Copyright 2002 Federal News Service, Inc.  
Federal News Service
June 27, 2002 Thursday
SECTION: CAPITOL HILL HEARING

LENGTH: 10765 words

HEADLINE: HOUSE INTERNATIONAL RELATIONS COMMITTEE HEARING ON ECONOMIC DEVELOPMENT IN AFRICA
 
CHAIRED BY: REP. HENRY HYDE (R-IL)
 
LOCATION: 2172 RAYBURN HOUSE OFFICE BUILDING, WASHINGTON, D.C.10: A.M. (EDT)

WITNESSES: TREASURY SECRETARY PAUL O'NEILL
 


BODY:
REP. HYDE: The committee will come to order. We're enmeshed in an interesting procedural day where the minority party expects to call several procedural motions during the day. We will try to observe those, but at the same time, we have with us some distinguished witnesses that I do not like to impose upon their time. So we will proceed. Speaking for myself, I will ignore the procedural motions until we've heard the testimony from our witnesses.

So thank you for joining me today at this meeting of the Committee on International Relations. The purpose is to hear and discuss new approaches to economic development in Africa, informed by Treasury Secretary Paul O'Neill's recent trip there. We all share an interest in promoting accountability and demonstrating results of our foreign assistance dollars.

As we will hear today, Secretary O'Neill's observations are timely and important. They correlate directly with the president's new compact for development, the initiative announced in the president's March 14th speech at the Inter-American Development Bank.

I hope that by hearing Secretary O'Neill's observations today, we can initiate a discussion between the administration and the Congress on the president's proposal for a Millennium Challenge Account, the idea of increasing U.S. economic assistance to those countries that demonstrate a commitment to human rights, democratic ideals and practices, and investment in people.

The discussion today is not about whether or not the U.S. should provide increased resources for the developing world. Over the coming months, as the Millennium Challenge Account takes shape, the debate will be how, under what circumstances and with what expectations should the U.S. provide assistance.

I'm very encouraged by the practical thinking that Secretary O'Neill brings to the discussion, especially on the topic of expectations, results and accountability. As Secretary O'Neill has said recently, many U.S. aid programs have not achieved results over the years. Some assistance has allowed corrupt leaders to amass personal fortunes and remain in power beyond the will of the citizenry.

Other aid has allowed leaders and governments to abdicate responsibility for effective governance and pursued detrimental self- destructive or personally self-enriching policies. Other assistance has gone to consultants or middlemen with little results to show in the end.

These failures of the past should not lead us to turn our backs on the developing world; just the opposite. As President Bush has said, now is the time for American leadership and for America to increase its aid to those countries that respect the rights of citizens, promote democracy, and encourage economic freedom and prosperity.

However, we need to demonstrate what works and what doesn't. And we need to hold accountable those governments and leaders who do not choose the right path of reform. Several weeks ago, I introduced H.R. 4877, the Foreign Aid Impact Assessment Act. This legislation will create an environment of accountability whereby the most effective forms of foreign assistance are described and made public for the American people to understand.

The Foreign Aid Impact Assessment Act will require the president to report the results of U.S. foreign aid and whether or not it has been effective. U.S. foreign economic assistance, including all development assistance, should be provided in support of key U.S. national strategic objectives, and certain types of economic assistance should be continued only to those governments that demonstrate results.

Our foreign aid investments must result in improved governance and a tangible improvement in the lives of those citizens to whom the aid is directed. Effectiveness will mean a better climate for U.S. entrepreneurs or businesses for foreign investment, a demonstrated means of promoting economic growth.

In recent days, I've mentioned the need for a new Marshall Plan for the Middle East. The United States can show leadership now by alleviating suffering, promoting freedom and providing hope. But experience has shown we cannot do it alone. We need the commitment, participation and leadership of those working toward development, whether in Europe, the Middle East or the nations of Africa. We need a new leadership that agrees to certain principles and accountability.

As Secretary O'Neill has said, with leadership, everything is possible. Without leadership, nothing is possible. By traveling to Africa in support of the president's development agenda, Secretary O'Neill is providing important leadership on the new debate on foreign assistance.

I look forward to hearing from Secretary O'Neill today on these important issues. And I turn with great pleasure to the distinguished ranking member of the committee, Mr. Lantos.

REP. TOM LANTOS (D-CA): Thank you very much, Mr. Chairman. I want to join you in welcoming our secretary of Treasury. I'm delighted to hear from him.

First, I want to thank you for convening this hearing, Mr. Chairman, to discuss a topic vital to the future of Africa. Since the end of colonialism, development strategies have been undertaken to put African countries on the road to democracy, good governance and economic prosperity. This has not been a very successful journey so far.

Today we must take a hard look at the development experience and judge where it has succeeded, where it has failed, and move on to endeavors that will truly fulfill the elusive promises of liberation and independence.

Let me just say that ideological rigidity has no room in dealing with the problems of Africa. For instance, with respect to the Sudan, the opposition of the administration to interfering in capital markets is certainly not at the same level of values as is slavery and mass murder, which have plagued that country.

And I strongly urge the administration to rethink its opposition to proposals some of us have made with respect to the Sudan. It is simply unacceptable that in the 21st century practices of slavery continue, mass assassinations and murders continue, and the administration is preoccupied in not interfering with access to capital markets by countries and companies that operate in the Sudan.

In March this year, Mr. Chairman, President Bush announced a new initiative called the Millennium Challenge Account to increase substantially assistance over current levels. This new account will reward, promote and invest in sound policies in Africa that lead to sustained economic growth, reduce poverty, strengthen, or, in most places, just begin democracy and good governance. I stand squarely behind these goals and look forward to creating legislation that will shape a bold new development strategy for Africa.

By all social and economic indicators, the gap between Africa and the rest of the world is widening. Thirty-nine of the 54 poorest and most heavily-indebted countries are in Africa. From 1991 to 2000, per capita income in Africa fell from $553 to $474. That's per capita annual income. Extreme poverty is defined as living on less than $2 per day. In Africa, 65 percent of the people live on less than $1 a day.

Mr. Chairman, something is terribly wrong in the world today where the disparities between the rich and the poor are so great and growing. I also must say there is something terribly wrong with policies that oppose debt reduction for countries that under no imaginable set of circumstances at any time would be able to repay what collectively amounts to something like $200 billion in debt.

