SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 12280 words

COMMITTEE: HOUSE APPROPRIATIONS

SUBCOMMITTEE: FOREIGN OPERATIONS, EXPORT FINANCING AND RELATED PROGRAMS

HEADLINE: TESTIMONY FOREIGN OPERATIONS APPROPRIATIONS

TESTIMONY-BY: ANDREW NATSIOS , ADMINISTRATOR

AFFILIATION: U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT

BODY:
May 17, 2001 Testimony of Andrew Natsios Administrator United States Agency for International Development before the Senate Appropriations Committee Subcommittee on Foreign Operations Chairman Kolbe, Representative Lowey, Members of the Committee, good morning. Thank you for inviting me here today to present the Administration's budget request for foreign assistance programs for Fiscal Year 2002. I would like to take this opportunity to lay out my priorities for the Agency. Foreign Assistance and Foreign Policy As a great power, I believe America's foreign assistance both serves to accomplish our foreign policy objectives, and expresses the deep humanitarian instincts of the American people. Foreign assistance is an important tool for the President and the Secretary of State to further America's interests. In fact, foreign assistance is sometimes the most appropriate tool, when diplomacy is not enough or military force imprudent. In general, foreign assistance works hand-in-hand with other foreign policy tools. Foreign assistance implements peace agreements arranged by diplomats and often enforced by the military; foreign assistance supports peacekeeping efforts by building economic and political opportunity; foreign assistance helps developing and transition nations move toward democratic systems and market economies; foreign assistance helps nations prepare for participation in the global trading system and become better markets for U.S exports. All of these activities help build a more peaceful, stable, and prosperous world - which is very much in the interest of the United States. Foreign assistance does work, but it takes years of investment and hard work. I am asking for your support today to let me continue that work. Globalization and Conflict Prevention USAID's FY 2002 budget marks the beginning of a new strategic orientation and the incorporation of a new way of doing business to ensure that USAID's long-term development assistance and humanitarian/disaster relief programs better respond to U.S. national interests. The two most distinctive trends in the world since the fall of the Berlin Wall have been globalization and conflict. The rise of the Internet, of a more open international trading and financial system, the spread of democratic capitalism as the preferred model of political and economic development, contrast remarkably with the increase in the number of failed or failing states and the increasing number of civil wars, many of enormous brutality. In many ways, globalization has meant demolishing barriers to the exchange of information, technology, finance, goods and services with startling speed over the past decade. With appropriate and timely assistance, the spread of information and technology can foster increased productivity, economic prosperity and political stability in developing countries - and ultimately lead to secure markets for U.S. exports and investments. Conversely, if developing countries and their people are left out of the information age, and do not realize any real benefits from the international trading system, then the promise of globalization will be squandered. In stead of prosperity and stability, we will likely see increased gaps between rich and poor, extremism of increasing violence, and acceleration of global health problems like HIV/AIDS and other infectious diseases. These problems contribute to human suffering, instability and conflict. The increasing number of states that are unable to deal with problems that are potential sources of conflict is of grave concern to the United States. The ensuing regional instabilities, complex humanitarian emergencies and, in some cases, chaos are threatening USAID's development objectives and broader U.S. foreign policy goals. Nearly two-thirds of the countries with USAID field missions have been ravaged by civil conflict over the past five years, in some cases destroying years of economic and political progress. I have witnessed the horror of these conflicts, the widespread starvation of civilians, terrible atrocities, the collapse of governments and national economies. USAID's Program Pillars While many of USAID's programs already respond to these challenges individually, in order to improve the Agency's effectiveness as a key foreign policy instrument this Administration intends to coordinate and focus Agency resources and capabilities to address globalization and conflict. We will bring together USAID programs and activities into three program pillars that cut across all USAID funding accounts. By aggregating current and new programs that are mutually reinforcing into these pillars USAID will be able to use scarce budget and human resources more effectively, and to describe its programs more clearly. The program pillars are: Economic Growth and Agriculture; Global Health; and Conflict Prevention and Developmental Relief. Economic Growth and Agriculture More than 1.2 billion people live on less than a dollar a day; more than 800 million people continue to go to bed hungry; and more than 113 million children are not in school. The Economic Growth and Agriculture pillar will strengthen U.S. efforts to ensure that these people are able to take advantage of the potential of globalization, rather than becoming its victims. It highlights the interrelationship and interdependence of economic growth and agricultural development, environmental sustainability, and the development of a country's human capital - with the ultimate goal of creating and cultivating viable market-oriented