Segment 1 Of 2     Next Hearing Segment(2)


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Wednesday, February 11, 1998.





Chairman Callahan's Opening Statement

    Mr. CALLAHAN. Secretary Rubin, we are happy to have you before our committee this morning.

    I know you have been spending a lot of time on Capitol Hill lately explaining the needs not only of the International Monetary Fund but of your proposed budget for 1999, and I know you have met with the leadership, and I know you have met with other responsible Members of Congress, both House and Senate. But you are at the right place now because, before anything can take place that you are requesting, it has to take place at this committee level. We are apologetic that we do not have as many Members as you would like.

    As you know, there was a retreat, both the Democratic and Republican retreat, the first part of this week. Many of the Members are attending that, and rightfully so, but this hearing, especially as it involves the IMF issue, is something we felt we could not postpone. Because if indeed the Congress is going to act upon this request, we are not going to have time to wait an additional month before we begin the committee process.
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    I don't know whether the Asian crisis will stall our Nation's economic growth cycle, but I do know that it has impacted one industry, at least, in my home congressional district. We have a pulp mill in Alabama that announced a 2- to 3-week layoff of the entire factory, a shutdown of the mill, simply because its primary customer was a company in Indonesia, and the Indonesians could not pay them for the pulp. So it has directly impacted my district.

    In addition to that, I represent a port, a major port, probably the best port in the entire United States, if not the world.

    Ms. PELOSI. Probably?

    Mr. CALLAHAN. But, nevertheless, we ship a lot of products to and from our port that either begin in the Asian region or wind up in the Asian region, so it has very seriously impacted my district.

    You may know that the American people still do not understand the International Monetary Fund—they have no earthly idea what we are talking about. They most recently were made aware of the existence of such a fund in the Mexico crisis. They do not know the success of the Mexican bailout. They think that the $20 billion or so, maybe $30 billion we sent to Mexico was never repaid. They don't know the history of that or of the International Monetary Fund.

    You are receiving a lot of unfavorable publicity, or the IMF is, from a lot of prominent people who were formerly in responsible positions in the government who are indicating maybe the time has come to eliminate the International Monetary Fund. Those are problems we are going to have to face if indeed we present this to this subcommittee and to the full committee and to the U.S. House.
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    I heard Secretary Albright in her presentation in Senate hearings yesterday indicating something to the effect that the International Monetary Fund was like a credit union. That is a very good analogy.

    I think you and the President, if you are going to be successful and if we are going to continue to participate in the International Monetary Fund, have to immediately describe this to the American people and describe its importance the impact it is going to have, rather than the national opinion, that all we are doing is bailing out a bunch of insurance companies and a bunch of banks. I know better than that, but most Americans do not, and someone is going to have to televise that message if indeed you are going to muster together the sufficient strength to add to the International Monetary Fund.

    Most people do not realize it is an international fund. They think that we, the United States, are putting up all of the money. They don't realize we are only a contributor to the International Monetary Fund. Nor do they realize the control we have over the International Monetary Fund.

    So someone has to get that message out, Mr. Secretary. I think that someone should be either you or the President or Madeleine Albright. But, at this point, the American people, in my limited capability of investigation, do not believe that the Congress should act favorably upon your request. Nor do they understand the need to impact or to contribute to the Asian monetary crisis because of the economic impact on the United States.

    So it is a very important thing that we are going to have to address in the not-too-distant future. But, before it can be, someone has to explain to the American people why we have to increase our quota another $14.5 billion.
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    With respect to your budget, we are going to have to take a little bit more time on your appropriation request for 1999. There are some questions I will have that I will submit to you with respect to some of the increases you have requested, for example, the increase from $48 million to $300 million for the global environment facility.

    We are going to have to have answers with respect to the individual requests you have made for 1999.

    Your request for debt relief is $79 million, including $7 million for the enhanced structural adjustment facility. Last year, we appropriated $27 million, so that is a big increase. As you know, this subcommittee, and especially this Chairman, have not been too receptive to increases with matters that are perceived to be foreign aid. We are going to have to live within our limitations of monetary constraints; and, although there will be some agencies or institutions that receive additional monies, we are going to have to have real justification for these increases.

    At the end of the day, this committee will have to convince a skeptical House of Representatives of the merits of your International Monetary Fund and the multilateral development banks as well, about our ability to work together. We have, as you well know, a working relationship with the Democrats, not only on this panel but on the full committee and in the full House of Representatives, too.

    We try to stay out of your hair. We don't want to run your department. We don't want to run foreign affairs. But we do have an obligation to our constituents and to the American people to make absolutely certain that the money is being spent in the most frugal way possible.
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    I know you are aware of it and I know all the members of our committee are aware of it, but, since our subcommittee last met, we have been blessed with the appointment of a new member to our panel. I think she is joining us for the first time.

    Miss Kaptur, we certainly welcome you to our committee and look forward to a continuing working relationship with your side of the aisle.

    With that, I will close. I will submit to you my formal statement.

    I have already asked you privately a couple questions with respect to some parochial concerns I have, and I hope you will be able to respond to them in the not-too-distant future.

    With that, I would recognize the gentlelady from California, Mrs. Pelosi.

Ms. Pelosi's Opening Statement

    Ms. PELOSI. Thank you very much, Mr. Chairman. I am pleased to join you in welcoming Secretary Rubin to our committee on this the first of our hearings of the year. It is very appropriate Secretary Rubin lead off, because some of the first issues to come before the Congress will be from his department.

    First, though, Mr. Chairman, once again I want to commend you for your leadership and your courtesy in welcoming Representative Kaptur. I want the record to show we have a full complement of Democrats, including our Ranking Member on the committee, Mr. Obey, long-time chair of the subcommittee.
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    Perhaps our conference ended earlier than yours. I am pleased that Representative Kaptur is with us, and I know she will make a valuable contribution——

    Mr. YATES. Or in advance.

    Ms. PELOSI [continuing]. To the committee. An advance.

    Mr. CALLAHAN. Let the record reflect that you started before we did. That is why.

    Ms. PELOSI. Okay. In whatever case, I am certain every member of this committee understands the importance of the testimony that Secretary Rubin is to present today. I associate myself with the remarks of our Chairman about the need for the administration to educate the public about why we are involved with the IMF to begin with and why it is in our national interest to support it. I think this understanding will lead to support. Certainly there are many questions, as we have discussed, leading up to this hearing.

    But, before we start, I want to say that, with all this attention focused on the IMF replenishment, we must also continue to recognize the importance of and need to provide for the U.S. contributions to various international financial institutions.

    Of the $1.7 billion requested, $502 million is to pay for U.S. arrears. With the support of Chairman Callahan last year, the Congress agreed to provide over $600 million in arrears, including all outstanding arrears for IDA. As you know, this has enabled the U.S. to regain the strong leadership position it needs at the World Bank to continue its pursuit of reform.
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    The request for $502 million, if granted, would almost wipe out U.S. arrears to the international banks and significantly strengthen the U.S. position on a host of policy issues at other institutions in addition to the World Bank. This Administration, I think, deserves a great deal of credit for negotiating U.S. commitments to these programs down by 45 percent, saving the taxpayer $1 billion. That is a tribute to your leadership, Mr. Secretary.

    Arrears are requested, as our Chairman mentioned, in fiscal year 1999 for the Global Environmental Facility, the Inter-American Bank, Asian Development Bank and African Development Bank. I am certain that, in your testimony, you will give justification for the need for this funding.

    I support this funding, but I do, again, say it is important for the Administration to explain the importance of these institutions and the need for the increase.

    With respect to the IMF replenishment and the request for the New Arrangements to Borrow, the Administration has requested both of these items in the 1998 supplemental. I support the need for these items in the supplemental, but I have a number of concerns to discuss with the Secretary. The essence of these concerns centers around the kind of lasting changes and reforms that will be achieved through these bailouts.

    And, yes, Mr. Chairman, I agree that Secretary Albright explained it clearly. I don't think most Americans know that this is not money given away; it is a loan. And, we do get an asset in return for it, so it isn't an opportunity cost in our budget that is taking the place of other expenditures we might want to make domestically. In fact, the United States must respond to the Asian financial crisis by supporting multilateral institutions set up to deal with such situations.
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    The establishment of these institutions was predicated on the fact our economies would have an impact on each other, and they do. And when the situation arises, as in the Asian crisis, the IMF as a multilateral way to proceed is preferable to a bilateral way to proceed, but we must act. Mr. Chairman, you pointed out very eloquently a demonstration of the adverse impact of the crisis on your own district.

    I believe support of the IMF is necessary, primarily because of the detrimental effects on the U.S. economy that might occur as a result of entire countries in Asia going into default. I see this in three ways: What kind of reforms? How can we prevent this from happening again? How can the IMF operate its own house in a way that has more transparency, addressing some governance issues? How can it function in a way that there is a better understanding in the public as to what it is, what its purpose is and what the borrowing country's attitude is? There are internal reforms that need to be taken at the IMF.

    Then there are reforms that might relate to the IMF and its relationship to the borrowing countries and the conditionality it places on them. So much of the IMF activity is based on conditionality. It begs the question to me, if you can have conditions placed on IMF lending that affect the economy, why would we not be able to include as conditions issues relating to wages and workers rights in those countries, which also are a part of the economy?

    There are other people, and I share their concern, who believe that issues relating to the environment and human rights should be taken into consideration as well. I am willing to grant that that might be something we can do in a third category, which is what we, as the U.S., can take the leadership on to compensate for the impact of IMF restructuring in a country.
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    So it is threefold: one, the IMF internally; two, the IMF in relationship to the borrowing countries; and, three, what we as a superpower and a main supporter of the IMF can do bilaterally in order to—at the same time but separately and not part of any IMF legislation—to mitigate for some of the impact of IMF restructuring in a country, to promote the environment and to promote human rights. I would hope that the issue of workers' rights would permeate all three of these arenas.

    Again, the economic effects of the crisis in Asia and its impact on Japan and China clearly loom as potential impacts on the U.S. economy. The consequences could even be greater than just in the countries already impacted. The conditions of and the further aggressive pursuit of export-led growth policies of China and Japan could undermine economic growth in this country. The question then becomes, how will the U.S. respond, what steps are we going to take in the IMF, the World Trade Organization and other institutional bodies to prevent disruption of our own economic growth? I will explore them in my questions this morning.

    I look forward to hearing your testimony, Mr. Secretary. Once again, may I commend you for your hard work and your dedication. I believe the Administration and indeed the country are well served by your continued presence and good judgment, especially now in this time of the crisis in Asia. There have been many other times when your leadership has gotten us through.

    With that, I join my distinguished Chairman in welcoming you and look forward to your testimony.

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    Mr. CALLAHAN. I thank the gentlelady and would like to recognize the ranking Democrat on the full appropriations committee who serves as sort of the vice chairman of every appropriations committee, one of the hardest working Members of the entire U.S. Congress, the gentleman from Wisconsin, Mr. Obey.

    Mr. OBEY. Thank you, Mr. Chairman. I hadn't intended to say anything, but since you have given me the opportunity, I certainly will. I appreciate that.

    Mr. Secretary, let me simply make an observation that I find very troubling. The Congress last year had three very important issues which it left unresolved when we irresponsibly walked out of town.

Mr. Obey's Opening Statement

    The first issue was IMF funding, which is designed after all, in the last analysis, to protect our own economy from being affected by the collapse of Asian currencies.

    The second is the issue of U.N. arrearages, which is crucial at a time when we are trying to maximize a sense of unity on the part of the U.S. and our U.N. allies with respect to the Iraqi situation.

    And, third, the unrelated but nonetheless important issue of Mexico City policy and how it relates to the international family planning policy of the United States.

    In my view, last year, in an act of consummate recklessness, the Congress left town without dealing with the IMF and U.N. issues. That, in my view, has left us less able to effectively provide leadership at the United Nations. It has also enhanced the risk to the American economy by inaction on the IMF front.
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    It seems to me that if Asian currencies were to resume their slide, if the Japanese government continues to follow its obtuse fiscal policy, that the result will be a flood of Asian goods into this country because of the cheapening of Asian imports into this country relative to U.S. goods because of the currency level changes.

    If that happens, once again, the persons who will be called upon to pay the economic price for the folly of financial elites and big boy investors and finance ministries in the various countries around the world, will be American workers, many of whom can't even afford to buy a single share of stock anywhere, in the United States or the Asian markets.

    Under those circumstances, I believe it is essential for this Congress to deal with the merits of each of those three issues, but not in the context of political blackmail, which creates artificial political linkages between the issues. I think we have an obligation to try to work out our differences on Mexico City. I think we have an obligation to deal with the U.N. arrearages. I think we have an obligation to deal with a number of the questions Mrs. Pelosi has raised with respect to how we provide support for the IMF in a way which will be conducive to reform of the international financial structure.

    But when I read in Congress Daily this morning that Representative Smith has indicated he has assurances that the House leadership will not support supplemental funding for the IMF unless the administration engages in an artificial deal on that issue and Mexico City, it seems to me that is a short route to chaos.

    Each of these issues deserves to be addressed on its merits. We have an obligation to try to respond to the legitimate concerns of persons such as Mr. Smith and others in the Congress on Mexico City but not as part of an overall political deal on Mexico City that would transform a political minority into a majority through political blackmail.
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    These are big-league problems we are talking about, and it seems to me that if we don't deal with the issues like big leaguers then we shouldn't be dealing with them at all. It just seems to me that what we ought to be talking about is how we are going to provide assistance to the IMF in a discrete and effective way which not only meets the current economic crisis but does promote the kind of long-term change that we are talking about, and the way we deal with international financial issues.

    It seems to me we need to discuss the legitimate concerns that people have on Mexico City. But if this gets tangled up in one of these all-consuming three-legged deals, we are going to be sitting here all year fiddling while Rome burns.

    Obviously, I am concerned about what happens in Asia. My concern is not what happens to the Asian countries; my concern is what happens to the workers in this country if we don't meet our responsibilities on the IMF.

    So I would urge the administration to consider all of the concerns of those who have doubts about our IMF policy, those who have doubts about U.N. arrearages and those who have doubts about Mexico City. But I would urge the administration to deal with those issues the way they ought to be dealt with, separately, with dignity, on the merits, rather than as some kind of political sideshow that gets us involved in nothing but ships passing in the night for the next 6 months while the world economy goes to hell with American workers suffering the consequences.

    Thank you, Mr. Chairman.
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    Mr. CALLAHAN. Mr. Secretary, we will accept your statement in its entirety for the record and will invite you now to address the committee.


    Secretary RUBIN. Thank you very much, Mr. Chairman.

    Let me start by addressing a comment you made, if I may. That is the need to educate the American people.

    I think you are exactly right. I think we are in a new era. I saw it developing when I was still in the investment banking business, and I think we are now in a global economy and a global financial market.

    People say the words, but I don't think there is a broad-based understanding of what they mean. I think you capture it very well with that plant in your district, and I think Americans have benefited enormously from this globalization. But there are also risks, and there are problems. I think, as a Nation, our economic well-being is going to depend very much on how we learn to take advantage of the opportunities and manage the risks; and a lot of what I have to say deals with that.

    I think your subcommittee becomes extremely important because I think a lot depends on the work we do with these international financial institutions. It is during this period of, say, the last 10 or 15 years that the flow of capital into developing countries has increased to levels that one could not have imagined, say, 15 or 20 years ago; and that has, in turn, financed growth and financed investment and has resulted in developing countries absorbing something over 40 percent of our exports. But, on the other hand, it has also carried the kinds of risks with it that we have seen manifested first in Mexico and now, more broadly, in Asia.
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    As I said a moment ago, I think all of us are going to be preoccupied—this committee, our administration, the administration to follow us—with the questions of how we as a nation provide leadership to the world in learning to deal with both taking advantage of the opportunities and managing the risks.

    We appreciate, Mr. Chairman, the spirit in which we worked with your committee last year. I think we accomplished a great deal in terms of providing effective leadership in the international financial institutions. We also worked to set priorities for the future, and that has been very helpful to us as we have moved forward to negotiate with and work with these institutions.

    As I think Congresswoman Pelosi mentioned, we cleared our arrears in the World Bank's IDA; and that clearly has greatly increased our ability to work effectively in that organization to promote views that the United States believes should be promoted by the World Bank.

    Mr. YATES. Would you please pull the mike closer?

    Secretary RUBIN. Is that better?

    Mr. YATES. That is much better.

    Secretary RUBIN. Too close?

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    Mr. YATES. No, I want to get close to you.

    Mr. RUBIN. Well, that is a different set of issues, which I think I will leave aside, if I may, Mr. Yates. I have got enough problems.

    Mr. YATES. I will withdraw that.


    Secretary RUBIN. We have, as you know, negotiated a 40 percent reduction, as Congresswoman Pelosi said, in our commitments to multilateral development banks; and so, once we clear up the arrears, we will then be on an annual funding scale of about $1.2 billion, which is less than our commitment had previously been to IDA alone. On the basis of that $1.2 billion, we will have enormous leverage over institutions that, in the aggregate, lend roughly $45 billion a year.

    It is an enormously effective way for the United States to pursue its view of how developing countries should pursue reform and growth, which is all enormously, as I said a moment ago and Mr. Obey suggested, in our interests. At the same time, we have worked forcefully to reform these institutions.

    I think it would be fair to say the United States has been far and away the leading voice with respect to reform. We have provided leadership in reducing overhead and increasing transparency, created a far greater focus on corruption. We have worked with these institutions so that they have focused much more on promoting the private sector in developing countries and becoming more sensitive to environmental, labor and human rights concerns.
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    The World Bank, as you know, is undergoing a major reorganization right now. The Asian and European Bank budgets have been frozen for several years; and the African Bank, with a great deal of discussion with the United States, has substantially cut its staff and, in our judgment, has engaged in a very serious reform program. We believe that the multilateral development banks are providing very good value for American dollars and better value than at any time in their history.


    Having said that, the arrears are still something over $600 million. In addition, we have a $75 million shortfall on our pledge to the ESAF, the IMF's Enhanced Structural Adjustment Facility. Our 1999 budget includes $509 million toward these commitments.

    Our highest priority, having said that, is, as always, the current contribution; but these arrears that I just mentioned are critically important, too; and we feel very strongly they need to be satisfied.

    Let me touch, if I may, on a few items worthy of particular mention not because of priority but because I think their substance merits a few moments of discussion.


    The first is the Global Environmental Facility, which is referred to as the GEF. The GEF is really a unique instrument because it helps developing countries work on environmental problems that affect not just that country but, rather, have cross-border effects, very much including effects on our own country—for example, the state of the oceans or protecting the ozone layer.
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    Our $300 million request for the GEF includes roughly $200 million for arrearages, and we think it is very important we pay our arrearages and that we become current in this very important institution, that is going to affect our health and our prosperity very centrally.


    Secondly, we are requesting $155 million for the African Development Fund. Over half of that request would go to pay arrears. The African Bank, as I mentioned a moment ago, has made very substantial reforms; and it is very importantly involved with us, the United States, as we look to focus more effectively on the continent that has lagged all the rest of the world with respect to economic growth, and that is Africa.

    We are requesting $5 million for Treasury technical assistance. I know that will sound like a minute number to this committee, and it is minute in the context of the budget, but it is a very important request. Treasury provides exceedingly professional technical assistance, and it is funded from outside of Treasury. It is a very difficult process to arrange.

    Fortunately, we have an effective process now with those who provide the funding for Central Europe and the former Soviet Union. But when you get away from that area, funding technical assistance is a very time-consuming process. In places like Asia, where there is a tremendous demand right now for our technical assistance with respect primarily to financial institutions and similar matters, we cannot get the funding quickly enough to get the technical assistance in place when it is needed and on a timely basis. So we have this $5 million request to enable us to mobilize and deploy those resources on a rapid basis.
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    Finally, as always, we strongly support the World Bank's International Development Association, IDA. IDA, as you know, is far and away the largest organization in the world that deals—in the international financial institution world—that deals with the problems of developing countries. I think it is a tremendously constructive force; and, under its president, there is both a reform program with respect to how it operates and also, we think, a more effective focus on the kinds of things we think IDA should be focused on—health, children, education—the underpinnings, if you will, for a market-based economy.


    Mr. Chairman, let me comment briefly, if I may, about Asia and the IMF. There has been, as you know, a remarkable set of events in Asia which have been referred to by some as the first crisis of the 21st century.

    I said in my opening remarks that I think the kinds of issues we have seen in Asia and the kinds of issues that are going to be dealt with in this committee for a long time to come, as we all learn to deal with this new era, will critically affect our economic well-being. Financial instability, economic distress, depreciating currencies all very much affect our workers, our farmers, our businesses.

    Number one, these Asian countries are very large markets for our goods; and, number two, the depreciation their currencies affects the competitiveness of our goods in world markets and also here in the United States. Moreover, if the problems in Asia had spread to other developing countries around the world—and that had begun, as you may remember, at the beginning of this Asian crisis—and had those countries gotten enveloped in the same problem, then many more markets would have been affected. You would have had many more currencies depreciating and the effects on this country would have had the potential for being quite profound.
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    As it is, even if the situation in Southeast Asia can heal and if the contagion does not occur, there will still be a palpable effect on our economy. I still think we will have solid growth and low inflation next year. However, there is always the possibility, though I think it is a relatively low probability, that the crisis could reignite, that the enormous risk contagion that had us so focused between Thanksgiving and Christmas could, in fact, take place.

    With all of the consequences that come from that, I think the leadership of the international financial institutions and the international community are very much catalyzed in many ways, by the United States. We were successful in preventing this thing from becoming what it could have become; but there is still some risk, although I think a low probability, that it could happen again.

    I think it is a risk we must not take. We are requesting the support for the funding as rapidly as possible for both the new arrangements to borrow and the IMF quota, so that if this low probability event should happen, the international community will have the capacity to deal with it rather than be left with an enormous crisis that could have profound effects on our economy without an effective mechanism for dealing with it.

    As far as the policies of the IMF themselves are concerned, the programs in these Asian countries have been very much focused on the problems that gave rise to the financial instability. That is to say, they have been focused on the structural issues in these countries that gave rise to these problems.

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    I think they have been well constructed. I do not believe they are austerity programs. You can argue about how much macroeconomic content, that is to say fiscal policy and interest rate policy, they should have had, but these are certainly not traditional IMF austerity programs.

    Let me comment briefly, if I may, Mr. Chairman, on two concerns that have been raised with respect to these programs.

    First is the moral hazard question. The question is—well, the assertion is—that these programs, in effect, enable banks to come out whole from risky investments and that, in turn, creates perverse effects on behavior going forward.

    The principle is clear. Creditors and investors should bear the consequences of their investment.

    In Asia, vast numbers of investors and creditors have taken very large losses. You may have seen that Deutsche Bank reserved $777 million for losses anticipated in Asia. The Financial Times reported early last week, I think it was, that European banks are expected to have losses of up to $20 billion with respect to Asian loans.

    Having said that, there are some institutions that may come out better off than they would have been without these programs. That is a by-product—I have said many times, but I will say it again—we would not spend a nickel to protect a bank, but that is a by-product of programs whose purpose is financial stability and the rest, the recovery and reestablishment of economic well-being in these countries.
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    The other issue is the issue Congresswoman Pelosi raised, which is the question of labor rights, human rights and the like, environmental protection.

    I don't think there is any question, if you look at these countries, at least there is no question in my mind. I come away with the view that when you look at the countries in Asia—effective human rights and labor rights regimes are very important with respect to having effective economies over time. So I think it is not just a social and moral issue. It is an economic issue.

    It still leaves us with the question of how much you can accomplish in these programs. It is my view, at least, as you go to implement and get sustained implementation of programs that are aimed at financial stability, which require wrenching changes in a very short period of time, there is a limit to how much you can accomplish—or attempt to accomplish—without greatly reducing the probability of success; and both the workers in those countries and the workers in our country are very much affected by whether or not we can achieve success. Moreover, success in this effort to reestablish financial stability and economic growth is, I think, essential for creating an environment conducive to pursuing human rights, worker rights and environmental protection, protecting objectives which we very much share with Congresswoman Pelosi.

    I think the challenge to all of us is the one you stated: how do we pursue these objectives while, at the same time, not vastly increasing the difficulty of reestablishing financial stability. As you know, we are working on this and trying to think the issues through in a very serious way. They are issues we are committed to as values and also because we believe they are essential to having effective economies over the long run.
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    Final comment. I think the IMF is exceedingly well situated to be the central institution in this entire effort with respect to reestablishing financial stability. It has great expertise, and can internationalize the burden so it doesn't fall on the United States itself. It can require countries to do things, in terms of conditionality, that no bilateral provider of credit could.

    Having said that, there is clearly a need for great changes in the mechanisms and institutions that deal with the global economy and the global financial markets. The markets and the economy have developed very rapidly, and the institutions have not kept pace.

    Mr. Chairman, we have a process with the Federal Reserve Board right now which is very intensely focused on the architecture of the future. However, these are mind-bogglingly complex issues and it will take a substantial amount of time, in my judgment, to develop sound and sensible ideas, working with Congress and other nations around the world. We cannot, at least in my judgment, wait upon that process to be completed before we provide the funding for the IMF so that we will have the capacity to deal with what all of us hope will not happen, and what I think is a low-probability event, but will be a risk. In my judgment, we should not take the risk of either this crisis becoming far worse or a new crisis occurring elsewhere in the world.

    With that, we would be delighted—Under Secretary Lipton heads all international activities at the Treasury and would be delighted with me—to respond to any questions you may have.

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    Mr. CALLAHAN. Thank you, Mr. Secretary.

    [The statement of Mr. Rubin follows:]

    Offset folios 29 to 32 insert here


    Mr. CALLAHAN. First, let me respond to the issue of whether Mexico City language will be attached at some point in this process to emergency needs of the International Monetary Fund.

    Congressman Obey indicated we have a minority controlling a majority, and I most respectfully disagree with that, because the Mexico City issue is not going to be attached probably to our bill. If it comes through this committee with respect to the IMF, it is going to be attached by a majority of the Members voting on the floor of the U.S. House of Representatives.

    This issue is not going to go away. It is something other administrations have lived with, successfully, with respect to international policy in the past; and this issue is going to be attached to this bill in one shape or the other. So the administration must accept this fact, whether or not you agree with Mexico City language. This issue is going to be offered, in the least, as an amendment on the floor.

    History will tell you that the majority of the Members of Congress support Mexico City language. History will tell you that, on supplemental appropriations, it is always a temptation, especially in a crisis situation, that issues like this are attached to supplemental appropriation measures. So it is going to become an issue that the administration is going to have to negotiate, and you may as well accept that.
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    While it is not going to be probably passed out of this subcommittee or even the full committee, when it gets to the floor it is going to be attached, so I think the administration is ultimately going to have to make a decision as to whether or not this international monetary crisis in Asia and the funding of International Monetary Fund is so necessary that it will stand in the way of the majority of the Members of Congress. But that is an issue that I am just telling you is going to come up.

    Congressman Obey mentioned this is the major league, but you have a lot of us minor league capability people playing in this ball game and, nevertheless, we are going to be a factor. I am pro-life, and I am not ashamed of that. I am right proud of that. That is my personal philosophy. I am going to vote for the Chris Smith amendment, even though I agree that maybe this is not the place for it.

    The attempts of the past have been unsuccessful in negotiating something through the Congress to tell the administration that we want Mexico City implemented. So it is going to be an issue. It is going to be attached, more than likely, if this is what the leadership decides; and whether the leadership decides or not, the attempt is going to be made, it is going to be attached to this issue. So you must prepare yourself to either accept that language or else come forward with some language that is acceptable to the Mexico City proponents of the legislation.

    With respect to IDA, Mr. Secretary, as you know, this committee and the Congress, a great majority of the Congress, were very concerned about the procurement arrangements that were negotiated by Chairman Wolfensohn; and we were told if indeed we were able to come forth with the necessary monies for IDA that the procurement would be revisited and the monies would not be spent unless the terminology of that agreement was changed. Have we arranged to repeal the procurement policies negotiated?
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    Secretary RUBIN. Yes, ITF has been terminated, and whatever is left in that—and I actually don't know the numbers. Whatever is left there is now fully available. As I understand it, roughly a billion dollars is fully available to American companies for competitive bids.

    Mr. CALLAHAN. Very good.

    Mr. Frelinghuysen.

    Mr. FRELINGHUYSEN. Thank you, Mr. Chairman.

    Good morning, Mr. Secretary, how are you?


    In an article in the Wall Street Journal from your predecessor, Bill Simon, also co-written by former Secretary of State, George Schultz, and also by Walter Wriston, even though I support IMF funding, when those three people get together to write an article, I take a close look at what they are talking about.

    One of their premises is that, when the IMF intervenes, the government and its—and lenders are rescued but not the people. I have examined some of your testimony before other committees, and I would like you to address that issue.

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    I think the public perception is—and Wriston and Simon and Schultz seem to follow pretty much along that public perception—that the people in these countries are totally devastated by what is occurring.

    Secretary RUBIN. Three comments, if I may.

    One is that I know and enormously respect Bill Simon and George Schultz. I talked to George yesterday twice about the Asian crisis. But, on this issue, we disagree.

    You will see an ad in the New York Times with something like 150 signatories supporting the IMF, including a large number I think you would have equal respect for, so it may give you a little more comfort in terms of the company one keeps.

    I also noticed in the article you referred to he said we should get rid of the IMF after it deals with the Asian crisis. It was sort of recognizing this is the way we can deal with crisis.

    Mr. FRELINGHUYSEN. I am not an advocate of doing away with the IMF, but when these three persons make a comment, I think somebody needs to rebut the claims.

    Secretary RUBIN. I agree with you.

    Look, I think the answer is as follows: The problems that the people of these countries suffer—and they do suffer problems—are not a function of what the IMF has done. They are a function of financial instability, loss of confidence, collapse of economies and collapse of the currencies.
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    The IMF is, if you will, the cure, not the problem. When the IMF comes in with its assistance but also conditionality, what that does over time, and though it does take time—these things do not happen quickly or easily, unfortunately—the countries get back on track, if it works. Then you start to see incomes go back up. Growth starts. Incomes go back up, and the people begin to reestablish their economic well-being.

    Conversely, I don't think there is any question that if the IMF—if the international community—was not effective and successful in doing what it is now doing in Asia and did in Mexico, then most likely you would have a default either of the sovereign debt or maybe systemic failure of the banking system in which you would have vastly greater economic duress and currency depreciation. It would last for a vastly greater period of time, and the people would suffer far worse.

    So I think you have two difficult outcomes, but I think one is far better than the other.

    I think you have seen that in Mexico now, with the economy growing at 7 or 8 percent—well, growing 7 percent last year, expecting to grow 5 percent this year, in dollar terms. Real wages have increased something like 30 percent since the bottom of the crisis, and in dollar terms, Mr. Yates.

They are not back where you want them to be yet, but they are a heck of a lot—I think very, very substantially better off—than they would be if Mexico had defaulted, in which case I think you would have years and years of terrible economic hardship.
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    Mr. FRELINGHUYSEN. The other issue they raise is the IMF can lull nations into complacency as a self-appointed lender of last resort, a function never contemplated by its founders.

    Secretary RUBIN. I actually agree.

    There was a column today in the Post—I think he got half of this about right. He didn't address a piece of it, but he addressed that piece. I don't think any country would choose to get into the mess or the morass that Mexico and these Asian countries have been in when they get into trouble. So I don't think that government officials are going to be lured into making bad policy decisions because they feel the IMF will bail them out; and, therefore, they feel they won't have to suffer the consequence.

    I think the tragedy is what you said. You got it right. The tragedy is that the countries do go through a difficult time no matter what, even if the recovery program is effective, before recovery takes hold.

    I think where there is an issue is, to the extent that bankers and investors are better off because of the programs than they otherwise would have been, that, unfortunately, can create the perverse impact—could at least conceptually create the perverse impact—of causing people to be less conscious of the risk than they should be.

    Mr. FRELINGHUYSEN. Then you would agree with the third premise.

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    Secretary RUBIN. I would agree with that.

    I do think in Asia you had vast losses. So I think this would be a good lesson to the banking community, but I do think we need to change mechanisms and architecture to try to prevent that from happening to the greatest extent possible.

    Mr. FRELINGHUYSEN. Is it fair to say, to use their own words, that there is a good chance that those who have lent money will get, at some point in time, bailed out?

    Secretary RUBIN. No, my guess will be you will find most of the creditors in Asia—I will see if David agrees with this—most of the creditors in Asia and the credit extended in Asia, where there are problems, will wind up taking losses. But I think some will benefit. I think most will wind up taking losses, and equity investors have gotten very large losses.


    Mr. FRELINGHUYSEN. The issue of opening up markets, I hate to to be provincial in this business, but I come from a State that represents a lot of pharmaceutical industries. The Chairman obviously has provincial interests as well.

    I have a letter in front of me from the Thai government that says that they require all Thai government agencies and semi-private industries to purchase only goods produced in Thailand. I thought part of what we were doing here is actually opening up markets—besides building sound financial practices that we wanted to open up markets.
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    My question is, what guarantees do we have that these reforms, these markets, will open up?

    Secretary RUBIN. Market opening is an objective we had when the President first walked into the Oval Office; and we accomplished a great deal, although there was an enormous amount left ahead.

    When IMF sets up the programs and we do play a substantial role in trying to help think through the content of these programs, what we try to do is to focus on the reforms that most directly relate to reestablishing financial stability. Because, as I said I think in reference to some other similar issues, it is a very difficult thing to do.

    You are asking countries or requiring countries to make wrenching changes, changes nobody has asked us to make, and I think we would have an extremely difficult time making wrenching changes in a very rapid period of time.

    I believe totally in opening markets abroad, and I believe in being very tough in opening markets. There are systemic things that we do do, and we could describe them if you like, in some of these programs that go to market opening. But I think if we try to accomplish a trade agenda, a United States trade agenda, through these programs, I think we then run into the problem of trying to do a whole other set of things which is going to make it much more difficult and therefore less likely to accomplish.

    Mr. FRELINGHUYSEN. Speaking for myself, I think we ought to get something for our financial commitment.
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    Secretary RUBIN. Well, we do.

    Mr. FRELINGHUYSEN. You have given us those assurances, but how do we actually have a guarantee?

    Secretary RUBIN. No, no. I meant something different. What we get for what we are doing is, I think, in our dominant economic interest, which is to prevent—well, it doesn't necessarily prevent but does the best we can to prevent—these economies from continuing to be in free fall and therefore shrinking as markets, and from having depreciating currencies and undercutting the competitiveness of our goods around the world. That, in terms of our broadest economic interests, overwhelms everything else, and that is what we try to do.

    Now, we do try to do some market opening. David, do you want to add anything?

    Mr. LIPTON. If I could just say——

    Mr. FRELINGHUYSEN. We have other partners in the IMF. What is their impact? I mean, are they as interested in opening these markets as we are? We are the major lender here, so to speak.

    Secretary RUBIN. Well, we are about 18 percent.

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    Mr. FRELINGHUYSEN. Well, 18 percent. Well, that is the highest percentage of anybody.

    Mr. LIPTON. Congressman, a couple of points. I think that because there are other members in the IMF, we understand that the IMF will pursue broad systemic opening of economies, trade policy and capital account policy. It is difficult for them to pursue particular industrial or sectoral issues for fear that each of the member countries would want its particular interests advanced.

    What we have seen in the Asian country cases is opening in trade, tariffs being reduced in Indonesia for fruit and nonfruit products. We have seen pledges of export subsidies being eliminated, import-licensing restrictions being eliminated in Korea. These are changes that we think are important for these countries to undertake to fix their economies, to signal the direction that the country will go in.

    But there is one undeniable problem in the short run, which is that these countries are in a foreign exchange crisis situation. There is a shortage of foreign exchange, which is why the currencies have been so depreciated.

    Mr. FRELINGHUYSEN. I understand they need an immediate transfusion. I am just saying, what guarantee do we have in the final analysis that we are going to have these markets opened up?

    Secretary RUBIN. I think as you are dealing with these systemic issues, the guarantee—I don't think I would use the word guarantee—but they have committed to these programs, and they get the money in tranches, Congressman, so that hopefully they get it in tranches so that if they don't do what they are supposed to do, then, of course, they don't get the next tranche.
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    This will solve some of the problems. It won't solve all of the problems because if we try to put all of our particular interests into each of these things, as Dave Lipton said, other countries do the same, and you would have an overload of trade issues you couldn't accomplish, and then we wouldn't accomplish our overriding objective, which is the financial stability and the——

    Mr. FRELINGHUYSEN. And lastly, to conclude, to explain to the average citizen—and I will follow up with what the Speaker says, I think we need to do a better job of that using your bully pulpit. When a call is made for money, does the Treasury borrow the money, or do you create it by fiat?

    In other words, how is it literally done?

    Secretary RUBIN. We have our little printing presses.

    Mr. FRELINGHUYSEN. Well, I am sure that you do have the printing presses.

    Secretary RUBIN. No, we use that for ourselves personally.

    No. I assume we borrow it.

    Mr. FRELINGHUYSEN. You say here that we are not using taxpayer dollars.
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    Secretary RUBIN. Right. Well, we are not. It doesn't cost——

    Mr. FRELINGHUYSEN. But in reality, how do you—what is the calling mechanism?


    Mr. LIPTON. It is a swap of the dollars which go from the U.S. to the IMF and the IMF provides us an SDR certificate. So it is an asset swap, and they, in essence, call the dollars when they need them in order to extend loans to countries that are borrowing.

    Secretary RUBIN. Let me try. Well, we pay interest on the monies that we borrow, when dollars need to be put up. At the same time, we get interest from the IMF.

    Mr. FRELINGHUYSEN. Do they come from the general fund of the Treasury, from borrowing, or the creation of inflationary——

    Mr. LIPTON. I don't know the answer to that.

    Secretary RUBIN. Let us get back to you, Congressman, but I am sure the answer is they come from the general fund because that is only place dollars can come from, and since we are still in deficit—although only slightly in deficit—net dollars would have to come from borrowing.
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    But as Dave Lipton said, there is no impact on the budget, for the reasons we have described, and so you are borrowing dollars, but then you are creating an asset of equal value when you get their claim back and the interest rates, roughly speaking, wash. So there is no cost to the taxpayers.

    Mr. CALLAHAN. I would like to commend the gentleman from New Jersey for his knowledge of this issue. Without offending my great friend Mr. Obey from Wisconsin, he brought up the major leagues, so rather than plagiarize him, let me tell you that Rod Frelinghuysen has turned out to be the John Elway of this subcommittee, with all due respect to the problems that the gentleman from Wisconsin had with John Elway on specific issues.

    Mr. OBEY. Well, if the chairman would yield, let me say I think the questions Mr. Frelinghuysen are asking are precisely the kinds of questions that we should be asking rather than looking for ways to blackmail each other on very important issues.

    Mr. CALLAHAN. I certainly agree, and I am very appreciative of Rod Frelinghuysen for taking the time and the effort and the input that he has provided to me on this very, very complicated issue.

    The gentlelady from California.


    Ms. PELOSI. Thank you very much, Mr. Chairman. I am going to follow your lead and not use my question period now.
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    I am very glad you didn't bring the hourglass. I don't know what system we are using here, the flexible 5, it seems like. But I am not going to use mine. I am going to have you recognize the gentleman from Illinois, Mr. Yates.

    But I am going to follow your lead in making a comment about the Mexico City language.

    I do not believe that the poor women of the world should have to pay the price for crony capitalism, corruption and other poor business judgment anyplace in the world.

    I listened very carefully as the Secretary talked about how there is conditionality at the IMF, but we don't want to bog down this supplemental because we need to move quickly in order to get the money out there. So it seems ironic to me that while we might not be able to put conditions that directly relate to the economies and the health of the economies of these countries on the IMF supplemental, we are going to put a condition that poor women, throughout the world, will not be able to receive information about their reproductive freedom.

    I think that that gag rule has no place, anyplace, in this Congress, least of all on an IMF replenishment.

    I have said that with the greatest respect, of course, for my chairman, as you all know, and also for the maker of that motion on the floor of the House, whoever he or she may be, and if it is Mr. Smith, he is my friend, I hold him in high regard. But this is a fight that we have to make and that we have to come to terms on, and it is important for the American people to know that no U.S. taxpayer dollars are spent on abortions anyplace in the world. That is the law.
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    And it is important for them to know that the Mexico City language isn't about abortion. What we are talking about is family planning and not having a gag rule on the spread of information about family planning.

    With all the respect in the world for my distinguished chairman, sometimes I, too, wish we had a unicameral Legislature, as long as the one house was the House of Representatives. It just doesn't happen to be the case. And while there may be—and I hope there is not—some level of success for the Mexico City language on the floor of the House, that isn't the end of the game. The

legislation has to pass through the Senate and be signed by the President, and then two-thirds of this body has to sustain that position.

    So it is a very difficult issue. We are all trying to work closely together to address the concerns that people have, where there are real reasons for opposing the Mexico City language. But if these concerns are just an excuse for antichoice policies, they have no place in this debate because this isn't a choice issue, it is a family planning issue. If they try to disguise themselves as something other than what they are, I think everybody should point to the gross irresponsibility, which I hope the Republican leadership will not exercise, in saying that these two issues are tied in perpetuity, as I believe the language has been used.

    And with that, Mr. Chairman, I will save my questions for later about the moral hazard argument and why we should be bailing out the private sector. I think the American people are very tired of privatizing the gain and nationalizing the risk. I appreciate what the distinguished Secretary said about why that is nonetheless in our interest, but my questions will go along that path.
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    With that, I yield back my time, Mr. Chairman.

    Mr. CALLAHAN. The gentleman from Illinois, Mr. Yates.

    Mr. YATES. Thank you, Mr. Chairman.

    Mr. Secretary, welcome to our committee. We are glad to have you here, with your very capable assistant.


    Here I have a letter from one of my colleagues. ''Say no to the IMF because the IMF has ample funds without Congress. Dear colleague, the recent Asian financial crisis and the IMF bailout have combined to put pressure on Congress to approve billions of dollars for the IMF. The fact is the IMF has ample resources right now without any new congressional appropriation,'' and there are other paragraphs, but that is the kind of thing that we were getting.

    It itemizes what seem to be an enormous amount of resources available to IMF: $45 billion in liquid resources; $25 billion credit line through the general arrangements to borrow; $37 billion in gold reserves; blank billion in funds IMF can borrow from the private capital market.

    Let's suppose IMF were not in existence, Mr. Secretary. You have not indicated the possibilities of what will happen in the event that the Congress turns down the $18 billion. You have not indicated that, without IMF funds, how these countries are going to pull themselves out.
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    Are there adequate resources in the private market in order to do this kind of a job for them? I would appreciate your giving those of us who support the IMF the arguments that are necessary to show that these are necessary.

    Secretary RUBIN. Thank you, Mr. Yates. I think those are very important questions.

    Let me start with respect to the—I will go to the numbers in one second, but let me start, if I may, with respect to the question without the IMF, is there money in the private sector?

    The problem is in these kinds of crisis situations, this kind of capital does not exist in the private sector. In the first place, it has kind of an uncertain—there is kind of an uncertainty and a risk about it that would make it impossible to mobilize the amounts of money that are needed and needed very quickly for these countries.

    It just simply does not exist. It is not available. It could not happen.

    Secondly, the IMF, as mentioned in my testimony, imposes conditionality that is central, it is the central feature of these recovery programs, and private sector lenders, even if they exist—and they would not exist, but even if they existed—could not impose that kind of conditionality. So the answer is without the IMF, there would be no capital from any source.

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    Mr. YATES. And what would happen to the countries then?


    Secretary RUBIN. I think what you would have is a default, and once you had a default, there would be no access to the international capital markets, and the countries' economies would go into gridlock and would continue to depreciate very substantially, as would their currencies. And unfortunately—well, that in itself would be terrible for the people there and for the people here, for the reasons we discussed before. But in today's interconnected economy, the probability is, I think, quite high that it wouldn't be limited to one country. You saw that in Asia back at the end of last year where a problem in one country then created problems in a number of countries in the region.

    As you may well remember, between Thanksgiving and Christmas, as I said in my testimony, the concern was that that would spread out beyond Asia to other parts of the world. So it could become a global problem.

    Mr. YATES. In other words, there is no private funding available without public funding to start it?

    Secretary RUBIN. There is no—you have said it very well. That is correct. I couldn't say it better, so I won't repeat it. That is correct.

    Mr. YATES. Well, I wish you would repeat it.

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    Secretary RUBIN. There is no private funding available until the conditions have been reestablished that will make that an attractive thing for private creditors to do, and that isn't going to happen until there is some element of—some reasonable level of financial stability and confidence and reestablished, and that requires reform and requires this international financial institution funding to, in effect, provide breathing room to enable these countries to stretch out the short-term debt that is choking them.

    On the numbers, Mr. Yates, there is $45 billion right now of liquidity in the IMF, but about $30 billion of that is not usable. It is like a credit union. That is, I think, the right analogy. And just like a credit union, you have to have liquidity so that if your depositors want their cash, they can get it. And it has been estimated that roughly there is about $15 billion right now of usable money in the IMF. $37 billion of gold is simply the asset of the IMF that gives it the creditworthiness that enables us to put up our money, get back a claim of equal value because of the high creditworthiness of that claim.