Mr. Chairman, Africa's development problems are related to many factors -- conflict, war, poor government, mismanagement, corruption, failed development strategies, and the decline in global foreign assistance. The civil conflicts in West Africa are unbearable to the human spirit. Nigeria's President Obasanjo, whom I had the privilege of hosting here last week, estimates that Africa has lost about $140 billion through corruption in the decades since independence.

The 1990s were particularly devastating for Africa. While conflict, poor governance and corruption plagued the continent, global foreign assistance fell from over $17 billion to $12 billion. And we must not forget this alarming and unbearable debt burden that the continent faces.

Two decades ago, Mr. Chairman, the total debt of the continent was $60 billion. Today it's over $200 billion. The human tragedies standing behind these figures are the suffering men, women and children whom we see occasionally on the 6:00 news.

Mr. Chairman, I hope we will leave this hearing today committed to addressing seriously Africa's future development. Our witness, our distinguished secretary of the Treasury, has been one of our nation's harshest critics of foreign aid. The secretary has argued that after 50 years, there is little to show for the billions invested in poor countries.

I certainly agree that many resources have been wasted in Africa. But I also feel we must remind ourselves of the positive work achieved by our Agency for International Development and other bilateral foreign aid agencies over the past decade.

As I'm sure Secretary O'Neill saw on his recent fact-finding mission to Africa, AID is educating Africa's next generation. It is promoting good governance and democracy, providing help for overburdened health care systems, and helping to prevent mass starvation. I am confident, Mr. Chairman, that we all agree this was not wasted money.

I look forward to hearing from the secretary today, and I'm particularly interested in what specific policies he recommends as a result of his trip. And I want to thank you for your attention.

REP. HYDE: Thank you very much, Mr. Lantos. And I want to suggest that I agree with you on the Sudan. The chair will entertain brief -- underline brief -- opening statements and recognize for that purpose Mr. Smith of New Jersey.

REP. CHRISTOPHER SMITH (R-NJ): Thank you very much, Mr. Chairman. And I would ask that my full statement be part of the record, to welcome our very distinguished secretary to the committee. I applaud him for his outstanding trip to Africa and the good work that he is doing.

Hopefully we can do more. And I think, in a bipartisan way, we are trying, in the area of debt relief. As you might know, Mr. Secretary, I, along with Congressman LaFalce and Senator Biden and Santorum on the Senate side, recently introduced a new bill dealing with debt relief.

As we all know, the United States has stepped up to the plate and has forgiven its bilateral debt. But we can get another billion dollars a year of debt relief for the African nations if we initiated a new revenue-based criteria in addition to the export-based criteria. And I would hope that you would look at this legislation, and hopefully we can act upon it before this year runs out. They need it, and the sooner we deliver, the better.

But, again, I want to thank you for your good work, and thank the chairman for his many bills this year and the bipartisan way he has led this committee. And his accountability bill that he referenced earlier is needed. We have to have accountability. It also will enable us to do more and get more out of what we're already doing.

So thank you.

REP. HYDE: Thank you, Mr. Smith. The gentleman from New Jersey, Mr. Payne.

REP. DONALD PAYNE (D-NJ): Thank you very much. And thank you, Mr. Chairman, for calling this very important hearing on the Millennium Challenge Account. And let me commend the secretary for his recent visit to the continent. We were all very encouraged by the time you took and the interest you've shown.

The $5 billion increase in assistance, we believe, is a good beginning. However, there are some concerns in regard to the goals. We do believe that good governance is certainly important; economic freedom, so we can foster entrepreneurship and investment in people. Education and health are key to any nation moving forward.

However, I hope we do not forget other problems; that if we have too much emphasis on trade as the cure-all and the idea of -- (inaudible) -- as the engine of economic growth being the only and major entity is not the total picture.

There needs to be a focus on debt reduction, as the gentleman from New Jersey just mentioned, because debt reduction -- debt is the most obvious impediment to development. Many countries have to pay a large portion of their budget to debt, debt that in the Congo came under Mobutu 30 years ago and 25 years ago and 20 years ago, when tremendous amounts of money were lent to that country, and now the debt must be borne by the new leadership. There is not enough attention to poverty reduction, and that's really what we need to focus on -- how can we reduce poverty in Africa? And good governance, of course, is very important. However, when we have poverty, and we have poor health, and we have the other problems, good governance becomes much more difficult. And foreign assistance is important, however, we need to look at the levels.

And concluding, I have certainly urged the administration to make sure that poverty reduction is included, and it includes equitable human development, which would promote the local capacity for building. In other words, poverty reduction, once again, I think is a main criteria, debt reduction, and I have a number of other issues that I would like to include for the record.

Thank you, Mr. Chairman.

REP. HYDE: Thank you, Mr. Payne. The chairman of the Subcommittee on Africa, Mr. Royce.

REP. EDWARD ROYCE (R-CA): Thank you, Chairman Hyde. And I want to thank you, Secretary, for your commitment to Africa.

And Mr. Secretary, today at the G-8 meeting in Canada, several African leaders will present their NIFAD (?) plan. And under this plan African states are going to commit themselves to promote democracy and promote rule of law, and promote human rights, in exchange for additional resources from the developed world. But central to this whole plan is this concept of peer review by African states. And that's Africa's half of the bargain. Unfortunately, the reaction of African leaders to Zimbabwe is undermining the promise of this plan, because Zimbabwe today is standing on the precipice of a devastating famine of Robert Mugabe's own making. The dams are full of water. Food is being used as a political weapon. And at the same time we have a long running reign of terror there, Mr. Secretary, which in the human rights caucus this week, we heard the testimony of 400 cases of torture over the last few weeks, since the election which was stolen in that country -- 400 cases of political opponents who have been tortured by Robert Mugabe's state apparatus and their associates. And -- and frankly, you know, the fact that African leaders remain silent on this bodes poorly for the meaningful (NIFAD ?) review process and ultimately, I think, poorly for the type of resource commitment that the founders of this plan envision.

And so my remarks to you -- again, I want to say how much I appreciate your commitment to Africa, but during this G-8 process, I hope the international community will discuss with African leaders that if they are committed truly to election reform, to the rule of law, to human rights, that they speak out about what's happening right now in Zimbabwe. That should be part of the peer review process.