economies. Programs in this pillar will encourage economic opportunity, agricultural development, education and training, and effective management of natural resources. Without economic growth and food security, no development effort is sustainable. We will increase support for economic growth and agriculture programs that reduce poverty and hunger, while finding better ways to mobilize and partner with the private sector. Microenterprise development plays an increasingly important role in job creation and economic opportunity. This budget guarantees that USAID will remain the world's leader in microenterprise programs that provide microloans to the world's poorest microentrepreneurs (especially women), services to help improve their businesses, and policy changes to improve business climates. It's been said that the most important and rewarding investment any country can make is in the education of its children, and especially young girls. The President believes that. For FY 2002, USAID plans to increase its support for basic education for children from $103 million to $123 million. The Economic Growth and Agriculture pillar will incorporate $3.383 billion of FY 2002 funds from all accounts. Global Health I intend to include in this pillar maternal and child health, nutrition, women's reproductive health, HIV/AIDS, and programs that address other infectious disease such as malaria and tuberculosis. These are global issues with global consequences: the health of a population directly affects their productivity, and unchecked infectious diseases in other countries pose threats to our own. USAID will maintain its international leadership in health. Our programs in women's reproductive health, children's health, HIV/AIDS, infectious diseases, and nutrition are among the best in the world. As a nation, we can be proud of our successes in global health. Over the past 15 years USAID, with Congress's support, has spent over $3.5 billion on child survival programs. Over this same period, we have seen a 20 percent reduction in under-five mortality, from 145 deaths per 1,000 live births in 1985 to about 116 per 1,000 today. Deaths from measles have been cut in half, from some 2 million in years past to about 970,000 in 1998. Increased access to Vitamin A, which USAID helps to distribute in about 20 countries, improves vulnerable children's chances of survival by up to 30 percent. Americans can be proud of the leadership role our country has played in eradicating polio around the world; the number of reported cases in the world dropped from 350,000 in 1988 to fewer than 7,000 in 1999, a year in which 470 million children were immunized against polio. However, many problems remain. Immunization levels for children in some countries are stagnating or declining, and millions of children continue to suffer from malnutrition. Women continue to die in childbirth from preventable causes. One major and ongoing effort is to address the spread of HIV/AIDS. The HIV/AIDS pandemic is devastating many nations in Africa, and transmission is escalating in other regions. The HIV/AIDS epidemic is now reaching such catastrophic levels it is decimating entire societies, creating negative population growth rates: we are beginning to see famine- like conditions developing in some particularly hard hit countries. Up to 40 million children will be orphans because of AIDS in the next decade. This Administration pledged a 10 percent increase in USAID's HIV/AIDS funding for FY 2002 to a total of $369 million from all accounts, with the emphasis on preventing transmission of the disease. Because of our nation's efforts, we have also made great progress in addressing family health, reducing maternal deaths last year and abortions. More than fifty million couples in the developing world make more educated and informed decisions about having children and taking care of them as a direct result of USAID-supported programs. But again, our work is far from complete. More than 580,000 women die annually from preventable pregnancy-related causes. Because of the importance of women's reproductive health programs in helping cut child mortality rates and improve maternal health, the Administration requests a total of $475 million from all accounts for these programs. We will use these funds to promote improvements in maternal nutrition, access by mothers and children to medically trained personnel, reproductive health education, and to strengthen support for voluntary family planning practices that allow couples to choose family size and child spacing. The Global Health pillar incorporates $1.46 billion of FY 2002 funds from all accounts. Conflict Prevention and Developmental Relief Pillar USAID continues to stand at the forefront of agencies around the world in its ability to respond to man-made and natural disasters. The request will enable USAID to maintain this capability to provide needed help rapidly when international emergencies occur. To complement our strength in disaster assistance, USAID must improve its ability to promote conflict prevention. To address the rising number of collapsed states, internal violent conflicts and complex humanitarian emergencies in the post-Cold War era, some of which have become focal points of U.S. foreign policy, USAID will undertake a major new conflict prevention, management, and resolution initiative. We want to integrate foreign policy and foreign assistance in a way that accommodates both short-term operational and longer-term structural prevention needs. To do so, we need to strengthen current partnerships and create new ones with the U.S. military, the international community, and U.S. and indigenous private and religious institutions dedicated to conflict prevention and resolution. This approach will require even closer collaboration within the U.S. foreign affairs community, especially between USAID and