    There is $25 billion, roughly—I have forgotten now whether it is $23 billion or $25 billion, it doesn't matter—$23 billion or $25 billion in the GAB, as you mentioned. But it is that $25 billion, plus the, say, $15 billion or thereabouts in the IMF, that is the only money available right now. And if we were to have—and we are all working as hard as we can to prevent this, and we have to believe—and I do believe—it is a low-probability event, but if it were to happen that this crisis were to reignite and then spread out and bring in other parts of the world, that is a woefully insufficient capacity to deal with the problems that we would face.
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    Mr. YATES. You indicated in your testimony that the Deutsche Bank has lost about $700 million, I think.

    Secretary RUBIN. Well, I don't know what their losses are but they reserved—they announced they reserved—$777 million against either projected or possible losses.

    Mr. YATES. Will the loans of the IMF be used to pay back the amounts that the banks, that the various banks, have lost in their investments?

    Secretary RUBIN. Well, the loans from the IMF are being used for different purposes in different countries. In Korea, originally, some of the IMF money was used to repay banks and, therefore, those banks came out whole who might—who would not otherwise have come out whole. That is why I said that while there have been vast losses taken, there are some people who will come out whole who would not otherwise have come out whole, and that is a by-product of this process.

    Mr. YATES. Mr. Frelinghuysen raised that point, coming out of the Schultz-Simon article.

    Secretary RUBIN. Yes, but I think that the problem with the Schultz-Simon article is that what it did not acknowledge is that while there will be some people who will come out whole, there are vast losses that are going to be taken, both by creditors, bank creditors, and investors of all sorts. But there will be some—there will be some bank creditors that will come out whole or at least close to whole, that would not otherwise have come out whole, and that is a problem that is inherent in the system that we have right now.
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    Mr. YATES. We are taking the lead in trying to reestablish the financial stability of these countries. Are we being helped by other nations, and in what respects are we being helped by other nations?

    Secretary RUBIN. Oh, yes, this has been an international effort. If you take a look at the IMF, we have 18 percent of the, if you will, the ''capital'' in the IMF, so other nations have 82 percent. And then if you look at the so-called second line of defense, contingent agreements that we have made to provide additional money, although so far we have not actually disbursed anything, in Korea we committed $5 billion, Japan committed $10 billion, Europe committed $8 billion.

    Mr. LIPTON. That is correct.

    Secretary RUBIN. And that was about it, I guess.

    Mr. LIPTON. There were a couple of others.

    Secretary RUBIN. And there were a couple of other smaller ones. So this has been an international effort. This is not like Mexico. This has been a real international effort.

    Mr. YATES. You are in the global economy and in global competition with the nations that are helping. Do you find that that interferes in any way with your cooperation in reestablishing the financial stability?
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    Secretary RUBIN. With the nations that we are helping?

    Mr. YATES. No, with the—of nations that are joining you in helping the IMF.

    Secretary RUBIN. I am sorry. I got it. No, because they all have the same economic interests we have. These are their markets. If these countries keep depreciating, it hurts their workers just like it hurts our workers.

    Mr. YATES. Okay. All right. Thanks, Mr. Chairman.

    Mr. CALLAHAN. Mr. Wolf.

    Mr. WOLF. Thank you, Mr. Chairman. I appreciate it, and I want to thank Mr. Kingston for deferring the time. I have another appointment coming up.


    Mr. Secretary, welcome. I have two questions. One with regard to East Timor, and Indonesia. Nowhere do you ever raise the issue of what is going on out there, and if the American taxpayer will be contributing money to the Indonesian Government to bail them out, which may very well be appropriate, you have never raised those issues.

    Now, they may have been raised privately, but I understand they are not even being raised privately. In East Timor, in the last year, more people have died. It is a reign of terror. Bishop Belo, the Catholic bishop, has received the Nobel Peace Prize. Wouldn't this be the opportunity to tell the Indonesian Government, please give the people of East Timor autonomy or independence, particularly since we are helping in a very critical issue like this?
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    Secretary RUBIN. Congressman Wolf, my understanding, and let me ask David to add to this, if he would, is that the East Timor issue has been raised aggressively by the State Department on a number of occasions with Indonesia. We have not raised it in the context of trying to work through this program. Look, I think you are right on East Timor. I think there is a serious problem, and I would identify with your concerns.

    On the other hand, if Indonesia goes into default, the Indonesian people are going to be—including the people of East Timor—vastly worse off than if we can reestablish—not we, but if the international community can help Indonesia reestablish financial stability, and that is itself proving to be a very difficult undertaking, as you know.

    Mr. WOLF. Well, I understand that, but the State Department really hasn't done very much, and the conditions are worse today than they were a year ago. I was out on the island. I mean, we saw young boys with their ears cut off, the atrocities, and the atrocities have continued.

    It would seem to me that with Treasury working with State, here is an opportunity to say to the Indonesian Government, we are coming to your assistance; we do expect—we are not linking these things necessarily, but we do expect progress, and we want something publicly said because the people of East Timor are suffering, and they have seen no improvement whatsoever. And I personally feel that if I am going to support something like this, I would like to see you speaking out both publicly as well as privately.

    There were reports several years ago that one American manufacturer was paying Michael Jordan more money for promotion of a particular product than they were all the salaries of all the Indonesian workers. There are some things like this, but in East Timor these people are dying. Forty-two, I think, have died since last year. There ought to be some linkage in the sense that you put pressure on the Indonesian Government to do the right thing and, in the process of doing it, I think will strengthen the Indonesian Government because businesses will see that they have made progress on a very sensitive issue, which has been recognized by the Nobel Peace Prize, by the Pope, by the American Catholic bishop, by Cardinals, and by people all over the world.
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    Secretary RUBIN. You know, I think you raise an interesting point—I may ask David to comment, if I may, Congressman, but let me just make one comment, if I may. I think that a case that we have to make more effectively, not just in Indonesia but elsewhere, is that human rights is actually good economics.

    I have come to feel rather strongly that when businesses look at countries in which to invest, they look at the political and social situations, and they are obviously concerned about political and social stability, and countries that have real human rights problems I think are less attractive, because people—there is a greater concern about the possibility, at some point at least, along the line of instability. I think that is an argument we need to make more effectively, and that is one of the things that we have been talking about how we can do it.

    As far as East Timor itself is concerned, I know the President—I think the President—yes, the President did raise that when he was in Vancouver with Soeharto.

    Do you have any other, David?

    Mr. LIPTON. I didn't have any information beyond that point.

    Secretary RUBIN. I know that he raised it with Soeharto. This was in Vancouver.

    Mr. WOLF. I think it is important to raise it again publicly as well as privately, since the IMF crises and the bailout and all these things have taken place. And I would respectfully urge you to publicly, either you or Mr. Summers, make a case to send a signal to the Indonesian Government and also to the people of East Timor that we do care.
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    I am not saying there needs to be a direct linkage, that if you don't this, we won't do that, but the fact that we are doing this, we urge you to give them autonomy or independence. And I think you actually hold the key to the future of about 500,000 people. And there were 700,000 people on the island 20 years ago. Two hundred thousand have been killed; roughly 25 percent of their population killed; not just that they have lost the right to vote and they can't go out at nighttime, but killed.

    And so I think Treasury and State together holds the key to unlocking their future, which I think, as you say, would be good business for the Indonesian Government. And I publicly make a request, and I am not conditioning my vote, obviously, but this does help drive how I deal with this issue, and publicly, for State and you together to say, to say something. And I would ask you to do that.

    Secretary RUBIN. Let me do this, Mr. Wolf. Without commenting right now, I would like to discuss this with the State Department people and see how—in the context of everything there, what is going on, how they feel this would relate to everything else we are trying to do in the environment and everything else.

    I think it is a very sensible suggestion. Whether it is something they—all of us together think we should do at this moment or not, I don't know. But we will get back to you as soon as I have talked to them.

    [The information follows:]

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    The Administration monitors the overall situation in East Timor closely and has urged the Government of Indonesia to reduce force levels, curb human rights abuses, and improve human rights conditions there.

    The State Department continues its efforts to help bring about a resolution of the situation in East Timor and we strongly support the UN-facilitated initiative to reach a satisfactory settlement.

    We also welcome confidence-building measures being undertaken through the All-Inclusive East Timorese Dialogue in an effort to improve human rights, and promote peace and stability. The Administration supports proposals to give East Timorese greater control over their own affairs and accord recognition of their unique history and culture.

    The subject of East Timor has been raised at the highest levels, by President Clinton, Secretary Albright and other State Department officials.

    We will continue to press all sides to resolve this issue, which remains high on our bilateral agenda.

    Mr. WOLF. Yes, sir.


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    The other issue doesn't deal with IMF. It deals with Sudan, just a quick answer yes or no, and then I will move on.

    Please do not grant any waivers to the Sudanese Government. I know that Treasury is now looking at that issue. Some people want waivers on gum arabic extract, some people want waivers on other things.

    The administration did the right thing by putting sanctions on the Sudanese Government. If your waivers take away the sanctions, it would almost be like you got good credit for doing something right, and then by giving the waivers you would go the other way. There should be no waivers at all for the Sudanese Government.

    They were involved in the assassination attempt on Mubarak. Every major terrorist group has an operation in downtown Khartoum. You could have an international convention of terrorists in Khartoum, and nobody would have to come in from outside the country.

    There is slavery, whereby they enslave their own people, and so no waivers. And I would like you to tell me publicly, I mean, will you oppose granting any waivers to Sudan?

    Secretary RUBIN. Let me do this, if I may, Mr. Wolf: We have discussed this, and, as you know, the State Department is very deeply involved with these issues as well.

    David, do you want to comment?
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    Mr. LIPTON. Well, first, one waiver that was granted was a very, very limited waiver for Citibank to be able to help finance the humanitarian efforts that are underway there.

    Mr. WOLF. I don't believe that that is valid, though, when you look at it. I think Citibank has really been funding the gum extract business, and I am really worried about this. And they hired high-powered lobbyists who come in. And what about the poor people in the south that are put in slavery?

    Mr. LIPTON. We are very sensitive to the point that you are making. It is my understanding that trade finance has been cut off by the very restrictive nature of the waiver, and I can get information for you to see whether what has been done, in fact, is satisfactory.

    There were a set of, I believe, seven waivers granted for gum arabic trade that had commenced already with shipments underway.

    Mr. WOLF. That was moving forward, which is understandable.

    Mr. LIPTON. Right. But there have been none granted since that point. There are a number of applications that have been put before the Treasury Department.

    Mr. WOLF. Yes.

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    Mr. LIPTON. And no action has been taken.

    Mr. WOLF. I would urge—one, when will you make a decision on that?

    Mr. LIPTON. This is the Office of Foreign Assets Control that is in charge of this, and I am not sure what their timetable is for decision.

    Mr. WOLF. The poor people of Sudan, where there is slavery, and crucifixions both of Muslims and Christians, and animists, have not the money to hire the best law firms in Washington. So I know the other side has.

    I would ask you respectfully, as somebody who has been to Sudan three times in the south, please do not grant any waivers above what you have done, because it will basically wipe out the good that you have already done.

    We sent a letter commending the administration for its action. Do not grant waivers—in essence, that would make the sanctions meaningless. Please, grant absolutely, positively, categorically no waivers.

    Can you imagine, had their assassination attempt been successful on Mubarak, the impact on the Middle East? I mean, just do not grant any waivers which gives them economic ability to continue to do what they are doing.

    And I would appreciate it if you could kind of tell me when you make that decision, and I would hope, please, do not grant any.
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    Secretary RUBIN. Why don't we do this, David. We will meet with the people at OFAC. We have also—the State Department gets into this pretty heavily. Right?

    [The information follows:]

    "The Official Committee record contains additional material here."

    Mr. LIPTON. Uh-huh.

    Mr. CALLAHAN. The gentlelady from New York.

    Mr. WOLF. Thank you very much, Mr. Chairman.

    Secretary RUBIN. And we will get back to you on this, Mr. Wolf.

    Mr. WOLF. Thank you, Mr. Secretary.

    And I want to thank you Mr. Kingston for deferring the time.

    Mrs. LOWEY. Thank you, Mr. Chairman.

    I do want to thank Secretary Rubin for your leadership. Many of us sleep better at night knowing that you are in charge, and we appreciate all your hard work and your commitment.
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    Before I move to new areas of questioning, Mr. Secretary, I just wanted to associate myself with comments of several of my colleagues. First of all, with my colleague, Mr. Wolf, I feel very, very strongly that issues related to East Timor and Sudan should be a part of these negotiations. And, in fact, in your own words, where you are saying human rights is good economics, you said that human rights, worker rights, are important factors in a strong economy. The United States is strongly committed to the values, and they are key to successful economies in the long run. As you know, you and I have had many discussions, most recently concerning fast track. As someone who does believe in the global economy, who did want to support fast track, it was very disappointing to me that in the end, all those corporations that signed that ad today and included passing fast track as one of their priorities, and all of us in Congress and the administration who believe that our values are key and that we should take a role in advocating human rights and worker rights as leaders, could not put sufficient pressure on the part of the leadership of this Congress to give this administration the same fast track authority that the other Presidents had in the past.

    So I would just ask you, not only on this issue of the IMF, but all the other issues that you have been so involved in, if we really believe that human rights is good economics, then we have a responsibility, and all those corporations who signed that ad today, and I read every one of them, have a responsibility to say to the leadership, human rights is good economics, and that issues of worker rights and human rights in Sudan and East Timor are and should be part of this negotiation.

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    So I ask you, again, to take some leadership in this area.

    Secretary RUBIN. But Mr. Wolf distinguished, I think, Congresswoman Lowey, in a way that I think was very useful—his distinction, I think, related to my testimony.

    Mrs. LOWEY. Right.

    Secretary RUBIN. The question is, how do you accomplish these things? And what I said in my testimony, which I believe to be the correct case, is that as important as these issues are—I think they are very important to the economy, as well as for moral and social reasons—when you have to deal with a crisis and you have to accomplish wrenching changes in a very short period of time, I think if you try to accomplish these purposes in those programs, I think you are going to try to accomplish more than you can—are likely to be able to get done. And I think you are going to greatly reduce the chances of accomplishing your basic objective of reestablishing, achieving financial stability.

    So what I said in my testimony, I don't think you can link them in these negotiations, but I think what you need to do—I think you can certainly raise them in all kinds of ways, as the Congressman suggested, but I think if you try to link them as conditions, I think you really are very substantially reducing the chances of being successful.

    Mrs. LOWEY. But, again, I would like to say in associating myself with the remarks of my colleague, I certainly respect your expertise and your wisdom on these issues. And I don't think anyone in the Congress is going to say we should be doing 1, 2, 3, 4, 5, but then again, the administration shouldn't be precluded from discussing these issues during a negotiation.
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    Secretary RUBIN. Oh, I agree with that.

    Mrs. LOWEY. I believe this is what many of us have been advocating and would like clarified.

    Secretary RUBIN. There is nothing which exists today that would be preclusive.

    Mrs. LOWEY. Which is what I wanted to clarify.


    Secondly, I did want to also associate myself with the comments of Mr. Obey and Ms. Pelosi in that I do respect my Chair and all those who have a prolife position on issues of abortion. But, again, zero funds in our bill goes to abortion, and I think it would be a real tragedy if we can't debate the issues concerning international family planning fully and thoroughly, and even having a vote in the Congress. But to link it to other issues doesn't do that issue justice and certainly, I think, is very damaging in holding these other issues hostage.

    So I would beg my colleagues here on this committee, who managed to avoid the linkage in holding up the foreign aid bill, and I would certainly urge those who have any kind of influence with the leadership in this Congress not to abide by what I also read in Congress Daily today, because I think there should be no linkage. And when you think about the importance of international family planning to the women of the world, it is absolutely outrageous that there should be any linkage. So I just wanted to mention those two points.
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    I would like to ask you questions in a few other areas, Mr. Secretary. I have been concerned about recent reports that the World Bank's commitment to health and education lending fell by almost 50 percent from 1996 and 1997. These were the numbers that were given to me.

    I certainly believe that devoting resources to health and education programs is absolutely critical to our effort. So I would be very appreciative if you have any information regarding that, or if you could address this matter with the World Bank, because their commitment to health and education, I think, is vital.

    Secretary RUBIN. I agree with your general statement. I think it is an essential mission.

    Mr. LIPTON. In fact, I think what you are alluding to and what is responsible for this is that the lending of IDA in Africa has been low the last 2 years and below what the World Bank had projected under the IDA-11 replenishment. This is something that we have been discussing with them. I can assure you that other donors are very eager to see them lending aggressively in Africa.

    The share of IDA lending that is devoted to health and education issues has been growing, but the total has been——

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    Mrs. LOWEY. Right.

    Mr. LIPTON [continuing]. Has been below projections.

    The problem we have is that one of the goals that the World Bank has is to be selective and to make sure that the programs that they are supporting with their money actually are put in place, that the countries are dedicated to reform. And so there is a bit of back and forth on that that I think is responsible for this. But the World Bank has assured us that they are going to work very hard to restore their operation level to what was intended in the IDA-11 pledging.

    Mrs. LOWEY. I thank you.

    And, gentlemen, in the fiscal year 1998 foreign operations bill, we included the full administration request for IDA. And I would be interested in a response concerning the responsiveness of IDA to our concerns regarding child labor, the environment, and the need to reduce corruption.

    Have they been responsive to our request to focus on these areas as a response to our full funding of the program?

    Mr. LIPTON. Yes, they have. I think there is a process on our part of trying not just to make sure that the institution is responsive, but to gather strong support from other member countries. I think this is an area where we are making progress, and more can be made.
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    I think that, in particular, on the corruption side, both the IMF and the World Bank have made corruption a special focus in the last year. The issue has made its way into their operations, as well as into the rhetoric, into the speeches, and in the information that they provide publicly and to member countries.

    On child labor—and on labor issues more generally—I know that Jim Wolfensohn has taken a special interest in this subject. He has made a visit to the ILO. He has established special contacts between the World Bank and the ILO.

    There are a couple of in-country cases where the World Bank has begun to include child labor issues in negotiations. The other development banks have also taken this on seriously as well. I think it is an area where there is a lot more to be done and a lot more that we really have to do to press them to follow through.


    Mrs. LOWEY. In another area, Mr. Secretary, I know that you and your Department have been focused, as many of us are, on the effectiveness of microcredit lending. Could you share with us what kind of coordination is currently taking place between the Treasury and AID to ensure that this money is targeted in the most effective way?

    Secretary RUBIN. You are right in your general comment. I actually don't know the answer to your question, Congresswoman Lowey.

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I think I actually visited a couple of microlending sites abroad to see how it was working—well, when I was there anyway; it wasn't a special trip, but when I was there anyway—to see how microlending works in very poor neighborhoods. It was very impressive, it really and truly was, particularly when the money was combined with technical assistance.

    I don't know how we are coordinating with AID. Do you know, Dave?

    Mr. LIPTON. I mean, we follow the AID programs and speak to them, in particular, about the countries where we have an active interest and involvement.

    I would say that another very important area, and I am not sure that you might be aware of it, is that the MDBs themselves have stepped into the microcredit area; the IDB in a particularly strong way. They are now going to dedicate $500 million to small lending and microlending programs in Latin America. That is something that we have been supportive of and we hope will be successful.

    Mrs. LOWEY. The reason I was interested in the coordination, I remember our last meeting with Jim Wolfensohn, and he is very interested in microcredit, microlending. In fact, he said it is really still less than 1 percent, a very small part, of their whole lending package.

    Everyone agrees it is very important. It has an important effect. There are still millions and millions of people who could use that help. So how USAID works with the World Bank to help the World Bank increase their investments in microcredit, I think, could be very helpful.
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    Mr. LIPTON. There have been collaborations between AID and the World Bank in cases where AID, in essence, does the pilot work and then the World Bank picks that up and follows through to develop a larger, more heavily funded program. I think that is a promising area for collaboration.


    Mrs. LOWEY. I thank you. And just lastly, Mr. Secretary, before—just to get back to the IMF for a moment, because we understand your case and you are very persuasive in making it, that this is crucial to the world economy. Could you perhaps elaborate on your statement that we have to change the mechanisms and architecture to prevent this from happening? How are we working to truly ensure that Indonesia will implement the critical reforms that we are demanding of them?

    Secretary RUBIN. Oh, that is a slightly separate question.

    Mrs. LOWEY. Okay.

    Secretary RUBIN. Let me break it into two pieces, if I may. In terms of my comment about the architecture, I was really referring to the sorts of things that Mr. Frelinghuysen had raised from the George Schultz-Bill Simon article.


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    We have institutions that were created 50 years ago. I think they are vital to our national interests, but the global market, the global economy, in the meanwhile, has developed in the last, say, 10 years at a very rapid pace, and we need to find better mechanisms for dealing with these problems, especially to deal with the moral hazard questions that were raised in that article, although I think they are far less in Asia than they were in Mexico because of the losses that have been taken.

    And the Federal Reserve Board and Treasury are working together right now in a very intensive fashion, but these are mind-boggling, complicated issues. Just to develop, sort out analytically, what we think, how much we can accomplish relative to what we would like to accomplish, I don't know, and once we develop our thoughts, we obviously need to work with Congress and we need to work with nations around the world to get consensus.

    So this is not a short-run process, but it is a process we are pursing. I have a meeting this afternoon, as a matter of fact. David Lipton is providing the leadership at Treasury. Plus Alan Greenspan, Larry Summers and myself have been very deeply involved.

    On the question of Indonesia, their economic self-interest lies in economic reform, both to deal with the problems that gave rise to this instability and to reestablish confidence. But I think you put your finger on it. There are no guarantees in life, and I think the only way you get assurance is by a sustained commitment on their part to these programs, and that is what the world is watching right now.

    Mrs. LOWEY. Well, I think I have taken enough of my flexible 5 minutes. But just in closing, I want to say we were talking about the concerns that our constituents have and we have about money going—and you mentioned this in your opening remarks—to bail out the banks and to bail out the investors. If we are so quick to cover those losses, how will they behave in the next situation? And certainly in terms of Deutsche Bank, we talked about their losses. I don't know if we discussed their profits.
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    Secretary RUBIN. No. This was a question of were they absorbing the consequences of their credit extension in Asia.

    Mrs. LOWEY. Uh-huh.

    Secretary RUBIN. And the question of nationalizing losses and privatizing gains, which I think is a very serious and totally appropriate, and a very important issue. That was the only point of my comment.

    Mrs. LOWEY. Well, I thank you, Mr. Chairman.

    I thank you, Mr. Secretary.

    Mr. CALLAHAN. Mr. Secretary, the committee is going to stand in recess for 3 minutes, and we will be back in exactly 3 minutes so Congressman Kingston can begin the questioning.

    Secretary RUBIN. Good.


    Mr. CALLAHAN. If we can keep our commitment, our 3 minutes has turned into 6 minutes, as usual. But if the committee will come to order.

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    Mr. Kingston.

    Mr. KINGSTON. Thank you, Mr. Chairman.

    Mr. Secretary, let me start by complimenting the Department that you are running. You do a great job, and I think we are all proud, and you have a lot of bipartisan support here on the Hill.

    We have—a nuts-and-bolts kind of question right here. The assessment—the quotas are looked at and reviewed every 5 years, and the last quota increase was 1992.

    Secretary RUBIN. Right.

    Mr. KINGSTON. Is that correct?

    Secretary RUBIN. 1992 was the last one, yes.

    Mr. KINGSTON. And then it was reviewed again, but not increased, but then in 1982 or 1983 it was increased again, correct?

    Secretary RUBIN. 1983, I think, wasn't it, David?

    Mr. LIPTON. Yes, 1983.

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    Mr. KINGSTON. How much of this is——

    Secretary RUBIN. Yes, 1983. It is not actually every 5 years. It is—I don't know. How often?

    Mr. LIPTON. It is based on need.

    Secretary RUBIN. Yes, it is sort of a need-based thing, and it is negotiated and debated and stuff like that.

    Mr. KINGSTON. Okay. How much of this is triggered by the crisis versus the 5 years? You are saying it is the need more than the time?

    Mr. LIPTON. The process of discussion had begun probably about a year before the crisis began.

    Secretary RUBIN. But the urgency is a function of the amount that was used much more quickly or committed at least much more quickly than expected.

    Mr. KINGSTON. Okay.

    Secretary RUBIN. And the danger that the crisis could reignite.

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    Mr. KINGSTON. Okay. Of the $14 billion now, that, I was thinking, was an assessment, but that is actually the amount of the special drawn account? Is that—would that be correct?

    Mr. LIPTON. That is the increase in our quota.

    Mr. KINGSTON. For the special drawn account?

    Mr. LIPTON. We have roughly $36 billion. It goes up by $14 billion.

    Mr. KINGSTON. Okay. That would be, though, the special drawn account, correct?

    Secretary RUBIN. You know what you can think of it——

    Mr. KINGSTON. Let me tell you where I am going, is how much of it in hard dollars is backed by gold? And the reason why that is important is because we hear so often it is very safe because it has great collateral, and that collateral is gold.

    Mr. LIPTON. The pool of resources right now is about $197 billion. With everybody's new contribution, it would go up into the $280 billion range. The IMF presently has about $40 billion worth of gold.

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    Of course, all of the other money, when it is put forward, is not all spent. Some of it is on loan to countries, and the countries repay. There is a very good repayment record at the Fund.

    So what stands behind this is all of the assets of the Fund, including the outstanding loans, the unused resources, and the gold.

    Mr. KINGSTON. So it is—I think it is a relatively safe loan, but it is not fully collateralized; is that correct?

    Secretary RUBIN. The way to think of it, if I could, is that—and remember, it is the Congressional Budget Office that makes this judgment, not the Treasury Department. But I think you have got it right—it is a very high-quality borrower, but it is not technically, no, it is not technically fully a collateralized loan.


    Mr. KINGSTON. Okay. The other thing is: The needs assessment, do you ever reduce the quota? And the reason why I am asking that is because we are always saying, well, this really isn't going to cost the taxpayers. It is not a budget outlay and so forth.

    However, it is almost like the purchase of land that you are never going to sell or perhaps it is an arrangement that you are never going to back out of. Or am I wrong on that?

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    Mr. LIPTON. Well, it is——

    Mr. KINGSTON. Because, even though the $14 billion isn't going away, it is no longer liquid.

    Mr. LIPTON. Your question is a good one. The size of the quota pool has gone up, in essence, because the size of the world economy has gone up, and the IMF membership within the world economy has expanded as Russia and other countries have joined in, and so there has been—just by that happenstance—there has been an ever-expanding need for resources.

    The IMF resources right now actually are a far smaller fraction of world GNP or world trade than they were 10 or 20 years ago. So while there has been this expanding need, the IMF has, in a sense, made do with a smaller amount of financial resources relative to its membership's economic activity.

    Mr. KINGSTON. There are about 180 countries?

    Mr. LIPTON. 182.

    Mr. KINGSTON. Now, what binds those countries, besides profit, to American lenders? Are they philosophically pro-American? Do they vote with us at the U.N.? Will they be with us should we get into something with Iraq? And is that something that—Mr. Frelinghuysen mentioned the need for pharmacies to have lower tariffs and so forth, but in another sense we do have this global picture. Are we lending money inadvertently to our enemies just because some of our lenders are making profits on it?
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    Secretary RUBIN. No. This is not driven at all by U.S. lenders, by our lenders' profits. I think what binds people together here is a common interest in the health of the global economy and a perception, I think a correct perception, that if the global economy suffers, we will all suffer.

    The chairman mentioned a company in his district that laid everybody off for 2 weeks. I think there is a common perception around the world that if developing countries do well then they are very large new export markets for us, and if they do badly, that those markets shrink. They have the kinds of effects the chairman mentioned, and their currencies depreciate, which then reduces the competitiveness of our goods. It is that interest. It is that economic interest that binds people together here, not any of the other interests which in many cases may be at variance with each other.


    Mr. KINGSTON. Okay. Another question: We are, as you opened up, a global economy. But if you look back historically, a country like Great Britain, the English empire, was certainly run on a global economy often doing business with nonempire nations and so forth. How did the monetary system work pre-IMF? Because I know there were—you know, there is criticism where people could hoard gold or undervalue currencies of another nation on purpose and mess with each other economically, which is a tool the IMF kind of neutralizes. But is—what is the pre-IMF picture? What did it look like?

    Secretary RUBIN. Can I just make one comment and let David answer, because David can answer much better than I can.
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    You didn't have, in the year that you are talking about, the kinds of global financial institutions, the global capital flows, the instantaneous transmission of truly vast amounts.

    Mr. KINGSTON. But you would within an English empire; not globally, but within certain nations, you would still have a highly integrated economic——

    Secretary RUBIN. You had certain elements of economic integration, but you didn't have markets that could transmit billions, tens of billions, hundreds of billions, of dollars worth of trades within seconds because of technology.

    But, David.

    Mr. KINGSTON. And I would say, Mr. Secretary, that is a significant difference, too. So I am acknowledging that is huge.

    Mr. LIPTON. Congressman, I think the genesis of the IMF is exactly the difficulties that arose in the 1930s. The world had been on a gold standard for quite a few decades, and it served well for a period of rapid growth for Europe and for the United States. But the gold standard, which was in essence a system of fixed exchange rates, broke down, and in the midst of worldwide depression, there were country defaults and deep recessions that were the result of these defaults and the inability of countries to reestablish creditworthiness.

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    After World War II, the idea of the IMF was exactly to prevent that kind of thing from recurring. And when we talk today about how default might happen in the absence of some sort of system like we have or some sort of approach like the one we have today, default in Asia could lead to a protracted slowdown, protracted problems that would spread around the world, it is exactly the history before the creation of the IMF that informs that judgment.

    Mr. KINGSTON. Is that why all three of these Nations got in trouble simultaneously?

    Mr. LIPTON. I think they had common problems. There had been common approaches to the way they managed their economies, and so it was, in a sense, logical that when the problems in one country were exposed, investors looked for similar weaknesses in other places. So it was in part because of the common management of the economy.

    Mr. KINGSTON. How absurd were the loans or the lending practices, the financial practices, and was IMF present in these countries 2 or 3 years ago and standing by quietly, as opposed to stepping forward and, you know, saying in 1994, hey, you are heading for disaster, you better change?

    Secretary RUBIN. I think you had two sets of lenders that need to be looked at in the context of that question. You had the international lenders, and I think what happened there over the last 5 or 6 years is that, as good times continued, risks became—the weighting of risk—got to be less and less, and, in effect, markets went to excess, as they I think almost inevitably do. So credit was being extended with less attention to risk than should have been the case.
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    In the three countries, you had banks making decisions on a noncommercial basis because of their ties with the government. It varied from country to country, but the governments were, in effect, directing credit or commercial enterprises that had special links with banks. And it was that combination of the excess of capital from the outside, and these faulty financial systems on the inside, that was very central to what happened.

    In terms of the IMF's presence, IMF does an annual review with each country. They were certainly focused on a lot of the issues, although I don't think anybody expected the combustion that occurred. That was the crisis.

    Mr. LIPTON. Just to mention, in the case of the first country that came into crisis this last year, Thailand, the IMF had, in its consultation discussions with Thailand, identified the very same problems that came to spark this crisis and had suggested to Thailand that they take up these kinds of concerns.

    I think it was difficult, in a whole region that was growing at 8 percent and had been growing very rapidly for decades, for policymakers to understand the risks that they faced and come to grips with the kinds of changes that were necessary.

    Mr. KINGSTON. Thank you, Mr. Chairman.

    Mr. CALLAHAN. Mr. Torres.

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    Mr. TORRES. Thank you, Mr. Chairman.

    Mr. Secretary, welcome; Under Secretary Lipton as well.    Mr. Secretary, we have had ongoing discussions pertaining to the North American Development Bank. As you know, last year's funding completed the capitalization of the bank required in the agreement between Mexico and the United States. I am pleased to note the progress made on border project financing over the last year in particularly.

    However, there is one outstanding issue regarding the bank that simply must be resolved, that is a domestic window issue. As you are aware, our staffs have been talking about this issue at some length. Can you give me your commitment that the two of us can meet later on at some point to resolve this question?

    Secretary RUBIN. Absolutely, Mr. Torres. I would be delighted to.

    We have met a number of times already, and I think it would be fair to say, after a period during which the appropriate attention was not paid to the bank, it was your energy—it was about a year ago, maybe, I have forgotten exactly when it was—that got us refocused, and I think we have come a long way in that period. But I know there are issues that you feel are still unresolved. I would be delighted to meet with you.

    Mr. TORRES. Thank you.

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    My colleague, Mrs. Lowey, has already commented on the issue, but I would like to do follow-up on microcredit.

    First, I want to thank you and the President for the enthusiasm you share for microcredit. The microcredit summit that was held over a year ago launched a plan to reach 100 million of the world's poorest families with credit and other business and financial services by the year 2005. My understanding is that the World Bank and the other regional development banks are developing their institutional plans of action to achieve the summit's goal.

    I have a couple of questions. First, is the Treasury developing its own institutional action plan on microcredit? That is one question. And if I may just give you the second one, is there anything that you can do at this year's annual meeting of the World Bank and the IMF to further educate the finance ministers of the world about microcredit?

    I would think that particularly important issues would be the need to reach the poorest, especially women; the development of sustainable institutions; and the importance of assuring that governments don't administer the loans themselves.

    So if you could please give me some answers pertaining to those issues.

    Secretary RUBIN. On the question of microcredit, we have been very intensely focused at the Treasury, not just internationally, but domestically and through the CDFI Fund we have launched a domestic program for inner cities and other distressed areas. I think it is an extremely promising area. We have also been working with the World Bank—working with them to help them energize their programs. But we agree with your views with respect to that. I am just trying to remember when this was. Sometime—and I don't remember when it was—G–7 finance ministers meetings, we meet four times a year or something, we had a discussion of developing countries and the like, and I discussed there, with them, our views with respect to microenterprise lending, because we share the views you just expressed.
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    I usually speak at the annual World Bank meeting. In fact, I always do. I think that is something I very readily should include in my remarks. So I will do that.

    Mr. TORRES. I would prevail upon you to be almost succinct with the finance ministers. They seem to somewhat drag their heels on this question.

    Secretary RUBIN. Finance ministers differ from finance minister to finance minister. We happen to be very interested and very focused on and believe deeply in these kinds of issues. Others are sort of—well, people have different orientations.


    Mr. TORRES. Perhaps something related to this, I want to make mention of the importance of the Fund for Special Operations of the Inter-American Development Bank. Full participation by the U.S. in the FSO is an important step towards overcoming the poverty and exclusion that have marked so many countries in Latin America and the Caribbean.

    So I would urge, Mr. Secretary, for you to work hard with us to provide the full $21 million contribution to the FSO that has been requested for fiscal year 1999. This amount would clear our U.S. arrearages and fulfill our commitment to FSO under its current eighth Replenishment.

    It is also important that you continue to work with the leadership of the IDB to come to an agreement for meeting future needs for concessional lending to the poorest countries, ultimately, without any new appropriations from donor countries.
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    So I want to thank you, Mr. Secretary, and maybe you can comment on that.

    Secretary RUBIN. As I understand it, David, that is where we are. If we can get our arrears paid, it is our view, I believe, the IDB can conduct the FSO activities without further donor contributions.

    Mr. LIPTON. We are looking at ways to mobilize the resources that presently exist within the IDB that could make the resources of the FSO much more ample in supporting IDB activities in the FSO borrowing countries.

    Mr. TORRES. As you are well aware today, there has been ample interest on the IMF issue. I think all of my colleagues have spoken about that question. I have some questions I would like to engage with, but I know we are limited in time today, so I am going to forgo those. Mr. Chairman, I ask unanimous consent that I might address the questions in writing to the Secretary.

    Mr. CALLAHAN. Without objection, all members of the committee will have the same right to submit questions to the Secretary.

    Mr. TORRES. Thank you, sir.

    Thank you, Mr. Secretary.    Mr. CALLAHAN. Thank you for your patience, Ms. Kaptur.

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    Ms. KAPTUR. Thank you, Mr. Chairman. Thank you for recognizing me. It is a pleasure to serve on this very esteemed committee.

    And I want to say to Ranking Member Pelosi, it is an honor to serve with you.

    And, Mr. Secretary, like the other members, I welcome you. It certainly is a distinct pleasure for us to have someone of your extensive experience in the private sector, but now also in the public sector, in the area of finance.

    Secretary RUBIN. Thank you.

    Ms. KAPTUR. I have enjoyed listening to you. While you are here, I have to take the opportunity to ask you how Wall Street is doing. I used to be on the Banking Committee. I kind of miss that.

    Secretary RUBIN. I think they are doing well. Sometimes I wonder how I would have done if I had stayed there.

    Ms. KAPTUR. I never thought I would live to see the day it would go over 8,000; maybe you did. This is unusual, a lot of returns there.

    Would you agree with me, we are living at a time when the banks—I am talking about our own domestic banks now that may lend internationally—have actually been doing quite well?
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    I got to Congress in the early eighties, and we watched the history of these institutions and their profit levels. Would you agree with me that over the last couple years they had some of their highest profit levels in recent history?

    Secretary RUBIN. The banks have done very well, and one reason we as an economy have done well is that the banks, after the problems in the early nineties, have strengthened balance sheets, have been able to lend and as a consequence have been able to promote growth in the economy.


    Ms. KAPTUR. I think so, too. That leads me into some of the issues you have testified on today, certainly on the IMF. And let me say, as a Member of the Congress, a new member of this subcommittee, someone who has been interested in our international involvements and who has been helped and who gets hurt in all these, let me say that as I read your testimony and as I have been thinking about this IMF replenishment, I think, for me as one member, the issue really isn't just the money but, rather, the policy that underlies the current set of structures we have set in place to deal with the global economy you reference several times in your testimony.

    In my own view, the Mexican peso situation that I term a bailout—I am sure you have another expression for it—helped to encourage the present crisis that we face in the Asian markets. I think it encouraged additional speculation; I think it encouraged greater risk-taking on the part of private institutions that felt they could then come to government, which they are, to be bailed out again.
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    Now I understand how tender this is, so don't—do not misunderstand that, but if we look back at the Mexican situation—and I realize that was a government bailout, as opposed to private companies, it was a different kind of situation there. But if we look at Mexico's external public debt today, compared prior to the peso bailout, and especially if you compare it back to the 1980's, all you have are greater and greater debt levels. Even though Mexico technically has paid back the United States, we have merely built the house of cards higher.

    I am interested in supporting a system for the 21st century that gets speculators and investors to assume their own risk, and therefore I have some caution about supporting the administration carte blanche in what you are asking for here.

    I personally, for example, would favor a system that would provide the kind of funding that you are looking for, on the private side, by fees on the international financial transactions that occur on a daily basis. I guess it is over $2 trillion a day that is moving there around the world. And I think what is troubling to me, as a long-tenured Member of this Congress, is we never get to that question. Whether it was Mexico the first time or the second time or the third time—now it is Asia; it will be someplace else a few years from now—we never get to the fundamental reform question on post-World War II structure.

    I think what is going to happen in the Congress this session is, we are going to face that debate, and you don't want to face that debate until after the replenishment. But I think if you look at the current politics, you are going to find you are enveloped in it prior to the vote. And I would only ask that you give some thought to what the structure might look like. I know you have given a great deal of thought to it yourself; it isn't reflected in your testimony. But I think a lot of members are looking for that reformed structure prior to the vote.
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    So I just wanted to——

    Secretary RUBIN. Can I respond to a bit of that?

    Ms. KAPTUR. Please.

    Secretary RUBIN. Let me try to take a few of the pieces. I think that had we not had the Mexican support program, which is what we characterize it as, I think what you would have had is a Mexico that would have almost surely gone into default and I think today what you would have is a Mexico in deep economic distress, with all the consequences that would have had.

    So while the support program was a far from a perfect solution, it was vastly better than the alternative, which is not to have done it.

    I share the moral hazard concern, and I think I have said that several times already. I think we have to find ways of dealing with it more effectively than we have, but I don't believe that the fact that banks were protected in the Mexican situation affected how they react in Asia.

    I know a lot of the people; I speak to them a lot; I have a pretty good sense of how they function. I think the conceptual problem is what you say it is. I don't think the fact they were protected in Mexico affected the behavior in Asia. I think what affected the behavior in Asia was too many good years. And the markets almost always go to excess in——
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    Ms. KAPTUR. You would not agree there was a lot of speculative investing in those markets?

    Secretary RUBIN. Absolutely. I think there was a lot of speculative investment in these markets and a lot of other markets, and I think there always is after you had a good period of time. I don't think in most of the cases in Asia that the predominant pressure on the currencies came from the withdrawal, however speculative, of investors. I think most of it came from the residents of these countries either trying to convert their currencies into hard currency or corporations who were seeking to hedge their currencies, or the exporters who did not want to repatriate their hard currency.

    On the question of new architecture, I think it is vitally important to the interest of our country that this be developed. I do not think we should take the risk of waiting to do legislation, because I think it is going to take a long time. We have spent a lot of time on this.

    You mentioned the Tobin tax, the tax on transactions. There are a lot of suggestions around there, a whole bunch of ideas we have. The G–10 has done a pretty serious piece of paper on this to begin their study. This is going to take a long time if we come up with serious proposals that will have the kinds of effects we hope in some measure to achieve.

    And you may be right politically; I don't know. What I do know is, if we don't get the replenishment quickly, then we will be taking a risk that, while we are working on this—and I think this will take a long time to get done—we will take the risk of a crisis we won't be able to handle.
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    Ms. KAPTUR. There are some writers who contend, and thinkers who contend, and even if I read your testimony very carefully, you talk about this additional funding to deal with future crises.

    Secretary RUBIN. This crisis, if it were to reignite, or future crises.

    Ms. KAPTUR. That is right, and there are those who are arguing we don't need the replenishment right now. I am not saying I agree with that, but it is obviously out there, and others will use those arguments.


    The other major point I wanted to make, and I only have one other one, and that deals with how you propose to inoculate the United States market against the flood of imports that have been coming in here but are likely to be exacerbated in this year, even with this happening, the trade situation.

    This, again, gets back to the paradigm we have been using since World War II, now leading to a point we have overcapacity and production in the world market, with the export-led development, where the United States becomes the residual importer because Japan will not open markets in a lot of other places, and it is causing a terrific crack inside the politics of this country, because of the people that have had to pay the price of that.

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    Now that is going to happen more this year, and the—some of the militia groups in this country—and I don't mean to excuse any of their behavior, but I am sure if there are any researchers out there looking at who they are, they are disaffected white males whose incomes didn't go up and many of whom lost their jobs. Somebody has to pay attention to this. And we are about to have another wave.

    Now there is something wrong with the paradigm that creates these large levels of debt, continuing even in Mexico, and forces these trade deficits down the throats of the American people. We have got to reform this architecture. And I hear you saying you don't want to do it until after, but somehow in this debate we have to inoculate against those who are again going to have to pay the price.

    Secretary RUBIN. If I may, Congresswoman, I think it is a somewhat different set of issues. In this period during which, as you say, we have had very heavy imports and exports, we have a fairly good-sized trade deficit, but we have 4.7 percent unemployment. The economy has created something like 14.5 million new jobs over the last 5 years. There are many observers all across the political spectrum who say the economic environment in the last 5 years has been the best we have had in this country in decades. I think the actual system is working pretty well for this country right now.

    Having said that, there are dislocated people. There are people who haven't kept pace. I think the President said in the State of the Union, if we are going to maintain our social fabric, we have to focus on programs for dislocated people who are affected adversely by trade.

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    So I think you are right in that, but I think the international trading system has worked well for the country, and, unfortunately, I do think our trade deficit will go up because of the problems in Asia, and there is no way to inoculate the country against that.


    Ms. KAPTUR. With all due respect, won't that knock off about an additional point off of our GDP growth for this year, looking at the best projections you can look at?

    Secretary RUBIN. Most private sector estimates are around half a point or three quarters of a point. Look, there is a serious problem out there.

    Ms. KAPTUR. Adding to that the point that the current trade deficit adds, which is an additional point, so you are between 1 and a half and 2 points off the GDP because of accumulated trade deficit.

    Secretary RUBIN. I believe if you didn't have the free trading system we have today, I think you would have much higher inflation and much higher interest rates, and I think that would have—at least I think—a more substantial adverse impact on the economy than the effect of the current trade deficit.

    Ours is not an economy that lacks demand. As I said, if you had said 5 years ago we could have unemployment under 6 percent and very low inflation, almost every economist in the country would have told you that that is not achievable, and instead of having it under 6 percent, we have 4.7 percent.
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    I think you raise an exceedingly important question, which is, how do we deal with people who are dislocated in our economy of very rapid change? And we have done a lot less than we ought to in dealing with that. I think imports will go up in this period. Something very substantial has happened in the world economy. But I think the answer in that is to get the countries growing again.

    Ms. KAPTUR. I don't want to abuse my time. I will say, if this year we are going to have that kind of an impact inside this economy, the answer, to me, is not sufficient that that is just going to happen and let it happen, because the current trade deficit knocks a point off of our GDP, affecting incomes of people who are working harder for less in my district and across this country. And I know the administration wants to increase the middle class, not decrease it. This is an opportune time in dealing with it in the architecture of the agreement you bring to us.

    I thank the Chairman.

    Mr. CALLAHAN. Thank you.

    Mr. Obey.