And I -- again, I thank you very much for appearing here today, Secretary O'Neill. Thank you, Chairman Hyde.

REP. HYDE: Thank you. The gentleman from California, Mr. Sherman.

REP. BRAD SHERMAN (D-CA): Thank you.

I commend the secretary for his trip to Africa. I think that trip and the work of many on this committee and others I think will convince the American people that we should be spending more on foreign aid. But the greatest threat to reaching that consensus in our country is that a big -- a portion of that foreign aid, in the president's budget, $874 million, is supposed to go to the World Bank. The World Bank just a year-and-a-half ago lent $232 million to Iran. Since September 11th, the World Bank has tried to expand its loans to Iran. Recently, they leaked to the press that they planned to loan $755 million to Iran over the next two to three years. And just very recently, they posted on their webpage the intention to go forward, or at least to begin processing, a $112 million loan to Iran, identified as being for low-income housing. Money is fungible. The Iranian government uses its resources to hold on to power. It spends the minimum amount it needs to spend in order to secure power, a minimum amount on domestic expenditures. Whatever they don't feel they have to spend on domestic expenditures, they're able to use for the nuclear weapons development program and to maintain their coveted status, identified by the United States State Department as the number one sponsor of terrorism.

Now, I look forward to a change, a genuine change in the Iranian regime. I look forward to sitting in this seat and urging that more money be lent to Iran. But this regime, regardless of its facade of a powerless and allegedly moderate president is actually run by its supreme leader and others, and dedicated to the construction of nuclear weapons and their eventual smuggling into United States cities.

I hope that we will hear from the secretary today that those of us who go back to our districts and say "let's spend more on foreign aid," can be confident that the United States will do more than just vote against this $112 million proposed loan to Iran, or the $755 million, more or less, planned for Iran for the next two to three years, that will do more than just vote no, get out-voted, as we were in the year 2000, when a $232 million World Bank loan was approved.

We need to do more than just vote no and then just have tea with the European diplomats who out-vote us -- that we will tip over the tea cart, that we will make this $874 million conditional on not a single additional penny being approved in loans to Iran by any of the many branches of the world bank, that we will, if necessary, cease other participation in the World Bank, that we will say that those who are trying to not kill three thousand Americans but perhaps bring a nuclear weapon into one of our cities and kill three million Americans will not get funds from agencies that we participate in, and that eventually, hopefully, we will see a new regime in Teheran that will make everything I just said irrelevant.

Thank you.

REP. HYDE: Mr. Houghton.

REP. AMO HOUGHTON (R-NY): Thank you very much, Mr. Chairman. Mr. Secretary, it's great to see you here.

As we all know, those of us who have dealt with the African nations in the past, particularly those on the East Coast and to the South, Sub-Saharan, know that the problems in Africa are of legion and huge. You look at them in totality, almost unsolvable. But, the fact that you are involved, you personally are interested in, makes a great deal of sense to us and gives us a light for the future.

Thanks very much.

REP. HYDE: Ms. Davis, the gentle lady from Virginia. Thank you. Mr. Mark Green.

REP. MARK GREEN (R-WI): Thank you, Mr. Chairman. I'll be very brief. Mr. Secretary, welcome. I look forward to your testimony when I'm not running back and forth to respond to adjournment motions on the floor.

I have lived and worked in Africa. Like you, I visited schools and villages in Africa. And I agree with your assessment that this is an important and timely issue. I agree with most of what my colleagues have said. Particularly, I would like to magnify something that the distinguished ranking member has said. He referred to the issue, the subject of this hearing today, as being vital to Africa's future. It is. I would also argue, however, it is vital to our future, it is vital to America's future. When we take a look at the ticking time bomb of the HIV/AIDS pandemic, take a look at the tremendous economic struggles which are leading to hopeless in so many corners of Africa, those are matters for which a nation like ours, which prides itself on being a moral, compassionate nation, obviously we cannot stand by.

But beyond that, I think that there is a new constituency in this country for responsible foreign assistance in Africa, because I think we realize that in a worldwide war against terrorism, one that will be with us, unfortunately, for some time to come, that we can take steps through our assistance to Africa, particularly our assistance in the form of basic education reform and assistance, to prevent opportunities for radicalism to take hold. In too many parts of Africa, people feel a sense of hopelessness. When they don't have good educational resources and opportunities for their young children, they see no alternative but to turn to the type of education which radical elements all too often, in too many places, offers.

I would encourage you and the administration as much as possible to devote a large part of the assistance to basic education, to creating those opportunities. I have seen programs, USAID-funded programs in certain parts of Africa that I believe are making a difference, are working. And I'm -- say as one who is skeptical of good intentions of the past, but I would encourage you to help support those types of programs. I think that they are vital to Africa, but as I said, I think just as importantly they are vital to our future and our national security.

Thank you, Mr. Chairman.

REP. HYDE: Thank you. Well, I'd like to announce that J.C. Watts, the gentleman from Oklahoma, who was scheduled to testify, has been here and has provided us with a written statement which will be made a part of the record without objection. We're going to try to accommodate the secretary of the treasury, who must leave us at noon. And so we will -- we appreciate Congressman Watts' courtesy in deferring to the secretary.

I would like to welcome the secretary of the treasury, Paul H. O'Neill. He was appointed as the 72nd secretary of the treasury in January of 2001. He's had extensive experience in the federal government, first with the Veterans Administration, later with the Office of Management and Budget, where he served as the deputy director from '74 through '77. His most recent experience as the president of International Paper Company from 1985 through '87, and as chairman and CEO of Alcoa, from 1987 through 1999, has been chronicled by the Harvard Business Review in a case study of how to transform old economy firms into new age success stories.

Mr. Secretary, we are truly honored to have you appear before the committee today. Please proceed with a summary of your statement. Hopefully, you can confine it to five minutes or so. We certainly aren't going to be rigorous in that application. And then we will ask you some questions. Mr. Secretary.

SEC. PAUL O'NEILL: Chairman Hyde -- (off mike ) -- turn the mike on --

REP. HYDE: I think it's on the base of the microphone. There's a little place you can push.

SEC. O'NEILL: Do I have sound? I do.

REP. HYDE: That's it.