the Department of State. This initiative will integrate the existing portfolio of USAID democracy programs with new approaches to crisis and conflict analysis, and new methodologies to assist conflicting parties resolve their issues peacefully. Our experience has proven that by promoting and assisting the growth of democracy - by giving people the opportunity to peacefully influence their government - the United States advances the emergence and establishment of societies that will become better trade partners and more stable governments. By facilitating citizens' participation and trust in their government, our democracy efforts can help stop the violent internal conflicts that lead to destabilizing and costly refugee flows, anarchy and failed states, and the spread of disease. The Conflict Prevention and Developmental Relief pillar will incorporate $2.193 billion in FY 2002 funds from all accounts. This amount includes $835 million requested in FY 2002 for P.L. 480 Title II (Food for Peace) programs. USAID's Fourth Pillar: The Global Development Alliance It's not enough to reconsider our priorities. We need to fundamentally change the way we do business. Not only has the world changed; but the provision of foreign assistance has changed drastically. The globalization of the world economy has meant that governments, while still essential, are not the only institutions through which public services are provided. The role of religious institutions, non-governmental organizations, private foundations, universities, and the private market economy in providing services and accomplishing public objectives has dramatically increased. I intend to create a fourth "process" pillar that defines the Agency: the Global Development Alliance. The Global Development Alliance (GDA) is USAID's commitment to change the way we implement our assistance mandate. We propose to serve as a catalyst to mobilize the ideas, efforts, and resources of the public sector, corporate America, the higher education community and non-governmental organizations in support of shared objectives. For example, a critical development need is to help poor countries have access to new information technologies, so they aren't left permanently off the digital highway. Some companies, like Hewlett Packard, already assist developing countries with information technology; I want such companies to consider working with us, in collaboration with U.S. universities and NGOs, to really make an impact. Why will this work? Because U.S. organizations and companies want to and already do try to help less fortunate people worldwide, out of American compassion and out of the desire to create new markets. But many organizations don't know how to get involved in providing foreign assistance, and USAID has not been prepared to take full advantage of the resources private organizations can bring us. The GDA will change this by actively seeking out partners willing to commit real resources - funding, information, or personnel - to support development programs. With these partners, we will build alliances that target specific development objectives, and leverage private funds from foundations and corporations to accomplish those objectives. USAID's role with these alliances will be to collaborate with non-governmental partners to provide the technical expertise needed to effectively use private funds, and to use the field- based personnel and management systems to track projects and funds. USAID's extensive field presence and technical expertise give the Agency the ability to integrate, coordinate, and facilitate a public-private alliance among U.S. development assistance actors. This is not an entirely new way of doing business for the Agency. USAID is already engaged in many successful alliances around the world. For example, the Global Alliance on Vaccines and Immunizations (GAVI) is an alliance of the United States, the United Nations, the Gates Foundation, the Rockefeller Foundation, and the International Federation of Pharmaceutical Manufacturers to coordinate a worldwide effort to protect children from vaccine- preventable diseases. The GDA will be a fundamental reorientation of how USAID sees itself in the context of international development assistance, both in how we relate to our traditional partners, and in how we seek out and develop alliances with new partners. Incorporating GDA as a pillar of our new approach means we will pursue a systematic approach to alliances on a much larger scale and will institutionalize these alliances as a central business model across Agency operations. To jump-start the process, I intend to assign $160 million in FY 2002 funds specifically for GDA projects. The $160 million requested will generate new alliances that support the three program pillars, consistent with the authorized intentions of USAID's funding accounts. This investment will leverage private funding in program areas important to USAID's goals. Management Challenges The Agency cannot make sweeping changes to its business model without overhauling the central management systems through which USAID does its work. USAID, and its ability to perform optimally, has been seriously compromised for a number of years by ineffective management systems -- particularly those related to finance and budgeting, human resources, information management and procurement. The books of USAID have been unauditable for four years. In a recent study of federal agencies, USAID finished second to last in a survey of whether the personnel system rewards managers for accomplishing the objectives of the agency. While some progress has been made in fixing these systems, it has been too slow, and neither innovative nor sweeping enough to get the job done. As I said earlier, the business of foreign assistance has changed drastically in recent years. The Agency has 35 percent fewer staff than it