    Mr. OBEY. Mr. Secretary, when you indicated that 5 or 6 years ago if anyone had asserted we could have unemployment this low and still have low inflation—and I did assert that 5 or 6 years ago—when you say that most of the economists would have disagreed with this, that is true, they did. That is why I think the old farmer in my district is right, who observed once, did you know if you took every economist in the world and laid them end to end, that it would probably be a good thing.
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    Secretary RUBIN. There is that, Mr. Obey.

    Mr. OBEY. Let me also say, as you know, in our caucus the other day, someone referred to you as the greatest Secretary of the Treasury in the history of the country. I understand after that he got an agitated call from Alexander Hamilton. I will let the record show, I think you are a pretty doggone good Secretary of the Treasury, one of the best in history, but I think Hamilton would rank right up there.

    Secretary RUBIN. I think Hamilton's ranking is very, very safe by a very large margin.


    Mr. OBEY. Let me say, I am not a compulsive free trader. I do believe in an open trading system, but I am not a compulsive free trader. I think there ought to be certain rules established as part of the deal on retreat. But I am a committed internationalist, and I am one because I think it is necessary if we are to defend and promote our national interests in international affairs, militarily, economically, and politically.

    I want to go back to a remark I made earlier when I was talking about the efforts of a political minority to impose their will on this issue, when I was talking about Mexico City policy.

    The way our system of government works, at least last time I looked at the Constitution, it says that if you have an idea and you want it to become law, you have to get a majority of the House, you have to get a majority in the Senate, and it has to be signed by the President. And if the president vetoes it, then you have to have a two-thirds majority in the House, a two-thirds majority in the Senate, to overcome that Presidential veto.
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    Now the last time I looked, the folks who are insisting on holding their breath and turning blue on Mexico City until they get what they want, trying to hold up everything else until they get what they want in Mexico City, they have a majority in the House, they do not have a majority in the Senate, they do not have the support of the President, and they most certainly do not have two-thirds of the vote in either the House or the Senate. So in my view, that is a definition of a political minority, based on the way our Government works.

    Now there is nothing wrong with being in the minority. I have been in the minority on issues all my life, regardless of which party is in control. But let me say that what I find illegitimate is a group of politicians trying to use this international crisis to force the Senate and the President to comply with their views on an unrelated issue, or else they are willing to let the House tumble down.

    Now the American people don't know a whole lot about the IMF or international finance, they are too busy making a living to have the luxury of having the time to learn about that stuff, but I think the average American does know that when we are dealing with international economic issues that affect the interests of the United States, they want those issues to be dealt with on their merits in a way which protects our economic interest. They know that there is something wrong with the idea of dragging in somebody's position on family planning into that kind of a discussion; they know that that kind of linkage is, with all due respect, a little bit whacko.

    Now we have had a lot of intelligent questions asked this morning about the IMF issue by Mr. Frelinghuysen, Ms. Kaptur, Ms. Pelosi, and others. They are asking the kind of questions that need to be asked before we reach a consensus on what we ought to do on the IMF.
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    But what bothers me is when I read in Congress Daily this morning a quote by Mr. Smith on this unrelated Mexico City issue, and he is quoted as saying the following: Smith said he had discussed a continued impasse with the administration officials but has made no progress and predicted, quote, an absolute train wreck if his language is not accepted.

    Well, two years ago that is the kind of thinking that shut down this Government, and now, instead, you apparently have some Members who are willing to shut down this Government's ability to deal with a very serious world economic problem, a problem which could cost us, if it is not handled right, according to some estimates, half a million jobs in this country. That kind of ''my way or no way'' approach to the world is reckless, and it is irresponsible.

    That does not mean that the people who feel strongly about Mexico City, as Mr. Smith does, are all wrong on the issue of Mexico City; I don't happen to think they are. But I want to see the IMF issue decided in a way that protects our economy and protects our workers from the flood of artificially priced goods that could enter this country at depressed prices if we don't let a decent relationship exist and a realistic relationship exist between currencies worldwide.

    I think we ought to bring up Mexico City issues and debate them on their merits, up or down, and I think whether the administration likes it or not, it is going to have to work out a compromise with Mr. Smith on the issue, and Mr. Smith, whether he likes it or not, has to work out a compromise with the administration. Nobody ever gets 100 percent of what they want in this business.
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    I happen to believe, for instance, that we shouldn't put a dime into United Nations population planning so long as they continue to work with the coercive abortion system in China, but I am not willing to run a risk that lots of my constituents are going to lose their jobs because the international economic system goes haywire because Congress is busy playing blackmail on unrelated issues.

    I am willing to take my chances up or down on trying to get the kind of policy I think we ought to have on the U.N. and on Mexico City. But you have to be prepared to have other imperatives impose themselves on your own set of priorities if you are a responsible member of this body, and that is why I object to this false linkage that is being attempted.

    I want IMF dealt with up or down, because I think the administration is going to have to agree to some kind of economic conditionality in order to get what they need here for the IMF. I do not happen to believe we can wait to do that until we have a new perfect world order and a new financial system, because I don't think you are going to be able to get those understandings worked out in time.

    But I do hope that we can get a clear understanding from the administration about what it intends to do to move forward to establish a new international understanding about new rules of the game for dealing with IMF and other institutions that are supposed to help arrange the world in a rational way.

    And I do hope that we can have a debate up or down on the kind of conduct that the U.N. is going to have to change in terms of its ridiculous administrative waste if we are going to get U.N. arrearages dealt with. But, I mean, groups on all sides have enough merit to their case on each of the three issues to take the issues on the merits. When they lose the country, and certainly when they lose me, is when they try to bring in all kinds of unrelated issues together and we engage in a game of institutional blackmail.
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    I don't want a repeat of two years ago, when we had a train wreck because people felt that their own opinions were more important than the national interest. That is the point I would like to make.

    The only question I have of you is this. We talk about what kind of conditions we want to impose on Indonesia on human rights and all this other stuff. I am not even convinced Indonesia will exist as a country a year from now, I think they are such a basket case that you could have incredible unraveling there.


    My concern is Japan, because I think Japan bears a very large share of the responsibility for this mess. If somebody wants to call us Japan bashing, my reaction is, baloney, Japan is bashing the rest of the world right now because it refuses to conduct itself in an adult way as a major economic player.

    What bothers me is that Japan for years has refused to operate its own economy in a rational way. You have had huge surpluses of capital developed. That money has been invested all over the world. That has helped lead to an overcapacity in world markets in a number of areas. And if Japan does not recognize the need to open up its own economy, both in terms of what goods it allows into its country and in terms of its own fiscal policy and tax policy, to stimulate additional economic growth, they are going to be exporting their unemployment to the rest of Asia and to us.

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    And I firmly believe if this country runs a $350 billion trade deficit, you are going to see the most awful protectionist reaction in this country since the twenties. That, to me, is the fundamental economic threat we face, along with the potential unraveling of Russia, Brazil, India, and other countries, if this thing really gets out of control.

    I guess my question is, how can we in the Congress and how can the major world trading partners convince Japan it has to grow up and recognize that it has to be a modern player on the economic scene now that it is a fully developed economy?

    Secretary RUBIN. Mr. Obey, I think with respect to Japan, you raise a question that is exceedingly important. We have addressed it in many ways, some public, some not public.

    I think a Japan that was growing again and whose growth was led by domestic demand, not export driven, would be able to absorb imports from Asia which would help these countries grow again. It would be able to provide bank capital to Asia, which would again help, and it would have a confidence around itself that could then radiate out into Asia.

    And I think the most important thing Japan can do to help itself, Asia, and the rest of the world is to begin again to have a robust rate of domestic demand-led growth, and that is a point of view that we have expressed very strongly in many fora, some private, some public. It is a set of objectives that the Prime Minister of Japan set forth for the country early last year, but, certainly, to date, at least, that objective has not been met.

    So I think I would agree—I will agree with your observation stated my way. I think if I could make one other—I think it is something we need to continue to do, and I think the Members of Congress can determine for themselves whether speaking to this issue strikes them as being another—another useful method of attempting to have an effect on whether or not Japan meets its own objectives it set forth at the beginning of last year.
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    I do think that your other issue, the other question you raise, is a very important question. You have three issues that are enormously important: U.N. arrears at a time when we are dealing with Iraq, the IMF at a time when there is at least the risk—I believe low probability, but the risk of something we must have the capacity to deal with in the interest of our own economy Mexico City, which people care a great deal about on both sides of the issue. Mr. Chairman, I don't have anything to do with decisions you all make in terms of how you do things. It does seem to me there is a lot to be said for debating those issues and deciding them each on their own merits, rather than conflating them, at least as it relates to Mexico City and the other two.

    Mr. OBEY. Thank you, Mr. Chairman.

    Mr. CALLAHAN. Mr. Secretary, I have all afternoon. I thought I had to leave earlier, but now my plans have changed. I know your schedule is more stretched than mine, but there are a number of questions the panel has asked to submit to you. But to the committee, let me tell you, the Chair has been most generous in the allocation of time by not gaveling anyone down because this is an important issue, and I want you to have the opportunity. But as we go into the second round of questioning——

    Ms. PELOSI. We are still in the first.

    Mr. CALLAHAN. We are still on the first.

    Who has not yet gone?
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    Ms. PELOSI. You and I.

    Mr. CALLAHAN. I know, but we cannot take 15 minutes apiece. So I am willing to allow you to use your 5 minutes, or 15 minutes, your usual 5 minutes, which is 15 minutes, but at the same time we must recognize that the Secretary does have other obligations, and I am going to once again reserve the right to submit questions to them and reserve the right for a brief closing statement. But we will go to Ms. Pelosi for her questions as brief as she can possibly be, and then we are going to try to get through our second round of one question from each member of the panel.

    Ms. Pelosi.


    Ms. PELOSI. Thank you very much, Mr. Chairman. And, also, thank you for your responsiveness to the concerns of Members about not having enough time to ask questions by having the hearing start earlier, as well as giving us time to ask follow-up questions regarding our concerns.

    It still isn't enough time because the IMF has dominated the discussions, and I know many Members have budget-related questions they want to ask. Listening to my colleagues discuss the full array of issues that have been brought up which are very important, it is unfortunate to see that funding for microlending, for which the administration has taken great leadership, and I commend the First Lady for her interest in showcasing this issue as well, comes drip, drip, drip, while the failout will be a flood of funds.
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    As we know, the countries experiencing this crisis have different problems, and there are different reasons why the IMF needs to lend to these countries. I certainly would put South Korea in a different category than I would put Indonesia, for example, in terms of what conditions I would like to see placed on the loans. I have some suggestions in that department, but first I would like to make a couple of observations about other subjects.

    I have been asking this every year, and every chance I get I ask it, I hope that you will put the issue of AIDS on the agenda of G–7 meetings because it has an economic impact in the developing world. It is my understanding that the economies of the developing world are on the agenda of the G–7, and I hope global AIDS would appear at some point on the agenda of the heads of state as well.

    The concerns about the environment are real. You know what a dominant role capital plays in the economy, and the environment is impacted very directly. That is why so many of our constituents are concerned about how the IMF goes forward. The IMF has to have some sensitivity and accountability for the environment. Now, particularly regarding the environment, I want to ask you a budget question.

    Could you tell me or get for me the number of employees at the Treasury Department who are working on the multilateral development banks?

    Secretary RUBIN. They work under David.

    Mr. LIPTON. I don't know the number.
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    Secretary RUBIN. Twenty.

    Ms. PELOSI. How many staff persons with environmental training are now working within Treasury on the MDB?

    Mr. LIPTON. Three.

    Ms. PELOSI. You have three environmentally-trained employees?

    Mr. LIPTON. Who work for my colleague.

    Secretary RUBIN. I didn't know the answer to the question. Apparently there are three full time.

    Ms. PELOSI. These are singularly working on the MDBs, they have no other responsibility. There are three in the Treasury Department for all the MDB's working on environmental issues, and they have formal environmental training; is that what you are telling me? They are not economists.

    I ask the question because I have serious concerns about the enforcement in the field, if you will pardon the expression, Mr. Chairman, of the Pelosi amendment. I know that the intentions of the Administration are good in this department. I am not convinced with some people leaving the department that there has been an addition of people commensurate with the need to enforce the terms of the Pelosi amendment, which calls, as you know, for environmental assessments on any project before our executive directors at the banks can tend to support a project. So I put that out there, and, again, I express an interest in the IMF being sensitive to these issues, which I know is a separate issue.
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    Are you concerned about the defaults on loans to the Asian Development Bank or the World Bank because of the Asian crisis?

    Secretary RUBIN. Oh, defaults on loans that the World Bank and Asian Bank themselves have extended?

    Ms. PELOSI. Yes.

    Secretary RUBIN. In the context of this crisis?

    Ms. PELOSI. Yes, the ability of them to be paid.

    Secretary RUBIN. I don't think it is very likely they are going to suffer defaults.

    Mr. LIPTON. We want to distinguish between sovereign loans, loans the World Bank makes to governments, and loans the institutions like IFC make that are of a private nature. There are some concerns at the IFC about greater risks now to some of their loans, and that is something they are looking over.

    Secretary RUBIN. But I don't think the sovereigns are——

    Mr. LIPTON. Not with respect to first category.
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    Ms. PELOSI. The Exim, or you are not into that?

    Mr. LIPTON. I don't follow this closely, but I know Exim from time to time does experience defaults, and I think they are concerned about a couple of loans in Asia. Mr. Harmon has been to Asia in essence to get a better sense of what the risks are that Exim faces at this moment and what the prospects are for further support for U.S. exports to the region.

    Ms. PELOSI. Thank you. We have talked about this crisis, and it is a mystery to me how it took everybody by surprise, with all of the expertise that we have on this. Maybe it didn't take people by surprise, but it appears to have; at least we feel as if we have been sideswiped by it because of the magnitude of the need for the bailout. Books that are copyrighted 1997 are talking about economic opportunities in Asia. What else could go wrong? You have talked about what could go right if Japan did some things. Is it possible that the Chinese would devalue the yuan? If so, what impact would that have?

    Secretary RUBIN. Let me say, Congresswoman Pelosi, I think that with enough expertise, you can try to identify problems in economies, and as David Lipton said with respect to Thailand, the IMF, and United States Treasury for that matter, were very much on top of the problems.

    I think, though, I would distinguish in identifying problems that could give rise to trouble and a crisis. I at least think, after I spent a lot of years doing this for a living before I came into this world I am in today, I don't think you can predict crises. I think you can identify problems, but crises are a result of a whole bunch of things happening at the same time and then combusting, for whatever set of reasons.
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    In terms of countries going forward, the IMF on a regular basis, as you know, does surveillance, and we are very much involved with this, and I think there are a number of countries that have issues they need to deal with. I think I just as soon not discuss them in a public forum.

    You raised a question of the Chinese exchange rate. China has committed itself publicly and privately to maintaining the exchange rate.

    Ms. PELOSI. For how long?

    Secretary RUBIN. I don't know if they put a time frame on it, have they David? But they certainly have persuaded us of the sincerity of their commitment and the grounding of their commitment and their own view of their own economic interest. But clearly it is very much in the world's interest that that happen, and one of the concerns one could have is if you had a widening of this crisis, which all of us think is a low-probability event, but a widening of the crisis, and many other developing countries got involved, that obviously creates additional pressures on their exchange rate. I think that is another of very many reasons why it is so important to avoid the possibility you just raised.

    Ms. PELOSI. And it would have what kind of impact if they did devalue?

    Secretary RUBIN. That would be a significant event.

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    Ms. PELOSI. Okay. Do we have an if plan?

    Secretary RUBIN. Our best if plan—truly, our best if plan is to work——

    Ms. PELOSI. Is to bail.

    Secretary RUBIN. No, it is to work with countries around the world on the vulnerabilities they have and try through the IMF and through the World Bank and directly, bilaterally, to work with countries to repair the problems they have; at the same time get an IMF capacity that is sufficient to deal with the crisis if, in fact, it develops.

    Ms. PELOSI. I appreciate that.

    One quick question, and I have a couple observations, and I am being as brief as I can be, Mr. Chairman.

    Getting back to the moral hazard issue, because I see the issue in terms of contagion, how this might spread and affect our workers, are we, once again, nationalizing the risk and privatizing the gain? Regarding conditionality, what is the threshold to get in on those conditions in terms of workers' rights, the environment and other things?

    The contagion issue is, I think, an overwhelming one that argues to diminish the importance of the moral hazard argument because even if these banks and financial institutions do benefit, punishing them doesn't help us at all because of the contagion issue. But I would like to know in your professional and maybe in your former life, do you think any of these financial institutions make investment decisions based on the IMF standing back there?
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    Secretary RUBIN. No, I really don't, Congresswoman Pelosi. I still think the moral hazard issue is very important. I take considerable comfort from the fact that such large losses have incurred in Asia because I think that is helpful, but I sat around an awful lot of tables making an awful lot of decisions, and I never once heard someone say we ought to value the risk less highly because the IMF is there.

    Ms. PELOSI. I appreciate that.

    Secretary RUBIN. We have to deal with the problem, but I do not believe the IMF's activities materially affect that decision-making.

    Ms. PELOSI. You probably don't know what exacta is.

    Secretary RUBIN. Jai-alai.

    Ms. PELOSI. At the horse races. You know what that is, don't you, Mr. Chairman?

    Mr. CALLAHAN. Yes, I do.

    Ms. PELOSI. If you win an exacta, the IRS is right behind you in line because they are going to collect on your winnings. However, if you have a pocketful of losing tickets in your pocket, you can somehow soften your tax blow by having—saying, well, I won this, but I lost all this money, so let's discuss it.
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    In the reverse of that, we are talking about the losses, Deutsche Bank, not having an $800 million loss as you said, but preparing for that possibility. What about all the gains that all these companies have made, is anybody talking about that? What is this, in the context of what?

    Secretary RUBIN. They are in the business to make money. I think the question is the one you raised before. If they are going to make their money, shouldn't they also take their losses? And the answer is yes, and to some pretty fair measure that is the way the system has worked. To some extent they have been protected. That is an undesirable by-product of these efforts to create financial stability. It is a by-product which should be resolved or reduced as much as possible.

    Ms. PELOSI. I appreciate that answer.

    Mr. Chairman, in conclusion, I would like to express some of the concerns that have been expressed to me by Members in the House, both Democrats and Republicans, and they are not going to be new to you, Mr. Secretary, because you have been very open in listening to our concerns.

    I was particularly pleased last week when Prime Minister Tony Blair was here and we had a chance to talk to him about the subject, and he placed a very strong emphasis on transparency at the IMF. On that score he was in agreement with many Members of the House of Representatives because increasing transparency of IMF activities, I think, is something we should see as we go forward with this.
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    Members also want to establish a new Deputy Assistant Secretary of Treasury, whose sole responsibility would be to monitor IMF reforms and to report on social consequences of lending by multilateral organizations; provide for release of IMF funds in several tranches, I don't know if that is possible, depending on the effectiveness of the IMF in meeting concerns about labor rights and the environment; ensure a safety net is provided to address social consequences of austerity measures imposed by the IMF on South Korea—as I said, people see that as a little bit of a separate issue; broaden the IMF conditionality to include specific labor rights and environmental protections; and then in terms of Indonesia, supporting Mr. Wolf and my colleague, Congresswoman Lowey, a clear and forceful statement from the Administration concerning East Timor, emphasizing the Indonesian Government should begin discussions—and that isn't even a big deal—begin discussions through Bishop Belo and Gusmao; and the unconditional release of Indonesian labor leader Muchtor Pakpahan. I imagine this is in the works because it is so very obvious.

    With that, Mr. Chairman——

    Mr. CALLAHAN. The gentlelady has not only consumed her time, but mine as well.

    Ms. PELOSI. The Chairman is very generous.

    Thank you, Mr. Secretary.

    Mr. CALLAHAN. She brought up mutual gambling, so we will enter the quinella stage, which is something that comes in first and second. We are going to allow each panelist to offer one question first and give you a second to answer.
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    Secretary RUBIN. I remember quinellas from jai-alai, and it was legal, I might add, if you were over a certain age.

    Ms. PELOSI. In certain countries.

    Secretary RUBIN. Where I lived.

    Mr. FRELINGHUYSEN. This question falls into the lessons learned category. Ms. Pelosi sort of touched on it. Who was minding the store that allowed this Asian crisis to develop? I commend you for racing over there on a number of occasions to basically support the global market and making sure that the countries get through this cash crisis, but in reality, when something like this occurs as it did in Mexico, there ought to be some lessons learned.

    I assume you sent the message to the IMF and to whoever does their forecasting and judging of these various situations that this sort of situation can never happen again. I just wondered if you could make a general comment about the lessons learned from this crisis, maybe it is not over; what lessons we have learned and what we can anticipate in terms of reforms.

    Secretary RUBIN. I think it is an extremely important question. Let me try to adhere to the 1-minute rule, but it is hard because it is a very important question.

    The rating agencies, the two private sector rating agencies that dominate the world market, both kept their very high ratings for South Korea until after the crisis was well underway and then lowered the ratings, as you know. I think there is an inherent unpredictability about crises we have to accept as reality, you know.
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    Having said that, I think the question you raised is the right question. We need better disclosure. We need more transparency in these countries. We need better ways of having that disclosure affect investor decisions, and we have a lot of thoughts in this area we will be developing over time to become part of the architectural changes I was talking about.

    Mr. CALLAHAN. Maybe Mr. Yates can—I don't know, Mr. Secretary, whether you compare with Alexander Hamilton or not, I assume you do. I didn't serve with Alexander Hamilton.

    Mr. YATES. I did.


    Mr. Secretary, I take seriously your justification for appropriations, and it is for the supplemental and for the 1999 budget request. I don't remember any questions being addressed to you today about the budget, so I will ask one that is tangentially a part of the budget, and that is when you were last here, I asked you about the restitution procedures for the Holocaust survivors, and the reply I received from your office was really much less than satisfactory, and I wondered whether I can get greater cooperation from your office for this.

    I think what is happening in New York now with Secretary Morganthau trying to help a couple people get some of their confiscated art back, and there is also the question of real estate, there is a question of other assets. I know Stu Eizenstadt is in this, and I know that—who is the former 7-foot chairman?
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    Secretary RUBIN. Paul Volcker.

    Mr. YATES. Paul Volcker, Chairman of the Fed, he is in there somewhere, but they still aren't getting anything. I noticed the $280 million fund of the Government in Switzerland has been paying 4,000 out of 19,000 surviving claims, giving them a first installment of $400. So, to me, 50 years later, it seems that there ought to be a greater activity. I don't know how deep you are in this, and I don't want to take you out of the mire that is Indonesia and Korea, but I would appreciate knowing whether there is anybody in your Department who works on this.

    Secretary RUBIN. As you said, Stu Eizenstadt takes the lead for the United States Government. We have been actively involved.

    Mr. LIPTON. We have someone who is following this for Treasury. As you mentioned, there are several initiatives important in this. You mentioned the Swiss fund. The Germans have created a fund to help Eastern European survivors. Paul Volcker is working on auditing the dormant accounts in 100 Swiss banks. The Treasury has convinced the 10 country claimants to the tripartite agreement from the 1940s to relinquish their claims on remaining funds that were never claimed there, and that are going to be transferred to a fund for survivors as well. So there are a number of things that are going on.

    Mr. YATES. Who is doing it, David?

    Mr. LIPTON. Stu Eizenstadt is——
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    Mr. YATES. Is he out of Treasury or Commerce?

    Mr. LIPTON. He is the main person coordinating—he has been coordinating——

    Mr. YATES. Who is doing it in Treasury?

    Mr. LIPTON. Under me, there is one gentleman following this for us.

    Mr. YATES. If I want to get in touch with somebody at Treasury, I will get in touch with you?

    Mr. LIPTON. Yes, please.

    Mr. CALLAHAN. Mr. Kingston.


    Mr. KINGSTON. I am going to say a quick statement before my question. You know, linkage is only okay around here if you like what is being linked, and just as some Members of Congress push for environmental linkage and worker linkage, there are others who feel very strongly about the rights of the unborn. I would really recommend, if you are not doing it, to advise the administration to have a proactive task force to already be pulling folks into the same room and start talking about this, because for every hard-core believer on one side of the issue, as you know, there is another one on the exact opposite side.
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    My question, though, is a good politician in a speech always tries to ''wif'' them, what is in it for me. As Ms. Pelosi and Mr. Callahan talk in these strange words, that is the only one I know. But the question is what is in it for me, for the American worker who is displaced or in a dead-end job that may be moving overseas? Why should his efforts in tax dollars be on loan or even at risk to countries who may be taking his job, and what is it directly that we could put on a bumper sticker to motivate him to say, I understand it is a good deal?

    Secretary RUBIN. I think unfortunately—it is a good question. We have spent a fair bit of time thinking about this. I think it is difficult to put very complex issues on bumper stickers, which is one of the reasons I think there is so little public understanding of this. On a broader scale, I think American workers have had an enormous interest in seeing the countries do well again, that we not have instead some kind of terribly greater crisis than we have for the reasons we have already discussed.

    I think in terms of the displaced worker you are talking about, what we have done in the administration is a little bit different. What we have done in the administration is to promote a whole bunch of programs that are designed to deal with displaced workers in an economy of rapid change because we are going to have an economy of rapid change, more technology than these things, but these things as well.

    Having said that, the displaced worker will have a better chance of having access to jobs and having access to that which that worker needs to get back into the economy, in a good economy rather than a bad economy. That is where the worker's self-interest tries to connect to what we do. How you put that on a bumper sticker, I don't know.
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    Mr. CALLAHAN. Mrs. Lowey.

    Mrs. LOWEY. Thank you, Mr. Chairman, and I want to make a brief response to my good friend Mr. Kingston that what we were trying to do is make the point that although it is acknowledged that there is some connection, some linkage, between worker rights, human rights, and the IMF, there doesn't seem to be any appropriate linkage. They are entirely different issues between IMF, the United Nations, and abortion. And while I do think that your recommendation that we all sit down is very appropriate, I just wanted to make that distinction, because the point we were making is each of these issues should be debated, thoroughly, fully, with due respect to everyone's personal views, and I do respect everyone's personal views.


    Just a brief question, with a 1- or 2-second response. I personally appreciate the administration's commitment to the global environmental facility, GEF. Your request for $300 million, understanding 200 goes to arrearages. Perhaps briefly for my colleagues, could you give us some example of how our investment in GEF does help combat the competitive disadvantage of American companies with environmental laws in other nations, how it does put our companies at an advantage and that is why investment is good for our business here?

    Mr. LIPTON. We think GEF is good for America and American business generally because it is going to promote better environmental understanding and better environmental practices around the world, and it has already been put to good use in Poland, in Africa, in Latin America, to try to improve environmental practices, even where the benefits don't strictly, only, go to the people in those countries, but, say, because of improvements in air quality or because of decreases in gases that would harm the ozone, that these things start to be taken into account.
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    But I think that the work of the GEF is also going to improve environmental understanding and, in time, I think environmental standards and laws in the countries, as they come to see the logic, the inherent logic, of taking care of the environment. I think while it might be a slightly longer-term process, in that sense, it addresses a question you raised about American business.

    Mrs. LOWEY. Thank you very much, and thank you, Mr. Secretary.

    Mr. CALLAHAN. Mr. Obey.


    Mr. OBEY. Mr. Chairman, I guess I would just observe in response to Mr. Kingston's question that here is what I think workers have at stake. If we cannot manage to stabilize these Asian currencies at a reasonable level with U.S. currencies, and if as a result those currencies drop by a very large amount, what that does is artificially deflate the cost of goods which those countries can export to the United States, and that makes it very much more difficult for American workers whose products are in competition with those goods to stay employed. So I think that is why we need a stabilization effort.

    Mr. Secretary, I don't have a question. I have a request of you. I have about six companies in my district who have just closed up shop over the last year. In Ashland, two weeks ago, I had a major U.S. company shut down a paper mill. When the mayor and the Governor asked the company for consideration in the form of keeping the equipment, the old paper machines, in that plant because they felt they might have a buyer or two for it which could help keep the plant open and avoid the loss of almost 300 jobs, the mayor was told that that was nonnegotiable, that the equipment was simply going to be yanked out of the plant, and cannibalized for spare parts elsewhere.
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    I would simply observe corporations, justifiably so in my view, get a very large assist from society when they are able to write off depreciation costs for equipment, and plants as well. I don't ask Treasury to necessarily agree with what it is I am trying to do, but I would appreciate it if you would tell me to whom I can go in your agency to get technical help in drafting legislation which would expand plant closing legislation, so that if a company does close its doors in a community, and if it refuses to negotiate with the Governor and with the local municipality about the possible retention of equipment in those empty plants to save some jobs locally, that those companies would be ineligible to participate in any depreciation benefits for the next 10 years anywhere in the country.

    Mr. YATES. All roads lead to David.

    Secretary RUBIN. No, not this road.

    Mr. OBEY. I would simply appreciate the help of Treasury in drafting that kind of a piece of legislation so it would at least make structure sense, even if Treasury itself does not agree with policy.

    Secretary RUBIN. We will be happy to do that, and Don Lubick is our new assistant—well, he has not been as of this morning yet, but Don Lubick is the right person to speak to.


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    Mr. CALLAHAN. Mr. Secretary, Mr. Frelinghuysen, as I mentioned, has done more work and research, is probably more knowledgeable at least than anyone on our side of the aisle, and I am going to have to rely upon him heavily during this process to get me the answers we are both going to need if indeed we are going to assist in this endeavor. I would like for your office to be very responsive to his questions, to meet with him when he calls, in a timely fashion, so we can have the answers as we go through this process.

    Let me just address, in closing, the linkage factor, Mr. Secretary. Whether we like it or not, whether it is right or wrong, this is not the first time in history that linkage of an issue has been used. I can recall during the Persian Gulf crisis when the only way we could go into the Persian Gulf and the use of Egyptian air space and assistance was to forgive debt. There were some in the House at that time, including Mr. Rostenkowski, who decided if we are going to forgive Egyptian debt, we are going to forgive Polish debt. That was linkage in a time of crisis. Certainly you can't compare this crisis to the crisis in the Persian Gulf at that time.

    This is not the first time in history linkage has been used by Members of the Congress, it is not going to be the last time, but it is going to be an issue, and I admonish you to take this message to the President. You all have got to decide, number one, I don't think we have the votes to pass the IMF moneys, the new arrangements to borrow, unless we have the support of those people that form the coalition of Mexico City. Maybe we do. Maybe you know something I don't know. But without that, we are not going to possibly have the votes. That is something to think about, so you might tell the administration, and tell the President, that he must be thinking about the seriousness of this issue. Is the Asian crisis a crisis or not? Is it such a crisis that you are going to have to accept some Mexico City compromise or not?
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    You all are going to have to make that decision, but the decision is going to have to be made before we can muster together the votes in the House. It is as simple as that. Right or wrong, David, that is not the issue at this point. The issue is can we muster together a sufficient number of votes in the House of Representatives to provide you with the moneys you say you need to eliminate this crisis that ultimately is going to impact us.

    So our message is, number one: you have got to establish some vehicle to explain to the American people what the IMF is. You have got to tell them why. You have got to give the Kingston answer to that. You have got to convince the American people so Members of Congress can feel safe in an election year voting for this. That is number one. You have to convey and amplify the justification for the IMF strategy.

    Number two, you have got to recognize the linkage is a reality that is going to be there, whether anybody likes it or not.


    My one question is, Mr. Secretary, that the proposed new arrangements to borrow are modeled after the old general arrangement to borrow, which was created in 1962, and the committee agreed to expand the GAB by $23 billion in 1983. It is my understanding this year it has already been appropriated, but it has not been utilized. Why don't you use the old arrangement, rather than to come to us with a new arrangement?

    Secretary RUBIN. The reason for the new one, Mr. Chairman, is we were able to get a substantial additional—I think it is fourteen additional countries to get involved in the burden sharing, so we thought that was a very strong step forward, and Congress has rightly urged——
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    Mr. CALLAHAN. Is it possible then maybe we can rescind the old arrangement?

    Secretary RUBIN. No. They are two separate questions. One is the capacity of the international financial institution to deal with the issues. At the present time we have roughly $15 billion of what is the real capacity in the IMF, we have the roughly $23 billion in the GAB, and we are requesting the NAB and the quota. I thought you were asking a different question which we had talked about.

    Mr. CALLAHAN. I am asking, since the $23 billion out of the GAB has not been utilized, why do you need new authority?

    Secretary RUBIN. Because all of this is being done in the event, as I have said before and I will say it again, is a low-probability event, at least right now, but nevertheless, if it happened, a very serious event, which is that the crisis we are hopefully working our way through, although it has a long way to go and a lot of uncertainties, will reignite and envelope countries around the world. If that were to happen, we need to have a capacity that is at least reasonably commensurate with the problem we have to deal with, that will take both the existing IMF, the GAB, the NAB and the resources we would get from the quota.

    Mr. CALLAHAN. Once again, there are a lot of questions the Members are going to have to have you respond to.

    Secretary RUBIN. We would be delighted to.
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    Mr. CALLAHAN. Under the new order, we will give the Ranking Democrat on the panel the opportunity to close.

    Ms. PELOSI. No, Mr. Chairman, you will have the last word, that is for sure, today and in the end. However, I did want to ask one question.

    First, though, I want to say, Mr. Secretary, that while we are asking about questions that are problems to us, I want to commend you and the administration for some progress in the last year on African debt relief, your commitment to GEF, and to the environmental issues. Following up on last year's testimony, in fact, in our questions there, the Treasury has been very supportive on extending the inspection mechanism to the IFC and MIGA. The U.S. Executive Director of the World Bank has been very supportive in thwarting a tax from developing countries on the current Inspection Panel. Treasury has been very helpful in pressing the bank to make a country assistance strategy publicly available, and I appreciate that.

    I commend you once again, as I did in my opening statement, on the reforms to the MDBs and the savings that they represent to the American taxpayer and the opportunity it provides for the U.S.

    And just in closing on the IMF, I understand what you said about how we watch financial situations, and I certainly don't think anybody has to answer for what is possible, because almost anything might be there are so many variables, but the predictable is more of our responsibility. I think we owe those answers to the American people about how we can be better prepared in the future to predict what could happen and what the impact might have on American workers, because while we are all saying the contagion factor argues for the bailout, nonetheless we would rather not be in this position to begin with.
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    Secretary RUBIN. Prevention has to be a very central focus as we go forward.

    Ms. PELOSI. I thank you again for your testimony and for your leadership and extend that thanks to Secretary Lipton as well. Thank you, Mr. Chairman. Last word.

    Mr. CALLAHAN. The meeting is adjourned.

    [Questions and answers for the record follow:]

    "The Official Committee record contains additional material here."

Wednesday, February 25, 1998.





Chairman Callahan's Opening Statement

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    Mr. CALLAHAN. The subcommittee will come to order.

    First of all, I would like to welcome both Secretary Holum and Slocombe here this morning and thank you for taking time out of your busy schedule to appear before the subcommittee. I am going to give each of you a copy of my opening statement and, thus, not put you through the boring reading of such a statement. But, overall, the security assistance portion of the 1999 budget appears to reflect a shifting of resources away from security assistance to other foreign affairs, such as export enhancement, support for Russia and the newly independent states and multilateral assistance.

    And, while the President's overall budget for foreign operations represents an increase of about 9 percent over last year's level, security assistance rises only about 2 percent: Specifically, military assistance which is reduced; IMET, which remains steady; and the Economic Support Fund, Peacekeeping and other nonproliferation accounts each receive increases.

    And on balance the President's security assistance request represents the status quo and that is not all bad. In this regard, the budget does not recognize one of this year's most important developments. And that is the request by Israel to begin to readjust the Economic Support Fund that we have been providing them for a great number of years.

    I know the Prime Minister has not yet submitted to us his formal plan of action to reduce the Economic Support Fund. Nevertheless, we did discuss with the Finance Minister the reality of this becoming effective in this budget. I know that you did not know the particulars and, thus, you could not do that. But that is going to be a favorable factor.
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    I commend the Israeli Government for their bold step in that direction by recognizing the success of our economic support for Israel. That is why we have been contributing all these years is to bring their economic status to the point where it is today. They are in great economic condition in Israel.

    I have not made it a secret that I do not necessarily agree with the wisdom of a percentage of what one country gets going to another country. I think that is not a good policy. I think some Administration some day has got to take the initiative to recognize that and, if you have one country who has needs greater than an other country, then we ought to consider with available funds the money for the country with the most needs, not based upon what another country gets.

    But I have been talking about this for a great number of years and have not heard a peep out of the Administration with respect to wanting to change that policy. But it is a policy that should be looked at. And I applaud the Israelis once again for coming forward with the initiative to say that the billions of dollars we have contributed over the last couple of decades has worked.

    And that they are going to begin to reduce their economic support needs and we are going to be taking this into consideration when we put together our budget.

    But, in your defense since you do not know what, I do not imagine, what they are proposing then you could not include that in your recommendations.

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    I want to call your attention also to KEDO and the growing debt. I guess you both know this is something that I was unaware of until the debt was probably $25 million. I complained at this point that I did not think we ought to be borrowing money against pledges that other countries have given us. And now, that debt is at $47 million and now you are requesting more money for KEDO.

    We probably have contributed 50 percent of the cash that has been sent to that program and that was not the intent of the program. There has got to be some major change in direction there and we have to stop borrowing money.

    I notice in the budget request that you requested a $5 million increase for KEDO basing it on the increased price of heavy fuel oil. And, yet, every indication I get from the Wall Street Journal and other publications is that the price of crude oil is going down. You know, maybe it costs more in Korea, I do not know, but we are going to have to look at that.

    And I do not want to put any restrictions on the Administration about prohibiting them from borrowing additional money but I am growing more and more concerned that that debt is going up. I know you have pledges from countries to pay this off, but that is not sufficient. They ought to be putting the money up if, indeed, they agreed to do it, just like we have put up what we agreed to put up.

    So, that is going to be a concern I think of this committee and certainly is going to be my concern. So, with that I am going to yield now to Mr. Yates and, at the same time, provide each of you with copies of my opening statement.

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    [The information follows:]

    "The Official Committee record contains additional material here."

    Mr. CALLAHAN. Mr. Yates.

Mr. Yates' Opening Statement

    Mr. YATES. Thank you, Mr. Chairman.

    I want to welcome Under Secretary Slocombe, and I want to welcome Under Secretary Holum this morning. I, too, have a long statement which I do not propose to read and we can put that into the record later on.

    I want only to say that the United States is the only country in the world that is in a position to provide effective leadership on issues of global economy and the issues of our independent world, in this world in which we live in today.

    And it is my belief that if we are going to continue to effectively exercise our role in international affairs, we are going to have to fully participate on a long-term basis in that by demanding that those nations that receive our security assistance abide by internationally recognized standards in the area of labor, civil and human rights, and to assist the United States to help us to enforce international conventions on the production of chemical and biological weapons of mass destruction.

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    I will have other questions as the hearing proceeds and I look forward to a constructive discussion, not only with the witnesses but, with my good friend, the Chairman, Sonny Callahan.

    Thank you, Mr. Chairman.

    [Mr. Yates' written statement follows:]

    "The Official Committee record contains additional material here."

    Mr. CALLAHAN. Once again, Secretary Holum, we appreciate your coming, especially at this time of crisis in your family, but we understand that you are going back home immediately after that. So, we appreciate the extra effort you have made to be here with us today and we will get you out of here just as quickly as we can.

Mr. Holum's Opening Statement

    Mr. HOLUM. Thank you, Mr. Chairman.

    I will take the cue that you and Mr. Yates have set and keep my remarks brief. I have a longer statement for insertion into the record.

    A year ago Secretary Albright and Assistant Secretary McNamara and Under Secretary Slocombe appealed to the members of this committee for a bipartisan approach in providing resources for protecting America's vital security and geopolitical interests. Through your leadership, Mr. Chairman, and the committee's support, we have worked together successfully over the past year to advance American interests and sustain American leadership.
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    During that time there has been important progress. Europe remains peaceful, free and undivided as the Cold War recedes further into history; peace and security and prosperity are taking firmer root in Bosnia; security cooperation in Asia is on the rise, after slowly being transformed by new leaders and fresh thought; and the rule in the Western Hemisphere is interdependence, democracy and cooperation. I think we have also undertaken to adapt and strengthen key alliances, major bilateral relationships and regional organizations to these new realities.

    Taken as a whole, these efforts are paying dividends. America is prosperous at home and is leading the world into a promising 21st Century. Yet, while we thrive at home, we should not become complacent or ignore the challenges beyond our borders. Regional conflicts, the proliferation of weapons of mass destruction, persistent attempts to undermine or overthrow legally constituted governments, the ongoing crisis in Iraq should serve to remind us that tyrants and terrorists endure and that threats to democracy, justice and stability persist.

    If Americans are to be secure in such a world, if our way of life is to continue to prosper, if the freedom we treasure is to remain as a beacon for others, then we must be willing to dedicate our resources to protecting and enhancing America's national interests. And, so, I am here this morning to ask once again for your support.

    In Europe, expanding NATO and cultivating peace in Bosnia are two elements necessary for a secure and undivided Europe. Our security assistance request focuses on assisting our friends in Central Europe and the Former Soviet Union through programs such as the Partner For Peace, low-cost Central European Defense Loans, and Military Education and Training.
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    In the Middle East, we seek to continue our work for a comprehensive and lasting peace where both Israel and her Arab neighbors are secure enough to take risks for peace and can, together, reap its benefits.

    Accordingly, I ask the committee to support military and economic assistance for Israel and Egypt, while also backing our proposals for a Middle East and North African Development Bank, and for providing assistance to the Palestinian people and to Jordan, where King Hussein has been an unshakable and courageous supporter of peace.

    In Asia our budget request supports U.S. interests in fortifying our core alliances, maintaining our forward deployment of troops, continuing implementation with our partners of the Agreed Framework, which is dismantling North Korea's dangerous nuclear program, and working with ASEAN and other regional leaders to encourage a return to representative government in Cambodia.

    Latin America continues to make great strides. Today except for one lonely exception, every government in the hemisphere is freely elected. Central America is without conflict for the first time in decades and Peru and Ecuador are making significant progress to end their border dispute. However, the region still faces many challenges. Our budget request supports continuing market-based economic reforms, strengthening democracy and the rule of law, building regional cooperation on defense and security matters, and working with the region's militaries to develop sound military strategies and doctrines.

    In Haiti, the challenges of shaping democratic institutions and a market economy have been especially difficult. Unemployment, hunger, poverty and adequate education and poor health all continue to hold Haiti back. Our request reflects increased assistance to help our neighbor in the Caribbean join the rest of the region on the path to prosperity and stability.
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    In Africa, a new era is emerging. Today many old conflicts are being settled, countries are beginning to modernize, centralized economies are giving way to open markets and civil societies are beginning to flourish. However, we need to stay engaged to achieve the peace within reach in Angola, to consolidate peace in Liberia, to nurture a thus far elusive peace in Sudan and Somalia, to encourage justice and reconciliation in the face of conflict and violence in the Great Lakes region and to cultivate the African Crisis Response Initiative so that African militaries can better respond to humanitarian and peacekeeping crises on the continent.

    We will continue to champion a cause that I know is of great concern to many on this committee and in the Congress. Through the President's Demining 2010 Initiative we are committed to ensuring that civilians in every country, on every continent are secure from the threat of land mines by the end of the next decade.

    Mr. Chairman, many of our programs and concerns are addressed to particular countries or parts of the world but there are threats, such as land mines, that defy borders and regions and can best be considered in global terms. The proliferation of weapons of mass destruction, delivery systems and advanced conventional weapons now pose the principal direct threat to the security of the United States, our forces and our allies and friends.

    The arms control and nonproliferation efforts remain a key part of our foreign policy strategy to keep America safe. We are engaged in strenuous efforts to limit and reduce destabilizing forces, curb the spread of weapons of mass destruction, and build confidence through transparency and verification of arms control compliance.

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    In Iraq our work is focused on containing Saddam Hussein's desire for nuclear, chemical and biological weapons. We must also ensure that no other nation takes Iraq's place as a menace to peace and stability.

    The United States is determined to take these threats head on and we request your assistance in providing us the necessary resources. Working bilaterally through the science centers in Russian and Ukraine, though export control programs and the Nonproliferation and Disarmament Fund, and multilaterally through the IAEA, KEDO and the CTBT Preparatory Commission, we seek to stem the unrestrained flow of sensitive materials and technology that risks the well-being of the American people and our friends and allies, both now and in the future.

    The funding of our security assistance budget has a quantifiable impact. It protects American lives, it allows all Americans to thrive and prosper in a stable, peaceful, and open international system. U.S. security depends on restrengthening our alliances, resolving regional conflicts, limiting the proliferation of destabilizing weapons and assisting democratic forces in emerging or threatened democracies. We are fortunate to have both the will and the resources to fulfill our goals. And the work of this committee has enhanced American leadership around the world.

    Mr. Chairman, I wish to thank the members of the committee for this opportunity and I will do my best to answer your questions.

    [Mr. Holum's written statement follows:]

    "The Official Committee record contains additional material here."
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    Mr. CALLAHAN. Thank you, Mr. Secretary.

    Mr. Slocombe.

Mr. Slocombe's Opening Statement

    Mr. SLOCOMBE. Mr. Chairman, this is, if I remember correctly, the fourth time that I have had the honor and the pleasure of appearing before this subcommittee with respect to the security assistance appropriations.

    I want to begin by once again expressing the Department of Defense's appreciation for the leadership that this subcommittee and you, in particular, Mr. Chairman, have shown in support for the security assistance program.