SEC. O'NEILL: Chairman Hyde, Ranking Member Lantos, members of the committee, I thank you for inviting me to talk to you today about my recent trip to Africa and the president's initiatives to improve conditions in the developing world. Mr. Chairman, as you noted, I do have a rather long statement that I've personally looked at carefully, and I think it is -- it is worth people looking at it because it provides examples and details that I can't possible reach in my summary. And so I would encourage those of you who are interested in this subject to look at the stories about this trip and the experiences that we had, because I think they were telling. But I can certainly stay within the five-minute guideline, and I look forward very much to engaging you and the members of the committee on whatever subjects you would like to explore in more detail.

Let me say -- I went to Africa last month to listen and learn, but most of all I went with an open mind and one pivotal question: How can the people of the United States and the developed world best help Africans and their elected leaders to achieve prosperity at last? I learned a great deal, and I want to share some of my experience with the members of the committee.

This trip confirmed three things for me. First, a truth we've always known -- all people everywhere can do great things when they're given the tools and the incentives for success. Second, with leadership -- honest, accountable and committed to progress -- everything is possible. Without leadership, nothing is possible. And finally, that in the right environment, focused on growth, enterprise, and human development, aid does work. Knowing that it can work, we have a moral duty to demand as much. Assistance should make a real difference in people's lives.

In Africa, I saw three kinds of investments in people that are vital to realizing Africa's potential: clean water, primary education, and fighting HIV/AIDS. Clean water is surely one of the most essential elements of a dignified, civilized life. No aspect of infrastructure is more basic, and yet 45 percent of Sub-Saharan Africans lack access to clean, safe water. That's 300 million human beings -- more people than the total population of the United States. If we can figure out a way to support African leaders in bringing clean water to their nations, and I think we can do it much faster and cheaper than the endless studies say we can, we can liberate hundreds of millions of people, especially women and children, from preventable, debilitating illness and meaningless worrisome work. They would be free to pursue their dreams for a better life.

The second important investment I saw was in raising primary education enrollment. I visited schools where they've gone from a ratio of 16 students per book down to six per book. That's progress, but it's not good enough, and it's certainly not success. We must set our expectations higher. That's why President Bush committed last week to doubling funds for the African Education Initiative, which was first announced last July. This will raise our total spending on the initiative to $200 million over the next five years.

The program will train more teachers, provide scholarships for girls who are disproportionately excluded from schooling today, and work with Historically Black Colleges in the U.S. to supply millions of more books to the African children. It will also promote accountability and transparency in the school system.

And third, perhaps the most crucial area is health care. Nowhere is this more urgent or more heartbreaking than in the struggle against AIDS. In South Africa, I saw mothers with AIDS caring for babies with AIDS, even when proven, inexpensive drugs are available to stop transmission between mother and child.

Prevention of further HIV contagion is the utmost priority, especially to keep the next generation of newborns free from the disease. The president has therefore stated his intention to provide $500 million in new funding for the International Mother and Child HIV Prevention Initiative.

This initiative will increase our commitment to preventing infant HIV infection abroad by almost $200 million next year alone, up from less than $20 million last year. It will increase another 50 percent in 2004. We'll start with the hardest-hit countries of Africa and the Caribbean and expand the program as we show progress and results. This is our challenge -- to focus the attention of the world on getting results. Caring greatly is not enough. We must also succeed greatly.

In addition to supporting President Bush's new initiatives for stopping the spread of HIV and broadening access in education in Africa, we need to push ahead with the rest of his reform agenda for improving the effectiveness of wealthy nations' support for African development. In March, President Bush announced that the United States will increase its core assistance to developing countries by 50 percent over the next three years, resulting in a $5 billion annual increase over current levels by fiscal year 2006. This increased assistance will go to a New Millennium Challenge Account that funds initiatives to improve the economies and standards of living in qualified developing countries. The goal of a Millennium Challenge Account is to reward sound policy decisions that support economic growth and reduce poverty.

Also, international donors have sometimes knowingly made loans to poor countries for programs that could never generate a return sufficient to pay back the principal and the interest, too. Of course, in many other cases, loans simply financed corrupt leaders who stole the money and let their impoverished citizens battle with their debts. As a result, many caring people now extol debt forgiveness.

But debt forgiveness solves nothing if we allow new debt to create the next generation of heavily indebted poor countries a decade from now. To prevent this situation, President Bush proposed that up to 50 percent of the multilateral development funds for the poorest countries be provided as grants instead of loans. Following intensive discussions with our development partners, donors to the thirteenth replenishment of the International Development Association have agreed to the principle of substantial grant financing for the poorest countries.

I believe this: With the right combination of aid and accountability from both rich nations and poor ones, we can accelerate the spread of clean water, primary education and health care throughout Africa. We can help the African people create vibrant, self-sustaining economies that will generate rising standards of living. Working together with the Congress and with other donor nations, we can help Africa to achieve real prosperity -- not in the next generation, but right now.

Thank you, Mr. Chairman.

SEN. HYDE: Thank you, Mr. Secretary.

Mr. Lantos.

SEN. TOM LANTOS (D-CA): Thank you, Mr. Chairman. I certainly think every rational human being would agree that your emphasis, Mr. Secretary, on the importance of clean water, primary education and at least minimal health care, and you certainly won't find any argument, I think, on our part, with those goals.

But there are other issues that I think the administration's posture and your posture is somewhat troubling. The first of these clearly relates to debt reduction. It is simply utterly irrational to anticipate some of the poorest countries on the face of this planet, which are at present unable to provide clean water, minimal health care, minimal primary education to their tens of millions of children, to seriously contemplate repaying tens of billions of dollars in debt.

Now, we can continue this illusion of carrying this debt on the books ad infinitum, but it would be more honest and more straightforward and more helpful if we would remove this burden and use our influence with respect to the international organizations, multilateral lending agencies, to do so. It simply is nonsensical to carry the culture of corporate America to destitute countries in Africa, and my judgment is that the administration's rigidly ideological adherence to this notion that debt needs to be repaid, which is a fine principle in a developed society such as ours, to the poorest countries on the face of this planet.

I'd be grateful if you'd comment on this matter, Mr. Secretary.

SEN. HYDE: Would the secretary defer, and would the gentleman yield to me?

SEN. LANTOS: I'd be delighted to yield to my friend.