did ten years ago, while the number and size of awards and contracts has grown significantly. The Agency has not adjusted to these changes. Let me say that I have been extremely impressed with the Agency's career civil and Foreign Service employees. These people are working their hearts out to do the very best for the American people, to capture the spirit of American values, and to take that spirit around the world. But USAID's career officers are demoralized and frustrated by these systems, which make it nearly impossible for them to get their work done. Our procurement officers are overloaded and coping with archaic and inefficient systems. They want to help me overhaul the systems. My first priority at USAID will be to get command of the Agency's finance, budgeting, and personnel systems. In fact, in my first direct discussion with Secretary Powell, he made it clear that he expected me to be a change agent in order to make sure that we are doing the best job for the American people and the people of the world with the money that Congress is providing us to use. The ultimate goal of implementing a new way of doing business and management reforms is to provide the most effective and efficient foreign assistance programs possible. USAID's experts and partners who live and work in developing countries are best positioned to know which programs will best serve U.S. national interests and the needs of people in those countries. I hope the Congress will help us be effective and efficient by reducing the number and intrusiveness of earmarks. Earmarks divert scarce resources away from field-initiated programs that address U.S. development and foreign policy goals. Budget Request Summary The President had a number of tough choices to make in putting this budget together, and I was very pleased that he saw fit to continue to support International Affairs programs including foreign assistance. For FY 2002, the Administration proposes $23.9 billion for International Affairs programs. Of that amount, USAID will manage $7.7 billion or 32 percent, which includes programs that USAID manages and those we administer in cooperation with the Department of State and other agencies. The FY 2002 USAID budget request is an increase of $129 million, or less than two percent, over the previous year's appropriation. I will summarize our request in terms of existing appropriations accounts, and briefly describe how they relate to my focus on the Agency's four pillars. For your convenience, the attached tables show this budget request by account and by pillar. Development Assistance The Administration requests $1.325 billion for Development Assistance (DA) programs, an increase of $23 million over FY 2001 appropriations. This account supports programs that promote economic growth, agricultural development, human capacity development, women's reproductive health, environmental protection and biodiversity, and democracy and governance in some of the poorest countries in the world. With this request, USAID will increase support for economic growth, renew its focus on agricultural development to reduce hunger and malnutrition, improve business and trade climates in developing countries, and continue its work to promote efficient energy technology in developing countries. The DA account also includes $358 million for USAID family planning programs, of a total $425 million from all accounts. We will use these funds to promote family health and to strengthen support for voluntary family planning practices, that cut child mortality rates and improve health by allowing couples to choose family size and child spacing. DA funds support all three of the Agency's program pillars: Economic Growth and Agriculture: $817.8 million. DA funds in this pillar go to activities that ultimately serve to provide poor people, especially women, access to real economic opportunity. Our programs help expand and strengthen private markets and institutions, encourage agriculture development and food security, promote efficient growth and energy use, and protect valuable natural resources. For example, microenterprise development efforts play an increasingly important role in building futures for women and the rural poor. We expect to meet the congressionally authorized target of $155 million for microenterprise programs in FY 2002. This pillar includes USAID funds to expand its leadership in helping the developing world participate effectively in the global trading system; such participation is critical to sustainable economic development for developing and transition economies, and important to the economic future of our own nation. Global Health: $375.5 million. The majority of DA funds for Global Health are for USAID's family planning and reproductive health programs. The total request for $425 million from all accounts includes $358 million in Development Assistance. The President knows that one of the best ways to prevent abortion is by providing quality voluntary family planning services, and decided to maintain the FY 2001 funding level in his FY 2002 budget request. The remainder of DA funds in this pillar fund important health programs such as $10 million for the Leahy War Victims Fund, which contributes to improving the mobility, health, and socioeconomic integration of civilians who have sustained physical disabilities as a result of armed conflict. Conflict Prevention and Developmental Relief: $131.7 million. USAID's democracy and local governance programs funded by DA fall under this pillar. USAID's programs work to build democracy, support human rights, strengthen the rule of law, create a strong, politically active civil society, and combat corruption around the world. Our democracy efforts have paid dividends: never before in human history have more nations embraced democracy, and more than fifty have made a transition to democracy in the past