    Like the rest of this bill it is not a particularly popular program, but it provides essential instruments by which we protect our national interests worldwide and advance our national security.

    As in the past, I will focus my discussion primarily on the parts of the account which are either administered by the Department of Defense or are of special interest to the Department of Defense. But I want to make the point that the overall appropriation for foreign operations is an important part of our national security effort. In the Department of Defense we focused, obviously, on the military component of protecting national security but the broad non-military instruments which are provided for in this bill are also critical and in almost all cases preferable.
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    The security assistance budget, in particular, provides us with the tools with which we can stay engaged in the world and help to shape events in regions vital to American interests.

    Let me just identify a few parts, in particular, that I want to call the subcommittee's special attention to. Let me begin with the International Military Education and Training Program, IMET. This is perhaps our most cost-effective security assistance program. It fosters military to military relations and promotes military professionalism, both of which are key to our ability to quickly and effectively conduct joint operations with friendly countries and to contribute to the ability of those countries to defend themselves.

    In addition to the regular IMET which provides military training, the expanded International Military Education and Training Program addresses issues of military justice, respect for human rights, effective defense resource management and improved civil/military relations.

    All of the courses provided under this program contribute to our objectives of building democracy and broadening respect for American values in such areas as Central America, Africa, and the newly independent states.

    Recognizing that the recommendations are controversial, I want to be clear that the Department of Defense supports the funding request for IMET for Indonesia and Pakistan. Both of these countries are of critical importance in their development in the coming years; in Indonesia, in particular, with the Asian financial crisis.
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    There are also countries in which for better or for worse the military plays a key role in the politics and in the development of and stability of those countries. It is in our interests that the rising generation of officers in those countries be trained in the United States rather than in other programs.

    Across the world, graduates of both the regular and the expanded IMET programs frequently rise to positions of significant responsibility in their home countries. This is a factor that can be of considerable importance in building positive government-to-government and military-to-military relationships.

    For this reason and for the broader purposes I outlined before, the Commanders-in-Chief of the Unified Commands have consistently identified IMET as a key tool for carrying out their mission of building solid military relationships with the countries in the regions of which they are responsible.

    Under Secretary Holum has mentioned the requests for support for our allies and friends in Europe. This is significantly the first year in a very long time that there is not a request for security assistance funding for Greece and Turkey reflecting the developments that have taken place in those countries.

    Reflecting the changes since the end of the Cold War, we are requesting funding of both grant funding and support for loans for countries in Central and Eastern Europe. This funding supports NATO's Partner for Peace program and is critical to helping ensure that Poland, the Czech Republic and Hungary can be ready to accept the military burdens of NATO membership. It also helps keep the door open to countries that are not yet invited or that have no particular interest in joining NATO but in whose stability, independence and freedom we have a strong national interest.
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    The bulk of the money in the security assistance program, of course, goes to the Middle East. We support those requests. I understand the great attention that the subcommittee has devoted to this issue and your concerns that you identified, Mr. Chairman, in your opening statement. I want to make particular reference to the funding which is provided for Jordan.

    We are requesting in the Fiscal Year 1999 budget $45 million in FMF for Jordan to support the squadron of 16 F-16 aircraft for which Congress has appropriated funds in recent years. I simply want to make the point that that program is on schedule and within the budgetary constraints which were established when we came up and made the extraordinary request which the subcommittee supported some years ago.

    There is also funding in the so-called NADR account which I can never remember what it stands for. It is nonproliferation anti-terrorism, demining and related programs. One part of that supports the State Department funded demining program which is an important aspect of President Clinton's Demining 2010 Initiative. The accomplishments of this program and the related programs conducted through the Department of Defense have had a striking impact on dealing with the very serious problem of land mines left over from conflicts in the Third World.

    There is funding also requested for enhanced peacekeeping authority for the Africa Crisis Response Initiative and for other programs that are of concern to the Department of Defense.

    I also want to make reference to the funding request for KEDO. The problems which you identify in the financial support for KEDO are real and need to be dealt with and I fully endorse your proposition that other countries should be making expanded contributions to this program and that they should pay the amounts that have been pledged so that KEDO does not have to go into the market and borrow money, and also so that with more regular financing they are able to buy the heavy fuel oil on a more regular basis. One reason the costs are high is that they tend to have to buy in the spot market which drives the price up. However, all that said, the Agreed Framework is a very important element of our security posture in Northeast Asia.
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    As you know, the two areas where we focus on the so-called major regional contingencies, the major theater of wars, are the possibility of renewed aggression in the Korean Peninsula and the possibility of renewed aggression by Saddam Hussein. In the Korean case, the problems will be vastly increased if the North Korean regime were able to continue to produce nuclear material at the Yongeyon facility which has been closed down as a result of the Agreed Framework and continued support for the KEDO effort which is an integral part of the Agreed Framework is extremely important to our security in that region.

    There are a number of other issues that I am sure the subcommittee will want to ask about, but for you and Mr. Holum, Mr. Yates set a distinguished example in brevity, so I will stop now.

    [Mr. Slocombe's written statement follows:]

    "The Official Committee record contains additional material here."


    Mr. CALLAHAN. Well, thank you, Mr. Secretary.

    First, let us talk about the Middle East Development Bank. I do not know why the Administration keeps coming up here with a request for monies to fund the Middle East Development Bank since there is no Middle East Development Bank participation by the United States and I assume that you just put that in there to give us something to cut. [Laughter.]
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    I do not know whether that is the case or not but if, indeed, that is the case here, your wishes are going to be granted. [Laughter.]

    You know, this committee is not supportive of that Bank or the expansion of development banks. I think we provide financing capabilities for the Middle East, all countries in the Middle East, and certainly some of them are financially able to support themselves. So, I do not think we are going to make any contributions to that.

    This goes all the way back to Secretary Warren Christopher. I can recall in my first committee hearing with Secretary Christopher request I instructed him not to buy any green eye-shades which is a connotation that people who work in banks wear green eye-shades. I know they do not any more but I would not expect that you ought to go out and spend any money on green eye-shades for employees of the new bank.

    I have already expressed my concern about KEDO and I want to encourage you, Mr. Secretary, that before you borrow any more money you come back before this committee. We are not going to put it in bill language requiring you to do that, but I do not think this debt ought to grow substantially more in size without this committee at least being aware of what is going to be perceived some day as an obligation of the United States.

    And I know that we are not signing the note, or we are co-signing the note but we are putting up collateral of an agreement that the other countries are not coming forth with, with respect to cash monies. And you know the economic problems in the Far East and they have got all these problems and we are having to enhance the International Monetary Fund to go in and bail them out and then we are borrowing money and signing our names to it and saying, well, they are going to give us some money.
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    Anyway, I think you get the gist of it. And we are going to have to request, respectfully, that before you borrow any more money for this program that you come back to this committee to at least inform us of your intent rather than letting this thing grow to $200, $300 million and then coming in here like they do with everything else saying, this is an arrearage and we owe this money and we have got to pay our debts. We do not want to get in that position.

    So, with that I am going to yield to my colleague, Mr. Yates.

    Mr. YATES. Thank you, Mr. Chairman.

    Gentlemen, last week we were on the verge, we, the United States was on the verge of a strike against Iraq, and Saddam Hussein. You are State and Defense and you connect the foreign operations program with the Administration. Are you lonesome? Does the White House consult with you? Why is it that you are not more persuasive with some of our Arab neighbors in persuading them to permit us to use bases and other things, as well?

    Mr. SLOCOMBE. In each case when we ask for what we needed, we got it. We did not ask for what we did not need. But when we asked, we were given the various clearances and information that we required.

    Mr. YATES. Is that true of landing rights in Saudi Arabia or did you not want that?

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    Mr. SLOCOMBE. We, of course, operate hundreds of airplanes, combat airplanes out of Saudi Arabia on a daily basis.

    Mr. YATES. I know.

    Mr. SLOCOMBE. On a continuing basis.

    Mr. YATES. But none would be permitted to strike.

    Mr. SLOCOMBE. I do not want an open session to discuss in detail what arrangements we have with a particular country.

    Mr. YATES. I see, all right, I respect that.

    Mr. SLOCOMBE. I do want to make the point that——

    Mr. CALLAHAN. I guess the question that Congressman Yates is asking is do they consult with you? I mean do we use our economic support and our military financial support, do they consult with you or do they just ignore you and go do on their own whatever they think is necessary?

    I think he is asking the question about consultation, do they include you?

    Mr. SLOCOMBE. They being?

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    Mr. CALLAHAN. They being the President or whoever makes the decision, the Secretary of State.

    Mr. SLOCOMBE. As to where we spend the money or——

    Mr. CALLAHAN. Well, are they saying to you, we need the assistance of Saudi Arabia, we need the assistance of other nations that we provide military financing for. Do they consult with you and say, are these——

    Mr. SLOCOMBE. There is very close consultation between the State Department and the Defense Department, both in constructing these budgets——

    Mr. CALLAHAN. I am sorry.

    Mr. YATES. No, you are absolutely right.

    Mr. SLOCOMBE [continuing]. Both in constructing these budgets which, of course, is a long-term matter which is done as a part of the general budget preparation, and also in terms of coordinating in the case of a crisis like this. There have been literally virtually daily meetings of the so-called principals committee, which is the Secretary of State and Secretary of Defense, National Security Advisor, the Chairman and Joint Chiefs of Staff, the Director of Central Intelligence, going over such issues as making the necessary appeals, the necessary requests, getting countries to help.

    Some two dozen countries have contributed forces or pledged to contribute forces that are on the way to the region.
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    Mr. YATES. Can you list those for the record, please, or is that classified?

    Mr. SLOCOMBE. Again, I can list some, certainly. The best thing to do is to list the ones that are already there that I am sure are already there. The British have a carrier and a couple of other ships, several fighter aircraft which are in Saudi Arabia on a continuing basis and they have augmented that capability. But when Secretary Cohen was at Al-Jabar Air Field in Kuwait there were British planes on the air strip.

    There is an Australian SAS, which is Special Air Services Detachment, which has arrived in Kuwait. Its mission would be to help participate in the combat search and rescue, to rescue downed pilots.

    Mr. YATES. This is the British Empire then that is joining with Tony Blair.

    Mr. SLOCOMBE. The British are a good ally.

    Mr. YATES. Okay.

    Mr. SLOCOMBE. The Argentines——

    Mr. YATES. Who else can we say the same for?

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    Mr. SLOCOMBE. All of the NATO countries——

    Mr. CALLAHAN. Australia.

    Mr. YATES. Australia. [Laughter.]


    Mr. SLOCOMBE. Who are good allies. I thought you meant who else was contributing. All of the NATO countries have cooperated in one way or another (even Iceland) with the single exception of Greece, which has its own relationship to the Middle East, and Luxembourg which has a rather modest military capability.

    We have been in discussions with a number of other countries outside Europe, although there is no question that we have received the strongest backing from the European countries.

    Mr. YATES. I have a feeling that you must be feeling kind of lonesome. I mean we, the United States must be feeling kind of lonesome after the coalition that President Bush built when we went into the Gulf War. Of course, this is not as massive or as majestic an engagement as the Gulf War. And presumably a surgical air strike is a smaller mission, something that you use and then you are through with. Although I do not know that will suffice in the case of Saddam Hussein.

    And I wonder where is your influence? Where is the influence as the Chairman was asking you, where is the influence of this program in persuading people? Does it have any or do you not use it?
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    Mr. SLOCOMBE. It does have substantial influence and one way in which, for example, we build our relationships with the Arab countries who, obviously, do not get any—the countries in the Arabian Peninsula in the Gulf, obviously, do not get any foreign assistance money—is through our foreign military sales program, through our training programs, most of which are paid for. So, that these programs are an important part of the way in which we build relationships.

    The IMET program, in particular, is a matter of building long-term relationships and it is striking how often when we go out and visit these countries and their people come here the senior officers have participated in American training programs. That means that they speak English, it means that they have the knowledge of the United States, it means that they have friends in the United States.

    Mr. YATES. Good. How much cooperation are you getting from Egypt?

    Mr. SLOCOMBE. The Egyptians have provided over-flight and clearance rights, which is obviously essential. We have not asked them, because for the reasons you state, we do not think that for the kinds of operations we had in mind there was any meaningful contribution that the Egyptians could make.

    And I will not beat around the bush, it would have been difficult for the Egyptians to agree. We do not, being sensible, ask people for things that we do not need when we know it would be difficult for them to do it. The fact is that——
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    Mr. YATES. The Arab League, in this case, is sacrosanct, is it not?

    Mr. SLOCOMBE. I am not sure I understand what you mean by that.

    Mr. YATES. Well, I mean the unity of the Arab League in that they do not want to attack another Arab nation.

    Mr. SLOCOMBE. Well, nobody wants to attack Iraq and they are——

    Mr. YATES. Well, I used the wrong word.

    Mr. SLOCOMBE. Their problem is that they have to deal, even countries that are not in any sense democratic, with the opinion of the mass of their population. They are not eager to be seen as joining in an attack on another Arab country. However, and I want to repeat this, we got basing rights in a number of Gulf countries, we got rights to fly aircraft over their air space, we have got the various kinds of support and participation that we actually need.

    We will have to be ready to launch a very, very substantial strike if it turns out—if there had not been an agreement we would have done it—and if it turns out that he is not, Saddam Hussein is not going to do what the agreement requires, we will do it. We have that capability today.
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    Mr. YATES. The one question that seems to be predominant among my constituents is, assume you make your strike, what happens after that? You have a massive strike. I do not know whether you are able to eliminate the biological and chemial weapons as a result of that strike.

    What happens after that? You are not going to occupy Iraq, are you?

    Mr. SLOCOMBE. From the President on down, the Administration has been candid in saying there is no way that any military strike can eliminate all of Iraq's weapons of mass destruction program. That six weeks of bombing during Desert Storm did not and obviously a more limited, though large attack, would not.

    What we would be able to do and what the strike which is planned would do is deal a very, very heavy blow to that program and, in particular, to its, central nervous system and its ability to deliver the weapons. It would not permanently eliminate it.

    Mr. YATES. That would assume you know their location then and inspectors can go there.

    Mr. SLOCOMBE. Again, I do not want to go beyond what I just said in terms of what the target plan is in an open hearing. But, no, by definition we do not know the location of all of the elements of his program because that is what the dispute about inspections and UNSCOM access is.

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    We do know where key parts of the program are and in particular we know a lot about what he would have to do if he wanted to go from a potential program, which he may have retained limited—certainly has retained the capability to have a program—and he may have retained limited amounts of stocks and so on.

    But to have a large-scale program that would be militarily significant we know a lot more about where the facilities that would be necessary to support that kind of a program are and they are much more susceptible to targeting.

    Mr. YATES. Thank you, Mr. Chairman. I have taken enough time.

    Mr. CALLAHAN. Mr. Wolf.

    Mr. WOLF. Thank you, Mr. Chairman.


    I have a question with regard to Indonesia and East Timor. I want to give you a brochure, if you take a look at it, showing the Indonesia military torturing people on East Timor. I was in East Timor last January and we saw young men who had their ears cut off and terrible atrocities. There was also a report that the U.S. Green Berets continue to train Indonesian Kopassus, their so-called Special Forces and U.S. Marines are training Indonesian Marines and the Kopassus forces have been implicated.

    Why can we not just—particularly since I heard on the radio today that President Clinton has spoken to the President of Indonesia twice in the last several weeks with regard to the IMF—why cannot we just tell them both through our military and State Department, draw down the forces on East Timor and allow the people there to have relative freedom. Why cannot we do that? And I am worried that our military effort is in essence resulting in more violations. And I would ask you to look at that brochure and to get back to me if you would on your comments and thoughts with regard to that.
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    Could you tell me that?

    Mr. SLOCOMBE. There is, of course, no military assistance program for Indonesia. And the United States has consistently made clear that we object in the strongest possible terms to human rights abuses by the Indonesian regime. We have tried to work with them to put a stop to those abuses and it has not—they have, by no means, entirely stopped.

    I think it is something that the Indonesian military is aware that it is a problem that they need to address. Just telling them to do it does not make them stop.


    Mr. WOLF. No. But we are bailing them out on the IMF. The rupiah has dropped about 80 percent in the last several months. We are giving them assistance. I understand former Vice President Mondale is going out there this weekend. Is there not the mechanism though—this would be good for Indonesia.

    This would actually help Indonesia. One, the forces that are on the island are taking a lot of money. Secondly, I think that from a publicity point of view, PR, it would be good for the Indonesian government and help strengthen them if they were to draw down the forces on East Timor and just allow the people to have relative autonomy, but, certainly, not pulling people out in the middle of the night.

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    We were told that at 1 or 2 o'clock in the morning, military was coming in and hauling young kids out and moms and dads not seeing them again. And our government has a good relationship, our military. When I met with their military they like our military. And we have a good relationship. We should use that relationship to make things change for the better on East Timor.

    More than just speak out once or twice about it. Bishop Belo, the Catholic Bishop, got the Nobel Peace Prize, and a year has gone by and more killing and it continues to take place.

    Mr. SLOCOMBE. We have repeatedly raised these issues with the Indonesian government and with the Indonesian military and I think that in part the issue is how best to influence a regime like that. One approach is to say that these—and they are genuinely shocking and inexcusable—that they are so bad that we should have nothing to do with the regime or the government or the military, even though in many other areas we have common interests with Indonesia and we certainly have an interest which is a hard-headed domestic economic interest——

    Mr. WOLF. I agree.

    Mr. SLOCOMBE [continuing]. Of not seeing Indonesia collapse economically.

    Mr. WOLF. I completely agree with that.

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    Mr. SLOCOMBE. And the question having to do, for example, with whether or not to provide IMF funding for Indonesia, is the question of what is the best way to build the kind of relationship with the Indonesian military where when you convey a message like this, which I completely agree with is the message, it is listened to?

    Mr. WOLF. I think we can talk, I would like you to comment on that and also I think the answer is for the Secretary of State to publicly speak out. I think Indonesia is a friend. We want them to prosper, we want their economy to do well. We also want the 550,000 people on East Timor to be able to live in freedom and have relative autonomy.

    I think by doing that and drawing the forces down you actually help Indonesia. So, the recommendations is as a friend you come along side and say, you are out of control, this is not a good idea, stop it. And I think—but we never hear any comments. And, you know, Web Hubbell was hired by people connected to the Riady family and went out to East Timor after he left the Justice Department. So, there is a feeling that this Administration is not willing to publicly speak out on these issues.

    So, if you could, you know, get back to me. I do not want to take too much time on that, but if you could comment on both that I would appreciate it.

    The other thing is that on the $5 million with regard to the Ethiopia and the countries surrounding Sudan, have you actually expended that money? Last year, you were helping Uganda, Ethiopia, Eritrea, what is the status of that effort?

    Mr. SLOCOMBE. I will have to get you the precise numbers but I know at least part of it has been expended, yes.
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    [The information follows:]

    For FY97, $4.75 million was allocated to the Front Line States program. Of the $4.75 million, Ethiopia receive $1 million; Eritrea received $1.75 million; and Uganda received $2 million. Ethiopia is using the funds to support their C–130 program. So far, Ethiopia has obligated $862,000 of $1 million allocated. Eritrea has not obligated any of $1.75 million allocated. Uganda has obligated $476,000 of $2 million allocated which transported their FY96 equipment from the U.S. to Kampala.

    For FY98, $5 million has been allocated to the Front Line States program. To date, State Department has not made actual country allocations.

    In response to your question if we are doing enough, program funding is sufficient. For FY99, $5 million has been requested for the Front Line States program.

    Mr. WOLF. Part of it. Do you know how much of it?

    Mr. SLOCOMBE. I do not have the exact figures.

    General DAVISON. We do not have that at our fingertips but the expenditures involve the training assistance of their cadres on demining, and those kinds of things that are going on.

    Mr. WOLF. Are we doing enough? The assassination attempt on President Mubarak came from people who are back inside of Sudan now. Are we doing enough to help with that?
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    Mr. SLOCOMBE. I think the problem is not money, is not dollar limited. It is not an easy problem to deal with the threat that Saddam poses to his neighbors. And I understand your point that it ought not to be dollar-limited and I think it is not dollar-limited.

    Mr. WOLF. Okay. If you could come back and tell me how much has been expended and what——

    Mr. SLOCOMBE. Let me make sure I understand the question. There is a certain amount that is allocated for the front-line states, and how much of it is actually been expended?

    Mr. WOLF. Right. And is that level enough and should we be doing more?

    Mr. SLOCOMBE. That is a readily determinable question but even in this type of stuff I am pretty sure I do not have the answer.


    Mr. WOLF. The last thing is just a comment. You do not have to even comment on it. In December we went to Bosnia—it was my sixth trip there—to kind of spend some time with a National Guard unit from my district and also with the troops up in Tuzla. They are doing an amazing job but they are stretched so much. The average man or woman that we spoke to had been in Somalia, Haiti, Desert Storm——
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    Mr. SLOCOMBE. Is this civil affairs unit?

    Mr. WOLF. No. Some had been back in Bosnia for the second time and many were telling me that the impact on their families was very, very difficult. I believe that the divorce rate was very, very high. They were telling me stories, whereby, they would listen at the telephone where somebody was talking to a loved one back home and the difficulties.

    And I really believe that they are stretched so thin and have been gone so long that this is something that I think that the military really is going to have to address. And it is just not enough to say that, you know, they are doing a great job, as they are, but I think the personal impact on their families is so great that I think there is going to be great pain.

    Mr. SLOCOMBE. There are particular high-demand, low-supply units. Some of them in the reserves, some of them in the active forces. But this is a particularly serious problem. And I know that Secretary Cohen and General Sheldon are very conscious of it as are the service Chiefs. It tends to take time to fix because you have got to create more units of the relevant kind.

    Mr. WOLF. Thank you, Mr. Chairman.

    Mr. CALLAHAN. Mrs. Lowey?

    Mrs. LOWEY. Thank you, Mr. Chairman.

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    Welcome, Mr. Secretaries. Before I get back to the Middle East, I would just like to follow-up on my colleague, Mr. Wolf's question regarding IMET. What has puzzled me and I would appreciate your comment and some of us are thinking of legislation in that regard, is why we would allow countries to purchase IMET training, military assistance, if, in fact, we have had a compelling reason to prohibit them from being part of our grant program?

    Would you respond to that, please? And I am specifically referring to our Fiscal Year 1998 Foreign Operations Report which suggests the development of global guidelines to screen IMET participants for human rights abuses. So, if they cannot be part of our grant program, it seems to me a problem if we can allow them to purchase this assistance?

    Mr. SLOCOMBE. First of all, everybody who participates in any of our military training programs, IMET and other kinds, will now be subject to the process which was established in a cable which went out in December which has been reported to the subcommittee where the host government is required to make inquiries about human rights abuses, other kinds of drugs, crimes, corruption, that kind of thing.

    And then the embassy in the sending country also has to follow-up and make its own inquiries and keep records. So, that that issue applies to both purchased IMET and to grant IMET.

    We are certainly aware of the concerns of the committee and that Indonesia has purchased in Fiscal Year 1997 a total of 12 courses at the Defense Institute for Security Assistance Management, the international defense management course, the advanced language instructor course, the one basic officer's training course and one international hydrographic management and engineering program course.
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    It has been the position of the Department of Defense—those were all in Fiscal Year 1997—it has been the position of the Department of Defense that in the absence of a specific provision in the statute the restrictions on grant IMET do not apply or are not understood to apply to purchased IMET. However, we are conscious of the subcommittee's concern in that respect.

    I believe that it is in the interest of the United States that programs of these kind should be made available to countries that are prepared to put their own funding into paying for them. And it is in our interest to have those programs continued. I think there is a difference and a legitimate difference between the relationship that you are prepared to pay for a foreign country to have and the situation where they are using their own funds. That is the rationale for the decision.

    Mrs. LOWEY. I will not pursue this now, but at some other opportunity I would appreciate some additional information because it has been brought to my attention that a lot of the screening is ad hoc, it is inadequate, it is certainly not thorough. And I would appreciate the opportunity to talk with you further about it.


    Back to the Middle East because certainly that has been the focus of this Congress and this Administration in the last month or so. I would like to say personally that I think that the Administration was firm, kept on target and it has ended for the time being in a satisfactory way.
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    Many of us have been very concerned about the flow of new technologies, many from the United States, that have entered the arsenal of Arab States in the region. In fact, often before Israel even buys the same systems. We have always felt, as the important ally in the region and a solid democracy in the region, it was very important for Israel to maintain its military security.

    I wonder if you could discuss with us Israeli Finance Minister Neèman's recent proposal? What is your reaction to it? Keeping Israel's military expertise in balance is very important to the stability of the region. Could you discuss it with us?

    Mr. SLOCOMBE. We are certainly committed to maintaining Israel's qualitative edge. And in addition to the very substantial funding, which dwarfs that which goes to any other country in the world, which is provided through this program, we have, as I am sure you know, a number of other cooperative programs to support Israel's security.

    That includes importantly the very substantial funding for the Israeli aero-tactical missile defense program, which is a cooperative program we do because we receive benefits as well. It is not a part of the funding which is in this program.

    Mrs. LOWEY. Could you comment on the acceleration of that program in light of what is happening in terms of proliferation in that region?

    Mr. SLOCOMBE. The Israelis are proceeding with the program. They would like funding for an additional battery. And that is one of the subjects which we are discussing with them as a part of our continuing discussion on their long-range programs. We also provide support for the nautilus—was the popular name for it—which is an anti-katyusha system, which is outside this program. There is, as you know, very close cooperation on intelligence and other issues.
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    So, I think we give a very strong priority to maintaining Israel's qualitative edge. We also believe that it is in our interests and, indeed, in an important sense, in Israel's, that the moderate Arab states be able to provide for their own defense. And, so, we provide substantial, we have substantial sales programs with those countries.


    Mrs. LOWEY. Another area that I personally and many of us have been concerned about is the proliferation of military technology into the region by countries such as China and Russia. I know the Administration had some successful negotiations with China. Has China honored its commitment on proliferation? Can you give us some accounting? And what are we doing to ensure that the proliferation of nuclear technology is not actually happening? And, in fact, that it has been completely shut down, certainly with Iran, and also with the entire region.

    Mr. HOLUM. Well, we are pursuing relations with China, discussions with China, on a whole range of proliferation concerns. These concerns are central to our relationship with both China and Russia.

    Since October 1984, we have no evidence that China has violated its agreement not to provide MTCR-class missiles to any country.

    There are some concerns that they may have a slightly less restrictive evaluation of what the specifics of the coverage are but——

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    Mrs. LOWEY. How do we evaluate their description of their coverage?

    Mr. HOLUM. Those are issues we continue to pursue with them. And it is not that we had an agreement in 1994 on missile technology so that we can forget about it. It is something that we followup on on a regular basis. Whenever there is an export or any indication through intelligence or other sources that something worrisome is going into the Middle East or to any other region, we followup on it. We go directly to senior officials in their government and ask for an explanation.

    Mrs. LOWEY. What about with Russia? There have been articles in the New York Times, my colleague just mentioned it, about the Russian technology being transferred to Iran which seems to be sent with the express approval of the Russian security agencies?

    Mr. HOLUM. If you are referring to the missile——

    Mrs. LOWEY. Right.

    Mr. HOLUM [continuing]. Which has been the focus, let me start by saying that that specific issue has had more attention at every level of our Government with the Russians than any other issue I am aware of in the last five years. It has been raised repeatedly and routinely. Ambassador Wisner, as you know, has been the special representative of the President to engage with Mr. Koptev, the head of the space agency in Russia.

    There have been some significant developments. On January 22nd, the Russian Government issued an executive order signed by Prime Minister Chernomyrdin that specifically limits and controls exports, not only of relevant technologies, which would be covered by the Russian membership in the missile technology control regime, but also any other assistance to a missile program that might be helpful, the so-called catch-all provision that we have been pushing.
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    There have also been—and I cannot go into detail for you in an open session—but there have been some indications since then of actual practical impact on the ground of all these representations. We still have a lot more to do. We are still working. It will be a major item of conversation during the Gore/Chernomyrdin discussions on March 9th and 10th because the Russians still have to live up to the undertakings that they have made in our discussions.

    We also have to keep in mind that a great deal of technology has already gone. It is unclear whether there was actually Russian Government acceptance of the transactions but some technology has gone in the past to Iran and has allowed for greater progress, as George Tenet, the CIA Director, has testified, than he had earlier expected in their missile program.

    But these new Russian programs are vitally important now and can substantially delay Iranian capability to mount an offensive missile capability.


    Mrs. LOWEY. And just lastly, if I can go back to the question before. I know the Chairman welcomed the proposal by Neèman, which followed up on Prime Minister Netanyahu's commitment to eventually wean away the economic assistance. I think this committee understands the complexity of that area of the world and the importance of bolstering the security assistance to Israel, be it from this budget of the security budget, through Nautilus or through Arrow, could you comment on this?

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    Mr. HOLUM. The chairman, I think, summed it up exactly correctly both in understanding that we do not have all the details yet, but also welcoming what the Israeli Government is proposing. We certainly do welcome the proposal. It is, in fact, as the Chairman said, a direct reflection of the success of the economic part of our relationship with Israel over the years that they are now in a position to phase down the economic portion of the aid package.

    As I understand the plan, this would be phased down over a period of years, 10 to 12 years, and during the same time frame they would like to have the military assistance part grow. That is something that we will look at very closely in consultation with the Israelis and also obviously in consultation with this committee.

    Mrs. LOWEY. Well, thank you, and I would just like to reiterate again that as the peace process moves forward we hope, although with a great deal of difficulty, the security of that region depends a great deal on the strength of the Israeli military and I have felt in a time like this that our support for increases in that budget are absolutely defensible.

    I thank you very much. I think I have taken enough time, Mr. Chairman.

    Mr. CALLAHAN. Mr. Knollenberg.

    Mr. KNOLLENBERG. Thank you, Mr. Chairman.

    Welcome this morning, gentlemen.
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    I want to go back to KEDO. KEDO has become more significant lately because of the financial crisis in that area of the world. And as both you gentlemen know very well, part of the agreement was to provide for two light water reactors. The fact that is troubling to me and I think maybe to members of this committee is the fact that, under the terms of that agreement, the North Koreans did not have to dismantle the plutonium producing capacity at that site until both nuclear reactors are running.

    Now, that is what the word——

    Mr. SLOCOMBE. They have to keep it shut down.

    Mr. KNOLLENBERG. Pardon?

    Mr. SLOCOMBE. They cannot operate it. They do not now operate it.

    Mr. KNOLLENBERG. I have been impressed by briefings where that is a little questionable, too.

    Mr. SLOCOMBE. With respect, sir, there are IAE inspectors who live at Yongeyon. In fact, there is no question that the facility is shut down.

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    Mr. KNOLLENBERG. Let me go a step further then. In light of the problem we are having right now, the fact that South Korea's President-Elect and he may be the president by this time—has stated that Japan and the U.S. must contribute more to KEDO. He states that South Korea cannot afford to contribute its share, and he is under IMF pressure as well.

    And, so, the concern is that who, if South Korea cannot, is going to pick up the slack here to ensure that this agreement does not topple, because if it does topple, I know they mentioned already the chaos it would create.

    My concern is, who then is going to pick up the slack? And then secondly, is there not some kind of possible non-nuclear solution to this problem, because North Korea still has the capacity to produce plutonium and plutonium, of course, is the danger here. But they have not reached that point in the course of that agreement where they have to stop producing plutonium in other parts of the country. So, is there any non-nuclear solution that could be possible and then what is going to do, and who is going to pay for it?

    Mr. HOLUM. They do—again, let me go back to what Secretary Slocombe said—they do, under the terms of the agreement, have the plutonium reactor shut down. In fact, the fuel has been removed from the reactor. And 97 percent of the fuel rods, there were roughly 8,000 fuel rods that were in that reactor, have been canned under our supervision.

    So, that reactor is not operating. My understanding is that it is deteriorating, it is rusting. It is not being maintained or tended. I would have to confirm that but they are not allowed to produce anything in that reactor.
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    Mr. KNOLLENBERG. Well, they may be not allowed to, but is there any plutonium being produced? Do you know that? If the reactor is not yet dismantled, could they not produce it?

    Mr. HOLUM. If they have reloaded the fuel or somehow gotten access to the fuel rods, but those are canned and they are under supervision by U.S. personnel who are engaged in the canning operation, who have been on site at the facility.

    Mr. KNOLLENBERG. Can you say that North Korea is not pursuing any kind of nuclear build-up?

    Mr. SLOCOMBE. You cannot prove what you do not know. We know that——

    Mr. KNOLLENBERG. That we do not know is what bothers the hell out of me.

    Mr. SLOCOMBE. We know that they had at Yongeyon the capacity to produce, I forget the exact numbers, but it was on the order of, plutonium for on the order of half a dozen Hiroshima-style nuclear weapons every year. That has been shut down. There is no question that it has been shut down. There may be a question of whether the reactor has sufficiently deteriorated that it would not be practical to start it up again. I do not think we can claim that for sure.

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    But there is no question but that the production has been shut down and, therefore, the plutonium separations plant which is adjacent to the reactor, is not separating plutonium. And the plutonium which is embedded in the spent fuel rods which were removed, and if you remember, generated a crisis, is in these canned rods and it is a part of the agreement that at a stage those rods will be exported out of Korea, out of North Korea so they will not be there, not be available.

    We cannot say authoritatively what is going on that we do not know about but the program which was the focus of concern which appears to be, as far as we know, is where they were producing the material for which they could make nuclear weapons has been closed down, is closed down and has been closed down since the agreement was signed in what, 1994 or 1995?

    Mr. KNOLLENBERG. Another question. Are you done?

    Mr. SLOCOMBE. Well, you are entitled to an answer to your question about who is going to pay for the light water reactor.

    Mr. KNOLLENBERG. That is the next question.

    Mr. HOLUM. I can go back to that. There is no secret of the fact that the Koreans and the Japanese have been interested in having the United States undertake at least a symbolic or token commitment to the cost of constructing the two light water reactors, and the cost will be roughly $5.2 billion. There is also no secret to the fact that we have said ''no'' to that and the Congress has made clear that that is our answer and that is what we have said.
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    We also are operating on the understanding that both the ROK and Japan expect to undertake most of the funding costs of those two reactors and they have reconfirmed their commitment to KEDO. In terms of the——

    Mr. KNOLLENBERG. Is that a recent announcement that they have made? Is that a reiteration of their previous position?

    Mr. HOLUM. Keep in mind that the financial crisis is, we hope, short-term, and will have a short-term impact. The sequence of development here obviously is that the cost that is being incurred now, as the Chairman referred to earlier, is for heavy fuel oil deliveries. We have undertaken, to take the primary responsibility for funding that and raising funds for that.

    The ROK and Japan have the lead in building the reactors. Our part is first and it continues until the first reactor is completed. They held the groundbreaking in August for the first reactor. The Japanese have put up the funds for that, have loaned the funds for that initial work. They need to have a contract negotiated between KEDO and the Korean Electric Company, which will be in charge of building the reactors, the primary contractor.

    But that funding cost will obviously ramp up dramatically as construction proceeds. This will take us into the middle of the next decade before the first reactor is completed. So, the current financial crisis is unlikely to have any significant impact on their ability to fund the long-term, time consuming part of this process, which is the construction of the actual reactors. That is just beginning.
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    Mr. SLOCOMBE. It is also relevant that most of the costs, not all, but most of the costs would be incurred in Japan or Korea. So, this, unlike some other issues, is not a question of getting foreign exchange.


    Mr. KNOLLENBERG. This is an off the wall question but I must ask it. Is there any way that in this whole IMF structure—I know that it is not entirely your bailiwick, but it is connected—is there any way that if some agreement is reached and we do construct an IMF-funding agreement that has something that is passable by this Congress, I do not know what that is going to be but whatever it is, is there any chance that there might be some linkage in there to a bailout of the KEDO program?

    Is there any talk of that? I know speculation has occurred in the newspapers, but I am just asking if you have any comment about the potential for some drive to bring that about?

    Mr. SLOCOMBE. I think the interest the Department of Defense does have in the Asian financial crisis and in the IMF bailout, if you want to use that term, is that we have as a country a huge interest in stability in the region.

    And North Korea is going through an economic, maybe it is an economic death throes. It is certainly an economic crisis. And one of the important reasons why the success of the Korean economic recovery program, which is actually going quite well, is so important is that if it works, as we expect it will, it will allow Korea to recover economically and, therefore, be able to fund the KEDO project.
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    As far as I know, there has not been any direct discussion of a linkage of that kind. But I think the linkage is very much there.

    Mr. KNOLLENBERG. Thanks, to both of you.

    Thank you, Mr. Chairman.

    Mr. CALLAHAN. Thank you, Mr. Knollenberg.

    Mr. Obey, I thought out of respect for your seniority and for your——

    Mr. OBEY. I appreciate that.

    Mr. CALLAHAN. And your age. [Laughter.]

    Mr. Torres.

    Mr. TORRES. Thank you, Mr. Chairman.

    Thank you, Mr. Obey, for yielding.


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    Secretary Holum, I wanted to ask you what is the present status of the provisions that were covered in the Fiscal Year 1998 foreign operations bill to provide three Black Hawk Helicopters to Colombia?

    Mr. HOLUM. I would like to get back to the committee with the specific details on that. But let me say, in general, that the financial plan for our narcotics efforts indicates that we do intend to comply with that Congressional requirement. At the same time, as you know, there is substantial doubt by General McCaffrey, for example, that those are number one, necessary; and number two, weigh as heavily as the amount they would cost in the scale of priorities for the overall anti-narcotics effort.

    Obviously, Colombia plays a central part in our efforts but there is some doubt about both the inflexibility associated with earmarking and about the priorities attached. But the plan indicates we intend to comply.

    I would like to get back though with more detail.

    Mr. TORRES. You mean not in a public hearing, as such?

    Mr. HOLUM. No. I just would like to give you a more detailed description in writing of where we are on that.

    Mr. TORRES. Could you possibly elaborate on how this particular provision affects other countries?

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    Mr. HOLUM. Well, just the——

    Mr. TORRES. You are taking money from the general pot to——

    Mr. HOLUM. Yes. We have an overall total available and if we devote—I cannot remember the total cost—$36 million or something to—which is a pretty big chunk out of the total.

    Mr. TORRES. Bolivia would be a country in question here. We have an interdiction program there. Is this not taking money out of that program to cede to Colombia?

    Mr. HOLUM. That is the sort of thing I would have to get back to you about. How we will assemble the necessary funds to pay for the Blackhawks.

    Mr. TORRES. Thank you.


    Secretary Slocombe, you mentioned in your statement regarding the IMET issues that the program is designed to address issues of military justice, respect for international recognized human rights, effective defense resource management and improved civil/military relations. You go on to cite that this is important in meeting objectives of developing democracy and American values and you cite such countries as Central America, Africa, and the newly independent states.
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    I do not want to nit-pick this, but is there any reason why you do not mention Latin America as a region?

    Mr. SLOCOMBE. No.

    Mr. TORRES. I wanted to ask you in line with that then, the November 1997——

    Mr. SLOCOMBE. It would apply just as much to Latin America. The proposition applies just as much to Latin America.

    Mr. TORRES. The November 1997 Department of Defense Inspector General's Report on the School of the Americas detailed serious systemic flaws in the evaluation and the oversight of the school's curriculum. Why is this still true, given the intense controversy over the school? What will be the procedures in the future for reviewing curriculum at the School of the Americas?

    Another question, will a regular external review be instituted? Is there a list of the evaluation criteria used at the school to ensure that no teaching materials violate human rights and democratic standards as we would like to see done? Could you provide an answer for me?

    Mr. SLOCOMBE. It is certainly the case that there is a regular evaluation procedure and that one of the focuses of the oversight of the school is to ensure the standards you meet are met but I would like to take the questions and answer them in detail.
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    [The information follows:]

    "The Official Committee record contains additional material here."

    Mr. TORRES. If I sent those in writing to you, would you respond?

    Mr. SLOCOMBE. Yes.

    Mr. TORRES. Another question not related necessarily to the school but it might be. At any given time I understand that there are 150 to 200 U.S. military advisors in Colombia and Mexico. Is this the case and, if so, what are they doing there in such large numbers?

    Mr. SLOCOMBE. There are a number of American military people in Colombia, almost all involved in the anti-drug effort and a significantly smaller number in Mexico. I do not have in my head or in these materials the particular numbers. We can get you the exact numbers of who is where and who is doing what.

    But the answer is that most of the American military personnel who are in Colombia at any given time will be involved in the radars which are operated and other aspects of the counter drug effort.

    Mr. TORRES. In Mexico?
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    Mr. SLOCOMBE. Well, in Mexico they are mostly involved in the counter drug effort. But they are relatively few American military personnel in Mexico at any one time, far fewer than in Colombia. And then there are also periodic training activities, exercises which we have as we have in a lot of other countries. So, there would be spikes where the numbers would go up but I can get you the sort of steady state numbers.


    Mr. TORRES. And perhaps you could be more specific, do we have any American troops in Chiapas?

    Mr. SLOCOMBE. I have absolutely no reason to believe that there are any American military personnel in Chiapas.

    Mr. TORRES. That is a succinct answer. You do not reasonably believe.

    Mr. SLOCOMBE. Well, I mean there are a 1.3 million American military personnel in the world. There are few American military people in Mexico, very few. I have no reason to believe that any of them are in Chiapas on any continuing basis. Whether one has ever been to Chiapas, I assume the answer would be, yes. But let me, again, let me check and get you the exact answer but I would be surprised if the answer is other than, no.

    [The information follows:]
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    There are approximately 172 unformed personnel in Colombia and 31 uniformed personnel in Mexico. These numbers include those permanently assigned to the Military Group, the Defense Attache's Office, the Embassy's Marine Security Guard, and personnel in country on temporary assignment dedicated to counternarcotics efforts. The level of military personnel in country can fluctuate from month to month depending on the current mission. There are no U.S. uniformed personnel in Chiapas.

    Mr. TORRES. Thank you. That is all I have, Mr. Chairman.


    Mr. CALLAHAN. I might on the School of the Americas tell you that we dispatched our subcommittee staff people to the School of the Americas to make absolutely certain that there is no educational opportunity afforded for anything other than what this committee has instructed.

    If the gentleman feels we should send the committee staff back down there to make absolutely certain that this is not the case, it is my understanding that they are not violating the instructions of this committee and if the gentleman suspects there is some need to re-check that, I would be happy to dispatch the staff. I have been one of the supporters of the School of the Americas and I am going to continue to support them but they are not going to be permitted to violate the wishes and the instructions of this committee with respect to their curriculum.

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    Mr. TORRES. Well, thank you, Mr. Chairman.

    Mr. SLOCOMBE. If I could, Mr. Chairman, as the subcommittee will be aware—I do not know the exact date—but recently the various certifications which were required have been made and one of them is that the instruction training provided by the School is fully consistent with American training and doctrine, particularly with respect to the observance of human rights.

    Mr. CALLAHAN. Mr. Frelinghuysen.

    Mr. FRELINGHUYSEN. Thank you, Mr. Chairman.


    I would like to get back, gentlemen, to some of the questions that Mr. Yates raised and the Chair raised. The nature of our business is that we are collectors of, in many ways, of public perceptions. And the public perception in my district is that we have a lot of fair-weather friends and this Persian Gulf crisis I think has showed that to be fairly accurate.

    This is a committee that deals with a budget. There is nothing more important in this budget pie than the security aspect. All of what we spend money on here in terms of environmental, health, humanitarian, economic is linked to the security aspect.

    Why, after all these vast expenditures for good public purposes, across the world, could we not have counted with more reliability on our allies?
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    Mr. SLOCOMBE. There is no question that we would always like it if our allies were more responsive and quicker to say, yes. All I can say is that we got in the Gulf region, particularly which is where I think most of the controversy arises, the requests which we made for things that we needed and we made the requests because we needed them, and we got what we needed.

    Mr. FRELINGHUYSEN. Well, from our constituents' viewpoint, besides England, where was Germany, where was France? We are pumping all this money into NATO, our military alliance. These are natural allies. Many of our constituents question the Saudi regime, Jordan. I mean when push comes to shove and we put a lot of economic and humanitarian support into a lot of these countries, what are we getting if, indeed, both the Secretary of State and you, say that our top priority is to protect the security and vital geo-political interests of the United States, what are we getting for that type of financial investment by the taxpayers?

    And I think that is the basic question. It may be rhetorical but that is really what we are here about.

    Mr. SLOCOMBE. First of all, we are not going around—none of us have said this morning and none of us have said any of the times that the reason that we do this is so we are strictly unlimited but we are buying support for the Persian Gulf. For example, something like three-quarters of the troops in Bosnia are provided by, mostly by the European allies and other countries other than the United States.

    So, that in areas like the Persian Gulf, there is no question that we would like to have more support from our allies and more support from the countries in the region, for that matter. We have what we need but we could always be pleased to have more.
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    The reasons why these countries are, particularly the Arab countries, are reluctant to get out in front are the ones which Mr. Yates identified. The Arab street, wrongly but genuinely, was not sympathetic to the war in 1991 and has not been sympathetic to the position of the United States in this issue since. And that makes it complicated for the Arab regimes to take the lead in the way that I believe their interests would suggest that they should.

