropriate $224 million which comes to the multilateral fund and we've appropriated all the money for our bilateral HIPC of relief with all the countries I think with the exception of Congo which has not yet met thresholds there.

But just this last weekend at the World Bank IMF meeting, there was a report that came out for the World Bank that said that original HIPC estimates were too low and the goals might not be very clear. I'm wondering if you would comment on that and whether or not you could tell us whether we would expect another -- a request for another round of HIPC debt relief -- another initiative?

SEC. O'NEILL: You know, I'm sitting next to one of the most distinguished economists in the world and he's not had an opportunity to say a word. I'm going to let him answer this question.

REP. KOLBE: We're delighted to have Mr. Taylor speak to us this morning here.

MR. JOHN TAYLOR: Thank you, very much. There have been estimates of the cost of HIPC program which have been changing. And the World Bank's report reflects the recent changes. They're due to a number of factors. One is the fact that Ghana is now participating in the news -- different tabulations of what the total costs were going to be because of the additions of different kinds of measures of the debt. And I'd say what we're going to do is look at these estimates, evaluate them and try to be sure that any future estimates are as accurate as possible. That we do understand now that there's going to be some re-estimates of the total cost and we want to look at that.

REP. KOLBE: One of the new ideas that came out of the meeting is that we can one, I think from the Center for Global Development that suggests we need new debt relief. You may want to answer this, Mr. Taylor, either one of you.

MR. TAYLOR: Any country that has greater than two percent of its GS GDP in debt relief should get servicing payments should have debt relief and they suggested maybe IMF should look at a way of selling $20 billion of its gold reserves to pay for that. Do you have a position on this? What about the disincentives this creates for other countries?

SEC. O'NEILL: First of all, I think it's important for us to go ahead with the different processes in place and you just raised questions about what the cost of that is going to be. We want to make sure that the countries are going through that process effectively and are making the changes, actually moving in the direction of becoming more sustainable so that the debt becomes less of a problem in the future. And that grants proposal that we have working for us is a way to approach that. So we think it's more sensible to continue with the current HIPC process as it exists and to try to move ahead with the grants to deal with the sustainability problems in the future. And I just recall Ms. Lowey's reference to GAO report which says that the grants proposal is a more effective way to deal with the sustainability issue than debt forgiveness.

REP. KOLBE: Thank you. Mr. Secretary, let me turn to the issue of the millennium account. I know we're talking about the 2003 budget and the president's proposal, did not have that go in effect until 2004. First of all, let me say as I have already said to you, and I know you had a major role in the thinking that went into making this proposal that I think it's the right direction for us to be going.

In fact, I said to a conference this morning of YPO, Young President's Organization conference, but I think really this is only the third major foreign assistance initiative since World War II, the martial plan, President Kennedy's was alliance for progress and now this. It really in a very marked way, makes a change in direction of foreign assistance.

Would you be willing to think about whether or not a pilot program in 2003 in the budget this coming year, might be implemented. Is it possible we could be far enough along and have the criteria in place that we could try it and see if it worked in one or two countries?

SEC. O'NEILL: I'd very much like to see us be able to do that. I think absolutely the sooner we can begin to move, the faster we're going to leverage everything else that's going on. We may very well be able to do that.

REP. : I know that, and I have spoken by the way, to the chairman of -- full committee, about whether or not we might get a small additional allocation in order to account for this. But, let me just ask you what -- to share with us, I know there's a task force that's working on this, but what do you think should be the criteria for how or what countries should be eligible for this millennium count, if it is 50 percent -- in a general way.

SEC. O'NEILL: Well, in a general way I think we need to put this money where countries, where sovereigns are willing to dedicate themselves to the proposition that within a near term period of time, they are going to take action to put in place the full fledged rules of law and enforceable contracts --

REP. : The kind of things Mr. Sununu was talking about.

SEC. O'NEILL: -- absolutely. I think those are pre -- in a way they're preconditions for the possibility of rapid, significant scale economic growth that benefits average people and so I would say we need -- we're going to find lots of places where these conditions don't exist, including some places that will surprise people. But I think if this is going to work, this money needs to secure the commitment and action of sovereigns to actually make these things happen. Because we know without these things you can't get there.

REP. : I agree with what you're saying and my time is up here and I want to go Ms. Lowey but I would just add a comment, that as I think as an additional restraint on the Congress and the executive branch we need to have some provisions in there that make sure that we don't just quickly waive those provisions --

SEC. O'NEILL: I agree with you.

REP. : -- and that we don't take the money and be -- because there's a political crisis somewhere and put it over there for political reasons that has nothing to do, otherwise we lose all credibility for what the funds are set up.

SEC. O'NEILL: I agree with you. I, you know, I've said notionally in our inside counsels, this is so important that it would be great if we could figure out a way that we could separate this money and this initiative from so-called strategic assistance --

REP. : Right, exactly.

SEC. O'NEILL: -- you know, we have other reasons to give people money. That's quite okay with me and quite understandable. But if we're really going to make this work we've got to stop the confusion between so-called strategic and economic development.

REP. KOLBE: That's music to my ears.