SEN. HYDE: I think that's a very important question Mr. Lantos has asked. I would like to inject another element into the equation, and that is it seems to me forgiving debt to a country that has a corrupt government accomplishes nothing, but encourages a continuation of the corruption. But with the debt hanging over them, if there could be indigenous forces to proceed with a reform so that an honest, effective government might succeed, a reward for that could be debt forgiveness. But simply to forgive the debt -- and I agree with Mr. Lantos, it's foolish to expect them to ever repay it; but at the same time, I would be very leery of rewarding corruption and inefficiency.

And so --

SEN. LANTOS: Reclaiming my time, Mr. Chairman, I don't advocate rewarding corruption and inefficiency. That is not my point. I am as much in favor of clean and honest government in Africa as anybody on this committee or in the administration.

I think we deal with corrupt governments as they exist by making our aid flow not through the government but through a nongovernmental organization of impeccable integrity, of which there are many -- many of them American, others international. I think the chairman's comment about corrupt government is extremely appropriate. As I indicated in my opening remarks, the distinguished president of Nigeria estimates that $140 billion was stolen by corrupt governments in Africa, and no one is doing anything but denouncing that.

But I would like to ask you to focus on the underlying issue. You and all of us know some of these governments, some of these countries will never be able to repay this debt, and to carry it on the books and adding interest to it every year simply seems to me, as an economist, is nonsensical.

SEC. O'NEILL: Well, I thank you for the question and I thank you for the exchange. I think there are many important points here.

Let me start first of all with a clear statement of what the administration's position is on debt relief, because I think it's been the subject of the G-8 meeting to a degree in the last couple of days. And what the president has said is we in the U.S. should meet our obligations under the debt relief program that we agreed to some time ago, including recognizing that circumstances have changed that suggest there may be a requirement for some additional amount of money to meet our initial obligations. So I think we should be clear that we in the administration think debt relief is a principal policy idea, and we have followed up on it.

And then I would say this. The last week I was the U.S. representative at the G-7 Finance Ministers Meeting in Halifax, and we talked about debt relief, and I made this proposition to them, that we put our debt relief to work on looking at this issue of debt relief in a way that I honestly don't think it has been up till now, which is this.

Debt relief, I think, is, just as you suggest, in many cases an absolute necessity. But just to square ourselves with reality, because if you can't pay, then the idea that you have debt is an absurdity on its face. And if you can't pay and don't pay, if you were in the corporate world you would write it off. And in many cases we have actually done that. On a bilateral basis, the U.S. has already done a great deal.

But I think, frankly, that some of the rhetoric that's been said about debt relief has actually been not constructive at all in this sense. It has assumed egocentrically, from our point of view, that when debt relief is finished -- that is to say, the principal and interest requirements are written off the books -- that countries now have the ability to spend money on things of our choice, when, in fact, I think if one looks at the financial condition of most of the countries we're talking about, it's ridiculous to believe that simply because they don't have the particular debt that has been forgiven by us and other developed countries, that suddenly they're fiscally responsible and sustainable is an absurdity. Anyone who can read a balance sheet and an income statement would say, "This is ridiculous."

And so I believe that we need to, working with our developed- country partners, examine the question of fiscal sustainability country by country and have a deliberate set of policy ideas about what we do, for example, in the case such as the nation of Uganda, which, where, if they had no debt on their books, it was completely written off, you would still find that 50 percent of their annual operating income comes from bilateral and multilateral assistance, which is to say they're not within shouting distance of fiscal sustainability.

And I think if we're going to do the right thing, we must move in the direction that President Bush has suggested; for example, by stopping the fiction of being party to making loans to countries that can never possibly pay them back, no matter how good a job they do of deploying the funds to create clean water and primary education and relief of the HIV-AIDS problem.

I think we need to deal with these things with an on-the-ground, realistic basis that is true to the facts and not true to some fantasy, as though these countries are suddenly fiscally sustainable because we've forgiven their debt.

REP. LANTOS: If I have an additional minute, Mr. Chairman, may I ask the secretary to comment on the question of Sudan that both Mr. Royce and I raised?

SEC. O'NEILL: I'm happy to. I think you would not find anyone in the administration who finds the conditions in Sudan any more reprehensible than we do. And I think an indication of that is the special envoy of the distinguished former Senator Danforth, who's representing the president there on a personal basis, an indication of the strength of conviction that the conditions in Sudan have to change.

Now, to the question that you raised about a provision in the legislation that basically puts a limitation on capital participation from U.S. companies, I would argue that this provision is an extraneous provision that ought not to be the subject of any legislation that we pass. And some may find it useful to throw the kitchen sink into legislation. And I think, left by itself, if you and other members insist that it be included in this kind of legislation, I suppose that's certainly your privilege.

The reason I don't think it's a good idea is because it's a precedent. And if you're going to make this kind of a judgment about how America and Americans can participate in the world on a rifle-shot basis, I don't know where you stop taking the rifle shots.

And I think maybe a better way to deal with Sudan, if you're concerned about every way that we deal with them, is to say no American should have any business in any way with the people in Sudan, full period, stop, rather than select some particular aspect of American business activity or American life and single it out for special treatment.

REP. LANTOS: But Mr. Secretary, access to capital markets is not a holy concept. And if a company is unwilling to listen to reason and judgment, it is unimpressed by slavery and mass killings. But denying it access to the American capital markets might work.

SEC. O'NEILL: I don't -- well, I think -- excuse me for interrupting.

REP. LANTOS: No, no, not at all. I just don't see why it is so objectionable.

SEC. O'NEILL: I don't think it helps at all for this reason, because, as much as some may not like it, the world capital markets are today basically seamless. And so, by saying to people who happen to have a U.S. residency for their capital, "You can't do anything with it," doesn't mean the capital flows are going to change in any way.

You may be happy to say that direct American money doesn't exist, but it doesn't stop the fact that Americans -- maybe even you, if you're invested in a mutual fund that has an investment in offshore banking facilities -- is an inadvertent, indirect supporter of Sudan, whether you like it or not.

And for me, it's kind of equivalent to the notion that used to exist when I lived here before in Virginia, that the state legislature passed a ceiling on interest rates. You know, it's equivalent, basically, to passing a resolution that the sun should only come up every other day. You know, there may be some rhetorical utility in it. But from a real-world sense, it has no particular meaning at all.