    All that said, Saudi Arabia, for example, a country which does not welcome foreigners, and does not welcome military involvement is on a day to day basis is the host to thousands of American, British or French troops. Kuwait, Kuwait is in many ways obviously a special case, but Kuwait has American and other coalition troops there. We will be having support aircraft and strike aircraft based in other Arab countries.

    Look, I do not dispute that it would be nice if they were more enthusiastic. But I think that it is also not correct to say that either that we are not getting any support or that they are just being feckless or something like that, in not providing support.

    Mr. HOLUM. I have one point, too. It is important, I think, to keep in perspective the fact that the specific issue here was over the strategy of military strikes and when they would occur.

    Mr. FRELINGHUYSEN. But wait a second, in reality, what we are doing and have been doing in the Gulf over the years has been protecting our vital oil supplies which, indeed, are very important to some of our closest allies. Some are wholly dependent on that source.
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    Mr. HOLUM. This is part of a strategy we are dealing with to get rid of Saddam Hussein's weapons of mass destruction and make sure he cannot use them to threaten his neighbors. Over seven years there have been periodic votes in the UN Security Council as to whether there should be sanctions on Hussein. Not one country in seven years has ever voted to lift sanctions. They may argue about the timing or the strategy of the military strikes, but the world is united on this issue.

    And constituents or no one, certainly not Saddam Hussein, should get the impression that there is a division and that somehow he can just wait this out. He is going to incur——

    Mr. YATES. What question is the world united on?

    Mr. HOLUM. On the question that Saddam Hussein needs to comply with the Security Council Resolutions and comply with the inspections. They have never voted, never voted to lift sanctions in the United Nations Security Council. As we sit here, Iraq is suffering complete and total economic sanctions of the kind that no country has ever experienced before. And he has not had those lifted because the world is united on the fact that he has got to give up his weapons of mass destruction before the embargo is lifted, before the sanctions will be lifted.

    So, all I am doing is adding a dimension to the argument of international support. He is isolated.

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    Mr. FRELINGHUYSEN. The dimension is appreciated. Just one question on NATO. I have read every conceivable material that is put in front of me in terms of the cost of NATO expansion.

    Is there not a potential here, a strong probability that in the overall budget of which we are talking about here, that at some point in time you are going to come to this committee and say, well, you know, Department of Defense had one, the State had another, that we may be—and let me say I support NATO, it is an important alliance—but is there not a potential here and would you like to comment on it that we may have a budget buster of no small proportions?

    Mr. SLOCOMBE. I think that is an extraordinary remote probability. Let me explain why.

    Mr. FRELINGHUYSEN. Given all the evidence that is out there from people who are probably equally qualified in these areas, I mean it seems to me that there is quite a lot of material to the contrary. All right, it is your time.

    Mr. SLOCOMBE. What the United States will provide in connection with enlargement is, first of all, our contributions to the NATO common budgets. Our present estimate is that the increased contributions will be on the order of about $40 million a year for the U.S.

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    Some of those are in the defense budget, in the 050 account, and some are in the 150 account. This is because there are three different NATO common budgets which go through three different subcommittees of the Congress. Two are in the 050 account and one is in the 150 account.

    Mr. PACKARD. Would you yield to me for just a moment, because that was my question and I would like to simply not ask the same question twice. I am sorry that I am late. I just finished a hearing on my own subcommittee. I chair the military construction subcommittee and we also have a significant budget amount for the NATO expansion, probably more than you have here in this subcommittee.

    Mr. SLOCOMBE. I would expect that it is because that is the NATO Security Investment Program which goes——

    Mr. PACKARD. Does your total NATO expansion budget take into consideration the other committees or is it just limited to this subcommittee?

    Mr. SLOCOMBE. No. It is all—the estimate is that the total incremental costs to the NATO common budgets—and I want to come back to why that qualification is important in a minute—but the total incremental costs to the NATO common budgets over the course of a decade would be about a $1.5 billion. The United States pays about a quarter of the common budget. That is $150 million a year, a quarter of a $150 million is about $40 million a year.

    Mr. YATES. Why a quarter?
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    Mr. SLOCOMBE. Because the Europeans pay the rest. There is a long-standing formula by which the different countries pay amounts which are——

    Mr. YATES. And that will continue?

    Mr. SLOCOMBE. It goes down a tiny bit. For all the current members, it goes down a tiny bit because of the new members make small contributions. Broadly speaking the contributions are proportionate to national income with some allowance for rich countries and poor countries. But it is just mathematics that the Poles, the Czechs and the Hungarians will pay a——

    Mr. YATES. Will you yield for a further question on this question? When we start building under the military construction program for NATO expansion, will the costs of that construction be borne as well by the other countries who are expanded into NATO?

    Mr. SLOCOMBE. Everything that goes through the NATO common budgets is paid for three-quarters by the Europeans. So, the answer is, yes. The Europeans would pay—if you upgrade a communications system in Poland, and that qualifies for NATO common budget funding and there is an arcane set of rules for what——

    Mr. CALLAHAN. Are you saying that if we build barracks in a NATO country that the other participating members of NATO contribute to the construction of that barracks?

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    Mr. SLOCOMBE. Barracks, in general, are not eligible for common funding. But, for example, and this, I think, people find surprising, we have built in the United States facilities which are associated with reinforcement capability for Europe that have qualified for NATO common funding and have been paid for three-quarters by the Europeans. Now, most of them, obviously, are in Europe but it does not depend on where they are.

    Mr. YATES. What is an example of that?

    Mr. SLOCOMBE. There are port facilities that are used that were identified as used for reinforcements. Let me, if I could, explain. You know, we are talking about numbers which are, by anybody's perception in absolute terms, very large, but relative to the Federal budget and even the foreign affairs budget they are small.

    The reason we get these huge numbers is if you assume that we are going to go back to the Cold War and we are going to have a massive Russian threat to Central Europe and presumably worldwide then, obviously, we would be making huge changes in our assumptions about security and about what was required for defense, what was required for national security in general. And these very large numbers are in general that tend to estimate what it would cost to refight the Cold War. No question that is——

    Mr. FRELINGHUYSEN. So here today you are ruling that out as a potential——

    Mr. SLOCOMBE. We do not rule it out. We——

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    Mr. YATES. Mr. Chairman, I have a question following Mr. Frelinghuysen's question about where were they when the whole world was united and still continues these sanctions. Will that be true, as well, after, as a result of the Kofi Annan agreement?

    Mr. HOLUM. I have no doubt that it will be true. I think the world is watching with a great deal of suspicion to see whether Saddam actually fulfills the commitment he made to Kofi Annan.

    We are in the same position. We are maintaining our capability to respond promptly and with powerful force if this agreement is not kept.

    Mr. CALLAHAN. With respect to overall percentages of the budget that is not a good response. Percentage-wise my salary is not a huge percentage of that budget but perception-wise in Alabama it is. [Laughter.]

    Mr. SLOCOMBE. The only point I am making, sir, is that——


    Mr. CALLAHAN. Well, the point is that perceptions are powerful, and from perceptions come your appropriations. Because we have to respond to the people in our respective districts. Now, following up on Congressman Frelinghuysen's theme that the perception is that Saudi Arabia turned us down. The perception is that during the Persian Gulf War when we went to Egypt, as much as we give to Egypt, that they agreed to participate but only after we forgave them $6 billion in debt. You know, the perception is that we are being used. That they want their money—I mean we do not have any trouble, we do not have to go to Netanyahu and say, we need your help. We know that. We only have to pick up the phone.
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    Now, here we are contributing to King Hussein and Jordan and trying to increase that and now, we are saying that well, we ought to be cautious now we do not want to get him in any uncomfortable position. So, perception-wise we have a problem with Saudi Arabia. When it was apparent that Saddam Hussein was going to invade Saudi Arabia after he went through Kuwait, we did not have to plead with them too deeply to let us land our planes there.

    So, we have a perception problem of a total lack of support of anybody but Israel in that region, when it came time to protect them. I mean this biological, chemical warfare, we are not concerned about them sending a missile to Washington, D.C. but to Israel, yes, and to Jordan, yes, or to any other area. They are the ones who have the exposure, and they are the ones who ought to be concerned, more so than we are.

    So, you have a perception problem or the Administration does that these are fair-weather friends who come to us and tell us what great allies they are, send us billions and billions of more dollars and then in a time when we need them, they say, well, we do not want to get involved because it is an Arab brother or something of that nature. We are talking about billions of dollars to protect them from an aggressor like Saddam Hussein and then when we do that, that is fine, but when it is not to their political liking they turn their back on us.

    So, he is absolutely right, perception is very important towards our success in being able to get you enough money for all the foreign military financing program. So, it is a very serious problem.

    You have been very patient, Ms. Kaptur.
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    Mr. SLOCOMBE. Mr. Callahan, I only want to say that I think the points you make are entirely valid, both as to the perception and, to some degree, the reality. But I also want to make the point that they did provide support.

    Mrs. KAPTUR. Thank you, Mr. Chairman.

    I want to invite both secretaries—I have to tell the Chairman that was a brilliant statement, by the way.


    I wanted to ask a question about the Partner for Peace and the newly independent states. How much confidence should I have or the American people have that the—and we will take Chornobyl as an example—that that reactor is sufficiently contained and that there is no trafficking either from spent material from that plant or any other plant in that country or any of the other republics?

    Mr. HOLUM. Well, that is an another case of, as Secretary Slocombe said earlier, of we cannot prove what we do not know, we cannot confirm what we do not know. We do know——

    Mrs. KAPTUR. Sir, that is my very point. I am wondering what do we know about the safety of a number of those facilities? I know our own Department of Energy is involved in this, but I am very interested from a defense standpoint, what is going——
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    Mr. SLOCOMBE. Chornobyl is in the Ukraine, and I think we are highly confident about Chornobyl because——

    Mrs. KAPTUR. You are highly confident?

    Mr. SLOCOMBE. Yes. I do not know how confident I am about the—I would not want to live in the community—but in terms of misappropriation of the material out of Chornobyl, I think we are highly confident about that, as we are in a lot of other areas.

    Mrs. KAPTUR. Are you confident about the containment of the facility against future mishaps?

    Mr. HOLUM. There is an effort underway through the G–8 and G–7 to fund a new sarcophagus, a new containment for the facility. No. It is not safe over the long-term.

    Mr. SLOCOMBE. Safe for the local community.

    Mr. HOLUM. That is right. But it is a different question from whether special nuclear material or the fuel might be taken out and used for nuclear weapons, potentially, for example. I think there is no realistic prospect that that would occur. It would not be the sort of target where terrorists or others seeking plutonium or highly enriched uranium would go.
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    Mrs. KAPTUR. All right. As a lay person—and I am sure I am expressing the concern of others in my community and elsewhere—there is some desire for clarification regarding the containment of the existing Chornobyl facility, as well as others that may have been designed similarly in that country or others. There are several under the same design. And how confident are we as a Partner for Peace in that region that similar mishaps will not occur and that spent materials are properly guarded against any type of trafficking?

    Mr. HOLUM. I think the first part of your question is better answered in writing and in more detail than I can provide here because there are a number of similar type reactors in a number of former Soviet states that need——

    Mr. SLOCOMBE. What we are trying to do is distinguish the danger of a nuclear accident, like what happened at Chornobyl, from one of other plants of the same design and the possibility that from those reactors or any other places in the Former Soviet Union people steal the materials to make a nuclear weapon.

    And they are quite different problems.

    Mrs. KAPTUR. Is this a high priority for our military cooperative efforts?

    Mr. SLOCOMBE. It is a very high priority. It is one of the ones that we focused on. The obvious place if you want to steal a bomb, do not steal the contaminated fuel rods from a wrecked reactor. Go find a bomb and steal the bomb. That is what we worry about. And we have been working with the successor regimes and with Russia to keep the control over their nuclear materials.
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    The most important accomplishment, which if you look back on it, is quite remarkable is when I came into the Government in 1993, the Ukraine, Belarus and Kazakhstan, all had nuclear weapons. Not nuclear materials, nuclear weapons—missiles, bombs, airplanes.

    Those are now all removed from those countries. That is a major accomplishment in terms of keeping control over the successor nuclear material. Some of them, most of them were dismantled, some went back to Russia. We have been providing funding, technical assistance, and support for the dismantling of Former Soviet nuclear weapons and also for improving the safety and security of the nuclear weapons that they still retain and of the, you know, research reactors, power reactors, safety and control procedures and so on.

    Some of it is done by the Department of Defense and some is done by the Department of Energy and some of it is done internationally. The Germans have put a lot of money into these programs. So, it is a very high priority and it is also one of the areas where we have good cooperative relations with the Russian military.

    General Haberger, who is the commander of the strategic command, has had a series of visits between his people and his Russian counterparts working on the problem of assuring the safety and security of the Russian nuclear weapons and nuclear materials. It is a very high priority and a very high concern.

    We have also worked——

    Mrs. KAPTUR. Do you have, personally you have a high level of confidence then in what we have done to date——
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    Mr. SLOCOMBE. I have a high level of confidence but the problem is so serious that you want to have a very, very high level of confidence. This is a problem on which 99 percent assurance is not good enough and we are working to get that 99 percent up higher and higher.

    Some of the other things we are doing just to explain. John should talk about the export control effort. We have, for example, you may remember a thing called Project Sapphire, where we took some nuclear material that was in one of the Central Asian republics under conditions we thought were inadequately safe-guarded and got that out of the country so it was not available to be picked up by the wrong people.

    This is a very high priority for the United States Government, including for the United States military.

    Mrs. KAPTUR. Are those facilities, not having visited any of them, are those facilities guarded? The Russian military, the Ukrainian military, the——

    Mr. SLOCOMBE. This is an area where the United States and Russia have an exact commonality of interest. The Russians have even less desire to have somebody steal their nuclear weapons and nuclear materials than we do because they are more likely to be stolen by Chechneyans or something like that than by people who would be an immediate problem for us.

    And, so, it is something where we work very closely with the Russian Government and it is a very high priority for the Russians. The Russian military is in a terrible mess. But they have very wisely continued to give top priority to funding and paying and providing for the safety of their nuclear weapons.
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    Mrs. KAPTUR. What worries me is when you see people who work in these plants march on Moscow because they have not been paid in nine months or more. And the economic pressure is so great on many families that, you know, you cannot guarantee what any one individual will do. I guess because I am a lay person I am not quite as confident as you are at the permutations and combinations that can result in mischief.

    And I will tell you what also did not build confidence in me is when I had to see these nations begging one another up at the UN to raise $30 million or something for another sarcophagus on that Chornobyl facility, I was thinking, you know, I thought we already did that. You know, I thought how much does the world really know about how to contain this and I am sort of afraid to even ask the question, but I guess I am not quite as comfortable as you are not having all the details.

    Mr. SLOCOMBE. Well, and as I say, I think I probably have a reasonably high level of comfort but I know that there are enough—this is so important that it—we have what we call in the American nuclear business, one-point safety. That is the probability that this is safe has to be one-point-zero, not point 999999 something. And anything less than that, if you are at anything less than one-point-zero assurance in this business, you should keep working on it.

    If I may say, it is one of the reasons why it is so much in our interest to continue things like the non-nuclear program, the cooperative debt reduction program even when we have other problems with the Russians that this is not something that we are doing to be nice to the Russians. This is because we do not want this system to fall out of control. And it also is very much a lever on what the Russians spend money on.
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    The amount that the Russians spend on the safety and security of their own nuclear weapons is vastly larger than what we provide. But this provides a window into what is going on, and it helps us have assurance that the standards that they are working towards are secure.


    Mrs. KAPTUR. I am sure that Mr. Obey has some questions but if I could just say that if you could use your influence in whatever that might be, if we look at the prostitution slave trade that is occurring now in the NIS going to countries like Israel, if there is any pressure that can be brought to bear to get at the people who are doing this, and it is not just you and DoD but it is AID in a lot of these other places, to get information out to people through television to the girls, I am saying and to the villagers, because a lot of them really do not know what is happening.

    This is a priority of the First Lady, I know. But a lot of the so-called recipient countries are hosts to what is happening. I said, well, maybe all these genius intelligence people are letting it go to Israel because Israel is our friend. And, therefore, if we are going to catch the thugs, that is a better place to find them. I do not know. That is trying to put a good face on it.

    But it seems to me that because of our inability as a world to deal with democracy building, we have got people who are being treated as chattel as we are almost in the 21st Century and somehow the military has got to use some of its power to get attention of this at the highest levels and help to stop it and apprehend those involved in it.
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    And I would just encourage you within the executive circles that you deal within over there at the Administration to talk about this and try to get a more coherent effort underway to stop it.

    Mr. SLOCOMBE. That is a very good point and I will take that very seriously.

    Mr. YATES. We have a few mobs in Russia, have we not?

    Mr. SLOCOMBE. The problem of organized crime in Russia is very, very serious.

    Mr. CALLAHAN. Mr. Packard and then Mr. Obey. I am going to go vote in the interim.

    Mr. PACKARD. If this question has been asked of all of you then I apologize but last year we fixed our assistance to Russia based upon, at least in part, upon them withholding sending nuclear weapons to Iran. And that was based upon certification by the President. Do you anticipate that the President will be able to certify?

    Mr. HOLUM. Fifty percent of the funds still have been withheld from obligation because the waiver has not been exercised. And the President has not yet decided on the outcome. This is an issue that will be discussed with Prime Minister Chernomyrdin by the Vice President and others during Gore/Chernomyrdin meetings March 9th and 10th.
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    But I cannot prejudge what the President's decision will be. I can tell you that as of now 50 percent of the funds that were provided by the legislation are fenced and have not been obligated.

    Mr. KNOLLENBERG. Would the gentleman yield. This is a question on the article that appeared in the Washington Times that is kind of relevant to what we are talking about there, which alleges that there is a continuation of nuclear materials that is moving from Russia into Iran. Do you have any comment on that article, very quickly as to its authenticity? It was 2–23–98, so it was in the last couple of days.

    Mr. HOLUM. Yes. I have seen the article. And I cannot talk about the specifics of what the article says. It draws on intelligence sources and the answer would draw on intelligence sources and I cannot go into it. What I will say is that what has been in the press is not a full and fair account of what has actually been underway in our efforts and in the Russian response.

    We, particularly Ambassador Wisner and others, have been available a number of times on the Hill to come up and brief in a classified context on where we stand on this issue. We would be happy to do that if the members here want to explore that further. It is a very important issue.

    Mr. KNOLLENBERG. Thank you.

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    Mr. PACKARD. I notice that we have not reflected any funding for Turkey or Greece. I visited those countries recently, not too recently, and I think that is a step in the right direction, frankly. Are they in agreement with that proposal? They have not shown a resistance to the refunding.

    Mr. HOLUM. We consulted with both and neither has protested. Both have accepted the decision with equanimity.

    Mr. PACKARD. Cyprus was a part of that overall equation and they are being funded by $15 million or at least that is the request. In Cyprus there is only one side of the conflict there that has participated in the bi-communal activities. What kind of problems are they running into there? We will only have one side that will be participating and there will be funding the other side? How is that, where does the $15 million go?

    Mr. HOLUM. I will have to take that question back because I do not have the information and give you a detailed response.

    Mr. PACKARD. I just do not understand how that fits into Cyprus, the realities in Cyprus relative to the Turkish versus the Greek components there.

    Mr. HOLUM. In the broader context, I would say that the graduation of Greece and Turkey from military assistance is related to, in the case of Turkey in particular, the growth of their economy, the size of their economy. Similarly with Greece, it reflects a maturing of our relationship and their ability to do without this kind of assistance. That same kind of consideration does not apply in the case of Cyprus.
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    Mr. PACKARD. Cyprus, the economy of Cyprus I think is such that they also can probably give up on any assistance but maybe it is being used for student or other purposes that are not military. I presume it is.

    Mr. SLOCOMBE. I will get you that. It is ESF so that it is not directly used for military.

    Mr. PACKARD. It is not for military purposes. And, thus, does not affect really the dispute between the Greek and the Turkish elements there.

    Mr. SLOCOMBE. I do not know what it is. I only know what it is not.

    Mr. PACKARD. Very good. Mr. Chairman, I appreciate that.

    Mr. CALLAHAN. Mr. Obey.

    Mr. OBEY. Thank you, Mr. Chairman.


    Mr. Slocombe, let me just ask a couple of quick questions about NATO. Last year, my understanding is that the Administration came to Congress with a cost estimate for the whole ball of wax, everything somewhere between $27 and $35 billion over the next 12 years, and that the U.S. share would be less than $2 billion. And that most of the cost would be borne by the European members.
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    This year, your testimony indicates that the budget includes an additional $13 million for FMF grants to the Warsaw Initiative for making of a new NATO invitees, ''truly interoperable with U.S. and NATO forces.''

    Laying aside questions about the wisdom or the timeliness of NATO expansion, is that money accounted for in the Administration's original cost estimate?

    Mr. SLOCOMBE. Yes, it is.

    Mr. OBEY. Secondly, Defense News reported that——

    Mr. SLOCOMBE. You mean the assistance, the so-called Warsaw Initiative money, yes, was reflected in the report.

    Mr. OBEY. So, I mean this $13 million is not in any way above your cost estimates?

    Mr. SLOCOMBE. No.

    Mr. OBEY. Okay. Secondly, in Defense News it reports that NATO's military assessment of our new members indicates that the militaries are far from reaching interoperability. What is the Administration's latest estimates for how much those three new members will have to spend on their own to achieve functional interoperability and readiness as NATO fully participant States?
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    Mr. SLOCOMBE. We have not made any new assessment of that issue which is what those countries will have to spend on their own forces since the estimate that you referred to about a year ago. So it is the number which it was last year. And the only way I can remember this is to say in round numbers it was $10 billion in each of the three categories so it is around that number. That is not exact but that is the order of magnitude.

    Mr. OBEY. Okay. Let me——

    Mr. SLOCOMBE. During a period of 12 years.

    Mr. OBEY. All right. Just one other question then.

    Mr. SLOCOMBE. Those countries understand that they have a lot to do to create modern, effective militaries that are fully capable of operating with NATO. That said, they have done a lot and talked a lot about whose contributed what. Each of those three countries were among those making contributions to the coalition force for the Persian Gulf.

    Mr. OBEY. Just one other question, Mr. Holum. On page four of your statement, you have a paragraph which relates to the PFP program of $20 million for CEDL. And you indicate that that program will enhance defense and military capabilities of Poland, Hungary, the Czech Republic and other NATO candidates to move quickly in achieving NATO compatibility by assisting in the acquisition of defense equipment such as and then you go on to list what they are.

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    This means that we are providing additional assistance for countries that have not yet been determined to be future NATO members. If we approve this money for those countries does not that put the Congress in a position where we are slowly but surely making it inevitable of the determination that other countries will, in fact, join NATO?

    Mr. HOLUM. No. As you know no decisions have been made beyond the initial three countries. That funding has a Partnership for Peace purpose, as well as a possible NATO enlargement purpose, because there is a security connection and a value to interoperability and closer military relationships between NATO and countries that remain in the Partnership for Peace. So, I think your concern about prejudging the question is not valid.

    Mr. OBEY. Well, I am more concerned about Congress supinely avoiding all necessary thought about whether we should be going down this road at all. And not that it will do a damn bit of good for anybody including me, but at least I want to get on the record again my view that while I generally try to be supportive of this and all administrations in foreign policy I deeply believe that the decision of the West to proceed to expand NATO is historically the most arrogant act that the West has taken since the end of World War II.

    I think that that decision makes more difficult the lives of Soviet reformers who want to reach out to the West and we had our own ''Who lost China'' debate which gutted sections of the State Department for years and poisoned the domestic political atmosphere in this country, led by the sickest man in Wisconsin ever sent to the United States Senate—he has a good friend there who said, good old Joe——

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    Mr. OBEY. But, it seems to me that we have helped make it more likely down the line that the forces in Russia most friendly to us will be more vulnerable to the question, ''Who Lost Central Europe'' then they would have been absent our arrogant actions.

    And I think we have also made it easier for the rejectionist forces in the Duma to justify their resistance to arms control treaties, and it just seems to me that Congress provided virtually no, absolutely no platforms for the discussion of this issue before the Administration and our NATO allies agreed to let the three new members in. I think that the Congress will probably have even less debate about the advisability of moving that line even further East in the future.

    That is why I am very reluctant to see this funding here because I think that Congress will flaccidly and uselessly sit by and simply allow this to happen without ever debating it. It serves no useful purpose for the Senate to debate the issue after the decision has been made by NATO because then we would look like damn fools if we reverse our course.

    But I just think this is part of an action which we will come to deeply regret and I, for one, want to be on the record again expressing my profound misgivings about what the Administration has done on this issue and what NATO, in general, has done on this issue.

    I find it amusing almost to the point of nausea that people wring their hands about the fact that we did not have a vote about whether we were supposed to engage in a few days of air attack on Iraq and, yet, people will not raise a single voice for a single second on Congress' obligation to debate in a full way the long-term consequences of our moving to expand NATO over the objections of the Russians.
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    And I think it is a decision which, in the long-term, we will come to regret because it could help create, at least it makes it more likely that we will, in fact, create a resurrection of the very threat to Central Europe that we are supposedly trying to avoid by expansion of NATO.

    And I know that I do not expect you to even respond but I just wanted to get that in the record so that at least 10 years from now it is clear that I did not participate in the idiocy.

    Thank you, Mr. Chairman.

    Mr. CALLAHAN. Two or three questions with respect to your budget request.

    One, you are requesting a $25 million increase for the Palestinians. You know, that is going to be very difficult under the circumstances until such time as an agreement is finally reached and the controversy that is taking place between the Palestinian Authority and Israel is resolved. We are going to have to come up with some strong justifications if you expect this committee to increase or even to maintain funds for the Palestinian Authority. So, I just want to forewarn you that that is going to be a problem area.


    The second area of concern is you are asking to double the economic support assistance to Haiti. The subcommittee went to Haiti and we met with Preval, we met with the leadership, if there is any in Haiti, and we were not impressed with what we saw. We spent billions of dollars there including the military aspect of Haiti and, yet, very little has been accomplished.
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    You have really no privatization. When we were there we met with the Privatization Committee and they told us last spring that it was just going to be a month or so before some advancement was going to be made with respect to the flour mill and the cement factory and the telephone company and still nothing has been done.

    Government corruption is so prevalent that nothing can be done unless some former members of the active government participates in it, and while I recognize that we must do everything we can to build that community up, by doubling the economic support to Haiti we are having to take away economic support from other needy areas in this hemisphere that really could make some significant advances.

    I met with the ambassador yesterday, our ambassador to Haiti, and I know that he is new on the job and none of the past problems can be attributed to him but Haiti is a country that has made no significant advancement. The government will not cooperate. They met with the military people, they are building a road in Haiti and the only thing the Haitians had to do was provide an available source of rock and gravel. And while we had hundreds of people down there to build the damn road, we could not even get the Haitians to deliver the rock.

    So, I mean we are getting no cooperation from the current government and they are making absolutely no advances on our demands and so we are going to tell the rest of the countries that really could make some serious advances to helping their people and their democracy building efforts and yet the Administration comes and asks for the only increase with respect to this hemisphere is to double the economic support funds for Haiti.

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    And that gives me heartburn, I will tell you that. Maybe there is justification for it, maybe there is hope, maybe you know something the ambassador does not know, but to come and ask to double ESF and ignore the needs of other countries which pose the same threats such as Jamaica, with respect to illegal immigrants coming in here and the problems that exist in other areas in Central and South America. This committee has been insisting to the Administration to recognize the potential we have to develop partnerships and create true democracies and stop internal strife within those countries and look at the trade potential. And, yet, we are ignoring them and pumping all of our money into a bottomless pit in Haiti which has made no significant advancement that I can see from the day we first went in there.

    So, that is going to be a problem area for me and I think for our subcommittee.


    The Comprehensive Test Ban Treaty, as you know, is a responsibility of Commerce, State and Justice subcommittee. And Chairman Rogers has not seen fit to fund that through his committee in as much as he says, you do not need the money yet. And we wonder if you are trying to go around Mr. Rogers, why would you make the request of this committee for the Comprehensive Test Ban Treaty when it is not our jurisdiction and when we have limited funds available for your other programs. Why would you request the monies coming from this committee rather than Commerce, State and Justice?

    Mr. HOLUM. Can I respond to those three in the order you raised them?
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    Mr. CALLAHAN. Yes.

    Mr. HOLUM. First, on the Palestinian increase. I want to underscore that none of the funds would go directly to the PLO or to the Palestinian Authority. This funding is concentrated on an expansion of assistance to the private sector, particularly private trade organizations and to help enterprises meet international product standards.

    It is also assistance, additional assistance in the water sector, which as you know, is an enormous problem on the West Bank—wastewater treatment, reuse of agricultural water and those kinds of projects. And we think this is part of a broader endeavor that is essential to the peace process and that is to build the economic constituency for peace, to give them an economic stake in resolving the dispute.

    There has been an economic decline in the Palestinian area where per capita income is down by one-third since 1993. So, these are really urgently needed funds.


    On Haiti, I recognize certainly your concern about the increase. Part of the reason for this is that the political impasse in Haiti means that the international financial institutions have reduced their aid. Our approach is to bypass the government and based on some of the concerns that you have raised, to go through NGOs to reach grassroots areas.

    The economy of Haiti is recovering very slowly. There is no question about that. It is still the poorest in the hemisphere and per capita income in Haiti is $300 annually.
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    And the aid does go to the poorest people. This is not funding to prop up the government. It is aimed at, in particular, building economic bases and secondary communities around the country to stop the migration into Port au Prince and to develop the economy on a more diversified basis.

    In terms of what the government is doing, there are some signs, I think, of positive intentions. They have passed legislation on privatization, on trade liberalization, on civil service reform. And they have, over opposition, pushed programs to privatize nine inefficient government-owned entities. And as I understand it, the state-owned flour mill, one of those nine, has now been sold. With respect to the state-owned cement company, it will be sold when the president signs the decree.

    So, there is some progress. I do not for a minute minimize the challenges ahead in Haiti but I think it is in our interest—recognizing the overall context of this problem and the fact that we have known for a long time that if we did not solve the problems in Haiti we would have to solve them later in the United States—that it is in our interest to stick with this program and try to build the economy outside of Port au Prince and to reach the poorest people.

    On the CTBT we have concluded, based on the need for significant programmatic type funds, that Preparatory Commission funding is more logically placed in the NADR account, where we have consolidated a number of proliferation related programs. Chairman Rogers did provide some funding last year. We are anxious to have the international monitoring system in place when the treaty enters into force. It is a valuable addition, even before the treaty enters into force, to our capabilities to monitor nuclear weapons related activities by other countries. This is a case where we are not just building an infrastructure, an administrative body. We are building a number of sensors around the world, some 400 sensors, seismic, hydro-acoustic, and others, that will increase monitoring of potential nuclear explosions.
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    You may recall last August when there was a dispute about the seismic event that occurred in the Kara Sea, near the former Russian test site, the seismic stations around the region were indispensable to our ability to decide over a period of time that that was not a nuclear explosion. That is very important. That is true whether or not the treaty ever goes into effect.

    We want to keep pursuing the construction of the monitoring regime; it is in our own interests to do so. I understand your concerns about moving the funding. I think it makes sense to put this into the NADR account, but it is something we should obviously discuss further.

    Mr. CALLAHAN. Well, it would appear to me that Chairman Rogers is going to have a better ability to increase his overall appropriations than Chairman Callahan is when it comes to 602 allocations. And since he, as you say, has already chosen to partially fund something for this Fiscal Year maybe we ought to keep it on that track and since he is more familiar with it.

    Maybe you ought to suggest to him that you suggested to us that we put it in ours but it might be better to put it in his.

    Mr. HOLUM. Well, I would, before doing that, prefer to consult further with you on why it makes sense to put it in your account.

    Mr. CALLAHAN. Yes. Mr. Ambassador and Mr. Secretary, we appreciate especially under the circumstances, Mr. Itolum's father died last week and he has to get back to his family, which is where he should be. And let me tell you or anyone else connected with the State Department who comes before this committee that we would always consider a family crisis a priority over anything we have to do here and any time subsequent that it might happen, any of you are invited to request to delay the hearing.
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    But thank you so much for coming, we appreciate that.

    Mr. HOLUM. Thank you, sir.

    Mr. SLOCOMBE. Thank you.

    [Questions and answers for the record follow:]




    Question. Has the goal of 30% of IMET spending going towards Expanded IMET (E–IMET) courses for Latin American students been met? What efforts are being undertaken towards achieving that goal?

    Answer. DSAA conducted a review of the Southern Command (SOUTHCOM) region in February 1998 to determine how Latin American countries were responding to this goal. We examined courses that are ''funded'' and those that are ''programmed.'' ''Funded'' means that countries have actually spent IMET allocations on courses and that these courses have already been conducted or about about to commece. ''Programmed'' indicates what training a country has selected for all of Fiscal Year '98. As of February, 13.92% of ''funded'' courses for the region were E–IMET while 36.25% has been ''programmed'' for E–IMET courses throughout Fiscal Year '98. ''Programmed'' courses and the percentage associated with them may not be achieved.
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    We are endeavoring to meet the 30% goal by encouraging the countries to take advantage of E–IMET courses and by encouraging the use of Mobile Education Teams (METs) to provide in-country training. In a recent message to all countries in the Southern Command, we indicated priority will be given to E–IMET requests for reprogramming of IMET funds.

    We will continue to emphasize to Latin American countries the importance of meeting the 30% funding goal.


    Question. What is our role, particularly from a military perspective, in fostering peace talks between the government and the guerrillas? Do our personnel in Colombia emphasize the importance of civilian authority and control over the military? Has our military encouraged the Colombian military to carry out civilian orders to apprehend members of paramilitary death squads, which are responsible for some of the most serious abuses?

    Answer. From a military perspective, history has shown that successful resolutions to such conflicts have generally only come about when the insurgents are under pressure to negotiate. Clearly the Colombian armed forces and police have a role to play in enforcing the rule of law and restricting the insurgency's access to drug money and pressing them to negotiate in good faith.

    Not only do U.S. Government personnel in Colombia emphasize the importance of civilian authority and control over the military, the recently established Center for Hemispheric Defense Studies just concluded its first three-week seminar on ''Defense Planning and Resource Management'' with attendees from Colombia as well as other nations in the hemisphere. This Center was established as a result of the first Defense Ministerial of the Americas in an effort to improve the capacity and effectiveness of civilian defense authorities charged with overseeing their nation's military forces. The training programs at major U.S. military installations also include themes related to military deference to civilian authority in its professional development programs as well as other IMET-funded training in the United States.
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    We regularly emphasize the need for the Colombian military to make every effort to confront the paramilitary threat in Colombia, divest itself of personnel known or believed to be sympathetic to the paramilitaries, and prosecute those who collaborate with them. This was a recurring theme during the recent visit of Colombian Armed Forces Commander Gen. Manuel Jose Bonett to Washington. We note that the Colombian Army recently arrested several paramilitary members, and we will encourage the Colombians to sustain this effort.


    Question. Will the United States continue to vigorously monitor the end-use of U.S.-issue military equipment by the Turkish military to ensure that it is not diverted from its intended purpose?

    Answer. The Administration will continue to monitor the end-use of U.S.-origin defense articles and services provided to Turkey, as well as to other foreign recipients, to ensure that such articles and services are used only for the purposes authorized, as required by law and regulation and with attention to Congress' particular interest in equipment provided to the Turkish military. The Administration's efforts in this regard are most recently detailed in the report, U.S. Military Equipment and Human Rights Violations, submitted to the Committees on Appropriations in July, 1997.


    Question. Are U.S. military ties with Turkey being used towards positive resolution of long-running issues such as the Cyprus problem, overflights in the Aegean, the Kurdish separatist conflict and the Nagorno-Karabagh conflict?
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    Answer. The U.S. enjoys close and productive relations with the Turkish defense establishment. These relations allow us to speak candidly and productively with our Turkish friends about issues of mutual concern. Tensions in the Aegean and on Cyprus, human rights issues associated with Turkey's struggle against PKK terrorism, and instability in the Caucasus and other areas are of much concern to both the U.S. and Turkey and are discussed frequently with Turkish defense officials. For example, these issues were discussed at length during the November 1997 U.S.-Turkey High-Level Defense Group. Secretary Cohen had a productive discussion of human rights and U.S. arms transfer issues with Turkish Prime Minister Yilmaz in Washington in December 1997 and when Secretary Cohen visited Turkey in April 1998. We believe that these discussions make an important contribution to ongoing efforts to reduce tensions and resolve underlying disputes between Turkey and Greece, to reinforce the Turkish government's efforts to improve human rights in Turkey, and to promote stability in the Caucasus and other troubled areas in the regions that Turkey borders.



    Question. As Chairman of the Military Construction Sub-committee, I share a portion of the NATO expansion costs in my sub-committee. When the Administration calculates the overall cost of expansion, is this Sub-committee's funding included in that overall total?

    Answer. Yes. In the context of both the Administration's February 1997 cost report, and NATO's December 1997 cost estimate, the U.S. annual contribution to NATO common military budgets was included in the calculation.
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    There is about $41M in DOD's FY99 budget request for direct national contributions to the NATO commonly funded Military Budget and the Security Investment Program (NSIP). When this request was finalized, none of this money was earmarked for enlargement-related requirements. (In this regard, DOD's FY99 funding request for military construction appropriations to support U.S. contributions to NSIP will total $185M. We hope to obtain your support for full funding of this request.) The U.S. expects to incur about $10M in enlargement costs in FY99, which will be met from the $412M budget request.

    In our recently-released Cost Report to Congress, we reported that NATO and DOD estimated that from 1998 through the first few years following the accession of new members, some or all of the costs associated with enlargement are expected to be met from within currently-planned budgets.

    Based on NATO's agreed cost estimates, DOD has assessed that the resource implication of enlargement for NATO's three commonly funded budgets would be $1.5B over the decade after accession, of which the U.S. national share is estimated to be abut $400M.

    Beginning in 2002, as the bulk of enlargement costs begin to be incurred, DOD expects that virtually all of predicted enlargement costs will have to be reflected in increased DOD budget requests for contributions to NATO common military budgets.

    Beyond 2003, the funding picture is less clear, because NATO only assessed the impact of enlargement on common-funded budgets in detail out to 2002. Thereafter, NATO expects that common-funded enlargement costs will peak in 2005. Considering this likely expenditure profile, DOD believes that most or all of these predicted costs will require resources above current budget levels.
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    Question. While the ''Leahy Language'' applies to funding from our bill, what is the Administrations policy with regard to DoD programs?

    Answer. Section 570 of the 1998 Foreign Operations, Export Financing, and Related Programs Appropriations Act (P.L. 105–118) applies only to programs funded through that Act. Section 570 does not apply to DoD programs funded through other Acts.


    Question. Could you please provide a list of the number of students from each country who took courses and the location of the courses and a description of the course?

    Answer. The U.S. Military Training Program consists of over 2,000 courses at approximately 150 military ''schoolhouses.'' This extensive training infrastructure is maintained primarily for the training and instruction of U.S. military and civilian defense personnel. However, this military training infrastructure may also be used to provide training to foreign military and civilian defense personnel. With a few exceptions for certain classified or sensitive courses, nearly every course available to U.S. personnel is also available to foreign students. In most cases, foreign students are incorporated into the student body and receive training alongside U.S. military personnel. Foreign student quotas for each course are requested at annual Training Program Management Review (TPMR) sessions.
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    A foreign government may pay for training services with its own funds through a Foreign Military Sales (FMS) case or, if available to the country, it may use grant funds appropriated by the Congress under the International Military Education and Training (IMET) program. (Countries receiving grant Foreign Military Financing (FMF) funds may also purchase training through the FMS system with those grant funds.) Comparative figures for fiscal year 1997 are as follows:

Table 1

    The IMET program was established in the 1950's as a low-cost foreign policy program to provide training in U.S. military schools to military students from allied and friendly nations on a grant basis. In 1990, the Congress (in P.L. 101–513) directed the DoD to establish a program within IMET focused on: (1) Training foreign military and civilian officials in managing and administering military establishments and budgets; (2) creating and maintaining effective military judicial systems and military codes of conduct (including observance of internationally-recoginzed human rights); and (3) fostering greater respect for the principle of civilian control of the military. To comply with this directive, the DoD refined some existing U.S. training and began creating new courses (a process which continues today). This initiative became the Expended IMET (E–IMET) program.

    It is important to note the E–IMET is not a separate program from IMET, but is rather a classification for U.S. training programs that meet the goals of the Congressional mandate established by P.L. 101–513. Training at courses qualifying for classification as E–IMET may be funded with grant IMET or may be purchased through the FMS system. Some E–IMET courses have been developed that are foreign-only courses; that is, they were not developed with the attendance of U.S. military personnel in mind, but were developed specifically to meet the needs of foreign students and E–IMET objectives. Examples include the International Defense Resource Management Course and the International Health Resources Management Program, and programs in disciplined military operations and the rule of law (Military Justice) and civil-military relations. E–IMET programs are also presented outside the U.S. in a host country through Mobile Education Teams (METs). METs allow large numbers of high-level officials to receive economical training in their own language and in their own country or region.
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    In FY97, IMET sub-allocations to the military services were as follows:

Table 2

I11Breakout of training conducted in the U.S. (CONUS) and training conducted outside the U.S. (OCONUS) for fiscal year 1997: CONUS Training—$33,862,678 (77.89% of the IMET program); OCONUS Training—$9,612,322 (22.11% of the IMET program),(see footnote 1) Travel and Living Allowance (TLA) costs represent a portion of most IMET course costs. For FY97, TLA costs were $16,917,277.(see footnote 2)

    The FY97 IMET appropriation of $43.475M may be broken down into the following categories:

    PME, Management, and Postgraduate training at 59.50% (or $25,867,625).

    Technical training at 17.89% (or $7,777,678), which includes $7,390,750 for English language training (17% of the program).

    Mobile Education Teams (METs)/Mobile Training Teams (MTTs) at 22.11% (or $9,612,322), of which 99% ($9,516,199) is for E–IMET METs.

    Orientation tours at 0.50% (or $217,375).

    Approximately 27% of the program (or $11,681,143) was expended for E–IMET courses which were spread over all types of training.
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    The FY98 IMET program is broken out as follows: PME, Management and Postgraduatue Training: 70%; Technical training, to include English language: 17%; METs and Orientation tours: 13%; E–IMET: 30%. We expect that the FY99 IMET program will have a similar training percentage.

    Due to the enormity of the FY97 IMET program (approx. 8,000 students), it would be an onerous task to provide course locations and course descriptions. Please see attachment for number of students, by country, which took IMET courses in FY97, as derived from the document entitled FY99 Congressional Presentation for Foreign Operations. In the future, the Department of Defense encourages specific questions about country IMET programs. We are happy to provide the information in writing or provide a briefing team at your convenience.

    "The Official Committee record contains additional material here."


    Question. Why is there still so much old money in the pipeline for Foreign Military Financing?

    Answer. We define ''pipeline'' as being uncommitted funds, that is, the amount of monies not programmed for a specific defense article or defense service. Since the early 1960s, a total of $96,279B in FMF has been apportioned among 141 countries and international organizations. Of that amount, $751M (or 0.78%) remains uncommitted to date, and only $427M (0.44%) represents funds apportioned in FY96 and prior. Moreover, $288M of the $427M in prior-year uncommitted funds relates to loans apportioned for Greece. We do not believe a program that has been over 99% committed is under-utilized. A total of 23 countries/organizations have not received any new FMF apportionments since FY95 and five countries are restricted from using FMF (e.g., Brooke Sanctions).
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    Question. Is that money ever transferred for other uses and what are the uses?

    Answer. Legally, the money could be transferred to another account/agency as long as the funds were uncommitted, undisbursed (meaning bills have not been paid from the FMF account) and were apportioned within five years of the transfer date. (Ref: Sec 632, FAA and 31 USC 1551) In practice, however, funds have not been transferred to other accounts. Moreover, the transfer of FMF funds among countries has occurred only once: in FY94, $2.190M of FY90 funds were deobligated from Guatemala and reobligated to Bolivia. We are currently prohibited from exercising ''deob-reob'' authority (Ref. Sec 510, P.L. 105–118).

    Question. Can you please supply this Committee with a new estimate on FMF monies still in the pipeline?

    Answer. A report identifying current uncommitted FMF monies is attached.

    "The Official Committee record contains additional material here."


    Question. Is there a book that lists all IMET courses available to foreign students? Can you make it available to this Committee?

    Answer. There is no single book or publication that lists all IMET courses available to foreign students. However, the U.S. Military Services recently made available all of there course catalogs available via the Internet. The Army Formal Schools Catalog is available via the Army Training Requirements and Resources System (ATRRS) at: The catalog of the Navy Training Courses (CANTRAC) is available at: The Air Force Formal Schools Catalog, AFCAT 36–2223, is available at:
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    The following attachment provides a lengthy listing of all courses that are scheduled currently for the FY98 IMET program, as of 15 March 1998. Please note that many changes (additions, deletions) will occur throughout the rest of FY98. The ''course title'' and ''military course number'' provided in the attached listing can be used to locate a course description in the course catalogs found via the Internet.

    "The Official Committee record contains additional material here."


    Question. Mr. Slocombe, last year you paraphrased Clausewitz, saying that war is the continuation of policy by other means. You also stated that it is the policy of the United States that if any country uses chemical weapons against the United States they will be met with a prompt and overwhelming response. I know that it was our public position during the Gulf War, but does that remain our position today?