Ms. Lowey.

REP. LOWEY: Let me say, Mr. Secretary, I would welcome the further discussion, perhaps more informal. I'm talking about the criteria because although I certainly respect my colleague, Mr. Sununu's thoughts and we all want to see a system of laws in place, there certainly could be a strong rationale for investing in education, building up the educational level of the population so that they would be ready to accept the system of laws and fight for a system of laws. And like -- which comes first, the chicken and the egg.

And I think frankly in this committee we've tried to do it across the board and sometimes we've succeeded, many times have failed and I think the discussion serves -- is certainly worth considering. And so we all would like to see a system of laws in place and understand the importance of -- when people are dying and they're not being education sometimes you have to do, in my judgment, both of things at the same time. So I think some of our conversation's worth pursuing.

I'd like to go on to Colombia. Two years ago when Congress was considering the original plan Colombian legislation, I along with many other members, indicated that solving Colombia's economic woes was more important than providing helicopter and spray planes. Specific appeals were made to the treasury to get engaged, to work with the IMF, to provide Colombia with a plan that recognized their unique needs. Unfortunately that didn't happen and Colombia was forced to make budget cuts in every area and even had to plead for relief from initial IMF demands that they reduce their defense and police budget. Those unfortunate policies have meant meager amounts devoted to economic development in rural areas of Colombia, no significant increase in the size or capability of the military and police and almost total reliance on the United States assistance to meet these needs.

If I may ask you why have we not recognized that Colombia's unique circumstances warrant a unique response from the IMF, number one. And second, what can be done now to alter current IMF plans to enable Colombia to make the significant additional investments in its rural areas and its military and police that Congress expects?

SEC. O'NEILL: I'm sorry, I don't -- I'm not prepared to give you reasons of response to Colombia but I'm sure we can do that for the record.

REP. LOWEY: Fine, I thank you very much and I know we can continue talking about it. On the 2004 commitment, the president's announcement indicates an increase of $1.7 billion in 2004. OMB says that number is illustrative. What is your view -- and perhaps you can define what illustrative means -- what is your view about the level of increase for 2004?

SEC. O'NEILL: I think that, frankly, I noticed in your prepared remarks you said that and maybe the smile didn't show but I was thinking to myself the president would certainly be amused to find out somebody thinks what he said was illustrative. I don't think there's any doubt in the president's mind he said 1.7 and 3.3 and 5, and I think he said it in bold-faced type. It was not like I'm thinking about some number in this range, maybe you all could guess what it is.

REP. LOWEY: Well, I --

REP. KOLBE: If the gentlelady would yield, I noticed the White House Press Office puts out -- it says for 2004 it's an estimate of 1.7 -

REP. LOWEY: Right.

REP. KOLBE: --estimate -- but no estimate when it gets to 5 million. So at the end of three years, anyhow, if Congress goes along we will be 5 million is what he's saying.

REP. LOWEY: Well, I would hope that's the case and I thank you very much for your comment on that. I think I will stop at that point, thank you.

REP. KOLBE: Mr. Wicker, you -- if we're going rotating, do you have another question?

Ms. Kilpatrick.

REP. KILPATRICK: Thank you, Mr. Chairman.

Secretary, again on the second round, Haiti.

The International Development Bank has $140,000 million that Haiti is supposed to have gotten last year really and did not get it. Many of us sent a letter to the administration asking that the money be released, there's been visits in our office and the like. There are several countries much more -- what was the word used -- I don't know. Who are in similar -- I don't know why the money is not being released. Can you shed a little light on that? Is there something that Haiti ought to do --

SEC. O'NEILL: Yeah, I think there's a problem on the recipient side with meeting the conditions that are required by the law.

REP. KILPATRICK: For the record.

REP. KOLBE: We need to have you come to the table. There's another microphone there and identify yourself, please.

MR. BILL SCHUERCH: Sorry, Bill Schuerch, deputy assistant secretary. We have several projects, I believe the number is four, for Haiti that were approved by the InterAmerican Development Bank several years ago. It took a number of years before they came through and were also approved by the Haitian Parliament. Consequently they are a number of years old and they are being -- and have been revisited by the InterAmerican Development Bank staff and they believe they really need to have to have significant reconfiguration at this point in time. So the bank is not willing to move those resources forward.

REP. KILPATRICK: Reconfiguration of the government leadership? Is that what you speak to?

MR. SCHUERCH: No, this is of the projects themselves.

REP. KILPATRICK: The old projects in the InterAmerican Bank --

MR. SCHUERCH: Yes, ma'am, but it's like the U.S. budget process. You ask for a request, it's 18 months old by the time it gets to the Congress. In this case --

REP. KILPATRICK: Not this Congress.

MR. SCHUERCH: -- you are dealing with projects that were put together that are about five years old.

REP. KILPATRICK: Are you working or talking with President Aristide or is that -- are they just in my office? I mean, is there any connection between Treasury and the bank and Haiti, or is that just like can't get it, period. Is there anything going on?

MR. SCHUERCH: No, Treasury has met with the IDB on these projects three or four times now and there's a process we've also met inter-agency.