fifteen years. But many fledgling democracies are vulnerable to military takeover, corruption, organized crime, civil strife and economic chaos. We will respond to this need with a new initiative to integrate existing democracy programs and new approaches in conflict prevention, including addressing the economic causes of conflict. I intend to target $110 million of Development Assistance for the Global Development Alliance. There are many exciting opportunities for strong public-private partnerships using DA funds, and this investment indicates my commitment to seeking new partners and leveraging private funding for our development programs. Child Survival and Disease Account We have requested $1.011 billion for the Child Survival and Disease Program Fund (CSD) for FY 2002, an increase of $50 million over FY 2001 appropriations. This amount includes a transfer of $110 million to the United Nations Children's Fund (UNICEF). The CSD funds cover programs that address child survival and maternal health, HIV/AIDS, other infectious diseases such as malaria and tuberculosis, reducing the spread of antimicrobial resistance, and improving basic education. Experts say that these programs save more than three million lives a year, and have helped drop infant mortality rates in the developing world to their lowest levels ever. Of this request, $901 million falls under Global Health. This request meets the Administration's commitment to increase funding to support prevention and care programs that combat the HIV/AIDS pandemic. The funding target of HIV/AIDS programs in FY 2002 is $369 million from all accounts, including $329 million from CSD. We will use these funds to expand primary prevention efforts and reduce the risk of mother-to-child transmission, improve community and home-based care, and increase support for those suffering from the AIDS virus. We will also target resources to help the growing crisis of AIDS orphans. The remaining $110 million in CSD is for basic education, which comes under the Economic Growth and Agriculture pillar. We have also targeted $12.6 million from the Development Assistance to bring the total request for basic education to $122.6 million. Basic education plays a critically important role in protecting both the health and the future of children in developing countries. We want children to go to school and receive a quality education, not to work for pennies wages in lousy conditions. Toward that goal, USAID's basic education programs work to strengthen education and teacher training programs throughout the developing world, with particular focus on Africa. USAID will set aside $25 million in CSD for our fourth pillar, the Global Development Alliance. The Agency has developed successful public-private alliances in the past to address important health needs. I mentioned GAVI earlier; another example is USAID's and Rotary International's successful public-private partnership to eradicate polio - a partnership that led to polio vaccinations for literally hundreds of millions of children. We will use this funding to form and bolster such public-private alliances that allow us to tackle critical health, nutrition and education needs more effectively than ever. Regional Requests Africa Reflecting our priority to promote stability and integrate sub- Saharan Africa into the global economy, the Administration is requesting a total of $1.055 billion in FY 2002 for this region. This amount includes $434 million from Development Assistance, $356 million from the Child Survival and Diseases Program Fund, and $105.5 million of ESF. Also, we intend to program $160 million of P.L. 480 Title II resources for developmental food programs in Africa. As Americans, we are not content to sit idly by while people suffer from starvation, disease, and tyranny. We want to try to solve those problems, and we want people to be able to build their own societies and take advantage of economic opportunities. USAID's work to address health challenges and promote broad-based economic and social development in Africa goes to the heart of American values. And by encouraging participation in the global trading system, addressing the HIV/AIDS epidemic, and building stability by setting the foundations of democratic governance, we also support U.S. national interests in Africa. There has been significant progress in Africa. Countries that only ten years ago were ruled by dictators are today democracies, such as Nigeria and Mozambique. The growth rate in sub-Saharan Africa has averaged 4.9 percent over the past five years, the highest in two decades. Unfortunately, a combination of poverty, infectious diseases, conflict, complex emergencies and natural disasters have tarnished the promise of progress in sub-Saharan Africa. Nearly half of sub-Saharan Africa is at risk of violent conflict and instability. Recognizing the importance of conflict prevention to our entire development mission, we will integrate conflict analysis into the Agency's strategic planning process for this region. USAID's challenges in Africa span all three of our program pillars, and we will use our new program focus to meet these challenges in a targeted, coordinated, and effective manner. Of the total request for Africa, $401.4 million would fund activities in Economic Growth and Agriculture, $376 million would fund activities in Global Health, and $277.75 million would fund activities in Conflict Prevention and Developmental Relief. In addition, we will use the Global Development Alliance to build stronger public-private partnerships that will leverage much- needed financial and human resources for our development goals, particularly in key sectors of agriculture and basic education. Asia and the Near East In FY 2002, the Administration intends to request $2.34 billion from all accounts for the Asia and Near East region. This amount includes $205.5 