    Answer. Yes, that remains our position today. As Secretary Cohen said to the National Press Club on March 17, ''We've made it very clear to Iraq and to the rest of the world that if you should ever even contemplate using weapons of mass destruction—chemical, biological, any other type—against our forces, we will deliver a response that's overwhelming and devastating.''


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    Question. Would you assess the effectiveness of this policy as a deterrent?

    Answer. Effective deterrence depends on a combination of our ability to respond to threats of use of biological or chemical weapons against U.S. or coalition forces with a devastating retaliatory blow, and our ability to carry out military operations successfully, even in the face of widespread energy use of chemical and biological weapons.

    In deterring the threat of use of biological or chemical weapons use against U.S. or coalition forces, we depend on strong conventional military forces that are trained and equipped to operate effectively in a chemical-biological warfare (CBW) environment, and a powerful, flexible nuclear capability. Effective counterforce combined with improving active and passive defenses can deny the tactical, battlefield advantages that an adversary might otherwise perceive it could gain by employing chemical or biological weapons. We have, in fact, a broad spectrum of credible force options available. From these we can choose the appropriate option for delivering a devastating and overwhelming response to NBC use against us.


    Question. Could this type of response be applied to Iraq?

    Answer. Yes. We have made it very clear to Iraq and the rest of the world that if you should ever even contemplate using weapons of mass destruction—chemical, biological, any other type—against our forces, we will deliver a response that's overwhelming and devastating.
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    Question. How can our security assistance programs help our allies to deter ''rogue nations'' from developing chemical, biological and other weapons of mass destruction?

    Answer. Our security assistance programs help train and equip U.S. allies to become more capable coalition partners and improve their ability to survive and sustain military operations under the threat of chemical or biological weapons. Strengthening the chemical and biological defense capabilities of our allies—including passive defense hazard avoidance, protection and decontamination equipment, as well as theater missile defense systems—enhances deterrence by denial: that is, our potential adversaries are less likely to use chemical and biological weapons in the face of strong defenses because the benefits of any such attack would be greatly reduced. The Secretary of Defense places a high priority on improving the defense capabilities of likely partners in future U.S.-led coalitions so that they can provide basing and host nation support, as well as sustain operations alongside U.S. forces under chemical or biological attack. Toward this end, the United States has undertaken discussions with regional allies in Europe, the Middle East and East Asia to improve their chemical and biological defenses. An important aspect of these discussions will continue to be the role of U.S. Security assistance programs, particularly the Foreign Military Financing (FMF) and International Military Education and Training (IMET) accounts.


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    Question. What is our first, last, and best line of defense in dealing with the proliferation of chemical, biological, and other weapons of mass destruction?

    Answer. The primary objective of U.S. policy is to prevent countries from acquiring NBC weapons and their delivery systems or to roll-back proliferation where it has occurred. To accomplish this objective, we utilize diplomacy, and the Defense Department contributes to U.S. efforts to prevent the acquisition of NBC weapons and their delivery systems by supporting the Department in negotiating and implementing various arms control and non-proliferation regimes, such as the Chemical Weapons Convention and the Wassenaar Arrangement. Since the dissolution of the Soviet Union, the Department's Cooperative Threat Reduction (CTR) program has assisted Belarus, Kazakhstan, Russia, and Ukraine with the elimination (or, in the case of Russia, reduction) of weapons of mass destruction and their delivery systems, proliferation prevention efforts, and the dismantlement and transformation of infrastructure associated with these weapons.

    Howver, we recognize that despite our best efforts, we will not be fully successful in preventing such proliferation. The goal, failing that, of the Defense Department's Counterproliferation Initiative is to deter and prevent effective use of chemical and biological weapons (CBW). We do that by posing a credible threat of swift, devastating, and overwhelming retaliation and by ensuring that U.S. and coalition forces are trained, equipped, and prepared to fight and win in a CBW-contaminated environment.

    Prevention, deterrence, and protection strategies are mutually reinforcing. There is no single, simple counter to chemical and biological weapons. Instead, an integrated counterproliferation strategy is required, because each component will have its limits and failings. The strategy must include attempting to stop the proliferation of threatening capabilities, increasing the risks the adversary may face for the use of NBC weapons, and seeking to deny the gains an adversary might hope to achieve.
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    Support for international nonproliferation regimes is also an important component of U.S. policy. International cooperation that is consistent with U.S. nonproliferation objectives offers a broader base to combat proliferation. Proliferation of weapons of mass destruction and their delivery systems is not solely the concern of the United States; it is an issue that affects every nation.


    Question. What IMET or Expanded-IMET funding was used in Guatemala in FY97?

    Answer. As directed by Section 567 of the 1997 Omnibus Consolidated Appropriations Bill, all of the Guatemalan IMET allocation ($205,000) was spent on Expanded-IMET (E–IMET) courses. The emphasis in E–IMET is typically placed on upper level professional military education, military justice, civil-military relations, and defense resource management.

    In FY 97 the following E–IMET courses were provided to Guatemalan students:

    Civil Military Relations (Mobile Education Team [MET] in Guatemala);

    Company Grade Officer Professional Development Course;

    Defense Resource Management MET (in Guatemala);
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    Legal Aspects of Military and Peace Operations;

    Managing English Language Training;

    Phases I and II of the Military Justice MET (in Guatemala);

    The Rule of Law and Disciplined Military Operations MET (in Panama).

    Two American Language Courses were offered in FY97 to one student. While not specifically E–IMET courses, they were critical to establishing an English language laboratory in Guatemala. This laboratory will enable Guatemala to send English-language proficient students to the United States and give them a wider variety of E–IMET courses from which to choose. (Spanish-speaking only students are limited to E–IMET courses provided at the School of the Americas.) The two American Language Courses included discussion of topics which are E–IMET objectives (i.e., human rights, civilian control of the military, reading the U.S. Constitution and the Bill of Rights, as well as other literature that educates students in the democratic process.)

    The 1998 Foreign Operations Bill continues to restrict Guatemala to E–IMET coursework.

Questions for the Record Submitted by Ms. Pelosi

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    Question. How many official military visits and joint military exercises have occurred between the U.S. and Pakistan?

    Answer. During FY96 and FY97, the following official military visits occurred between the U.S. and Pakistan:

    GEN Peay, CINCCENTCOM, 23–26 May 96;

    LTG Arnold, CDR ARCENT, 18–23 Jul 96;

    GEN Peay, CINCCENTCOM, 18–20 Jan 97;

    VADM Fargo, CDR NAVCENT, 18–19 Mar 97;

    GEN Ralston, VCJCS, 14–16 Jul 97;

    GEN Peay, CINCCENTCOM, 20–22 Jul 97;

    LTG Franks, CDR ARCENT, 5–8 Aug 97;

    VADM Fargo, CDR NAVCENT, 27–29 Aug 97.

    Joint exercises: With the implementation of the Pressler sanctions and DESERT SHIELD/DESERT STORM, the U.S.-Pakistan exercise program was suspended during the period 1990–1992. Since the suspension, the following joint military exercises were conducted between the U.S. and Pakistan:
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Table 3

Questions for the Record Submitted by Ms. Kaptur


    Question. How much money has the U.S. expended to date from all accounts for Bosnia-related activities?

    Answer. The incremental costs of DoD participation in operations in and around the Former Yugoslavia, predominately Bosnia, totaled $2.5 billion for FY 1996 and $2.3 billion in FY 1997. The current projection for FY 1998 through June is approximately $1.6 billion. These Bosnia costs cover the preparation, deployment and sustainment of U.S. forces, as well as the costs associated with enforcement of the no-fly zone over Bosnia, and support of other UN observer related missions in the AOR.

    Incremental costs totaling $347.4 million in FY 1995, $292.0 million in FY 1994, $138.8 million in FY 1993, and $5.8 million in FY 1992 were incurred by the DoD to support humanitarian related mission in, and aircraft operations over, the Former Yugoslavia.

    The Department of Defense only has oversight and visibility for the DoD related programs being executed in Bosnia by other government agencies, including State and AID. We are informed by the listed agencies that their expenditures in Bosnia are as follows:

Table 4

    Question. How much have other nations expended?

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    Answer. There is no source of information to answer this question as it applies to military costs. Different accounting systems and rules make it virtually impossible to accurately report other country expenditures in Bosnia. Additionally, most countries are reluctant to openly report their military expenditures. This has been a continuing problem due to disclosure issues, accounting practices, and the lack of a common accounting baseline. NATO, GAO, DOS, OMB, DoD Comptroller, and the Joint Staff were all contacted to address this issue; no one was able to address the issue of foreign military expenditures in Bosnia.

    Question. What percentage of all troops deployed in Bosnia are U.S. forces?

    Answer. The following chart depicts current contributions to SFOR from all contributing nations:

MND (N) (U.S. Sector)

    Denmark: 1,000 (2.83%)—Mech Infantry Battalion in Nordic Brigade.

    Estonia: 41 (.116%)—Infantry Platoon in Danish Battalion.

    Finland: 341 (.968%)—Mech Battalion.

    Iceland: 6 (.017%)—Security.

    Latvia: 39 (.110%)—Infantry Platoon in Danish Battalion.
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    Lithuania: 40 (.113%)—Infantry Platoon in Danish Battalion.

    Norway: 615 (1.74%)—Infantry Security Co.-SFOR HQ Battalion-Nordic Brigade.

    Poland: 400 (1.13%)—Mech Infantry Battalion in Nordic Brigade.

    Russia: 1,400 (3.97%)—Airborne Brigade.

    Sweden: 480 (1.36%)—Mech Infantry Battalion in Nordic Brigade.

    Turkey: 1,520 (4.31%)—Mech Infantry Brigade.

    United States: 8,500 (24.13%)—1st Armor Division

MND (SE) (French Sector)

    Egypt: 270 (.766%)—Mech Infantry Battalion in French Brigade.

    France: 2,500 (7.09%)—French-German Brigade.

    Ireland: 50 (.141%)—MP Company, SFOR HQ.

    Italy: 1,790 (5.08%)—Mech Infantry Brigade.
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    Jordan: 10 (.028%)—Special Forces Contingent.

    Morocco: 650 (1.84%)—Infantry Battalion in Italian Brigade.

    Portugal: 320 (908%)—Airborne Battalion in Italian Brigade.

    Spain: 1,550 (4.40%)—Mech Infantry Brigade.

    Ukraine: 380 (1.07%)—Mech Infantry Battalion.

    Germany: 2,470 (7.01%)—French-German Brigade.

MND (NW) (UK Sector)

    Bulgaria: 30 (.085%)—Engineering Construction Platoon, Attached to Netherlands Battalion.

    Canada: 1,250 (3.54%)—Mech Infantry Battalion.

    Czech Republic: 640 (1.81%)—Mech Infantry Battalion.

    Malaysia: 925 (2.62%)—Mech Infantry Battalion.

    Netherlands: 1,080 (3.06%)—Mech Infantry Battalion
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    United Kingdom: 5,000 (14.19%)—7th Armored Brigade.

Multinational combat support elements—SFOR logistics command

    Albania: 40 (.113%)—Attached to German Brigades below.

    Austria: 230 (.653%)—Transportation Co. in Beluga Battalion.

    Belgium: 50 (.141%)—Support Element.

    Germany: 850 (2.41%)—Logistics, Medical, Transport Brigade Battalion, Engineering Battalion, Aviation Regiment (these numbers are reflected in the Germany totals above).

    Greece: 210 (.596%)—Transportation Co. in Beluga Battalion.

    Hungary: 255 (.724%)—Engineering Battalion.

    Luxembourg: 18 (.051%)—Transportation Platoon in Greek Co.

    Romania: 200 (.567%)—Engineering Battalion.

Commonwealth nations contributing to United Kingdom total

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    Australia: 5 (.014%)—Part of Armored Brigade.

    New Zealand: 8 (.022%)—Part of Armored Brigade.

    South Africa: 3 (.008%)—Part of Armored Brigade.


    Slovenia: 50 (.141%)—Security forces based in Slovenia.

    The final size of the follow-on force is being determined by the NATO force generation process that is on-going at this time.

    Question. What is the percentage of troops deployed by other nations?

    Answer. Percentages of troops deployed by nation are listed in the previous answer.


    Question. With future expansion of NATO, can you tell me if our European allies have increased their contributions to aid in this effort.

    Answer. We are confident that our European allies will pay their fair share of the costs of NATO enlargement. Our confidence is based on an established track record of nearly fifty years during which our allies consistently fulfilled their NATO financial obligations. We are further encouraged by the fact that NATO political leaders, both in Madrid and in Brussels acknowledged that there will be costs associated with NATO enlagement, and confirmed their nations' willingness to meet these costs.
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    Question. How does DoD and the School of the Americas intend to track the career of SOA graduates?

    Answer. It is not administration policy to track the careers of the attendees at any U.S.-sponsored training, including attendees of the U.S. Army School of the Americas. U.S. country teams will vet thoroughly all candidates according to U.S. State Department guidance and maintain these background checks for 10 years. The Administration recently reported to Congress on careers of some students that had achieved prominence after taking courses at the U.S. Army School of the Americas, and we anticipate this type of information will continue to be available.

    Question. How do the Defense Department and the SOA intend to track the careers of SOA graduates to understand the impact of training on human rights? What sources will be used? How actively will this kind of evaluation be pursued?

    Answer. It is not Administration policy to track the careers of the attendees at any U.S.-sponsored training, including attendees of the U.S. Army School of the Americas. U.S. country teams will vet thoroughly all candidates according to U.S. State Department guidance and maintain these background checks for 10 years. The Administration recently reported to Congress on careers of some students that had achieved prominence after taking courses at the U.S. Army School of the Americas, and we anticipate this type of information will continue to be available.
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    Question. The November 1997 DoD Inspector General's report mentioned that the SOA was still, at the time of the report, circulating a list including 40 outdated manuals for sale to Latin American militaries. Four were military intelligence manuals. Can you make those four available to me?

    Answer. All 40 of the outdated manuals discovered during the Inspector General's visit were immediately destroyed and are no longer in possession of the School of the Americas. We, therefore, are unable to make the four manuals available.

    Question. The Defense Department has stated that the SOA has added an additional human rights course, ''Human Rights Train the Trainer''. How was this curriculum developed? What are the requirements for teachers of this course? Please provide a copy of this curriculum. What students are currently enrolled in this course?

    Answer. The Human Rights Train the Trainer Course was developed in 1997 to fill the specific needs of nations who need qualified trainers with an expertise in Human Rights training. The course combines the Instructor Training Course curriculum with the Human Rights Awareness training to provide students with the ability to competently present instruction based on Human Rights scenarios. In 1997, the course was validated in Paraguay by teaching twelve students during the course of a Human Rights Exchange Seminar.

    The course uses as its principal source documents, the U.S. Army field manual, FM 27–2, Conduct in Combat Under the Law of War and the U.S. Army's Staff Judge Advocate's Handbook.
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    The Human Rights portion of the course is taught by a School of the Americas Staff Judge Advocate, an U.S. Army Lawyer, and the School Chaplain, an ordained minister. The technical aspects of instructional techniques are taught by the instructors of the SOA Instructor Training Course.

    A copy of the curriculum is attached.

    We have had no requests for attendance at this course in FY98.

    "The Official Committee record contains additional material here."

    Question. The certification report provided to our subcommittee, as well as many previous references by the Defense Department and the SOA, state that the training manuals used at the SOA which advocated human rights abuses contained only ''24 inappropriate or vague statements inserted throughout six publications (1,100 pages) that were otherwise completely consistent with U.S. law and human rights policy.'' Who made this determination that all but 24 passages of these manuals are (un)objectionable? What criteria were they using to evaluate the manuals?

    Answer. During its 1991/1992 investigation regarding improper material in Spanish-language intelligence training manuals in use in the U.S. Southern Command area of responsibility and the School of the Americas, the Assistant to the Secretary of Defense for Intelligence Oversight (now the Special Assistant to the Secretary of Defense for Intelligence Policy) directed a review of the seven training manuals, totaling 1169 pages, that reportedly contained objectionable language. The review was carried out by numerous U.S. Army language-qualified subject matter experts working independently of one another. Their conclusions were reviewed and certified by U.S. Army legal officials.
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    The review concluded that five of the seven manuals contained two dozen short passages which contained material that could be interpreted as to not be consistent with U.S. government laws, regulations, and policy as articulated in: 1949 Geneva Convention, Articles 3 and 18; Title 18 United States Code (USC), Sections 872 and 875; Title 22 USC, Sections 2304(a)(3), 2347b and 2349 aa–1; Executive Order 12333, paragraph 2–11; and DoD Directive 5240.1–R, procedures 2, 3, 4.

    Question. A directive was supposed to be issued to ensure that no foreign military intelligence training materials used at the SOA or anywhere else advocate human rights abuses. What is the status of this directive? If it is finalized, please provide a copy as well as an explanation of how such a directive will be distributed, explained and implemented to all relevant agencies.

    Answer. On 27 August 1992, the Assistant Secretary of Defense for Command, Control, Communications and Intelligence issued a policy memorandum entitled ''DoD Policy on Intelligence and Counterintelligence Training of Non-United States Persons'' to the Secretaries of the Military Departments, the Chairman of the Joint Chiefs of Staff, and the Directors of the Defense Intelligence Agency and the National Security Agency. In its Evaluation Report on Training of Foreign Military Personnel—Phase I (Report Number PO 97–007 dated 21 February 1997) the DoD Inspector General recommended that the policy memorandum be reissued as a DoD Directive. That Directive is currently being coordinated and it is expected to be published later in 1998. A copy of the Directive, along with the plan for dissemination, will be provided once it is signed.

    Question. In the Army's SOA certification report received in January, on page 34–37, is a list of the graduates of the School who currently hold various positions of prominence in their respective countries. Specifically, who is the Army referring to, can you please attach names to the titles supplied in these pages?
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    Answer. A list of the names of those prominent former students and their titles referred to in the Army's SOA certification is attached.

    "The Official Committee record contains additional material here."


    Question. There has been an increase in U.S. military assistance to Mexico, primarily for counternarcotics training. Is there any end-use monitoring with regard to the activities of the Mexican Army personnel trained by the U.S. Government? Is there end-use monitoring of the UH–1H helicopters transferred to Mexico?

    Answer. DoD provides counternarcotics training to individuals who serve in a variety of assignments upon their return to Mexico, and they are further assigned periodically thereafter to a wide variety of jobs. As a practical matter then, it is impossible to monitor those individuals. However, there is a UH–1H End-Use-Monitoring agreement with Mexico. On a bi-monthly basis, pursuant to this agreement negotiated by the U.S. Embassy and the Government of Mexico (GOM), the Mexicans provide the U.S. Military Liaison Office (MLO) a summary of their use of the 73 UH–1H helicopters that DoD provided to the Mexican Secretary of National Defense under authority of the Foreign Assistance Act. In addition, the MLO conducts quarterly visits to installations where these aircraft, pilots, and maintenance personnel are located to check aircraft, to interview personnel, and to verify and corroborate information.

    Question. Who are the foreign officials trained by the Special Operations Forces?
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    Answer. The majority (80 percent) of Special Operations Forces (SOF) training missions focus on the junior, tactical-level leadership (Captain and below) of the host nation armed forces and counternarcotics forces. Larger SOF exercises (2–3 per quarter) also incorporate the Battalion and Brigade level leadership (Lieutenant Colonel/Colonel level). During some Humanitarian Civic Action (HCA) missions and the Counterterrorism Enhancement Program (CTEP), the host nation national-level civilian and military leadership is also included.

    Question. What are the counternarcotics operation that SOF have carried out?

    Answer. None. SOF have not directly participated in any counternarcotics operations in Latin America. DoD policy specifically precludes such involvement by any DoD personnel; personnel are not authorized to accompany U.S. or host nation law enforcement forces on actual field operations or, during the course of their activities, intentionally expose themselves to situations where hostilities are imminent. SOF have conducted counternarcotics training at various locations in Latin America and in the United States.

    Question. What are the ''miscellaneous other-than-war activities'' that SOF have carried out?

    Answer. SOF activities include providing training and logistical support to the Organization of American States' deminining program in Central America (MARMINCA) (1995 to present). SOF continues to provide the U.S. peacekeeping contingent assigned to the Military Observer Mission Ecuador-Peru (MOMEP) formed following the February 1995 Peru-Ecuador border conflict. SOF provided camp coordinators and security support to the Cuban Displaced persons (10,000) during Operation SAFE HAVEN in Panama (Sept. 94–Feb. 95). During UPHOLD DEMOCRACY, Haiti, SOF teams deployed to rural towns throughout Haiti to provide stability to local communities. Following Operation JUST CAUSE, Special Forces teams provided that same stability to rural Panama in Operation PROMOTE LIBERTY (1990–91). SOF is also prepared to conduct and assist in Disaster Relief, Non-Combatant Evacuation and Search and Rescue missions. Recently (Feb. 98), for example, SOF deployed 18 personnel and 2 MH60 helicopters to Costa Rica to rescue an American citizen who had been lost four days in the jungle.
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    Question. What are the ''direct actions'' that SOF have recently carried out?

    Answer. Operation JUST CAUSE in Panama (Dec. 89) and Operation UPHOLD DEMOCRACY (Sept. 94) were the recent SOF direct actions. During H-Hour of JUST CAUSE, SOF elements serviced 20 targets in support of the larger invasion force, The Ranger Battalions conducted Airborne Assaults into the two principal targets of Torrijos/Tocumen Airport and Rio Hato Airfield. During UPHOLD DEMOCRACY, SOF elements secured Haitian military and Police bases and disarmed Gen. Cedras' forces.

    Question. What paramilitary forces have recently been (during this decade) and/or are currently being trained, advised, or helped by SOF?

    Answer. Special Forces trainers in El Salvador helped establish the Civil Defense training school (1984–91). SOF filed advisers ensured that Civil Defense units were properly supported. The Costa Rican Rural Frontier Police receive training though the JCET (Joint Combined Exchange Training). The training focuses on land navigation and patrolling. Rural Counternarcotics police units in Colombia, Ecuador, Peru, Paraguay, and Bolivia are trained by Special Forces units. These police units have the primary counternarcotic role in their country. These units need light infantry skills to succeed in their missions. Latin American national terrorist response forces, some of which are police units, do participate in counterterrorism enhancement and interoperability exercises with U.S. special operations forces in order to heighten the respective host nation's ability to assist in the protection of official USG personnel and facilities.
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    Question. What U.S. security assistance is being provided to which countries through channels not covered by the Foreign Operations Act? Please differentiate between training and the provision of goods and specify what those channels are.

    Answer. Security assistance, as defined by Section 502B of the Foreign Assistance Act, is funded solely through the Foreign Operations Appropriations Act. Of course, the U.S. engages numerous countries in cooperative programs other than security assistance. We are happy to provide a briefing team to address specific countries and relevant programs at your convenience.




    Question. Given the delicate peace process in Guatemala and the vital importance of ending impunity for human rights abuses in maintaining that peace, will Guatemala continue to be limited to expanded IMET courses only for fiscal year 1999? Is Guatemala able to purchase regular IMET courses for its students? Given the apparent inability of the civilian authorities to deal with these problems, what steps—beyond asking for information from these same civilian authorities—are being taken to ensure that persons who have been involved with human rights abuses—past or present—are not permitted to participate in IMET training?
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    Answer. Currently, Guatemala is legislatively restricted to expanded IMET only. Because the Guatemala peace agreement remains tenuous, the training regimen should continue to focus on expanded IMET courses. However, we believe Guatemala would reap greater benefits if it had access to the full range of courses offered by the IMET program. Over the past year, the Department has worked with DoD to put in place more comprehensive, fail-safe procedures to guard against participation by individuals who have been involved in activities such as human rights abuses, drug trafficking, and corruption and other behaviors that would render them ineligible. Accordingly, more definitive guidance was provided to training program managers in Latin America which specifies the criteria to be used in screening nominees and requires long-term monitoring and record keeping on graduates. We are confident that this additional emphasis on the screening process will ensure the continued integrity of all our training programs.

    Question. How successful have efforts to enhance donor participation in the Clarification Commission been?

    Answer. The Historical Clarification Commission of Guatemala (HCC), charged with investigating human rights abuses that occurred during the internal conflict, had its mandate expanded by two months, brining it to a year. The HCC expects to issue its final report by the end of July 1998. The USG is proud to have contributed $1 million to support the HCC in its goal of helping Guatemalans come to terms with the past and reinforcing the peace process. Additionally, the USG has declassified and turned over approximately 3,000 pages of official documents to the HCC.

    The total budget for the HCC is $7.7 million. When the HCC recently appealed for international help to make up its $1.9 budget deficit, it received pledges from Austria and Holland to bring the projected deficit down to $1 million. The USG is in the process of making an appeal to several European allies and the European Union to bridge this budget gap.
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    Background. Despite recent dramatic increases in the portion of the counter-narcotics budget under our jurisdiction, the flow of illegal drugs into the United States has been virtually undiminished and the use of drugs among America's young people continues to occur at high rates. Cheap, extremely high quality heroin and a new generation of amphetamine-based designer drugs are readily available to our young people. In Colombia—a key supplier nation—coca cultivation is actually up this year, despite increased efforts by the Colombian government and the U.S. government. In addition, Colombia is currently facing one of the worst human rights crises in the region due to the deadly mix of counter-insurgents, violent drug traffickers and paramilitary forces—often acting with government knowledge or cooperation. By focusing on a military solution to the war on drugs, the U.S. inadvertently reinforces a belief that military institutions, rather than civilian ones, are the most important ones in Colombia.

    Question. How does our approach towards assistance to Colombia seek to deal with the underlying issues of state-sanctioned violence, impunity and systemic poverty that create an environment where the drug trade flourishes? In particular, do we have a holistic approach to Colombia that includes support and training to assist the judiciary in dealing with political and drug-related human rights abuses in a fair and systematic manner, as well as elements which reinforce civilian rather than military solutions to Colombia's problems? Have positive reinforcement programs, such as crop substitution, received increases proportional to other elements of our counter-narcotics efforts in Colombia and the region?

    Answer. Our efforts in Colombia are focused both on counternarcotics assistance and democratic institution building, to help Colombia develop the infrastructure it needs to address the many serious problems it faces.
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    Our counternarcotics program aims to meet the US national security objective of reducing the flow of illegal drugs into the United States, but it also benefits our other objectives. Counter-drug programs erode a primary source of financing for Colombia guerrillas' violent terrorist acts, limiting their ability to commit such acts over the longer term.

    On human rights, US pressure on the Colombian government for reform has helped lead to: a significant drop in reported abuses committed by Colombian security forces; legislation to reform the military justice system; and the arrest of paramilitary leaders and Army members accused of collaboration. In addition, we signed an End Use Monitoring agreement with the Colombian government in 1997 to ensure that no US assistance is provided to security forces whose members have committed gross violations of human rights, unless we can determine that the Colombian government is taking appropriate measures to investigate and prosecute the offenders.

    Other US initiatives to strengthen Colombia's civilian structure include Administration of Justice programs to train investigators and prosecutors in more efficient processing of casework; and support of Colombia's private sector, which is in the forefront of Colombian society in lobbying for government reforms.

    Our programs in Colombia do not at this time include crop substitution. In our judgment, conditions in Colombia are currently not appropriate for a successful program. For a program to succeed, the Government of Colombia must have the area proposed for the project under its firm control. Local leadership must also be capable of providing effective support for the program. We recognize the value of alternative development as part of an overall counternarcotics strategy, and hope to establish such a program when conditions permit. In the meanwhile, Colombia is a beneficiary of the Andean Trade Preference Act, which grants duty-free access to the US market for a variety of non-traditional Colombian agricultural products. Colombia uses this program, particularly in the cut flower industry, to develop these sectors as employment alternatives to the drug trade.
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    Finally, we note that the President's February 26 decision to grant Colombia a vital national interests counternarcotics certification will lift the restrictions on assistance programs which had been imposed by decertification. OPIC, EX–IM, and TDA funding can now resume for, inter alia, infrastructure development, and the US is no longer required to vote against loans to Colombia in the multilateral lending institutions.



    I am also pleased to see the Administration making an expanded commitment to efforts to eliminate the deadly scourge of landmines and unexploded ordnance which continue to endanger civilian populations long after a conflict has ended. Last year, when I sought to gain additional funds for the Cambodian Mine Action Center (CMAC) to expand their excellent work in mine removal and education, I was told that the well-developed program there had virtually reached the limits of the assistance that could be provided under the training-oriented program that was in place.

    Question. Will the increased resources in the NADR account for demining make it possible to expand into providing more—both quantitatively and qualitatively—advanced technology and equipment to organizations such as CMAC, which have reached their training capacity but not their operational capacity? If yes, what procedures are in place or will be implemented to ensure that these cutting-edge technologies will be made available to those countries where they are most seriously needed and can be used most effectively?
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    Answer. The Cambodia program is considered one of the most successful. The Cambodian Mine Action Center (CMAC) is a Cambodian organization that actively manages landmine clearance activities in Cambodia. We are requesting additional resources in the NADR account to expand the concept to other country programs, and to sustain ongoing programs in countries such as Cambodia.

    NADR funding to sustain the Cambodia program is used to purchase equipment according to the priorities of CMAC. To date, CMAC has requested standard equipment from the U.S. in order to field additional demining platoons. As new and more effective technologies become available, CMAC continues to review and evaluate those new technologies that are best suited to the Cambodian landmine problem.

    The Department of Defense and other organizations continue their work to develop and test promising technologies in actual mine-affected countries. This operational evaluation not only heightens awareness of developing technologies, but also assists in removing mines in the process. However, the humanitarian standard of landmine clearance requires that all landmines be removed; this level of reliability will be essential in any further technological development for humanitarian demining. Technology provides a tool box of options for mine clearance which differs from mine-affected country to country.

    The President's Demining 2010 Initiative, announced by the Secretaries of State and Defense last October 31, is designed to accelerate global humanitarian demining operations, including landmine survivor assistance, to eliminate the threat to civilians of anti-personnel landmines by the year 2010. This initiative aims to gain consensus on international coordination for research and development of demining technologies.
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    Question. Will any of the funds available for this account be used to accelerate research and development of technologies?

    Answer. Consistent with the basic objectives of Congress in appropriating these funds, funds in the NADR account are used to establish and sustain actual indigenous operational demining programs in mine-affected countries to remove landmines from the ground. Technological research and development are conducted by the Department of Defense with DoD appropriated funds.

    Question. I anticipate that there will be substantial cooperation between the Defense and State Departments on this issue. Can you provide us with detailed information about the mechanism for ensuring that the efforts of the two departments will be coordinated so as to facilitate maximum utility of the available funding? Who will be responsible for setting priorities and designing expanded programs?

    Answer. The U.S. Government Humanitarian Demining Program functions under the auspices of the Interagency Working Group (IWG) for Humanitarian Demining, charied by the State Department. The Department of Defense designates the Vice Chair. I enclose a copy of a recent Congressional Report which describes in detail the coordinating mechanism. The IWG and its member agencies are responsible for setting priorities and designing expanded programs, as detailed in the report.


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    Question. Will the Administration be able to certify that Russia and Ukraine are not providing nuclear information and materials to Iran?

    Answer. The Administration is required to certify Russia and Ukraine every six months. That certification has been made in the past. We are currently in the process of making the determination required at the beginning of May. That process is not yet complete and I can not say whether the certification will be made this time.

    Question. Why is funding for the International Science Centers shifted from FREEDOM Support Act to the NADR account? Have these funds been effective? With all of the accusations about the leaking of nuclear technology and information from Russia to Iran, how can these merger funds compete with the open market for such information?

    Answer. The International Science Centers program is a nonproliferation activity and fits logically into the group of security activities funded under the NADR account. The program has been shifted to NADR in the State Department's efforts to work cooperatively with Congress to rationalize the organization and funding of these activities.

    The International Science Centers continues to be one of our most effective nonproliferation tools. Recent reports from our embassies in Moscow and Kiev attest to this, as do independent assessments, including the General Accounting Office and the National Research Council. If anything, programs such as this are more important now than they were when we began them. We started them as an attempt to stem an anticipated brain drain of weapons of mass destruction expertise. They performed extremely well in this respect, engaging more than 22,000 scientists and engineers in more than 600 projects over the past 4 years. In that time, the centers have become real tools of nonproliferation policy, giving us the ability to focus our resources and engagement on facilities of highest proliferation concern. Their tax and customs exempt operation also makes them an attractive venue for a variety of USG-funded programs that share the centers' overall objectives. In this case, programs of the Department of Energy and Department of Defense, for example, may conduct projects under the centers' umbrella, maintaining technical responsibility for the work done, but enjoying the tax, customs, and on-site administrative benefits of the centers.
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    The International Science Centers are a programmatic nonproliferation tool. When dealing with an issue as vital to our security as sharing of nuclear technology with Iran or any other country of proliferation concern, the United States utilizes every means at its disposal. Interdiction is one approach; government-to-government dialogue is another; international pressure is yet another dimension. The centers' programmatic activities strongly complement these other approaches. Each addresses the nonproliferation issue from a different perspective, but the overarching nonproliferation objective is the same.

    Question. What does our PFP funding for Russia go toward? What about any proposed FMF funding? Why should the U.S. provide such funds for our largest competitor on the international arms market?

    Answer. U.S. PFP funding is used to support Russian participation in PFP exercises and other activities.

    FMF funding will be used to purchase non-lethal items necessary for more effective Russian participation in international peacekeeping operations. We anticipate these funds will be used for English language instruction, language labs to support this instruction and radios for troops involved in peacekeeping functions. Russian military radios are not compatible with NATO radios, a fact that has hampered our cooperation in Bosnia and in PFP exercises.

    These are very limited programs, both in the dollars involved and the kinds of equipment contemplated. They are aimed at ameliorating specific problem areas affecting Russian military participation in PFP exercises and other cooperative activities with the alliance. Our ultimate goal is to improve trust and cooperation between the Russian military and those of the West.
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    Question. To follow on to those questions, is the administration considering providing Excess Defense Articles to Russia, and if so why?

    Answer. The Administration intends to make Russia eligible to receive certain limited types of EDA. Like all EDA, it would be available on a first come, first served basis and it is not clear that Russia will be able to benefit from the program.

    We are making Russia eligible for EDA as a possible means of supplementing the limited FMF funds allocated to Russia. For example, if radios were available as EDA, Russia might be able to acquire the requisite number faster than if it had to rely solely on available FMF funds. We intend to subject Russia's potential acquisitions under EDA to the same limitations placed on FMF purchases.


    Question. With the current economic crisis in Asia, what will be the impact on KEDO? The United States has already pumped over $2.5 billion into it, will we be asked to provide more? Will South Korea be able to live up to its commitments?

    Answer. The U.S. has contributed a total of $86.5 million to KEDO, including our FY 1998 appropriation, and in addition has spent roughly $27 million on the canning of the DPRK's spent nuclear fuel.

    We do not anticipate that the financial crisis in Asia will have a long-term impact on the ability of the ROK and Japan to fulfill their commitments to fund most of the cost of the light-water reactor (LWR) project. Since the project's estimated 5.2 billion dollar estimated cost would be spread out over a number of years, yearly payments by the ROK and Japan to the project should be manageable, despite the current financial situation in Asia. LWR burden-sharing discussions with South Korea and Japan continue and we expect both countries to honor their previous commitments to provide most of the funding for the project.
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    Question. How has or will the loss of IMET effect our relationship with Indonesia?

    Answer. What we lose by not having full IMET for Indonesia is an opportunity to positively influence future military leaders relatively early in their careers and enhance access to them after they have assumed positions of broad authority. These are of course intangibles which are impossible to quantify but are nevertheless important for American interests.

    As Indonesia faces its current crisis, proper military conduct is essential. The IMET program represents an opportunity to expose the Indonesian military to U.S. culture and values, and resumption of IMET would complement Indonesia's efforts to instill professionalism, proper conduct and respect for human rights in its military. IMET graduates have played prominent roles in investigating human rights abuses and are likely to be major players in future military reforms.

    Congress has limited Indonesian participation to Expanded IMET (E–IMET), which focuses on senior military and civilian officials and thus does not allow us to reach the key target audience of mid-level military officers in Indonesia. Based on past experience in a number of countries, we have found that foreign officers who are exposed to multiple training opportunities over the course of their careers are those upon whom American training has the greatest impact.
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    Question. Is the Administration close to making a determination on Jackson-Vanik as it applies to Vietnam? If so, when can we expect that determination?

    Answer. On March 10, 1998, the President signed a determination authorizing a waiver of the Jackson-Vanik Amendment for Vietnam. At that time, he also waived the prohibition on Export-Import Bank operations in Vietnam. The waiver of Jackson-Vanik, in combination with related waivers, will permit us to make available to Vietnam and U.S. businesses operating in Vietnam U.S. export promotion and investment support programs. The Secretary of State approved national interest waivers February 23 to two provisions of the Foreign Assistance Act that prevent the United States from furnishing assistance under the act in Vietnam. These waivers permit the Agency for International Development (USAID) and the Overseas Private Investment Corporation (OPIC) to initiate bilateral assistance and investment support programs in Vietnam.


    Question. What is or has Egypt contributed to the military build-up in the Gulf? Considering our large annual FMF contributions, I hope it's a lot.

    Answer. The United States maintains a strong, comprehensive, friendly, and mutually beneficial relationship with Egypt.

    The benefits of this relationship were most recently demonstrated by Egypt's crucial support during the recent Iraq crisis. On the military front, Egypt provided timely critical assistance in providing Suez Canal transit, overflight clearances, and refueling services. These arrangements were essential to our preparedness to face all possible contingencies in the Gulf.
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    Additionally, President Mubarak—even as Arab public opinion was running strongly against possible action against Iraq—set the tone for other Arab leaders and the Arab League in calling for Saddam Hussein to comply with United Nations Security Council Resolutions. Mubarak also made clear in public statements that Saddam would be responsible for whatever consequences ensued from a failure to comply. This action deprived Saddam of key diplomatic support.

    President Mubarak has also made clear his opposition to Saddam Hussein and Iraq's efforts to acquire weapons of mass destruction and long range missile capabilities.


    Question. How much money has the U.S. contributed to Haiti in the last ten years and if it is as much as I think, how do you justify doubling the $70 million we provided last year?

    Answer. Based upon available data, USG assistance (excluding Department of Defense costs) from FY 1988 through FY 1998 totals approximately $1.1 billion. Since the restoration of democratic government in October 1994, total USG spending (excluding Department of Defense costs) through FY 1998 is about $680 million. With this assistance, Haiti has taken important steps toward development of a democratic society. Haiti's progress has a profound impact on the U.S. According to the U.S. Coast Guard, over 67,000 Haitian migrants were interdicted at sea from FY92–FY94, the period of the de facto regime: in 1994 alone, the U.S. spent $400 million dealing with 25,000 interdicted Haitian migrants. Since October 1994, fewer than 5000 migrants have been interdicted, a dramatic reduction in illegal migration from Haiti.
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    Our strong national interest in Haiti's progress toward democracy, stability and economic growth requires our engagement, patience and, where necessary, increased assistance. Our proposed increase will focus on the rural areas and secondary cities outside of Port-au-Prince, areas where the majority of Haitians live and where development is most lacking. To the greatest extent possible, we will bypass the Haitian government and rely on NGOs and local structures to implement programs such as agricultural development, democracy building, public health, education, and environmental reconstruction. For instance, such programs would include planting of fruit and coffee trees which would revitalize Haiti's ecologically-devastated hillsides and provide income to local farmers. We would support Haitian orphanages, immunization programs for children, and nutrition programs for pregnant women and infants.


    Question. I understand that one side on the Cyprus conflict has chosen to stop participating in bicommunal activities. Is that affecting our efforts in Cyprus and if so is it wise to continue to provide funding for such activities?

    Answer. The U.S. provides $15 million annually to Cyprus for bicommunal activities aimed at the reunification of the island and designed to reduce tensions and promote peace and cooperation between Greek Cypriots and Turkish Cypriots in a wide variety of fields.

    The bicommunal assistance program brings together people from both sides to meet face-to-face and to plan and implement concrete projects that benefit the island as a whole. Most, but not all, of these activities take place on Cyprus. Last December 27, however, the Turkish Cypriots suspended bicommunal contacts in ''retaliation'' for the European Union's decision, at its December 14–15 Luxembourg Summit, to open accession negotiations with Cyprus. Since then, no bicommunal meetings on the island have taken place, although a few bicommunal activities have been allowed to take place outside of Cyprus—most notably a January study tour of the U.S. by water experts from both communities.
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    The U.S. has been very critical of the Turkish Cypriot suspension of bicommunal contacts. Ambassador Brill, Special Cyprus Coordinator Miller, and other U.S. officials have pressed the Turkish Cypriots repeatedly and forcefully to lift the suspension. Bicommunal contacts serve Turkish Cypriot interests well, as they reduce the international isolation that the Turkish Cypriots themselves complain about and provide opportunities for Turkish Cypriots to articulate their positions. In addition, they bring concrete, practical benefits to the Turkish Cypriots, in key areas like water conservation and management, sewage treatment, and cultural preservation.

    Despite the ban on bicommunal meetings, our assistance program remains an important tool in our efforts to resolve the Cyprus dispute. Funds that cannot be used for bicommunal meetings can be used to support the many bicommunal groups that remain active in both communities. We will continue to plan important bicommunal activities outside of Cyprus. Of course, we will continue to press the Turkish Cypriot leadership to lift its suspension. Ultimately, we expect to see a resumption of on-island bicommunal activities. Thus the U.S. should continue to fund the bicommunal Cyprus assistance program.



    Question. The U.S., Japan, and South Korea established KEDO in 1995 to implement the Agreed Framework between the U.S. and North Korea. Under KEDO, the U.S. is responsible for providing annual shipments of heavy fuel oil, and South Korea for arranging the financing and construction of two light water reactors (LWRs) in North Korea. The Asian financial crisis and its effects on the economies of both South Korea and Japan has rasied doubts about whether these countries will be able to make good on their commitments to fund the bulk of the $5.1 billion LWR project. Since North Korea is not committed to dismantling its nuclear facility until after the second of the two reactors is ready, how would a possible delay impact the Agreed Framework, which so many claim has ''frozen'' North Korea's nuclear weapons program?
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    Answer. The commitments made under the Agreed Framework, including the DPRK's nuclear freeze, remain in effect. The freeze has been monitored and verified by our National Technical Means and by IAEA inspectors, who have maintained a continuous presence at North Korea's nuclear facilities since the signing of the Agreed Framework. We are confident that we can continue to monitor effectively the DPRK's compliance with the Agreed Framework.

    We see no signs that the North is backing away from its commitments, including its commitment to dismantle its frozen nuclear facilities upon completion of the LWR project, even if completion is delayed beyond the target date specified by the Agreed Framework. While the DPRK has complained of slow progress on the LWRs and irregular oil deliveries, we believe that the DPRK continues to see the implementation of the Agreed Framework as its best option.

    We do not anticipate that the financial crisis in Asia will have a long-term impact on the ability of the ROK and Japan to fulfill their commitments to fund most of the cost of the light-water reactor (LWR) project. Since the project's estimated 5.2 billion dollar estimated cost would be spread out over a number of years, yearly payments by the ROK and Japan to the project should be manageable, despite the current financial situation in Asia. LWR burden-sharing discussions with South Korea and Japan continue and we expect both countries to honor their previous commitments to provide most of the funding for the project.

    Question. The Agreed Framework committed North Korea to freeze plutonium production at only one site discovered by the International Atomic Energy Agency (IAEA) in Yongbyon. Yet the Administration has lauded this accord for stopping North Korea's nuclear program. If the agreement only pertains to one facility, and the IAEA is prohibited from inspecting the country for other nuclear sites, how can we be sure that the nuclear program has stopped? Do you have any guarantees that North Korea is not continuing plutonium production at other undisclosed sites?''
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    Answer. The nuclear freeze which North Korea agreed to under the Agreed Framework is in place and under constant monitoring by the IAEA. All of the DPRK's known nuclear facilities with the capacity to contribute to a weapons program, including the 5 MW(e) reactor at Yongbyon and two unfinished reactors at Yongbyon and Taechon, their ancillary facilities, spent fuel reprocessing facility and nuclear fuel fabrication facility are frozen. In addition, to IAEA monitoring the U.S. uses its National Technical means to survey the entire country for signs of clandestine nuclear activity. While no amount of surveillance can ever provide absolute certainty, we have seen no evidence that the North has an ongoing clandestine program.



    Question. Just as alarming to me is the recent revelation of evidence that Russia arranged to sell sensitive equipment to Iraq for the use of manufacturing biological weapons. I have also read the Russian embassy's cleverly evasive rebuttal. Last year's act, of course, placed strong conditions on aid to Russia, requiring its cessation of missile technology assistance to Iran. Other legislation has taken the government's lack of control into consideration by targeting individuals and companies who proliferate. This new revelation in Iraq, however, clearly would have required governmental involvement. Has Russia provided a more complete account of the deal to the U.S. than they did in their press release on Feb. 12? In what way does the administration propose to hold the Russian government accountable for this example of gross violation of the embargo?

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    Answer. We have no information indicating that Russia entered into an agreement to provide Iraq with either technical knowledge or equipment that would advance the Iraqi biological warfare program. The press reports to which you refer relate to contract negotiations in 1995 between a Russian entity and Iraq—negotiations that neither the U.S. nor the press reports indicate ever resulted in a contract or any deliveries. Nonetheless, the U.S. Government did raise this issue with the Russian Government, which also has been engaged in discussions with UNSCOM.