REP. KILPATRICK: Okay, thank you, I'll follow up.

Mr. Chairman, I know we're out of time but I would like to put a letter -- a couple of other questions to the secretary in writing.

REP. KOLBE: Certainly, absolutely.

REP. KILPATRICK: But lastly, let me talk about HIV AIDS for just a minute. You mentioned earlier in your remarks today we thought that 7-10 billion would be needed for the Global Aids Project. Other countries may not be doing all that they can do, we don't believe that U.S. is doing all that we can do too, to reach that. Are you of a similar opinion? Can we be doing more? Will we do more? And what about the other countries who are supposed to be contribution to the Global Aids Project?

SEC. O'NEILL: My understanding -- and I've been traveling so much I'm not sure, but my understanding was at a meeting last week where there were decisions made to begin the first flow of funds. Yeah, I must tell you the last time I spoke with the president about this, he was annoyed that our money flowed last year some time, and here we are in April of the next year and the first flow of funds is just beginning. And his feeling is let's get going with what we've already committed. Let's demonstrate we know what we're doing and as we --

REP. KILPATRICK: Why the hold-up?

SEC. O'NEILL: Well, it's been hung up in the U.N. process. The funds were all contributed to this U.N. process and it's been hung up just --

REP. KOLBE: If the gentlelady would yield, the announcement is tomorrow morning in the --

SEC. O'NEILL: Tomorrow, okay.

REP. KOLBE: First grants is being made tomorrow morning.

REP. KILPATRICK: And that's coming from where, that announcement?

REP. KOLBE: From the trust fund.

REP. KILPATRICK: Okay. I mean who's making it? U.S. side or --

REP. KOLBE: No, in Geneva. The --

REP. KILPATRICK: So it's a U.N. announcement.

REP. KOLBE: Well, New York, I guess they're actually making it.

REP. KILPATRICK: From the U.N.

REP. KOLBE: Yes, this is the -- well, not the United Nations. It's the global fund, the one that's been created.

REP. KILPATRICK: The one we created with $100 million.

REP. KOLBE: Correct, that's correct. So the first round of grants totaling I think about 147 -- between 150 and 200 is going to be made tomorrow morning.

REP. KILPATRICK: Thank you very much.

Mr. Secretary and Mr. Chairman, can we have something in writing on that, please, as you get it in your office?

REP. KOLBE: As we get this we'll make it available all to members.

Mr. Knollenberg.

REP. KNOLLENBERG: I'll be brief, Mr. Chairman.

I just -- this Millennium Challenge account's been beaten around here a little bit, but as I understand it, and you tell me if I'm wrong, is that what this thing is really about, the initiative is, as I understand it, is not to increase foreign aid but rather the goal is to use foreign aid to get significant increases in private investment and productivity growth and, of course, finally, expand trade. And there are some people at this table that feel very strongly about trade. The chairman himself I know worked on trade issues over the years, and I think to choose the president's own words, to be serious about fighting poverty we must be serious about expanding trade. And that was in his speech that he delivered. And I think in your own report here -- this is not embargoed now I take it. But the concept -- and these are your words -- underlying the account is clear, that countries that rule justly, invest in their people and encourage economic freedom will receive more assistance from the U.S. That is true?

SEC. O'NEILL: Precisely.

REP. KNOLLENBERG: That's what we're looking for.

SEC. O'NEILL: Precisely right.

REP. KNOLLENBERG: No, I just wanted to confirm that because I think that you might have talked about some of the folks that got excited about more money for foreign aid, but it isn't just for foreign aid, it's got to be leveraged in a way that makes it effective. So you don't even have to respond that if that's your answer. That's how I see it and I appreciate that.

REP. KOLBE: Thank you very much.

I have some other questions I will put in the record but there's one I'd like to get you on record because I think we can answer it in two sentences I hope, because I'm going to asked, I know, by some fellow legislators about it. Last year we were not able to get the authorization for the Asia Development Bank. Now we have two more, we have IDA and we have the African Development Bank. Can you tell me what Treasury's strategy for this authorization is going to be this year?

SEC. O'NEILL: We want them. We've submitted them. We need to have them all passed by the Congress.

REP. KOLBE: We would like to have the authorizers do their work as well and not have to do it on appropriations bills. I hope you're going to insert a little elbow grease --

SEC. O'NEILL: We will use our voice, Chairman, to the best of our ability to take this load off the committee. We understand you'd like to have this done.

REP. KOLBE: We certainly would.

Ms. Lowey, do you have anything?

REP. LOWEY: Thank you very much and I appreciate your appearance here. There are so many major challenges ahead of us, I look forward to continuing to work together and thank you so very much.

REP. KOLBE: Thank you very much. As I said at the beginning, I really the appreciate the way in which you approach these hearings. I think they're very enlightening, I think we learn more in this hour- and-a-half of discussion than we do in just about any others that we have, and I appreciate very much your being here -- Mr. Taylor as well. Thank you very much, both of you.

The subcommittee stands adjourned.

SEC. O'NEILL: Thank you, Mr. Chairman.

END

LOAD-DATE: April 30, 2002