REP. LANTOS: Why do they fight it, then, if --

SEC. O'NEILL: The only reason we're fighting it is because we don't think it has anything to do with the way the real world works, and we're concerned that if we do it here, it becomes a precedent for "Let's scatter it around," and wherever some member has got some problem with what's going on in the world, let's put this provision in. And I don't know where it stops.

If we don't work on the issues of what are the critical principles related to how the world really works, I don't know how to do this work. And so it's okay with me if you want to put this kind of a provision in on a broader basis, maybe even saying, "These people are so reprehensible, we shouldn't give them food aid; we ought to let them starve to death."

I would not personally go that far. But it seems to me that's the general principle that's being asserted by this kind of a notion that we're going to selectively decide this and that about countries (when it has?) nothing to do with the way the world really works.

REP. HYDE: Mr. Green.

REP. GREEN: Mr. Secretary, I want to go back to a subject I mentioned in my opening statement, and that being basic education. When I read a summary of the G-8 statements from yesterday, there was much to like about them and praise in it. But it lacked some hard commitments on assistance to basic education.

Can you tell us when we can expect hard commitments from the administration in terms of its funding of basic education, education reform in Africa? Both amounts and timing. I would appreciate that.

SEC. O'NEILL: Let me start with the concept. You know, I come back from this experience -- and I have to tell you a little bit more background to give you a perspective or understanding of where I'm coming from.

When President Bush the elder, number 41, was here, I was the chairman of his Education Policy Advisory Committee for four years. And while I was living in Pennsylvania, I chaired the state education commission and worked at the local level on the issue of education. So I don't come to this without some knowledge.

What I believe is this, after having now looked at primary education in Africa, that we should be very specific about what it is we want to accomplish. And my own formulation of that is this, that we should provide money that will produce educational knowledge competency, functional competency, in 10-year-olds at such a level that 10-year-old African children will be able to read and write and compute at a level that will effectively make them independent lifetime learners.

And we should, in effect, write purchase orders to systematically increase the number of children who have those competencies. We should not be deluded by other measures of numbers of children in school, which is a worthwhile objective.

But we should not make the mistake that more buildings and more teachers and more teacher education is what the objective is. We should systematically insist that the number of competent 10-year-olds is going to go up, and we should know what the unit cost of doing that is, including whatever resources are necessary to achieve that objective.

Now, tomorrow I have a meeting with Colin Powell, and we're going to talk about the staff work that's been done in getting us ready to advise the president about the basis to suggest the distribution of the Millennium Challenge Account monies. And this area is a critical part of it.

But my thinking is that we should be very precise in each of these three areas. We should buy -- for example, in clean water, the number of individual human beings who are going to have clean water next year that didn't have it this year, and we need to inform ourselves about what the unit cost is.

And it's very much in keeping with what the chairman has put into his responsible assistance bill to deliberately go after buying tangible things that make a difference in people's lives; in the HIV- AIDS area, measuring the number of women tested that were not tested the year before, the number of women and children that are given drugs to prevent mother-to-fetus transmission on a unit-cost basis, so we don't talk in global fantasy terms about $50 billion here and $40 billion for that and all the rest of that, but we talk about specific deliverables in the three areas of focus.

REP. GREEN: And much of what you're saying, I agree with. As someone who taught in East Africa and a problem of 12 students per textbook, I understand. But let me suggest that if we're not careful, we'll also miss some of the great potential in basic education reform.

Two quick examples or two quick thoughts. First off, as we talk about the idea of creating or using basic education reform as a way of preventing the potential for radicalism to take hold, I would suggest it's not sufficient to really measure the competency of 10-year-olds. I think we also have to take a look at what schools they're learning from.

We want to shut down some of the radical schools that are producing generation after generation of western-hating students. They may have core competencies in math and reading, but they're hardly what we are hoping our dollars will support.

I think we should take a look at a precise measurement also of the curriculum and be creating and supporting alternatives, secularized alternatives to some of those.

Secondly, I would encourage you to look at some of the programs that USAID has put together, particularly in West Africa -- I can speak from personal experience -- that weave health-life lessons into every part of the curriculum, where they use health lessons in grammatical examples.

The sentences teach young girls why they should not draw their drinking water from the same river in which they bathe. It's a lesson in grammar, but, of course, it is a lesson in life that creates a relevancy that families in the community can look to and support and say, "Yes, this is why I should send my daughter to school."

REP. HYDE: The gentleman's time has expired.

REP. GREEN: Thank you, Mr. Chairman.

REP. HYDE: The gentleman from New Jersey, Mr. Payne.

REP. PAYNE: Thank you very much, Secretary. Let me just ask once again about the debt relief. African countries now have debt of about $150 billion -- $206 billion. In 1980 it was $60 billion. Now it's $206 billion. Of course, much of the debt is simply by interest and penalties, which, if it's $206 billion now, in another 10 or 15 years will be $450 billion, I suppose.

Once again, you say that your position is that you and the administration feel that debt forgiveness is not the way to go. In your opinion, then, how will these African countries -- as you know, 39 of the 54 poorest countries are in Africa. The direct funds that go to Africa on the Development Fund for Africa is about $850 million, with 900 million people in that area, so it's less than a dollar a person in Africa for that specific fund that deals with development in Africa.

So since it's less than a dollar a person and since the interest and penalties on the debt continues to escalate, how will they get out of this straitjacket that the governments find themselves in?

SEC. O'NEILL: Well, Mr. Payne, let me be clear, because apparently I was not before. The administration is very much committed to delivering on the debt relief for the heavily-indebted countries. It's been the policy of the nation. And during the meetings in Canada, the president indicated that we intend not only to meet our original commitment but to pay our fair share of the so- called popping up to meet the commitment that was initially made. That's changed because of circumstances that have changed.

And then what I said further is that I think we should look at this whole issue of debt reduction in a broader context. And, again, let me say, we should stop the fantasy that debt relief solves the problems of these countries. We need to be honest with ourselves and with the African nations about the fiscal conditions of these individual countries.

And one of the things that, frankly, I think we need to be very insistent on, especially with those who would receive money from the Millennium Challenge Account, is that it's not discretionary, for the leaders of these countries who are going to get this money, for them to be true to the idea of the rule of law and enforceable contracts and an all-out attack on corruption, because without those things, they're never going to be fiscally solvent because there's not going to be any job creation that comes from foreign direct investment if foreign direct investment is confronted with the uncertainty of governments who don't do what they say -- or don't even try to do what they say.