    Question. What effect are these specific proliferation problems having on the regional balance of power?

    Answer. We remain very concerned about the large imbalance in the size and military capabilities of Iraq and Iran compared to those of our friends in the Gulf. Having militaries many times larger than those of the Gulf Cooperation Council (GCC) countries, Iran and Iraq are in a position to threaten the use of force and to apply strong coercive pressures on our friends in the Gulf. U.S. force presence in the region and the strong cooperative relationship with the United States, including strong military sales and training programs, are essential elements in helping the Gulf states resist coercion, and also in ensuring the security of other friends in the region, such as Israel, Egypt and Jordan. The prospect of the acquisition of weapons of mass destruction by Iran and Iraq, and by others such as Libya and Syria, would materially affect the regional balance contrary to U.S. interests across the entire region and would strengthen the coercive pressures any of these states could bring to bear against any of the countries friendly to the U.S. in the region and potentially beyond it.

    Question. Can you also assess the resulting change in the threat environment for Israel, which may also face a range of new conventional weapons acquired by Syria from Russia?
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    Answer. Because of declining economic resources, Syria cannot easily maintain or modernize its rapidly aging military equipment in a way that threatens Israel's qualitative edge. Syria's traditional military relationship with Russia has been dormant since 1991. Recent reports of renewed Russian-Syrian military cooperation are of concern. We have made it very clear to the Government of Russia that such assistance should not go forward. Russia is a partner in the Middle East Peace Process and is committed to maintaining peace and stability in the region.

    Because Syria has been designated, since 1979, as a state sponsor of terrorism, shipments of lethal weapons to Syria by foreign governments may trigger provisions of U.S. law that subject those foreign governments to sanctions, specifically the curtailment of some U.S. Government assistance to those governments.

    We are aggressively investigating the situation and intend to fully and conscientiously implement the requirements of U.S. law. It would be premature now to comment on whether U.S. sanctions are warranted.

    Question. What is the status of U.S. cooperation with Israel on development and deployment of joint missile defense systems?

    Answer. We are committed to continuing to support and cooperate with Israel on security matters in order to preserve Israel's qualitative military edge and to reduce the security threat posed by WMD and missile systems.

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    The U.S. and Israel are currently jointly funding the ARROW deployability program designed to integrate, test, and evaluate the complete ARROW weapons systems at a cost of $616 million between 1996 and 2002. The first ARROW battery is scheduled for full deployment in 2002 with an initial operating capability in early 1999. The President has just signed legislation that will provide an additional $45 million for ARROW research and development this year, which will help free up Israeli national funds to help pay for a third ARROW battery.

    We have also engaged in joint research programs on other weapon systems such as the boost phase intercept concept, which would destroy ballistic missiles in boost phase, and the Tactical High Energy Laser (THEL), designed to counter the threat to Israel from Katyusha rockets. We are also cooperating closely with Israel in the areas of missile early warning and increasing interoperability between our theater missile defense forces.


    Question. Israeli Finance Minister Ne'eman recently presented to the U.S. a proposal to restructure Israel's foreign assistance over the coming years. In the weeks since this proposal was announced, what reaction has the Administration developed to the overall structure and the details of the plan? Can we expect a similar proposal from Egypt soon?

    Answer. In late January, Israeli Finance Minister Yaacov Ne'eman began discussions with Members of Congress and Administration officials on a proposal that would gradually reduce Israel's annual $1.2 billion economic assistance to zero, while phasing in a $600 million increase in military assistance over the same 10–12 year period.

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    We agree that it is time to adjust the level of assistance, but are still formulating our response to Israel's offer. The Israeli proposal calls for all increases in FMF to be made in the form of off-shore procurement (OSP), as opposed to direct purchases of U.S.-sourced equipment. We understand there may be congressional concerns about this aspect of the Israeli proposal, and are carefully studying the implications. We have asked the Israelis for programmatic justifications of additional OSP and will take those into account when formulating our position.

    We have asked the Egyptian government for its thoughts on future assistance levels, focusing on the Egyptian economic situation and priorities. We want to ensure that any proposed reduction in assistance does not affect our regional security interests. We depend on Egypt for rapid naval access to the region through the Suez Canal, for overflight clearance and for air access to Egyptian facilities. In addition, Egyptian contributions to coalition operations substantially reduce the drain on our own resources.

    U.S. economic assistance helps sustain Egypt's economic reform program. Egypt continues to face major economic challenges including creating jobs for nearly half a million new workers annually. Reform-generated economic growth contributes to a strong and stable Egypt.

    Question. I continue to be concerned about U.S. contributions to the KEDO. (I am not convinced the whole ''agreed framework'' approach is appropriate for that matter. Obviously we're not interested in duplicating it for Iraq's WMD programs.) What is the rationale for another increase (excluding the debt repayment last year) for KEDO? Is fuel consumption going to increase by 14 percent next year?

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    Answer. Although the yearly U.S. HFO commitment to North Korea remains fixed at 500,000 metric tons, the annual U.S. contribution to KEDO's heavy fuel oil (HFO) program has never been sufficient on its own to fully fund the program, which has cost about $60–65 million per year since it began in 1995. While the European Union has emerged in the last year as a major fellow contributor, our Asian allies have, under present economic circumstances, found it difficult to step up their contributions to the HFO program. The increases are necessary for the continued viability of KEDO's HFO program. Continuing strong U.S. financial support for the program will also assist us in our efforts to approach other countries for HFO funding.


    Question. I appreciate the thorough report prepared by the Department of the Army regarding certification requirements for the SOA outlined in last year's act. I would like to ask for some fellow-up information, however, on a couple points. Can you please further describe the U.S. embassies' vetting process of potential student candidates? The annexed cables in the report did not clearly define measurable criteria for this process. What constitutes a thorough check and screen of candidates? What specific, quantifiable criteria are used? I also understand from the cable the standards may continue to vary from post to post. To what degree are they allowed to vary and on what types of points? Why shouldn't we maintain consistent standards—regardless of unique national situations?

    Answer. Guidance has been provided to embassy training program managers that incorporates certain core criteria in screening plans, while still allowing some flexibility to accommodate unique circumstances such as variations in the size, composition, and expertise among country teams in Latin America. This guidance facilitates standardization and uniformity among the various country programs in the critical area of record keeping on participants and certifying background checks on nominees. Training program managers specifically have been tasked to develop or amend existing screening plans to include the new guidance and to forward their plans to us for review. In addition, as one of the first steps in the process, embassies have been instructed to ensure the host country fully understands the criteria and U.S. laws governing eligibility. The involvement of all relevant country team members in the screening process and requirement to maintain student files will assist in scrutinizing candidates, guarantee long-term continuity among training managers, and more importantly, prevent participation by ineligible personnel. We are confident that, over time, these adjustments will serve to further strengthen the process for screening nominees and guarantee the continued integrity of U.S. training programs.
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    Question. Part of the stated mandate to support democracy under ESF in Mr. Holum's testimony is to provide judicial training and to assist in the administration of justice. Can you further describe this training efforts?

    How does the U.S. measure success in our assistance for administration of justice?

    Answer. The rule of law (ROL) is a critical element of democracy; it serves as a foundation for the other elements. The ROL is required to hold leaders and institutions accountable. It supports free and fair elections and provides the breathing space for civil society. The ROL also ensures the protection of human rights through a fair, effective and efficient legal system headed by an independent judiciary.

    U.S. assistance programs that provide judicial training and help improve the administration of justice are focused on developing an independent judiciary and improving the ROL in recipient countries.

    Training programs include helping judges establish independent judicial associations and create judicial training institutes, advice on legislative reform, as well as training for prosecutors, defense attorneys, and law enforcement officials.

    Administration of justice programs are focused on improving the overall legal process—how a justice system operates. Through this assistance, we try to identify the causes and recommend solutions to such problems as judicial delay, limited access to courts, case backlog and judicial corruption.
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    As with other democracy building programs, strengthening the ROL through judicial training and improvements in the administration of justice is a long-term process. Therefore, evaluating the success of our ROL assistance must be done over an extended period of time and with the caveat that the political will for change in recipient countries must come from the recipients themselves. That said, by helping to create new institutions like independent judicial associations or training institutes, by shrinking judicial backlogs and increasing the use of courts to resolve disputes, we can show that our assistance is having a positive impact on strengthening the ROL.

Questions for the Record Submitted by Mr. Frelinghuysen


    Question. To date, what is our total spending for programs in Haiti? How do we judge progress, if any, that we are making? What effect, if any, will a doubling of aid have now after all the millions that have already been spent there?

    Answer. Since the restoration of democratic government in October 1994, total USG spending (excluding Department of Defense costs) through FY 1998 is about $680 million. With this assistance, Haiti has taken important steps toward development of a democratic society. A popularly-elected President peacefully succeeded another for the first time in Haitian history and democratic institutions such as an independent and popularly-elected parliament play an increasingly important role in public life, another first for Haiti. Haitians of all walks of life enjoy unprecedented freedom of association and expression and the Haitian media operate unhindered by governmental censorship or restraint. Haiti's first civilian police force has been trained and fielded. This progress has a profound impact on the U.S. According to the U.S. Coast Guard, over 67,000 Haitian migrants were interdicted at sea from FY92–FY94, the period of the de facto regime: in 1994 alone, the U.S. spent $400 million dealing with 25,000 interdicted Haitian migrants. Since October 1994, fewer than 5000 migrants have been interdicted, a dramatic reduction in illegal migration from Haiti.
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    Our strong national interest in Haiti's progress toward democracy, stability and economic growth requires our engagement, patience and, where necessary, increased assistance. Our proposed increase will focus on the rural areas and secondary cities outside of Port-au-Prince, areas where the majority of Haitians live and where development is most lacking. To the greatest possible extent, we will bypass the Haitian government and rely on NGOs and local structures to implement programs such as agricultural development, democracy building, public health, education, and environmental reconstruction. For instance, such programs would include planting of fruit and coffee trees which would revitalize Haiti's ecologically-devasted hillsides and provide income to local farmers. We would support Haitian orphanages, immunization programs for children, and nutrition programs for pregnant women and infants.


    Question. This year, you are requesting an increase in demining from $20 million to $50 million. To date, what is the total U.S. commitment to demining? To put that in context, what is the total international commitment to demining to date? And, what is our commitment expected to be over the next five years under the President's budget projections?

    Answer. For FY 98, we requested $15 million for demining in the NADR account and received $20 million. From FY 93 through FY 98, the total U.S. commitment to demining, from all accounts totals $153 million. We estimate that this constitutes approximately half of the total international commitment to demining to date.

    The President's demining 2010 Initiative, announced by the Secretaries of State and Defense last October 31, is designed to accelerate global humanitarian demining operations, including landmine survivor assistance, to eliminate the threat to civilians of anti-personnel landmines by the year 2010. This Initiative aims to raise $1 billion annually worldwide—from public and private sources—for global humanitarian demining efforts, including landmine survivor assistance and research and development.
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    Our expected commitment over the next five years, and through the year 2010, will require modest amounts to sustain established U.S. Government-supported humanitarian demining programs and to provide additional funding for incremental increases in humanitarian demining operations in newly established country programs, and to transition into more demining infrastructure and landmine survivor assistance and rehabilitation activities.

    Question. In real terms, what do these dollars actually accomplish in number of mines that are dug up and deactivated. How and where do we decide to use U.S. demining dollars?

    Answer. The overall objective of the U.S. Government Humanitarian demining Program is the establishment of a sustainable, indigenous demining capability that will continue to conduct demining operations after direct U.S. involvement declines. The principal goal is returning to peaceful, civilian use land and other infrastructure believed to be mined. In fourteen countries, landmines are being destroyed now; we have recently expanded our program into five additional countries with others under active consideration. The U.S. has trained one quarter of all active deminers in the world today. Several countries, including Namibia and Rwanda, are making progress towards mine-free status.

    Our Central America program functions in Costa Rica, Honduras and Nicaragua, under the auspices of the Organization of American States and the Inter-American Defense Board, with Guatemala recently added to the program. The Honduran demining unit has cleared ten discrete areas totaling more than 167,000 square meters, locating and destroying more than 1,925 mines, 10 booby-trapped hand grenades, 48 82mm mortars and five 120mm mortars. The Costa Rican demining unit has cleared a total of over 33,000 square meters of land, destroying a total of 37 mines in the process. Nicaraguan deminers have cleared over 17,400 square meters of land, destroying over 1,650 mines.
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    These efforts are paying off. In those parts of Cambodia where U.S.-supported demining is taking place, the death rates from landmine injuries have dropped by one half. In Namibia, the casualty rate has fallen 90 percent. But the current pace of demining is clearing inadequate. For this reason, last October 31, Secretary of State Madeline Albright and Secretary of Defense William Cohen announced the President's demining 2010 Initiative to rid the world of all landmines threatening civilians by the year 2010. Under this initiative, the U.S. will be working with other donor governments, international organizations, non-governmental organizations and mine-affected countries to develop a mechanism to match needs to resources and ensure more effective global humanitarian demining efforts.

    Question. Are you also working with ''mine experts'' in DOD to develop better ''technologies'' to deactivate mines rather than digging them up one by one? I hope you are taking advantage of the expertise at Picatinny Arsenal in my district which has the history and know-how on mine technology. In fact, I included report language in last year's bill on this issue.

    Answer. All U.S. Government-supported technology research in humanitarian demining is conducted or coordinated by the Department of Defense under the auspices of the Interagency Working Group (IWG) on Humanitarian Demining. The DoD has several mechanisms in place to ensure thorough coordination among all agencies, including Picatinny Arsenal, that have technology that could aid in humanitarian demining. I refer you to the Department of Defense for further specific details.

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    Question. Since mandatory economic and military sanctions were imposed on Pakistan in October 1990, and counting through the end of January 1998, what is the total dollar value of military goods that the State Department has approved for export to Pakistan and what portion of those goods was actually delivered?

    Answer. According to the Office of Defense Trade Controls, the total value of commercial licenses and assistance approved for Pakistan from Oct 1990 through Feb 1998 totals $461,338,402. As our system does not effectively track deliveries, we cannot provide accurate information on the value of goods actually delivered. Licenses are valid for four years from issuance and deliveries can be made at any time within that period.

    For foreign military sales (FMS), the Defense Security Assistance Agency (DSAA) reports $445,300,000 worth of equipment and spare parts were approved for export to Pakistan over the same period with $392,000,000 worth reported as delivered. DSAA reports that delivery of all FMS equipment was put on hold beginning in October 1990. The FMS equipment was subsequently released through the Brown Amendment in 1996. The FMS equipment released under the Brown Amendment in 1996 is the only FMS equipment delivered to Pakistan over the period of concern (October 1990 through February 1990).

    Question. When is the last time the U.S. approved the export of spare parts and technology or capability upgrades for Pakistan's F–16 aircraft?

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    Answer. In March 1998, the State Department approved the export of release assemblies, equipment used primarily for safety of flight, for Pakistani F–16s. This is consistent with our policy of providing spare parts and support for the F–16s, but not capability upgrades.

    Question. Have U.S. military exports to Pakistan since January 1996 increased or decreased?

    Answer. In terms of commercial export approvals, they have decreased. In 1996 we approved $99,540,523 in hardware and assistance. In 1997, we approved $54,702,477. For the first two months of 1998, $28,896 has been approved. DSAA did not provide any data for foreign military sales (FMS) items over the same period, but reiterated that the only FMS equipment delivered to Pakistan for the period of October 1990 through February 1998 was the equipment released for delivery to Pakistan by the Brown Amendment.

    Question. Is the U.S. now proposing to relax existing arms export controls to Pakistan to permit even more military assistance to Pakistan?

    Answer. The Department has decided to take modest, limited steps regarding USG provision of defense equipment and services in areas the Brown Amendment specifically exempted from Pressler Amendment sanctions. Thus, we intend to renew the lease of aging T–37B trainer aircraft now in Pakistan, as permitted by Brown's ''training'' exception to Pressler. Further, we hope to conclude a submarine rescue agreement with Islamabad—along the lines of agreements reached with India and several other states—permitted by Brown's ''humanitarian assistance'' exception to Pressler.
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    In both instances Pakistan would use its own national funds to pay for these items.

    The Department also has aligned its commercial munitions export policy with the Brown Amendment, allowing case-by-case consideration of potential commercial sales related to military-to-military contacts, training, humanitarian and civic assistance projects, counter-narcotics, anti-terrorism, and peacekeeping and other multilateral operations.

    Our current restrictive commercial export policy otherwise will be maintained with a few narrow exceptions. For example, we will allow case-by-case consideration of additional commercial exports as systems become obsolete and only can be replaced by currently produced items (where a reopening of the assembly line for the original product would prove infeasible or prohibitively expensive). In such circumstances, only the lowest generation upgrade would be considered. Other exceptions include modest increases in items held by Pakistan in 1990 or transferred subsequently under Brown; items not in the 1990 inventory or transferred under Brown but of lesser capability than items in the 1990 inventory; items, although new to Pakistan's inventory, the primary purpose of which is safety; defense services and technology associated with the above exceptions.

    Question. Does the U.S. expect any conceivable level of U.S. conventional arms shipments to Pakistan in any way to give Pakistan strategic military parity with India, and if not, what is the military purpose of these shipments?

    Answer. India enjoys a marked quantitative and qualitative advantage in most conventional weapons categories. For example, India has more than 1,300 BMP 1 and 2 infantry fighting vehicles while Pakistan hold approximately 850 less capable M 113 armored personnel carriers. New Delhi maintains a nearly 2:1 edge in combat aircraft; Indian Air Force assets include advanced Russian Su–30s. Clearly, limited U.S. commercial munitions exports, principally spares and munitions, will not help Islamabad attain strategic military parity.
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    Our basic commercial munitions export policy for Pakistan was instituted in 1990. In permits licensing, subject to strict case-by-case review, of items which would permit Islamabad to maintain its military capabilities at 1990 levels. Key elements of Pakistan's arms inventory, such a anti-armor capabilities, now are beginning to degrade below 1990 levels, further skewing the existing regional military imbalance. We are concerned that continuing, serious degradation of Pakistan's conventional arms inventory ultimately could affect regional stability. Recently implemented updates to our commercial munitions export policy therefore constitute a limited, common sense response to these circumstances.

    Even so, the Department still will consider negatively sales of new systems or significant upgrades except in a few narrowly drawn areas, such as substitutes (the lowest generation upgrade) for items in Pakistan's 1990 inventory which no longer are being manufactured.

    Question. Since mandatory economic and military sanctions were imposed on Pakistan in October 1990, and counting through the end of February 1998, U.S. exports to Pakistan requiring validated licenses under the Export Administration Act and the subtotal of such items that were specifically on the U.S. nuclear referral list?

    Answer. For the period October 1, 1991 to May 20, 1998, Commerce Department records show 373 approvals of validated licenses for exports to Pakistan for a total value of $151,546,304. The Commerce did not have the computer capability to recall separately files on nuclear referral list items until November 1996. Since that date, Commerce Department records show only two approvals of nuclear referral list items; one involving spare parts for a chemical plant and the other for supply of an oscilloscope to the Ministry of Defense. Commerce Department did not have information for the period October 1990 to 30 September 1991.
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    Question. Does the U.S. still regard these F–16s as Pakistan's probable nuclear weapon delivery vehicle, as U.S. officials have repeatedly testified?

    Answer. We believe Pakistan potentially could deliver nuclear weapons using fighter aircraft, but increasingly are concerned about the possibility that it could attempt to mate a nuclear warhead with a ballistic missile. In concert with Indian development of ballistic missiles, this would substantially reduce reaction time during a crisis and consequently increase prospects for New Delhi and Islamabad misreading each others' actions and intentions.

    Question. Since mandatory economic and military sanctions were imposed on Pakistan in October 1990, and counting through the end of February 1998, what is the total dollar value of financial assistance projects approved for Pakistan with U.S. consent by multilateral financial institutions?

    Answer. Between October 1990 and February 1998, development assistance projects for Pakistan approved by international financial institutions with U.S. consent include:

    (1) Development assistance of $3.1 billion by the World Bank Group (IDA and IBRD). As of the end of Fiscal Year 1997, social sector projects targeting education, health, and nutrition accounted for the largest share (25 percent) of the Bank's portfolio in Pakistan, and projects targetting rural development accounted for the next largest share (21 percent).

    (2) Private sector loan and equity financing of $1.1 billion for Pakistan by the world Bank Group's International Finance Corporation and investment guarantees of $95 million for the world Bank Group's Multilateral Investment Guarantee Agency (MIGA).
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    (3) Development assistance by the Asian Development Bank to Pakistan totalling $3 billion. During the period between 1990 and 1998, the ADB has increasingly focussed on projects in education, health, and water supply and sanitation.

    (4) Between 1990 and 1998, the International Monetary Fund (IMF) entered into two financial arrangements with Pakistan totalling $2.2 billion. Pakistan's performance in implementing program targets has been uneven; the IMF has disbursed only $598 million of potentially available funds.

    Question. Nucleonics Week reported on 2/26/98 that China is considering the supply of a second nuclear power reactor to Pakistan to follow the 300–MW Chasnupp (sic) reactor. How will China's decision to supply this second reactor without full-scope safeguards, along with other nuclear assistance to Pakistan's nuclear fuel cycle, affect the future of U.S./China nuclear cooperation?

    Answer. Chinese and Pakistani officials have discussed the possible supply by China of a second nuclear power reactor to Pakistan for several years. But, to date, the parties have apparently not concluded any formal agreement or contract for such supply.

    If China were to supply such a reactor, we would expect it to require the same conditions of sale that covered the first reactor, namely application of IAEA safeguards to the facility and its fuel supply. Any such sale would not affect the course of U.S./China nuclear cooperation inasmuch as foregoing peaceful safeguarded cooperation with Pakistan was not a U.S. condition for making the requisite certifications for implementing the U.S./China Peaceful Nuclear Cooperation Agreement.
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    A key factor in determining the future of U.S./China nuclear cooperation will be China's compliance with its May 1996 commitment not to provide assistance to unsafeguarded nuclear facilities, in Pakistan or anywhere else. The Chinese appear to be taking this pledge very seriously. We are not aware of any transfers of equipment or material by Chinese entities to Pakistan's unsafeguarded nuclear program since the pledge was made. While China has not adopted full-scope safeguards as a condition of supply as a general policy principle, the U.S. will continue to urge that it do so.


    Question. Human rights organizations, church organizations and observers have reported an intense military buildup in Chiapas since the massacre of 45 children, women and elderly in Acteal. According to reliable reports, this military presence is being used to intimidate, harass and persecute church workers and communities of the indigenous population. It is also reported, from credible sources, that paramilitary groups, like the one that was responsible for the massacre in Acteal, are being supported and supplied with arms by the military. What end-use monitoring is in place to ensure that U.S. military and counter-narcotics assistance is not being used to supply or train paramilitary groups and is not being used against the innocent civilian population?

    Answer. When the U.S. provided 73 UH–1H helicopters to the Mexican military under authority of the Foreign Assistance Act, we negotiated with the Government of Mexico exacting end-use monitoring procedures. The purpose of these procedures is to ensure that the equipment is used only for the counternarcotics purposes for which it was supplied.
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    Under the end-use monitoring procedures, Mexico furnishes bi-monthly reports indicating the use to which each aircraft was put and its operational status. In addition, personnel of the U.S. Embassy in Mexico make quarterly on-site observations at installations where these helicopters are located to check the aircraft, interview personnel, and verify and corroborate information.

    These procedures are working well, with no indications that any U.S.-supplied equipment has been diverted to unauthorized uses. We are confident that this equipment is being used for the counternarcotics mission for which it was furnished to Mexico.

    As to the allegation that the Mexican military has supported and armed paramilitary groups in Chiapas, we note that the most recent report from the Mexican Attorney General's detailed investigation of the Acteal massacre indicates that such groups were advised and supplied with arms by local public security forces, not the Mexican Army.

    We have not seen any evidence that the Mexican Army is advising or supplying such groups. We are aware that one of the missions of the Mexican Army in Chiapas is to attempt to separate and prevent further confrontations between the Zapatistas and their supporters and those armed groups that oppose them.


    Question. The Administration is requesting $5 million for continued assistance to the African Crisis Response Initiative, and an additional $5 million has been requested for military assistance to East Africa. Please explain why these funds continue to be necessary and provide an update on recent operations of the African peacekeeping forces at work in East Africa.
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    Answer. For Fiscal Year 1999, the Administration is requesting $5 million in Foreign Military Financing (FMF) and $15 million in Peacekeeping Operations (PKO) to continue the African Crisis Response Initiative (ACRI), the Administration's program to enhance African peacekeeping capacity. The Administration's vision for the ACRI is a greatly enhanced African capacity to perform peacekeeping and humanitarian relief operations in a timely, professional competent manner. The ACRI aims to provide equipment and training to 10,000–12,000 African soldiers in well-prepared companies and battalions, commanded by trained African officers and capable of deployed operations with consistent doctrine and procedures, using interoperable communications. Fiscal Year 1999 funding is for the third year of the proposed five-year funding for the ACRI; $15 million was allocated in FY 1997 and $20 million was allocated in FY 1998. The combination of FMF and PKO funding provides the most efficient process to address expenses associated with the ACRI. Training expenses for U.S. Special Forces trainers involved in initial (70 trainers for 70 days) and sustainment (30 trainers for 30 days) training events are paid for by FMF. A sustainment training event will take place in each ACRI partner country approximately every six months, during a total training period that extends over 36 months for each ACRI unit. Equipment costs (approximately $1.2 million per battalion) are funded by PKO monies.

    The ACRI program is on schedule. By the end of 1998, the ACRI will have equipped and provided initial training to approximately one-half the 10,000–12,000 African peacekeepers that represent the ACRI's objective. The United States has completed initial training with battalion-sized contingents from Senegal, Uganda and Malawi and began training a Malian battalion in early February, 1998. Training with a Ghanaian battalion is scheduled for early April, in cooperation with Belgian military trainers. Later this year, training will begin in Ethiopia, the first country to commit two battalions and a brigade staff. The first sustainment training session began in Senegal in early March, 1998; a similar session with Uganda will run from mid-March to mid-April, 1998, followed by sustainment training in Malawi. In addition, in order to help our African partners develop regional and sub-regional command and control capabilities, we will invite international observers to training events and exercises, help sponsor peacekeeping and complex humanitarian emergency meetings, and we will also help sponsor joint and combined peacekeeping staff and field training exercises.
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    The Administration is requesting $5 million in FY 1999 for the East Africa Regional program. This program, separate from the ACRI, provides non-lethal assistance to Ethiopia, Eritrea, and Uganda to bolster their defense capabilities and to help them resist regional destabilization being promoted by the Government of Sudan. Sudan, an immediate neighbor of these three states that have each cooperated closely with the United States on numerous regional and international issues, remains a destabilizing factor in the Horn of Africa and the world because of its policies and actions, ranging from support of terrorism to disruption of humanitarian assistance. This funding will address the priority needs for defensive security assistance for Sudan's neighbors.


    Question. Why is the Administration not pursing the provision of loans to Greece and Turkey in 1998? Is this decision based on Turkey's economic situation?

    Answer. A drop in Turkey's commercial credit rating would have required us to charge higher interest rates that would have eroded the usefulness of the loan subsidy for Turkey. Despite structural problems that have affected its credit rating, however, the Turkish economy is growing at a rate of over 6% per year, and the Turkish Government's payment record on loans from U.S. is spotless. For both Greece and Turkey, the provision of grant rather loan makes our assistance dollar more cost-effective.


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    Question. What is the policy justification for providing military grants to Turkey, and how does that square with the recently reported incident in which Turkish planes ''buzzed'' the plane carrying the Greek Minister of Defense on a recent trip to Cyprus?

    Answer. The post-Cold War evolution of NATO and the Alliance's increasing emphasis on security on the southern flank have made the security partnership with Greece and Turkey more important than ever before. We encourage both countries to use their grants to improve their ability to meet alliance obligations.

    We view the tension between Greece and Turkey with the utmost gravity. Both countries have engaged in provocative behavior toward each other. We do not believe, however, that disputes between these two Allies should preclude our helping them meet their NATO obligations. We are working with our Greece and Turkey allies to develop mutually acceptance avenues through which they can resolve their disputes.


    Question. Given Turkey's economic problems, what guidance have both the Departments of State and Defense given the Turks with respect to their level of defense spending and extensive plans to upgrade their weapons inventory?

    Answer. Turkey not only major NATO responsibilities, but faces serious threats to its security elsewhere, including instability in the Caucasus, an ongoing terrorist threat from the Kurdistan Workers' Party (PKK), and neighbors—Iran, Iraq, and Syria—that support terrorism and seek to acquire weapons of mass destruction. The Turkish economy is dynamic and is growing at a rate of greater than 6% per year. We have no reason to suppose that Turkey cannot afford to defend itself. It cannot afford not to. A secure environment is the essential foundation of a healthy economy. Moreover, Turkey's credible defense posture vis-aAE6-vis aggressive states in the Middle East supports U.S. interests and lessens our own need to commit assets to the region.
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    Question. Please provide a breakdown by country of what aid goes to military vs. police forces?

    Answer. The following is a breakdown by country, as presented in our FY 1999 budget request, of what counternarcotics aid goes to military vs. police forces:

Table 5

    Question. What part of these funds goes to training and what for equipment?

    Answer. The funds identified for the military will go primarily for training, fuel and POL with some monies for minor repairs, aviation and boat spare parts and operational support. The support provided to the police will mostly fund commodities, air support costs, Training, telecommunication equipment and operational costs.

    Question. During the past two fiscal years, which countries benefited from INL interregional aviation programs? How much equipment was used in each country?

    Answer. INL interregional aviation programs benefited the countries of Colombia, Peru, Bolivia, and Guatemala during the past two fiscal years. The number of the INL owned aircraft used in each country was as follows:
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    Colombia: Early in the period in question, seven T–65 aircraft and one Cessna 208 were employed in Colombia. This was expanded to where today there are eight T–65s, two Casa 212's, five OV–10's, one Cessna 208, six Bell 212's and UH–1's in Colombia being supported by the INL contract

    Peru: 16 UH–1 helicopters.

    Bolivia: In FY 97, there were 22 UH–1 helicopters employed in country. As of FY98, this number has been reduced to 16.

    Guatemala: Previously five Bell 212 helicopters were employed in Guatemala, but these have since been relocated to Colombia.

    Question. Could you please provide the funding levels for the INL interregional aviation programs by country?

    Answer. The following approximate amounts are provided for FY 1998. Please note that these amounts include a prorata share of Main Operating Base (Patrick AFB) costs which are all incurred for the ultimate benefit of overseas country programs.

Table 6

    Question. Much of our military assistance to Mexico is for counternarcotics training. How do we know that those troops we helped train for counternarcotics are not used instead for counterinsurgency?
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    Answer. In response to Mexico's interest in improving the skills and capabilities of military personnel being assigned to newly-created counter-drug units, the US arranged for training by the US Army Special Forces. This training has emphasized skills and discipline useful for personnel engaged in counter-drug activities or other low-intensity conflicts. The Mexican Secretariat of National Defense selects personnel for US training who are most likely to be assigned to counter-drug units, or to units which regularly perform counter-drug missions.

    Both of the Mexican states currently experiencing insurgencies are also major drug-trafficking and producing states. Therefore, it is likely that some of the personnel who receive US training will, at some point, be assigned to units or missions relating to those insurgencies. However, we are not in a position—nor would we presume—to tell a sovereign nation where it can or cannot assign its military or civilian personnel.

    Recipients of US Special Forces training are exposed, however, to internationally-accepted concepts of protection of human and civil rights, the rule of law, and appropriate interaction between military forces and civilian populations in conflictive situations. A key aspect of such training is knowing when to refrain from use of force.

    Question. Is there any ''end use monitoring'' of the counternarcotics training programs?

    Answer. The U.S. Government attempts to conduct post-training assessments or evaluations to determine the impact of the training and to be able to make changes in curriculum or training methods to make it more effective in the future. We are also very interested in ascertaining if personnel receiving specialized U.S. training are assigned to positions where they can make use of it. This will affect where we invest limited training resources in the future. We are not able, however, to follow up on each and every individual around the world who receives U.S. training.
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    Question. In the Congressional Presentation for Foreign Military Financing (FMF), it is stated in the United States Foreign Policy Objectives that ''* * * diplomacy and international programs go hand in hand with military force to prevent and resolve conflicts * * * our security assistance programs help U.S. allies to become capable coalition partners * * *''

    How have these programs improved the security of our allies, our partners in the Middle East Peace Process, and our friends in the states of Eastern Europe and throughout the world?

    Answer. Our Foreign Military Financing (FMF) programs have improved the security of our allies worldwide by supporting the acquisition of U.S. defense equipment, defense services, and military training.

    In the Middle East, for example, our annual $1.8 billion in FMF for Israel and $1.3 billion for Egypt enabled these two central peace process partners to modernize, expand, and sustain their defensive force capabilities. Israel maintains its qualitative edge through FMF purchases of major defense systems such as F–15 fighter aircraft, AIM–120 missiles and combat systems for SAAR–5 corvettes. Israel's security posture in the region, bolstered by FMF purchases, is a critical prerequisite for advancing the peace dialogue with its Arab neighbors. Similarly, FMF has given Egypt the confidence to take risks in support of the peace process, assist us in containing well-armed regional rogue states, and resist terrorist coercion. As a result of major FMF-funded and sustained programs including the F–16 and Apache program, frigate acquisition, and Hawk modernization, Egypt remains the only friendly Arab state capable of making a strategically meaningful military contribution to any future regional coalition combat operation, as they did during Desert Shield/Storm with a contribution of 33,600 combat troops. Finally, the U.S. commitment to enhancing the Jordanian Armed Forces' self-defense capabilities is demonstrated by our expanding FMF program to support the refurbishment of F–16s.
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    In Europe, we have used FMF to support Central European and former-Soviet states' participation the Partnership for Peace. These funds have helped improve recipient states' security by preparing and equipping national forces to participate in PFP exercises and NATO peace support, humanitarian, search & rescue, and peacekeeping operations. Under PFP, these countries have procured much-needed equipment and training, including: communications equipment, search and rescue equipment, the Regional Airspace Initiative in seven countries, and English language training for thousands of soldiers.

    Elsewhere, our FMF has bolstered the internal defense capability of states bordering the Sudan, strengthened the Southern Flank of NATO, and helped develop a credible peacekeeping capability among select African nations.


    Question. How do these [FMF] programs support American freedom and security?

    Answer. By helping friendly and allied countries to defend themselves, FMF programs help to deter and, if necessary, to defeat aggression which could otherwise threaten vital American interests. By strengthening NATO allies and helping to prepare Poland, the Czech Republic, and Hungary to become NATO members, FMF helps to build a free and peaceful Europe, where twice in this century the United States has fought in World Wars to protect vital interests. In the Middle East, a region of vital importance and chronic instability, military assistance to countries like Israel, Egypt and Jordan helps to deter aggression and to supports progress in the Middle East Peace process.
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    In addition to these obvious tangible benefits derived form our FMF programs, the American people also enjoy benefits that may not be outwardly apparent. Because FMF is used to purchase U.S. defense articles and services, these funds directly support a strong U.S. industrial base and create jobs for Americans, may lengthen production runs, and can help reduce unit costs of equipment procurement for our own military. Additionally, implementation of the FMF program requires coordination and contact between the U.S. and the recipient government during all phases—from developing the request for a particular defense article or service to training the foreign military how to operate and maintain the equipment. As a result, not only will the foreign government's systems be compatible with ours during times of crisis, but the relationships established at all levels between our military and that of the foreign government builds and strengthens alliances beyond the formal, official ties. It is not uncommon for the U.S. to rely on these personal and professional contacts in times of crisis to provide support critical to our own military—such as access to ports and airfields. Together, the spectrum of tangible and intangible benefits derived from our FMF program support the freedom and security of the American people.


    Question. Would you expand on how FMF and security assistance in general strengthens the security of the United States.

    Answer. by helping friendly and allied countries to defend themselves, U.S. security assistance programs help to deter and, if necessary, to defeat aggression which could otherwise threaten vital American interests. By strengthening NATO allies and helping to prepare Poland, the Czech Republic, and Hungary to become NATO members, our assistance helps to build a free and peaceful Europe, where twice in this century the United States has fought in World Wars to protect vital interests. In the Middle East, a region of vital importance and chronic instability, military assistance to countries like Israel, Egypt and Jordan helps to deter aggression and to supports progress in the Middle East Peace process.
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    The range of U.S. security assistance programs—from Foreign Military Financing, to the International Military Education and Training (IMET) program, to the peacekeeping operations programs—serves to strengthen our own national security. Because FMF is used to purchase U.S. defense articles and services, these funds directly support a strong U.S. industrial base and create jobs for Americans, and can help reduce unit costs of equipment procurement for our own military.

    Additionally, implementation of both the FMF and IMET programs involves coordination and contact between the U.S. and the recipient government during all phases—from senior level visits, to developing a request for a particular defense article, service or training program to actually training the foreign military in a wide range of technical and professional issues. As a result, not only will the foreign government's systems and standard operating procedures be compatible with ours during times of crisis, but the relationships established at all levels between our military and that of the foreign government builds and strengthens alliances beyond the formal, official ties.

    It is not uncommon for the U.S. to rely on these personal and professional contacts in times of crisis to provide support critical to our own military—such as access to ports and airfields. Even in times of peace, our security assistance programs help give the U.S. military access to a host of unique training environments that would otherwise be unavailable. Finally, by helping teach other militaries how to conduct successful peacekeeping and humanitarian operations, our programs help reduce the likelihood that our own troops will be called into action—thereby protesting U.S. lives and resources. Together, the spectrum of tangible and intangible benefits derived from the range of international security assistance programs support U.S. diplomatic objectives and strengthen the security of the American people.
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    Question. How has our foreign aid improved our ability to function in the world? More specifically, how has it helped us in our recent troubles with Saddam Hussein?

    Answer. U.S. foreign assistance plays a role in maintaining strong, comprehensive, and mutually beneficial relationships with key regional partners. Foreign assistance helps enable our partners to participate in international peacekeeping efforts, as well as combating terrorism. During the Iraq crisis, we forged a coalition of like-minded nations determined to see the UNSC's resolutions enforced and to counter the threat posed by Iraqi weapons of mass destruction. Not one country reversed its commitment to us. Our allies understood that our combined resolve and steadfastness brought us to the point of agreement.

    Question. Did our former coalition allies and recipients of security assistance reduce the drain on our own resources, physical and financial, during the recent build up in the Arabian Gulf?

    Answer. Eighteen countries offered military assets for the coalition and another twelve offered basing and overflight rights. More than 70 governments spoke out about the need for Iraq compliance with the obligations they accepted at the end of the Gulf War as part of the UN cease-fire resolution. With our coalition partners standing by, the robust force currently deployed in the region will stay in place until we are confident that Iraq will comply fully with its obligations.
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    Question. Could we depend on Egypt, Jordan and other Middle East nations or was our access limited?

    Answer. Our Middle East partners played an important role in the Iraq coalition. We worked closely with Bahrain both in the region and on the UN Security Council to address the threat to the security of the Gulf and the authority of the United Nations posed by Saddam's pursuit of weapons of mass destruction. King Hussein of Jordan called repeatedly for full Iraqi compliance with all relevant UN resolutions. Egypt provided timely critical assistance in providing Suez Canal transit, overflight clearances, and refueling services. We consulted closely with the Saudis during the Iraq crisis and were confident of their support. We have a cooperative defense relationship with Qatar and several other regional partners.


    Question. Demining is an area of utmost importance to many of us on this subcommittee. The removal of landmines is a major challenge requiring a very long term commitment. It is, indeed, one of the most important initiatives in the world today. The United States recently failed to sign the international agreement banning landmines, which was very disappointing to me and many of my colleagues. However, the Administration's request for demining programs has been increased from $20 million last year to $50 million for FY '99. Would you please comment briefly on why the United States failed to sign this agreement, and explain the increase for the program.

    Answer. The United States is committed to the elimination of anti-personnel landmines (APL). In September 1994, President Clinton became the first world leader to publicly call for a global ban on landmines. The U.S. UNGA resolution on APL, passed overwhelmingly in 1996, has consistently been cited by Ottawa Process supporters and others as the basis for their work in establishing an APL ban. in 1996, the United States led negotiation of the Amended Mines Protocol (Protocol II) to the Convention on Conventional Weapons (CCW), including creating the requirement that unmarked APL self-destruct and self-deactivate. On January 17, 1997, the President announced that the United States would observe a permanent ban on the export and transfer of APL. Also in 1997, the United States worked vigorously to establish negotiations for an APL ban in the Conference on Disarmament (CD), the preeminent multilateral forum for arms control negotiations. Unable to achieve hoped for progress in the CD at that time, we attended the Oslo Conference in September 1997 determined to make every effort to negotiate an effective, comprehensive global APL ban that would also address the security concerns of participants. At Oslo, we attempted—and failed—to negotiate two changes that would have allowed us to sign the Ottawa Convention: A nine-year transition period to phase out the APL (not including anti-personnel submunitions in mixed anti-tank systems) we now use to protect our troops, giving us time to devise alternatives; and a provision permitting continued use of our mixed anti-tank munitions systems. (These systems have self-destructing anti-personnel submunitions which protect anti-tank munitions from being easily breached, but which are deemed APL under the treaty.)
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    Our self-destructing, self-deactivating mixed anti-tank munitions systems are the safest anti-tank systems from the perspective of protecting civilians. They are also the most militarily effective. They are set to self-destruct in as little as 4 hours, at most in 15 days. The mechanism is extremely reliable: in more than 32,000 tests, all except one destroyed itself on schedule or earlier; one was one hour late. Self-destruction leaves these mines completely harmless after hostilities have ceased. At the same time, these weapons are essential to protect American forces where they may be greatly outnumbered and facing attack by enemy armored forces. We estimate our casualties to be as much as 30% higher if we are denied the use of these devices.

    Despite our best efforts to negotiate an exemption for our self-destructing mixed anti-tank munitions systems, we were unsuccessful, even though the Ottawa Convention permits continued use of non self-destructing mines (anti-tank mines with anti-handling devices) which will explode upon contact with a human being and are a humanitarian problem. Rather than expose our troops and the civilians they may be sent to protect to additional risk by banning self-destructing mixed anti-tank munitions that do not cause a humanitarian problem, we have not signed the Ottawa Convention.

    (Part II: Demining) As President Clinton, the Canadian Prime Minister and Foreign Minister, and the United Nations Secretary General have said, a ban on anti-personnel landmines is only a first step. The critical task before us is to remove the mines currently emplaced and threatening innocent civilians. Even if an international ban takes effect today, landmines will continue to remain in the ground in some 60 countries worldwide. These hidden killers need to be removed in order for the land and infrastructure to be returned to peaceful civilian use and economic development and progress. For that reason, the Secretaries of State and Defense announced on October 31, 1997, the President's Demining 2010 Initiative, designed to accelerate global humanitarian demining operations, including landmine survivor assistance, to eliminate the threat of anti-personnel landmines to civilians by the year 2010. Working with others, the U.S. aims to create an effective international coordinating mechanism to ensure that sustained public and private resources for demining are directed, in an organized and rational manner, to programs in the mine-affected countries. We have requested $50 million for FY 99 to expand the program into additional countries, and to enhance and sustain ongoing indigenous demining efforts in nineteen countries, including the five countries added to the program in FY 97 and FY 98.
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    Question. What is the next step?

    Answer. In addition to our extensive efforts in demining, the United States has taken many steps toward ending the APL problem. The CCW Amended Mines Protocol, a treaty which ensures responsible use of APL, was submitted in January 1997 to the Senate for advice and consent. The major historical APL producers and exporters who have the majority of the world's APL stockpiles and have not participated in Ottawa have approved adoption of this protocol. The President announced on September 17, 1997 that we would redouble our efforts to establish serious negotiations for a global APL ban in the CD. We will start by seeking an export ban on APL to capture the major mine producing countries in order to stop the spread of landmines which are causing the humanitarian problem. The President also directed the Department of Defense to develop alternatives to APL (not including anti-personnel submunitions in mixed anti-tank systems) so that by the year 2003 we can end the use of these weapons outside Korea. As for Korea, the objective is to have alternatives to APL ready by 2006.

    In addition, in January 1997, the President announced that the United States would observe a permanent ban on the export and transfer of APL and would cap its APL stockpile at current levels. In May 1996, the administration announced the destruction of non-self-destructing (NSD) APL not designated for the defense of Korea or for training. Since May 1996, we have now destroyed 3 million such weapons and are expected to destroy the remaining stocks by the end of 1998.

    Question. How can we get a truly effective global ban on landmines?
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    How do we negotiate a realistic ban?

    Answer. We share a common goal with Ottawa Process supporters: the elimination of landmines worldwide. While the Ottawa Process is to be commended for the progress it has made, there is much left to be done.

    A truly effective global ban on APL would have to capture both those states who are most affected by the scourge of APL and the principal producers and exporters of APL. We hope to make progress toward this end in 1998 by negotiating an export ban on APL in the CD. It is our belief that the CD offers the best possibility of capturing those major APL exporting and producing states who have not signed the Ottawa Convention. In order to stem the supply of APL worldwide, not just to states but to non-state parties in civil conflicts, it is critically important to bring in the major producers and exporters.