million in Development Assistance, $112.1 million from the CSD account, and $1.9 billion in ESF. In addition, the Administration requests $140 million in P.L. 480 Title II resources for the region. The Asia and Near East region (ANE) encompasses East Asia, South Asia, and the Middle East/North Africa. The stability and growth of this very large and diverse region is essential to U.S. national security and economic interests. The United States trades more with this region than any other; after Europe, the ANE region is the second most important market for U.S. goods and services. The challenges in this region are equally diverse: addressing humanitarian needs, supporting conflict prevention and democratic transition, promoting sustainable economic growth, and tackling HIV/AIDS and mother-child health. USAID's programs in this region support economic and political reform and transparency in East Asia; promote more equitable economic growth and reduced poverty in South Asia; seek to improve the supply and efficient allocation of water resources, and expand employment opportunities in the Middle East; combat the spread of HIV/AIDS, and promote clean and efficient energy use. In so doing, we not only help the people of this region, but also improve business climate and opportunities for U.S. businesses. I also want to give USAID's Asia and Near East staff credit for leading the attack in this region on two reprehensible practices: the trafficking of women and girls, and abusive child labor. This Administration will continue to support those efforts. With this request, we intend to provide $1.76 billion for programs under Economic Growth and Agriculture; $267 million under Global Health; and $310 million under Conflict Prevention and Developmental Relief. We will use the Global Development Alliance to create new partnerships here, building on the success of the U.S.-Asia Environmental Partnership, which has a great record of matching U.S. businesses with environmental and energy efficiency opportunities in the region. One management challenge USAID must resolve is the increasing amount of work in "non-presence" countries - countries with USAID programs but without a USAID mission. USAID already supports programs in Pakistan, Vietnam, Burma, and 15 other non-presence countries in the region; we must identify new ways to maximize the efficiency of our personnel and management resources throughout this region. The ESF funds are primarily used to support economic growth initiatives in the Middle East, including $720 million for Israel, $655 million for Egypt, $150 million for Jordan, and $75 million for the West Bank and Gaza. ESF will also fund bilateral programs in Cambodia and Mongolia. The P.L. 480 Title II funds will help improve child survival and nutrition in India and Bangladesh. Latin America and the Caribbean Because the countries assisted by USAID in Latin America and the Caribbean (LAC) are our neighbors, their economic, social, and political development have an extremely important impact on our own security and well-being. Americans benefit directly when the economies of developing LAC countries expand and their markets open. Since 1990, the number of U.S. jobs supported by exports to the region has increased by 2.3 million. But when nations in this region face political instability and failing economies, the United States sees the consequences directly through increased illegal immigration and illegal narcotics. None of us should ignore the cross-border spread of communicable diseases such as TB and HIV/AIDS. Finally, environmental degradation and pollution can affect U.S. border states directly and also aggravate regional instability and migration, as well as increase the risk of death and destruction from disasters in the region. To fund USAID's programs in this region, the Administration requests a total of $878.6 million from all accounts. The request includes $207.3 million in Development Assistance, $100.2 million from CSD, $177.5 million from ESF, and $108.1 million of P.L. 480 Title II funds. USAID's total funding incorporates $292.5 million from the International Narcotics Control account, included in the State Department's budget request We intend to allocate $398 million of total funds for Economic Growth and Agriculture, $153 million for Global Health, and $327.5 million for Conflict Prevention and Developmental Relief. USAID's programs in the Western Hemisphere support U.S. national interests. We will continue to work to prevent conflict by encouraging democracy and good governance throughout the region. We will continue to work to increase economic opportunity and reduce poverty, through microenterprise programs, improving access to quality education and training, and encouraging better management of the environment. Equally critically, the United States must ensure that post-hurricane and post-earthquake reconstruction in Central America not only replaces what was destroyed, but builds back better in ways that lay the foundation for sustainable growth. Let me briefly discuss the Andean Regional Initiative. The President and Secretary Powell recognized that the United States must adopt a regional strategy to assist Colombia and the neighboring democracies to confront narco-terrorism and the associated threats to their societies. In FY 2002, the Andean Regional Initiative will provide $494 million from DA, CSD, ESF, International Narcotics Control, and P.L. 480 Title II accounts for non-enforcement related activities in Bolivia, Brazil, Peru, Ecuador, Colombia, Panama, and Venezuela. We will use these funds in a regional framework to intensify Alternative Development programs that move farmers from coca to licit crops, and for democracy programs that improve local governance and the administration of justice. Europe and Eurasia The stability and security of Europe and Eurasia directly impacts