REP. PAYNE: Let me ask this question. As you may know, there has to be people to corrupt others. In Europe, especially in Germany, bribes are tax deductible from business practices, and in most countries in Europe, it is not -- it's not against the law to offer bribes for contracts. Of course, in the U.S. we have the foreign assistance -- the bill that makes it a crime. Have you discussed with your European colleagues about if you're going to weed out corruption, you need to start with the corruptees too. Have there ever been any discussion on your level about countries that allow bribes to be deducted from their taxes when they're corrupting vulnerable third world leaders? Has that ever come up in any discussion with your buddies?

SEC. O'NEILL: We have not -- we have not had this item as an agenda issue, but prompted by your question, I'm happy to put it on the agenda. I think your statement of what's possible under European law is too sweeping and in effect not correct with regard to how these -- how these things are characterized and what people are permitted to do. But I'm happy to put it on the agenda because, at least for me, I think these fundamental things need to be universally applied without exception.

REP. HYDE: The gentleman's time has expired. The gentleman from New Jersey, Mr. Smith.

REP. SMITH: Thank you, Mr. Chairman. Mr. Secretary, I again want to applaud the administration's initiative, the $500 million for the International Mother and Child HIV Prevention Initiative. I remember asking the previous administrator, Brian Atwood, over and over again why we were not putting more money into the mother to child transmission of AIDS, a preventable, deadly disease that could be stopped, and I'm so grateful that the administration is doing this, and doing it in such a significant way, and I applaud you for that.

On the issue of debt relief, if I could, earlier I mentioned this legislation that I have introduced along with Mr. LaFalce, Biden and Santorum on the Senate side. I do believe that this is not the panacea. There is no silver bullet here. The administration itself acknowledges that by going to more grants rather than loans we -- we hopefully stop this cycle that seems endless where these third world, highly indebted countries aren't able to pay their debt.

Our legislation would, we believe -- and again, I want to thank the president, at the G-8 meeting, he has again stated, as have the others, that they will try to fix this shortfall in the current program, but we believe in looking at where the remaining issues lie, that it would be very, very helpful if we would look at a different way, a different standard of calculating how we let out this money. The exports is an inadequate way of doing it, and we think a revenue base -- looking at the revenues would at least contribute an additional billion dollars more to these highly indebted countries. Nineteen of the current 26 highly indebted poor countries at decision point would benefit from our legislation if our calculation is correct. We have asked the administration for its opinion.

The legislation is moving on the Senate side, a facsimile of it -- very closely to what we have introduced -- is already on the AIDS bill in the International Relations Committee -- Foreign Relations Committee over there. And again, I don't think debt relief corrupts nations. I think if it is carefully written so that the money can -- is required to go to basic health, or health care initiatives and the like, and there's then an accountability for making sure that money does not get diverted, we actually help the poorest of the poor people.

Do -- does the administration have a position on our legislation. It's H.R. 4524 here, 2210 over on the Senate side? And do you think this could be part of the solution?

SEC. O'NEILL: I do -- I do know about your legislation, and I compliment you for putting it forward. And I'd be happy to work with you and the other co-sponsors of this legislation. But let me be very honest with you and say to you I don't think there's a good formula way to deal with this subject because I don't think the countries are a formula. And I also don't think -- again, let me say very directly -- I don't think even if we forgive all of the debt, we and all the rest of the debt holders, forgive all the debt, that in many cases these countries have the real fiscal wherewithal to do the things we might like for them to do and to in effect say to them, "Now that we've forgiven your debt, we want you to go and borrow more money from somebody else to do primary education and health and the things that we think is important," is really disingenuous and misleading, and I hope not dishonest. I hope people are of good faith in putting these things forward. But I think we would be much better off to deal with the issue of debt relief in the context of the fiscal situation of individual countries in real life, and perhaps write some broad gaged legislation that would let us systematically help countries move toward fiscal sustainability, which I think we can begin to leverage, for example, with the Millennium Challenge accounts and the rest of economic assistance, moving in the direction you're trying to go, but not so much with a formula but with a more focused individual country approach.

REP. SMITH: But wouldn't a revenue based formula achieve that?

SEC. O'NEILL: I don't think so because, you know, it's -- it's not directly related to the question of fiscal sustainability. It's related to a secondary measure. And in order to make a judgment about where the money should go and what good it's going to do, and how much fiscal sustainability it creates, one needs to look at the fact base for individual countries. So I don't find the formula approach related to revenue or exports or anything else, frankly, much more than kind of a shadow on the wall. It's not the real thing. It's just a shadow.

REP. HYDE: The gentleman's time has expired. The gentle lady from California, Ms. Lee.

REP. LEE: Thank you, Mr. Chairman. IT's good to see you, Mr. Secretary.

SEC. O'NEILL: Nice to see you as well.

REP. LEE: Let me just commend you on your visit to Africa. It has again raised public awareness, I think, to the many challenges faced by a continent rich in natural resources and a continent of very resilient and wonderful people. But which is also the motherland of many African-Americans. Your visit also was very important in highlighting, I believe, the many challenges faced by a continent that has really been ignored by many administrations. And I commend you and your delegation for really beating the drum.

Let me ask you a couple of things with regard to HIV and AIDS, and your sense of the famine. We heard from Mr. Natsios, from USAID, with regard to USAID's perspective on the famine. We believe -- many of us believe, at least, that this is such a critical emergency that we're attempting to put forth a proposal -- Congresswoman Maxine Waters is -- for an additional $200 million in the supplemental appropriation. The response from USAID was not a supportive response because -- for many reason -- but I'm wondering, given your visit, what did you sense with regard to the famine? Do you sense -- a sense -- do you have sense of urgency about our hunger relief efforts in terms of a positive response to prevent millions of people from dying of starvation? Or do you think we have some time to play around with how much is going where and when?

And then secondly, let me just ask you with regard to HIV and AIDS, you mentioned the specific deliverables, which I agree, I mean, we need to know what's going on and how much -- how much -- how many people are being saved actually by what we're doing, but I also know that for each dollar, we save additional lives. And so we've been trying, many of us, to put at least $1 billion into the trust fund because we know this will leverage up to eight to nine billion, which the secretary-general has indicated would begin to make a -- not the total that's necessary, but just -- (inaudible) -- what's necessary. And we have seen some movement by the administration, but not a lot.