    The U.S. was also a leader in negotiating the Convention on Conventional Weapons Amended Mines Protocol. Once it enters into force (possibly this year), it will address the humanitarian problem caused by APL by strengthening restrictions on landmine use and transfer and by also capturing key landmine states that are not party to the Ottawa Convention. Specifically, CCW mandates that non self-destructing APL—the true ''hidden killers'' which are responsible for civilian casualties worldwide—must be marked and monitored wherever they are used. Those who willfully violate and cause death to civilians will be subject to penal sanctions and/or extradition. CCW also bans the transfer of APL to non-state parties—who make up a large proportion of the humanitarian problem in zones of civil conflict—and carries strict proscriptions against the use of non-detectable mines. The CCW Amended Mines Protocol goes directly to the heart of the humanitarian problem associated with APL. It is certain that if it had been observed by all the key states for the past 40 years, the number of post-combat civilian casualties from the indiscriminate use of APL would be very dramatically reduced. The CCW Amended Mines Protocol was submitted to the Senate for advice and consent to ratification in January 1997.
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    Question. Does the United States intend to commit to working for a global ban on landmines?

    Answer. Again, the United States is and has long been committed to working for a global ban on anti-personnel landmines. Since 1994, when President Clinton called for the comprehensive global elimination of APL at the United Nations, the United States has been at the forefront of active efforts to ban them. The United States led efforts to adopt the Convention on Conventional Weapons Amended Mines Protocol (Protocol II). The U.S. UNGA resolution urging states to pursue an agreement to ban anti-personnel landmines passed overwhelmingly (155–0) on December 10, 1996, helped set the Ottawa Process in motion. On September 17, 1997, President Clinton committed the United States to redoubling efforts to establish serious negotiations for a global APL ban in the CD, beginning with an export ban.

    It is important to note that U.S. APLs are not causing the humanitarian problem. Long before the Ottawa Process began, the United States developed and began using self-destructing, self-deactivating short-duration mines in order to eliminate residual casualties from emplaced APL. These U.S. mines self-destruct within 4 hours to 15 days after activation with a reliability rate better than 99.99%. On May 16, 1996, the President banned U.S. use, production, and export of non self-destructing APL (the type which can last for decades and which is almost exclusively responsible for the humanitarian problem) worldwide except for training purposes and for the Korean Peninsula, where NSD APL are imperative to the security of U.S. and Korean forces. Since then, we have unilaterally destroyed 3 million such weapons and are expected to destroy the remaining stocks by the end of 1998.

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    On January 17, 1997, the President announced that the United States would observe a permanent ban on the export and transfer of all APL (including even self-destructing/self-deactivating APL) and would cap its APL stockpile at current levels.

    On September 17, 1997, the President directed the Department of Defense to develop alternatives to APL (not including anti-personnel submunitions in mixed anti-tank systems) so that by the year 2003 we can end even the use of our self-destructing APL outside of Korea. As for Korea, the objective is to have alternatives ready by 2006.

    In 1997, the U.S. actively pursued a comprehensive and global APL ban in the CD. Also in 1997, the U.S. was leading sponsor of an UNGA resolution calling on the CD to ''intensify its efforts'' on APL. We are continuing these efforts during the current CD session, working to establish a mandate for negotiation of an export ban.

    Question. How far off in the future do you expect such a ban could take place?

    Answer. It is difficult to predict how long it would take to establish an effective comprehensive global ban. The CD has agreed to establish a Special Coordinator for APL for the '98 session, and we hope to begin negotiations for an export ban this year. The CCW Amended Mines Protocol requires 20 nations to ratify in order to enter into force and may reach 20 within a few months (it has been submitted to the Senate for advice and consent to ratification).

    A principal reason the U.S. is not signatory to the Ottawa Convention is that it prohibits U.S. mixed anti-tank systems, which are necessary to protect our forces and which pose virtually no risk to non-combatants. We have made clear that the U.S. reserves the right to use mixed systems indefinitely. However, this could change if we find a viable and affordable concept for replacing these systems with an alternative that is comparable in terms of military effectiveness, safety of use, and minimal risks for non-combatants. As of now, we have not identified any operationally viable concept. We will keep Congress informed as administration policy develops in this area.
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    Question. To follow up on my initial question, wouldn't it have been easier for the United States to sign the Treaty and work from the inside, that is if we are trying to reach the same goals?

    Answer. Our nation has unique responsibilities for preserving security and defending peace and freedom around the globe. As Commander-in-Chief, the President will not send our soldiers to defend the freedom of our people and the freedom of others without doing everything he can to make them as secure as possible.

    For that reason, the United States insisted in the treaty negotiations in Oslo that two provisions be included in the treaty. First, we needed an adequate transition period to phase out the APL we now use to protect our troops, giving us time to devise alternative technologies. Second, we needed to preserve the self-destructing mixed anti-tank munitions systems we rely on to slow down an enemy's armor in a battle situation. In neither case was there a willingness on the part of the Ottawa process nations to accept these provisions.

    If we had become a party to the Ottawa Convention, from that moment on we would have been unable to use self-destructing mixed anti-tank munitions and our troops would have been exposed to additional risk despite the fact that self-destructing mixed anti-tank munitions do not cause a humanitarian problem. Despite our best negotiating efforts, the United States could not sign the Ottawa Convention. In the Oslo negotiations of the Ottawa Convention, we went the extra mile and beyond in an attempt to negotiate an effective agreement that would protect our forces. As the President has said, there is a line that simply can not be crossed, and that line is the safety and security of our men and women in uniform. The offer we made at Oslo remains on the table.
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    Question. It is my impression that some of the embassies are not taking the ''Leahy Language'' seriously. For example, in Bolivia. The State Department's Bolivian section of the Country Reports on Human Rights Practices for 1997 raises questions about the U.S. Embassy's human rights reporting and its implementation of the amendment. The report states that ''* * * 14 civilian were killed in the course of law enforcement operations that encountered armed resistance. The precise cause and circumstances of these deaths have not been officially determined, but it appeared that some resulted from the use of excessive force by authorities.''

    I would like to know what was the Embassy's conclusion about these deaths?

    How were these 14 people killed?

    What information did the U.S. Embassy use to evaluate and reach its conclusions?

    Were any of those security forces receiving U.S. counternarcotics aid?

    It is my understanding that there is credible evidence regarding human rights violations and abuses provided to the Bolivian embassy by the Andean Information Network, an NGO on the ground in Bolivia.

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    This is very important to note, because our ambassador to Bolivia has moved on to Colombia, a country where this committee has expressed its grave concerns in the past with regard to human rights violations, and if this policy is not fully embraced on the ground then the will of Congress, as expressed in the ''Leahy Amendment,'' is being defied.

    Mr. Holum, could you please investigate this and report back to this committee at the earliest possible change.

    Answer. Nine of the 14 civilians, and one police officer, were killed in December 1996 after police and military forces were ordered to the Amayapampa area in Potosi department to dislodge miners who had seized a privately owned mine in a dispute with the mine's management. The Bolivian Government requested an investigation by the Inter-American Commission on Human Rights (IACHR). The IACHR reported that five civilians died of gunshot wounds, one from a crushed skull, one bled to death from an untreated bullet wound and the other two deaths were not explained.

    The IACHR concluded that some of the civilians killed in the Amayapampa area were not active in the conflict. It called upon the Government of Bolivia to complete a full investigation, punish those officials responsible and make fair compensation to the victims or their survivors.

    The U.S. Embassy reviewed the IACHR and police reports, had conversations with government officials and reported this information to the Department. In a February 1997 meeting with the Bolivian Minister of Government, Assistant Secretary Gelbard raised the potential implications of unresolved investigations of human rights abuses and echoed Ambassador Kamman's concerns over the Bolivian government's handling of the Amayapampa incidents. None of the police or military units involved in the Amayapampa violence receive U.S. counternarcotics aid or funds appropriated under the FY–98 Foreign Operations Appropriations Act, nor are we considering providing such assistance to these units. As such, no further actions were necessary under either the Leahy Amendment or section 570.
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    The remaining five of 14 civilian deaths occurred at the time of clashes, which began on April 17, 1997 in the Chapare region, between coca farmers and Bolivian government coca eradication units. A 300-man force from the Ecological Police and UMOPAR (the specialized police unit that enforces counternarcotics laws) was ambushed by a mob of about 1,500 peasants, wielding firearms, stones and dynamite. Three civilians and one policeman died of gunshot wounds. Justice Ministry human rights investigators found that the fourth civilian death, which had initially been attributed to gunfire, was caused by the victim falling from a roof. The fifth civilian death, that of an infant allegedly overcome by tear gas fumes, was attributed to a severe infection, undernourishment, and dehydration.

    The Embassy used police reports and conversations with government officials and the Andean Information Network to investigate this case. From this information it appears that the Chapare deaths were a result of the police protecting themselves in the course of a legitimate law enforcement operation from a coca growers' ambush and that the police did not use excessive force. There are no neutral or objective eyewitness accounts of this incident and we have encouraged the Bolivain government to carry out a thorough and professional investigation. The Ecological Police and UMOPAR receive U.S. counternarcotics aid.

    These incidents were reported to the Department, and we have pressed the Government of Bolivia to more thoroughly investigate this and any other such incidents. Pending receipt of any further information developed in this case as a result of the GOB's or our own investigations, the Department concurs with the Embassy's conclusion. We note that the information initially received in this case was not processed strictly in accordance with established procedures. The Department has since established a committee for the purpose of regularizing the mechanism for review of such incidents.
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    Question. What procedures are the U.S. embassies using to implement the Leahy language?

    Answer. In February 1997, the Department of State sent a cable to all diplomatic posts regarding the ''Leahy Amendment'' provision included in Title II of the FY 97 Foreign Operations Appropriations Act (FOAA), under the heading ''International Narcotics Control'' (INC). That cable instructed posts to establish specific and detailed procedures for review at post of reported incidents of human rights violations by security forces, to correlate that information with INC-funded programs, and to report all such information to the Department in order to help ensure compliance with the provision. In March 1998, the Department sent a similar cable to all posts regarding section 570 of the FY 98 FOAA. That cable instructed posts to follow similar procedures with regard to all FY 98 FOAA-funded assistance to be provided to host nation security forces. Because the size and personnel resources of each embassy varies, the specific procedures used to implement Leahy and section 570 are tailored to each post. Nevertheless, we have encouraged posts to rely on both unofficial and official sources when gathering information about human rights abuses.


    Question. What sources are consulted about human rights violations committed by the military?

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    Answer. We rely on a wide range of sources. Here in Washington, we keep in touch with human rights organizations who monitor these issues. We maintain good contacts with the best known international organizations, such as Human Rights Watch and Amnesty International, as well as a large number of smaller organizations that focus on specific issues, such as religious freedom, or on specific regions.

    Overseas, our Embassies rely on both official and unofficial sources for information about all kinds of human rights abuses, including those allegedly perpetrated by the military. Embassies meet with representatives of the Ministries of Justice or officers of the court to obtain information about possible indictments or ongoing trials. In Embassies where there is a defense attache, he or she will maintain contacts with a variety of officials in the host country military and will consult with them about allegations of human rights violations. Embassy officers often visit the scene of abuses, or meet with family members or representatives of victims.

    Local non-governmental organizations and human rights commissions or ombudsmen remain among the most important sources of information about violations by the military and other human rights assets. There has been an increase in the number of locally-based organizations of this kind, often linked to larger international human rights NGO's, and our Embassies regularly report on the findings of these groups.


    Question. During the past year, I requested from your office information regarding pipeline military aid. DOD sent me a chart indicating that there is still military aid in the pipeline for Guatemala. In 1994, the committee expressed its clear intent that pipeline FMF monies should be transferred to a peace fund. If you could clear something up for me I would appreciate it. It seems to me that some of the money was transferred to the transition peace fund, why not all of it?
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    Answer. In 1994 we did transfer $4.6 million of suspended FMF and MAP funds to the ESF account as a Guatemala Peace Fund. The $4.6 million included all funds for Guatemala obligated but not committed to specific Letters of Offer and Acceptance (LOAs). The remaining $2.45 million of suspended FMF and MAP funds was attributable to already completed, but undelivered, transactions such as the acquisition of barracks and buses. Those ''monies'' clearly would not have been transferred to the Peace Fund. At that time DOD began an effort to liquidate as many as these Guatemalan LOAs as possible through sale of the goods to alternate buyers and the cancellation of contracts. The proceeds from these efforts were then placed in a DSAA Guatemala Holding Account which now totals approximately $2.58 million. The funds remain uncommitted.


    Question. Please explain the extent of our military assistance to Poland, the Czech Republic, and Hungary?

    Answer. Since the beginning of PFP funding in FY 95, the USG has provided $98.6 million in Foreign Military Financing (FMF) to Poland, the Czech Republic, and Hungary. Since FY 91, we have also provided approximately $19 million in International Military Education and Training (IMET) funds to these three countries. The total for direct military assistance to these three countries is just under $120 million.

Table 7

    These countries have used FMF primarily for the purchase of defense equipment and training to improve their militaries' interoperability with NATO forces. For example, funds have supported the Regional Airspace Initiative, English language labs, Search and Rescue Equipment, NATO-standard mapping equipment, tactical field radios, navigation and safety aids and similar uses. IMET funds have provided training for officers, NCOs, and civilians from these countries at U.S. military education institutions in the areas of defense resource planing, doctrine, civil-military relations, language, leadership, and other core military science disciplines.
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    In addition, we have offered these countries low-cost loans under the Central European Defense Loan (CEDL) program. Although none of the three took advantage of the loan program in FY 97, they have expressed interest in the program and we will offer them loans again in FY 98. We obligated $18.24 million in FY 97 subsidy for loans to Poland and the Czech Republic and have set aside $20 million for the program in FY 98.

    The above levels do not include DOD programs and funding in support of Partnership for Peace (PfP) program. Because most of these programs are open to all Partners, DOD is unable to provide country-specific costs for the participation of the three states invited to join NATO. Examples of the DOD programs include the Joint Contact Team Program, which puts military liaison teams in Partner country MODs; the Partnership Information Management System (PIMS); the Defense Resource Management System (DRMS); Marshall Center programs; Exercise Support Funds; and other programs designed to maximize interaction between Partner militaries, U.S., and NATO forces, as well as to promote familiarity and interoperability with NATO forces.

    Other USG programs, such as cooperation between the militaries of these three countries and National Guard units in the U.S., have exposed thousands of Central European soldiers to U.S. military personnel, procedures, and perspectives. Poland, Hungary and the Czech Republic have taken only limited advantage of the Excess Defense Articles program, largely due to the cost of transporting, upgrading, and maintaining EDA equipment.

    Question. What is the out-year plan for our military assistance?

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    Answer. The President's budget requests $80 million in Foreign Military Financing (FMF) for FY 99 to support the Partnership for Peace (PfP) program. Of this, we plan to allocate $25.0 million to assist Hungary, Poland, and the Czech Republic in achieving NATO standards and improving their interoperability with NATO forces as they prepare for membership. We are also requesting $4.45 million in IMET funds for these three countries to continue U.S. military training opportunities for an expanded number of military and civilian personnel. Finally, we are requesting $20 million in loan subsidies to support the Central European Defense Loan (CEDL) program, which will allow those countries to address deeper infrastructure needs.

    Beyond FY 99, we intend to continue providing FMF grants to Hungary, Poland, and the Czech Republic at reduced levels to facilitate their integration with NATO.

    With regard to IMET, we intend to maintain current levels for the next several years to ensure that critical training needs are met.

    Question. What is the status of military loans to these countries and what are they being used for?

    Answer. The Central European Defense Loan (CEDL) program was designed to assist creditworthy Central European nations in improving their NATO interoperability by providing low-cost loans to remedy military infrastructure deficiencies.

    Fiscal Year 1997 was the first year of the CEDL program. We offered loans to Poland, Hungary, and the Czech Republic. Both Poland and the Czech Republic stated their desire to take out loans of $100 million and $80 million, respectively, to finance procurement of advanced radar, air defense systems, and safety and navigation upgrades for military airfields. However, last-minute problems in gaining parliamentary approval in the Czech Republic and a sensitive political climate in the lead-up to the Polish parliamentary elections prevented both governments from signing a loan agreement before the end of FY 97. Hungary withdrew its request for loan assistance in August 1997.
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    We intend to use the remaining FY 97 funds, to offer comprehensive loan packages to the Czech Republic, Hungary, Poland and Slovenia. A joint State Department/Defense Security Assistance Agency (DSAA) team will visit Poland, Hungary, and the Czech Republic in April 1998. The team will brief the governments on the CEDL program, alert them to changes in the program (specifically a decrease in the loans' interest rate), and answer technical questions on procurement procedures and financing under the program. We are optimistic that these countries will find the CEDL program a sound mechanism to help themselves prepare for NATO membership.

    Question. Explain the reasons for the military grants to the PfP countries. What purposes are these funds used for?

    Answer. The State Department provides grant Foreign Military Financing (FMF) funds to support the Partnership for Peace (PfP) program. PfP's primary objective is to establish strong, enduring security ties between NATO and all its PfP Partners, and to assist those Partners interested in joining NATO to meet the obligations of membership. PfP strengthens the forces of Partner countries, and thus their contributions toward our common goals of securing peace throughout Europe, deterring aggression, preventing, defusing and managing crises, and supporting the new democracies in Central Europe and the NIS.

    State's FMF program funds the purchase of defense articles, services, and training to assist partners in improving their compatibility with and understanding of NATO practices and terminology, strengthening democratic control of the military, and improving defense planning, structure, and budgeting processes. It facilitates military preparedness, and provides critical English language training—the baseline requirement for functioning in a NATO environment—for thousands of soldiers. Additionally, PfP has:
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    Helped Poland, Hungary and the Czech Republic prepare for NATO membership through the purchase of equipment, services, and training to improve interoperability with NATO;

    Provided continued support for the Baltic Peacekeeping Battalion;

    Helped the newly created Central Asian Peacekeeping Battalion (Centrasbat) gain crucial experience and equipment;

    Prepared and equipped national forces to participate in PfP exercises and NATO peace support, humanitarian, search & rescue, and peacekeeping operations;

    Taught partners how to participate more actively in European security matters, including new operations or crisis management efforts;

    Trained PfP states to become active and engaged partners with the United States and other NATO Allies on critical issues of Euro-Atlantic security;

    Funded the Regional Airspace Initiative in the NATO selectee countries, Romania, Slovakia, Bulgaria, the Former Yugoslav Republic of Macedonia, and the Baltics;

    Increased the size, depth and complexity of PfP and ''in the spirit of'' exercises, leading to interoperability and even deployability with NATO forces;

    Trained partners for real life operations including IFOR/SFOR/SFOR II and the Iraq Deployments; and
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    Provided the technical wherewithal for cooperation (such as tactical radios, Search & Rescue equipment) that permit NATO interoperability for exercises and real world operations.


    Question. $1.5 million has been requested for military aid to Russia in FY'99. This is in addition to $2.25 million allocated in FY'98. What is the purpose of these funds?

    Answer. FMF funding will enable Russia to purchase non-lethal items necessary for more effective Russian participation in international peacekeeping operations. We anticipate these funds will be used for English language instruction, language labs to support this instruction, and radios for troops involved in peacekeeping functions. Russian military radios are not compatible with NATO radios, something that has hampered our cooperation in Bosnia and in PFP exercises.

    This is a very limited program, both in the dollars involved and the kinds of equipment contemplated. It is aimed at ameliorating specific problem areas affecting Russian military participation in PFP exercises and other cooperative activities with the alliance. Our ultimate goal for this program is improving trust and cooperation between the Russian military and those of the West.

    Question. What is the Administration's position with regard to President Yeltsin's outspoken opposition toward our policy in Iraq and his statements that military actions could trigger World War III?
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    Answer. While we differ over tactics, senior Russian officials have assured us that Russia shares our goals of keeping Iraq from developing weapons of mass destruction. In February, the United States and Russia were able to come together on a set of principles that UN Secretary General Annan could take with him to Baghdad. Both Russia and the United States, along with other members of the UN Security Council, supported the agreement Secretary General Annan worked out with Iraqi officials, and called upon Baghdad to comply with the terms of that agreement.

    However, Russian officials, including President Yeltsin and Foreign Minister Primakov, publicly stated their opposition to the use of force against Iraq. They stated the Russian view that no country or countries has the authority to use force against Iraq to bring about Iraqi compliance with UNSCOM without a new review and authorization by the Security Council.

    The U.S. does not share Russia's interpretation of UN Security Council resolutions (UNSCR's) and the need for a new review by the Security Council. The U.S. believes strongly that resolutions already in effect authorize the use of force. The use of force might prove necessary now or in the future, if Iraq's failure to comply with UNSCR's intended to impede Iraq's development of weapons of mass destruction and to compel Iraq's full compliance with all Security Council resolutions would constitute a serious violation of the cease-fire agreement. Frankly, we do not agree that military action taken against Iraq to secure its compliance with relevant UNSCR's would trigger a world war.


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    Background. ''The Administration has requested $28.9 million for the development and installation of international monitoring systems to detect nuclear explosions. It is my understanding that a portion of this $28.9 million is to fund the United States share of the costs of the Provisional Technical Secretariat for the Comprehensive Nuclear Test Ban Treaty.''

    Question. Why should we provide funds for this purpose prior to the Senate's ratification of this Treaty?

    Answer. The CTBT mandates that the verification regime be capable of meeting verification requirements at the Treaty's entry into force. This requires us to start now to build the global monitoring networks and other verification capabilities provided by the Treaty. A Preparatory Commission (Prepcom), composed of states signatories to the Treaty, was established in November 1996 to carry out this task. The Prepcom directs the work of the international staff of the Provisional Technical Secretariat.

    The requested funds are to pay the balance of the U.S. 1998 contribution and 1999 contribution to the Prepcom. The Prepcom budget includes the costs of establishing the International Monitoring System and the International Data Center, as well as the operation and expenses of the Provisional Technical Secretariat.

    The prompt establishment of the verification regime is in the United States interest. To the extent we develop the verification regime, we augment our ability to monitor the current global testing moratorium, we ensure we have the benefit of the Treaty's monitoring capabilities at entry into force, and we facilitate entry into force by maintaining the international community's commitment to the Treaty.
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    Question. What national security benefits do we get from upgrading these monitoring sites as opposed to waiting for Senate ratification?

    Answer. We need not, and should not, seek a delay in the Prepcom's work to establish the International Monitoring System (IMS). The U.S. needs to monitor worldwide testing activity, with or without a CTBT. The IMS augments U.S. national monitoring capabilities. It provides us with access to data from sensitive locations that we would not otherwise have, and with global monitoring coverage. For example, under the terms of the Treaty, 31 monitoring stations will be installed in Russia, 11 in China, and 17 in the Middle East.

    The CTBT Prepcom will save taxpayer dollars by requiring other nations to pay for most of the costs of deploying and upgrading certain monitoring stations that the U.S. would otherwise be paying for entirely. For example, the Air Force originally intended to pay 100% of the cost of deploying a seismic station in Egypt required for national purposes. Since this station will be part of the IMS, and will be funded as such, the U.S. will be paying only about 25% of its costs.

    Question. The Congress placed restrictions on the use of the initial program funds in the FYs '98 Commerce-Justice-State Appropriations Bill. Have these restrictions hindered your operations?

    Answer. We have been assured by the Provisional Technical Secretariat that it would satisfy the conditions placed on past U.S. contributions. We are not aware of any hindrance arising from these conditions.
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    Question. Would you oppose a continuation of such conditions in FY '99?

    Answer. Yes. We believe that setting conditions on the use of our funds is inappropriate and ultimately counterproductive. The U.S. participates actively with other signatories in developing the Prepcom's program of work and budget. To selectively fund only specific portions of that agreed program undermines this collaborative process and reduces our credibility. Moreover, we cannot know whether such conditions, if imposed on U.S. contributions to the 1999 budget, would hinder PTS operations. If other signatories follow suit and earmark their contributions, operations could be severely affected.


    Question. What can you tell the Committee about the recent assassination attempt on President Shevardnadze of Georgia in terms of who might be responsible?

    Answer. The evidence indicates that the assassination attempt was perpetrated by supporters of former Georgian President Gamsakhurdia and Chechen mercenaries.

    On March 19, Russia extradited to Tbilisi Guram Absnadze, a former Georgian finance minister under Gamsakhurdia. Georgian authorities are currently holding Absnadze, who is accused of organizing and financing the February 9 terrorist act against President Shevardnadze, as well as assisting the infiltration of terrorist groups into Georgia. Others involved with the attack are also under detention.
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    Question. As you know, the Committee vastly increased resources to Georgia last year partly to help them bolster border security. What is the status of these programs.?

    Answer. In FY 1998, under the FREEDOM Support Act, the U.S. Government will allocate up to $20.1 million for programs to enhance Georgia's border security, law enforcement and export control capabilities by providing equipment, training, and services to Georgia's Border Guards, Customs Service and other law enforcement officials. The priority objectives of this assistance program are to:

    Assist Georgia in gaining control of its seacoast, particularly the Poti Port; establish a transparent land border regime, focusing on the Azeri and Armenian borders; and then on the Russian and the Turkish borders;

    Enhance the Georgian Border Guard and Customs export control capabilities to prevent, deter, and detect potential weapons of mass destruction smuggling;

    Improve capabilities of the Georgian national law enforcement and legal authorities to investigate and prosecute internal and transnational criminal activity; and

    Develop the law enforcement, legal and regulatory infrastructure in Georgia to help establish a society based on the rule of law and respect for individual human rights.

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    The Special Georgia Border Security and Related Law Enforcement program will be implemented through two program elements. First, the United States Customs Service will implement the majority of the program including almost all equipment procurement, delivery, support and related training, with policy oversight by the Department of State's Bureau of Political Military Affairs Arms Transfer and Export Controls office (PM/ATEC) and the International Law Enforcement and Narcotics Bureau (State/INL) respectively, subject to overall coordination by the U.S. NIS Assistance Coordinator (S/NISC) to ensure no duplication of programmatic efforts. The Coordinator will rely on the Departments of State, Defense, Commerce, Energy, the U.S. Embassy in Tbilisi, and other USG agency experts for guidance as appropriate.

    Question. Is the United States exploring other ways to help the Georgians with their security?

    Answer. Other U.S. Government programs that focus on assisting Georgians with their security include:

    The DOD Cooperative Threat Reduction (CTR) program, the U.S. is purchasing two patrol boats for Georgia (delivery expected in mid-1998) to help the Georgian border guards patrol the black sea coast and independently assume more control of Georgia's maritime borders. Georgian officials also participated in a Nuclear Defense Fund funded legal, regulatory and enforcement forum organized by the Department of Commerce.

    The DOD/FBI Counterproliferation program will focus on training law enforcement officials including the police, judiciary, procuracy, customs officials, appropriate parliamentary entities, defense and foreign affairs officials. Georgian officials are expected to be invited for a two-week basic course on weapons of mass destruction (WMD) smuggling issues, probably at the Budapest International Law Enforcement Academy (ILEA).
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    The DOD/Customs Counterproliferation program plans to provide training to assist Georgia's customs service and border guards over the next two years. The program includes training, both in-country and in the U.S., as well as provision of appropriate equipment to enhance Georgia's border security.

    The Department of Energy/Export Control is working with multilateral partners to develop a regional workshop which will focus on nuclear export control issues in the region, including Georgia.

    The Department of State/Export Control assistance plans to provide an automated export licensing system which will improve the abilities of export licensing officials to control the transit and export of strategic materials from the territory of Georgia.



    Question. While the annual FMF amount for Israel has remained constant over the last decade, the cost of U.S. weapons systems has increased considerably and inflation has risen over that same period. The real value of the $1.8 billion we are giving to Israel this year is substantially lower than its worth a decade ago in constant dollars. I have been a vocal proponent of an increased U.S. military commitment to Israel to keep pace with its changing and growing security needs. What can we do about this situation? What is the Administration prepared to do to help Israel accelerate development and deployment of joint missile defense programs such as the Arrow system?
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    Answer. The United States has an ironclad commitment to Israel's security and well-being and to sustaining and enhancing its qualitative military edge. We believe that strengthening Israel's capability to defend itself is important to regional stability and security and serves the broadest range of U.S. national interests as well as Israel's. The cornerstone of our military assistance to Israel is an annual $1.8 billion Foreign Military Financing (FMF) grant. While this amount has remained constant, it represents an increasingly large portion of our shrinking military aid budget. In FY–97, Israel received approximately 56 percent of all U.S. FMF grants, compared to 43 percent in FY–91.

    To assist Israel in meeting its defense needs, we have been able to supplement its FMF through a number of extra steps, such as early disbursement of its annual FMF which allows Israel to collect interest on its allotment. Israel's FMF account earned $103 million in FY–97. A total of $61.5 million in excess defense articles was notified to Congress for delivery to Israel in FY–97, and last Fall we agreed to preposition an additional $115 million worth of military equipment in the War Reserve Stockpile in Israel and to earmark $100 million in munitions in the U.S. for use by Israel in a crisis. Additionally, in FY–97, DOD procured over $295 million worth of goods and services from Israel, an increase of over $69 million over FY–95.

    The FY–98 Defense Appropriations Bill contains more than $320 million in funding for joint programs which augment our security assistance and reinforce the strength of our relationship. Included in this sum is $61 million for the Theater High Energy Laser Program and $50.7 million for the Arrow anti-tactical ballistic missile program. The U.S. and Israel are jointly funding development of the Arrow missile system and the U.S. has committed to contribute $248 million over six-years (through 2001) for the integration, test and evaluation of the Arrow and to insure interoperability with U.S. theater missile defense forces.
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    Question. I would like to pose a question about the fundamental benefits of the IMET program: The Administration has testified time and again that the IMET program, and especially the Expanded IMET component, is intended to teach human rights, civilian control of the military, and democracy building. We have been providing IMET and Expanded IMET to Indonesia for many years, but that country's military is still categorized by atrocious human rights violations. When will we see this predicted pay-off for our military assistance? When can we expect the millions of dollars we have put into the IMET program to result in a greater respect for human rights in Indonesia? And I might add that Indonesia is just one of several countries that this question can apply to.

    Answer. As you note, greater respect for human rights, professionalism, and proper conduct are among the many benefits that we see flowing from the IMET program. While it is impossible to quantify the human rights ''pay-off'' from IMET, we believe that engagement with the Indonesian military through IMET has produced some progress in this regard.

    IMET provides the opportunity for Indonesian military personnel to be educated in the United States, to observe our commitment to rule of law and American values, and to acquire additional skills. IMET graduates are more professional, more committed to improving their own armed forces, and more likely to be at the forefront in reforming their own services. Indonesian IMET graduates return home with an understanding of what we Americans stand for and what we stand against. IMET graduates have been prominent in investigating and punishing the failures of discipline that cause human rights abuses.
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    We would neither claim that the Indonesian military's human rights record is spotless, nor that IMET is responsible for all improvements. However, there have been some significant steps in the right direction. Citing just a few examples, Indonesian graduates of the IMET program have:

    Chaired the Military Honor Council that disciplined officers involved in shooting civilians in East Timor in 1991;

    Drafted and disseminated rules of behavior for Indonesian soldiers confronting civil disturbances;

    Drafted the ''Basic Human Rights and Respect for Law'' handbook for officers serving in Irian Jaya; and

    Instituted training programs on international law.


    Question. I was extremely disappointed at the Administration's decision last year to lift the twenty-year old ban on high technology arms sales to Latin America. This ban has served U.S. interests well in Latin America by helping promote stability and democracy in the region. Now is the time to flood that region with expensive weapons systems that will divert scarce resources from poverty eradication and provoke a regional arms race. I have introduced legislation to codify this ban, but it is not too late for the Administration to reverse its ill-advised decision to lift the ban. What is the current status of this policy? What potential arms sales are currently being discussed and what is the timetable for these sales?
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    Answer. On August 1, 1997, the Administration decided after a two year review of security policy in Latin America to establish a process for case-by-case consideration of requests for advanced arms transfers. That process is in place today.

    This decision puts U.S. arms transfer policy toward Latin American on par with the rest of the world and reflects the significant political, economic, and military transformation that has occurred in the region. It also reflects the new level of maturity, cooperation and dialogue we have reached in our partnership with the country's of the region. Our former policy of presumption of denial on advanced arms transfers to Latin America, while appropriate and successful for its time, is, in the Administration's view, no longer the right policy for today's situation in the hemisphere.

    Nonetheless, restraint remains the fundamental principle of U.S. arms export policy. In considering arms transfer to Latin America we take into consideration our guiding goals of strengthening democracy (including civilian control of the military), encouraging concentration of resources on economic and social development, avoiding an arms race, supporting transparency and confidence-building, and ensuring that responsible defense modernization occurs in a manner appropriate to each country's legitimate security requirements.

    Our change in policy has not resulted in a significant increase in advanced arms sales to the region to date. The only significant sales of advanced weaponry currently under consideration are the possible sale of fighter aircraft and associated weapons systems to Chile and two used F–16B models to Venezuela to replace lost aircraft. The Government of Chile has yet to decide if it will choose a U.S. fighter (F–16 or F/A–18) over competing Swedish and French aircraft.
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    The current modernization plans underway in some Latin American countries are a result of aged and obsolete inventories of weapon systems. We do not believe the decision by some civilian elected leaders in South America to modernize their defense forces represents the beginning of an arms race nor do we believe that a unilateral U.S. ban on advanced arms transfers would alter modernization plans as non-U.S. suppliers are ready and eager to sell.

Questions for the Record Submitted by Mr. Torres


    Question. It is my understanding that the amount of funding available to the Bolivian government was substantially reduced in order to provide Colombia with the additional three Blackhawk helicopters while maintaining another $30 million for antinarcotics efforts in that country. What impact do you think this transfer of money is going to have in interdiction, or in your overall counternarcotics plan? What will be the political fall-out of cutting aid to Bolivia by nearly two-thirds? How will the $12 million for Bolivia be divided up among the different antinarcotics programs?

    Answer. The $50 million Congressional earmark for FY 1998, requiring INL to purchase Blackhawk helicopters for Colombian counternarcotics operations, would force INL to cut the Bolivian budget for FY 1998 from a planned $45 million level to $12 million (a 75% reduction). At this level, neither INL nor the Bolivians will be able to sustain the current counternarcotics programs or maintain the tempo of eradication and interdiction operations.

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    The Bolivians see this as our dismantling of the partnership between our two countries. The Bolivians have invested heavily in changing public opinion from favoring and supporting the coca growers to seeing them as criminals who are destroying the fabric of Bolivian society and hindering economic progress. The new government's five-year plan to eliminate all illegal coca will not work without the backing of the Bolivian people and the economic support of the U.S.

    At the $12 million level of funding for Bolivia counternarcotics programs, we will be able to fund just over half of the eradication program, very little of the interdiction/law enforcement operations, only a third of the alternative development program (unless we take funds from yet another country program), and none of the balance-of-payment program. Cuts must also be made in Program Development & Support and Infrastructure, which will require us to fire employees, break leases for some facilities, and significantly reduce maintenance for vehicles and aircraft—making them unavailable for operational use. At this level of funding, we can expect to see significant reductions in levels of eradication, and significantly fewer seizures and prosecutions.

    Question. Seven new Blackhawk helicopters were purchased by the Colombian Army in 1996 with their own funds. In addition, the Colombian Air Force has had Blackhawks in their inventory since the late '80s. Where are these helicopters and what are they being used for? Which units are using them?

    Answer. The Colombian Air Force has 20 Blackhawks—8 ''L'' models and 12 of the older ''A'' models. Fourteen are with the 31st Combat Air Command. Six are with Combat Air Command 1. The Army's seven new Blackhawks are with the 10th Airborne Infantry Brigade.
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    To date, virtually all available Blackhawk flight hours or ''blade time'' has been devoted to air support of the military's counter-insurgency efforts against the leftist guerrillas.

    We are in the process of negotiating with the Colombian Ministry of Defense for some Blackhawk flight time for support of the National Police's counternarcotics missions. In exchange we have offered to provide the Colombian military with assistance in developing maintenance programs and spare parts inventories to enable them to have their aircraft up and operating on a more regular basis.


    Question. Has a list of units been drawn up for the provision of aid to the Colombian army? What is the timeline for making a decision on whether aid to the Colombian army can go forward?

    Answer. Six units in the Colombian Army were initially identified as potential recipients of U.S. counternarcotics assistance.

    Pending negotiation of an end-use monitoring agreement with the Government of Colombia, and the provision of information regarding Colombian security force units, assistance was withheld from these units.

    The Government of Colombia has provided information regarding these units, under the terms of the agreement, and we are evaluating it. Based on that information and other information available to us, we determined to provide assistance to one of the six units immediately, and to another unit upon removal from that unit of two individuals who are under investigation for alleged human rights violations committed prior to their joining that unit. We are still evaluating the information provided regarding the other four units, and have requested additional information in order to clarify some points. We anticipate that we will soon have sufficient information to enable us to either proceed with assistance to these units, or to make recommendations to the Secretary, for determination in accordance with the Leahy Amendment and/or Section 570 of P.L. 105–118, as appropriate.
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    Question. Has a list of units been drawn up for the provision of aid to the Colombian army? What is the timeline for making a decision on whether aid to the Colombian army can go forward?

    Answer. Six units in the Colombian Army were initially identified as potential recipients of U.S. counternarcotics assistance.

    Pending negotiation of an end-use monitoring agreement with the Government of Colombia, and the provision of information regarding Colombian security force units, assistance was withheld from these units.

    The Government of Colombia has provided information regarding these units, under the terms of the agreement, and we are evaluating it. Based on that information and other information available to us, we determined to provide assistance to one of the six units immediately, and to another unit upon removal from that unit of two individuals who are under investigation for alleged human rights violations committed prior to their joining that unit. We are still evaluating the information provided regarding the other four units, and have requested additional information in order to clarify some points. We anticipate that we will soon have sufficient information to enable us to either proceed with assistance to these units, or to make recommendations to the Secretary, for determination in accordance with the Leahy Amendment and/or Section 570 of P.L. 105–118, as appropriate.


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    Question. What is the process for determining that the human rights conditionality, known as the Leahy Amendment, included in last year's foreign operations bill, will be complied with? In understand that good instructions have been sent out to embassies regarding their reporting requirements, but am interested in how the process will work in Washington. Is an interagency process in place? Will Dr. Shattuck be heading that up, as he indicated in testimony recently? Where will final decisionmaking authority rest? When will we be able to review the list of units to receive or receiving assistance?

    Answer. The Department of State sent a cable to all diplomatic posts in mid-March, informing them of the new requirements of section 570 of the Foreign Operations Assistance Act (FOAA); instructing them to formulate and submit to the Department of State an action plan to ensure that U.S. assistance would not go to human rights abusers; and mandating that any credible allegations of gross human rights violations by security forces receiving U.S. assistance be reported immediately to the Department of State.

    Since section 570 of the FOAA requires the Secretary of State to make a determination as to whether (a) there is credible evidence that members of a security force unit receiving U.S. assistance have committed gross human rights violations and (b) the local government has taken effective measures to bring alleged abusers to justice, ultimate authority rests with her. In that regard, there is no interagency decisionmaking process in place. State Department officials from the affected regional bureau, the Bureau of Legal Affairs, the Bureau of Democracy, Human Rights, and Labor, the Bureau of Political/Military Affairs and other affected bureaus meet to (a) discuss an allegation of gross human rights violation committed by a security force unit receiving U.S. assistance, (b) decide whether the information is credible, and (c) if it is, draft a memorandum to the Secretary of State so that she can decide whether the local government is taking effective measures to bring alleged abusers to justice or whether the U.S. Government should move to cut off assistance to the unit in question. Recommendations will be submitted to the Secretary to State, who will be the final decision maker, as required by law. At present, we have no worldwide list of units proposed to receive assistance or already receiving it. Each of our embassies has information regarding to which units it is providing assistance.
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    Question. Was there a single unit anywhere in the world whose funding has been cut off as a result of the Leahy Amendment? If yes, which ones?

    Answer. So far, assistance has not been cut off for any security force units anywhere in the world as the result of the Leahy Amendment. However, a mechanism has been established for reporting to the Department by posts throughout the world of possible human rights violations by security force units that are receiving or proposed for U.S. assistance. A committee has been formed within the Department to evaluate any such reports and monitor distribution of U.S. assistance. Among the matters under review by such committee is that of counternarcotics assistance to Colombia. Pending negotiation of an end-use monitoring agreement with the Government of Colombia, and the provision of information regarding Colombian security force units, assistance was withheld from six Colombian Army units that have been proposed for U.S. assistance.

    The Government of Colombia has provided information regarding these units, under the terms of the agreement, and we are evaluating it. Based on that information and other information available to us, we determined to provide assistance to one of the six units immediately, and to another unit upon removal from that unit of two individuals who are under investigation for alleged human rights violations committed prior to their joining that unit. We are still evaluating the information provided regarding the other four units, and have requested additional information in order to clarify some points. We anticipate that we will soon have sufficient information to enable us to either proceed with assistance to these units, or to make recommendations to the Secretary, for determination in accordance with the Leahy Amendment and/or Section 570 of P.L. 105–118, as appropriate.

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    Question. The Leahy Amendment for FY 97 prohibited aid under the International Narcotics Control Account (DOS) to security force units if the Secretary of State has credible evidence that such a unit has committed gross violations of human rights. It was apparently expanded by the Administration to cover all forms of counternarcotics aid. Can you tell us in which instances the Secretary has received this evidence? What is the procedure to forward the Secretary such credible evidence? Who is involved in assessing the evidence for the Secretary's review?

    Answer. To date, the Secretary has received no credible evidence of gross human rights violations committed by security force members of units which receive U.S. assistance; however, we have received information from the Government of Colombia which we are evaluating. The procedure to forward such information to the Secretary is by memorandum from an intra-Department of State team which has thoroughly reviewed the information and deemed it to be credible. The team assembled to review this information will at a minimum include members of the Human Rights Bureau, the Legal Bureau, the Narcotics Bureau (if applicable), the Political/Military Bureau, and the affected regional bureau. This team will, if necessary, request additional information from any or all of the following sources: our embassy, human rights NGO's, the host government, our intelligence agencies, and DOD, until sufficient information is available to determine whether or not an allegation of a gross human rights violation committed by the unit receiving U.S. assistance is credible.

    Question. The Amendment also stated that the aid can go forward if the Secretary determines and reports to the Committees on Appropriations that the government of such country is taking effective measures to bring the responsible members of the unit to justice. In which instances did the Secretary make this determination? Who else was involved in making the determination? Could we have copy of such reports?
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    Answer. To date the bureaus responsible for reviewing reports of violations of human rights abuses have presented no recommendations to the Secretary regarding determinations under either the ''Leahy Amendment'' or Section 570 of the FY 98 Foreign Operations Appropriations Act. However, the Department is withholding proposed U.S. assistance to five Colombian army units due to allegations of gross human rights violations. The Department is reviewing the evidence with respect to the allegations and is requesting more information on them.

    Question. This Amendment was re-adopted for FY98 and expanded to cover ALL forms of security assistance. In the future, what will be the procedure that will lead to the Secretary reviewing the credible evidence?

    Answer. Section 570 of the FY 98 Foreign Operations Appropriations Act (FOAA) is a provision similar to the ''Leahy Amendment'' included in the FY 97 FOAA. Under procedures established to help ensure compliance with this legislation, reports of incidents of gross human rights violations received by the Department are examined by Department personnel, including representatives from the affected regional bureau, the Office of the Legal Adviser, the Bureau of Democracy, Human Rights and Labor, the Bureau of Political-Military Affairs and, as appropriate, the Bureau of International Narcotics and Law Enforcement Affairs. Additional information is requested when needed, and when appropriate, recommendations would be made to the Secretary.

    Question. Assistant Secretary Shattuck testified before the International Relations Committee (Country Reports and US policies, February 3, 1998) that he would be asking ''diplomatic posts to provide an action plan for implementing this legislation.'' How will this build on procedures established for the implementation of the original Leahy amendment?
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    Answer. This procedure is very similar to those established for the implementation of the original Leahy amendment. A telegram was sent to all of our diplomatic and consular posts in March, informing them of the requirements of Section 570 of the FY 98 Foreign Operations Appropriations Act and instructing them to provide an action plan to the Department of State explaining the procedures they have in place to monitor reports of gross human rights violations by security forces units and to correlate such information with ongoing or planned U.S. assistance to such units. We are reviewing incoming responses to our telegram to ensure every post (1) is aware of and understands this legislation, (2) is collecting and reviewing information regarding allegations of gross human rights violations by security forces, and (3) is promptly reporting to Washington any allegations of gross human rights violations committed by members of security forces receiving or proposed to receive U.S. assistance.

    Question. The instructional cable to all diplomatic posts detailing the procedures for the implementation of the original Leahy amendment stated that ''In the first instance, posts must be responsible to correlate country human rights reporting with individual recipient units of INC-funded assistance.'' Who will determine the methodology for obtaining this information?

Next Hearing Segment(2)

(Footnote 1 return)
99% of OCONUS training is for E–IMET Mobile Education Teams (METs).

(Footnote 2 return)
TLA is primarily used for students undergoing CONUS training, but on occasion it is used for students attending a regional MET outside their own country.