fundamental U.S. security and economic interests. USAID's challenge is to help nations in this region continue their transformation from authoritarian, centrally planned and oppressive societies into participatory democracies with strong market economies. Our work in this region shows both the incredible risks and rewards of foreign assistance as a tool of U.S. foreign policy. On one hand, USAID assistance last year provided crucial support to democratic elections in Croatia and Serbia, bringing a decade of political misrule and Serbian expansionism to an end. On the other, current ethnic clashes in Macedonia remind us how fragile stability and democracy are in the region. The Administration's total FY 2002 funding request for USAID programs in the region is $1.46 billion. The request includes $610 million for the Assistance for Eastern Europe and the Baltic States (AEEB) account; $808 million for the Assistance for the Independent States of the Former Soviet Union (FSA) account; $39.6 million from ESF; and $6.5 million from the CSD account. The Global Development Alliance will play an extremely important role in this region. The partnerships the Agency already has developed, such as with the American International Health Alliance, have brought additional knowledge and resources to these countries. Ultimately, these private-public partnerships help sustain progress when USAID's role inevitably starts to decline. USAID will use GDA funding to aggressively seek out new ways to engage potential partners in the delivery of foreign assistance to the people of this region. This request includes $145 million in AEEB funds for Montenegro and Serbia. This request allows the United States to continue its important efforts to prevent conflict, reform the economy, and build the institutions that underpin a market-oriented, democratic society. Our work in Montenegro will encourage the rule of law and democratic processes as Montenegrins decide whether to remain part of Yugoslavia or become independent. USAID's request of $39.6 million in ESF funds for this regions includes $19.6 million for the International Fund for Ireland, $5 million for Irish visas, and $15.0 million for Cyprus. Economic Growth and Agriculture will receive $700.4 million to foster the emergence of competitive, market-oriented economies in which people, not governments, control economic resources. Conflict Prevention and Developmental Relief will receive $688.1 million in support of programs in this pillar, covering a continuum of assistance from humanitarian relief, to easing the transition from disaster to development, to promoting peaceful and accountable government by promoting democratic processes and freedom of information. In recognition of increasing health risks in the region, Global Health will receive $75.6 million to improve primary health care and fight the spread of infectious diseases including HIV/AIDS and tuberculosis. The new Administration is undertaking a series of foreign policy reviews, of which Russia will be the first. This review may result in changes to the U.S. assistance program over the near future. Development Credit Another important tool in USAID's development arsenal is the Development Credit Program. When appropriate, the Agency can use credit in the form of direct loans or loan guarantees to support true risk-sharing ventures with private firms. That credit authority gives USAID the ability to mobilize substantial private capital for development purposes. This program consolidates former credit programs: Urban and Environment Credit Program, the Micro and Small Enterprise Development Program, and the Development Credit Authority. By consolidating various credit initiatives under the Development Credit Program, the Agency ensures that all credit activities will use the same strict rules regarding accountability and risk- sharing. The Agency has officially instituted a clear policy that the consolidated credit program will not engage in sovereign risk activity. For FY 2002, the Administration is requesting transfer authority of up to $25 million from other USAID program accounts (DA, CSD, ESF, SEED, FSA) for the Development Credit Program. We also requested $7.5 million for administrative costs of the expanded program. This request for $25 million in transfer authority for the Development Credit Program could mobilize $250 million or more of local private capital for projects that support our development goals in countries where we work. International Disaster Assistance The FY 2000 request for International Disaster Assistance is $200 million, an increase of $35 million over the FY 2001 appropriated level (not including supplemental appropriations). This request is to fund the work of USAID's Office of Foreign Disaster Assistance (OFDA) to support emergency relief and rehabilitation programs in response to natural and manmade disasters, and other emergencies that displace large numbers of people. Our ability to respond rapidly to emergencies is known and respected worldwide, and USAID staff work in close collaboration with U.S. and international agencies and private organizations. I take some pride in having been a part of building that respect during my previous life here. These programs are first and foremost to meet the critical needs of vulnerable people in emergency situations. But that is not enough - we also use our Disaster Assistance funds to help countries adopt disaster prevention and mitigation measures so the next calamity cause less damage. Right now the Agency is in the process of preparing for the upcoming hurricane season, working with the Fairfax County and Miami-Dade County Search and Rescue Teams and prepositioning emergency disaster kits at Homestead Air Force Base in Florida. Demands on disaster assistance resources have increased for a number of years. In particular, complex emergencies - involving civil conflicts and often complicated by natural disasters - account for the lion's share of International Disaster Assistance Funds, more than 70 percent. These emergencies can require long- term relief assistance for those displaced or devastated by the conflicts. All International Disaster Assistance funds fall into the pillar of Conflict Prevention and Developmental Relief. I intend to use $25 million of these funds for implementation through the Global Development Alliance. For example, we will use the GDA to develop new partnerships with faith-based organizations already providing relief to disaster victims around the world. Transition Initiatives For the Transition Initiatives (TI) account, we have requested $50 million, the same as appropriated this fiscal year. These funds, which fall under the Conflict Prevention and Developmental Relief pillar, support the work of the Office of Transition Initiatives (OTI). I have already spoken at length about the emergence of conflict as a defining trend of this new century, and the importance of conflict prevention to both our development and humanitarian goals and to U.S. national interests. OTI supports conflict prevention by assisting countries making the transition from complex emergency to economic and political stability. OTI provides fast, flexible, short-term, high-impact assistance designed to strengthen peace, reconciliation, and reconstruction efforts. ESF funds The Economic Support Fund (ESF) account advances the economic and political foreign policy interests of the United States. ESF funding can be used, for example, to finance balance of payments and economic stabilization programs, often in a multilateral context. For FY 2001, USAID is requesting $2.29 billion in ESF funds. As detailed in other parts of my testimony, this funding will be used to support the Middle East peace process and several initiatives Latin America, Asia and Africa. Of this amount, $1.75 billion will fall under Economic Growth and Agriculture, $115 million under Global Health, and $328 million under Conflict Prevention and Developmental Relief. Operating Expenses For FY 2002, USAID requests $549 million in Operating Expenses (OE) compared to this year's post-rescission OE level of $532 million. However, factoring in other OE funding sources, such as local currency trust funds, the total OE budget - at $613 million - is just $1 million more than the current year budget, an increase of less than 1.5 percent. These funds cover the costs of salaries, benefits, and other administrative costs of Washington and overseas operations associated with management of USAID's $7.7 billion worldwide programs. The Secretary has spoken of three priorities for the Department of State's operating funds: hiring staff, modernizing information systems and improving facilities security. These are the same priorities for USAID's OE account. First, the request will permit the Agency to continue its efforts to restore its direct-hire staff, which has been reduced to unacceptably low levels through the same combination of attrition and previous administrative cost-cutting efforts affecting many other federal agencies. It is absolutely essential that the Agency have sufficient funds to recruit, train and deploy the additional staff needed to assure adequate stewardship of its program responsibilities. Second, the OE request includes the funds needed to continue modernizing USAID's information technology and financial management capabilities. The request will permit the Agency upgrade its telecommunication capacity and continue modernization of its accounting and procurement systems. And third, the request includes funds to upgrade the security of vulnerable overseas posts which are not collocated with embassies. It is critical that we have funds to assure the security of our Foreign Service personnel abroad. Additionally, $50 million has been included in the Department's budget request to improve USAID facilities security in countries where our missions are located on embassy grounds. In order to have the funds to cover these priorities while also meeting projected federal pay increases and high inflation rates overseas, I will have to identify ways to cut costs and increase productivity both at headquarters and in our Missions overseas. This I plan to do. I understand the budget pressures you face, but you should know that this OE request is critical to USAID's operations - and is the bare minimum I need for the staff and technology to successfully carry out transformation of the Agency. Inspector General The Administration requests $32 million for FY 2002, an increase of more than $5 million over FY 2001. The Office of the Inspector General (OIG) plays an important role in helping USAID implement its strategies effectively, and in protecting the integrity of the Agency. This request covers operations, including the salaries, expenses, and support costs, for the work of the to conduct audits and investigations relating to the programs and operations of USAID around the world, plus the foundations assigned to the OIG for review. In FY 2001, the OIG's funds included $3.8 million of no-year funds that the OIG had identified and reported to OMB and the Congress. These funds will be depleted during FY 2002. CONCLUSION With this budget request, we have taken the first steps toward the transformation this Agency must embrace in order to respond to fundamental changes in foreign policy and foreign assistance. Our new approaches will enable us to coordinate our programs and leverage substantial private resources to achieve our development and foreign policy goals. The result will be a world that is safer, more prosperous, and more free than ever. I appreciate the President's and the Secretary's confidence in me to begin this process, and I ask for your support as well.

LOAD-DATE: May 21, 2001, Monday