And you may remember our discussion with regard to the World Bank AIDS Trust Fund. So that's the third part of my question is what is the status and the involvement of Treasury with the World Bank and the fund? There's a lot of uncertainty here with regard to what has happened to the legislation that was signed into law in 2000.

SEC. O'NEILL: Okay. Let me start with your last question. I am deadly serious about these issues, and I had the soon-to-be-installed executive director of the Global Fund come to see me, and I spent a couple of hours with him.

REP. LEE: Incidentally, he is from my district, which I'm very proud of.

SEC. O'NEILL: Well, I too -- I found him very engaging, and I was very encouraged by our conversation. But I want to tell you the facts about where we are.

The president has indicated that he is prepared to recommend more money for the Global Fund when we can demonstrate results. Now let me tell you, because I am really serious about this, I have spent some time getting on top of what the facts are -- let me tell you what the facts are. The first grants that were made have no metrics in them that require an accounting for specific number of people helped. And if you look at the distribution of the first amount of money, at least for me it's frankly very difficult to figure out how one could come to the conclusion that Malawi should get $227 million in the first two- year allocation and Ethiopia should get $27 million.

No one, I think, can explain it, as to why it is that you have these huge differences in the first distributions. And, the reason is, I think, this. Do you know how many people there are at the Global Fund doing this work, including secretaries and administrative assistants? You might think they have a big bureaucracy. They've got 10 people. And it's amazing they were able to make any sense out of what they did. But I don't think, at least for me, they have measured up to the idea that we're going to make grants that have specific results related to real human beings, and we don't end up finding up, you know, that we participated, or our money participated in building bricks and mortar, or training scholarships or something, which may not be beside the point but they're not the point. And so, believe me, I'm pressing hard on these issues to try to get an alignment between compassion and producing real results, and to end this kind of a problem.

You know, if you go and look at the analysis that's been done, for example, in Uganda a few years ago, of the amount of money appropriated for education that actually got to the interface between the student and the teacher, only 30 percent actually got to the point of contact between student and teachers. I'm dedicated to the proposition that the money that we're going to provide is going to produce real results for real human beings, and the consultants and the parasites and the ministers with six automobiles are going to get off the wagon.

REP. HYDE: The gentle lady's time has expired.

SEC. O'NEILL: I'm sorry, Mr. Chairman.

REP. LEE: Mr. Chairman, may I have an additional 30 seconds?

REP. HYDE: I regret -- the secretary told us he had to leave at noon. It is noon.

REP. LEE: Could we receive the response to the second part of my question in writing, please, Mr. Chairman?

REP. HYDE: Surely. The secretary will be generous enough to answer in writing any unanswered questions. Would the secretary take one or two more questions from Mr. Royce, chairman of the Africa Subcommittee?

SEC. O'NEILL: Absolutely, I will, Mr. Chairman. I'm sorry for the long response to the gentle woman's question.

REP. HYDE: Not at all. The response was short and the question was short.

REP. ROYCE: Mr. Secretary, you've recognized that some aid is helpful, like cleaner water and education, especially AIDS education, and some is not. Mobutu's aid in the former Zaire was looted out of the country basically. But the best aid effort long term, it seems to me, that works for the Africans and our economy is greater trade access. And we've seen that with the African Growth and Opportunity Act, which has uplifted several African economies, which is building a tax base for these -- for these countries. And I'm concerned that we're stepping backwards. Yesterday, the Wall Street Journal ran a story detailing how U.S. subsidies on cotton, $3.4 billion a year and set to increase, are devastating cotton production in West Africa. The economics are as simple here as they are devastating. Washington gives farmers greater subsidies for cotton. Production goes up. The world price goes down. And Africans can't sell a crop that's critical to the survival of many who live on a dollar a day. So we hear a great cry for more aid, but it's contradictory, it seems to me, to aid Africans with one hand and use the other to slap them with trade barriers.

And Mr. Secretary, I know you share my frustrations. Greater trade is your theme. I appreciate that you've heard me before on the issue of canned pears from South Africa, another product that some are now looking to shut out.

I'd like to raise an issue in your jurisdiction, and that's the Customs Services "knit-to-shape" ruling on the Africa trade bill, which denies African-made sweaters, socks and other apparel duty-free treatment. This is needlessly shorting a goal that has potential in Ghana and elsewhere. And I heard quite a bit about it when I was in Namibia earlier this year, and several of the members who worked on AGOA wrote the Customs Service on "knit-to-shape" last year, and we have legislation to correct the administration's misinterpretation of the AGOA statute. We'll get that through, but it would be ideal if you'd use the discretion you have to bring the administrative ruling in line with congressional intent on this issue, and also on a AGOA's short supply provision. And, you know, we have the steel decision, the farm bill, canned pears, where we're moving in the wrong direction. If you'd look into these two rulings, you know, on knit- to-shape, it would -- it would make a great difference to Africa and to our country's interest in seeing African economies grow.

Thank you very much, Mr. Secretary.

SEC. O'NEILL: Thank you.

REP. HYDE: Thank you. The gentleman from New York, Mr. Gilman, asked me to insert into the record an opening statement, and without objection, so ordered.

REP. BENJAMIN GILMAN: Thank you. And Mr. Chairman, I just want to welcome our secretary and commend him for his recent trip to Africa, and for providing today the insight that he has given to our committee. Thank you -- (inaudible) --

SEC. O'NEILL: Thank you.

REP. HYDE: And I regret Ms. Watson did not get her turn. She usually has an illuminating question or commentary, but we'll try to get to you next time, Ms. Watson. Very good. Write to him, and he will answer your question. Without objection. Thank you. Mr. Leach, I'm sorry we missed you -- Mr. Frank, Ms. Davis -- but the chairman -- the secretary must leave. Thank you, Mr. Secretary.

SEC. O'NEILL: Mr. Chairman, thank you so much for your gracious chairing of this committee. And I would be delighted, if -- (inaudible) -- the committee, to come back and talk with you informally or formally about these subjects any time you wish.

REP. HYDE: We -- we'll take you up on that. Thank you, sir.

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

END

LOAD-DATE: June 28, 2002