Statement of J. Brian Atwood Administrator U.S. Agency for International Development House Committee on Appropriations Subcommittee on Foreign Operations, Export Financing and Related April 24, 1996 Mr. Chairman and members of the Committee: I want to thank you and the Committee for giving me the opportunity to appear today and discuss the budget request of the U.S. Agency for International Development for Fiscal Year 1997. At the outset, I want to say how much I appreciate your efforts and the efforts of your colleagues during the difficult budget negotiations this past year. As a former Senate staffer and as a former Assistant Secretary of State for Legislative Affairs, I fervently believe in the partnership between the legislative and executive branches. Shared responsibility is indispensable to effective foreign policy. As you know, I am conveying to you an overview of our programs for Fiscal Year 1997, as well as separate discussions of our regional and global programs, our humanitarian relief work, and our initiatives for the coming year. I believe this document will provide the Committee with a thorough assessment of our work and our plans; it will dovetail with the country reports that follow. Recent Cuts Mean Real Pain Mr. Chairman, USAID can no longer "do more with less." USAID will enter Fiscal Year 1997 still adjusting to the severe cuts imposed during Fiscal Year 1996. These cuts have had a significant impact on our program. In FY 1996 alone, Development Assistance was cut 23.1 % from the year before. Support for Eastern European Democracy was cut 9.7%; aid to the New Independent States of the Former Soviet Union was cut 24.6%; P.L. 480 Titles H and III were cut 7.2%. In dollar terms, these cuts totaled $807,000,000. Moreover, we have been struggling to meet the limit imposed in FY 1996 on our operating expenses, of $465,000,000, plus $25,000,000 from other programs. In FY 1997, federal pay raises and the impact of inflation overseas and at headquarters will add some $24,300,000 to the Agency's costs, while our available trust funds and prior year carryover funds will decline by $34,500,000. We have taken substantial steps to close this gap, including: - Maintaining a hiring freeze since last year; - Obtaining "early out" authority from Office of Personnel Management to encourage voluntary retirements; - Achieving significant reductions in travel and other headquarters costs; and - Expediting the closing of posts overseas. We also have streamlined our operations and sought ways to save costs in everything we do. The Agency has been, and continues to be, one of the leaders in the Vice President's efforts to reinvent government through the National Performance Review. USAID has already reduced its direct hire staff by a higher percentage than any other government agency, save one; combined administrative functions with other government agencies to achieve $7,000,000 in cost savings over five years; reduced project design time by 7'j percent; cut regulations by 55 percent; developed a new electronic acquisition and procurement planning system that replaced separate systems in each of USAID's bureaus and overseas missions and eliminated paperwork measurable in tons; and cut competitive contract award time by over 50 percent. The savings we have achieved are real; we have not shuffled accounts or engaged in creative bookkeeping. Quite the contrary: our cuts have been aimed at generating measurable savings in operating expenses. To this end, we have now closed 15 missions; another 8 will be closed this year. In many instances, the closures represented graduations after successful development programs. In others, we left because national governments were not committed to genuine development and because we were denied the opportunity to work in partnership with local communities. Planned closures, totalling 27 in all, do not include the additional missions that will be closed as a result of the negotiations that are now underway with the State Department. Closing missions is a finite exercise. Past a certain point, it is inherently contradictory for a nation that has economic and political interests throughout the world and for an agency that has been the world's leader in development. USAID remains committed to making our operations more efficient and to eliminating waste and duplication. Streamlining saves money now and over time. Yet despite these savings, and despite new savings that continue to accrue as our operations are re-engineered, the time has come to stabilize the Agency and bring personnel levels in line with funding. The measures we have undertaken simply will not produce all the savings we require to live within our means. I have reluctantly but inescapably concluded that a Reduction In Force is now unavoidable. In an All Agency meeting on April 11, I announced that despite our best efforts, the agency would be forced to resort to a RIF beginning in June of this year. I have always said that RIFs are absolutely the last option for solving our operating expense problem. Indeed, I have been asked many times by Congress how our agency managed to reduce staff levels without resorting to a RIF. We have managed thus far because of extraordinary efforts to reduce costs, but that approach has reached its limit. At this point, barring other factors, we hope to limit this RIF to 10 percent or less of our direct hire work force. I sincerely hope this number will not increase. I promised during the All Agency meeting -- and I will repeat it here -- that it is my intention that all USAID personnel affected by the RIF will have at their disposal the best outplacement services in the U.S. Government. Mr. Chairman, I want to point out that each time USAID has been called upon to respond to a foreign policy priority, we have met the challenge. Beginning in the early 1990s, we added new responsibilities overseas to our traditional portfolio. We opened entirely new programs in Central and Eastern Europe and the former Soviet Union. Just recently, in areas as diverse as Bosnia, Haiti, and the West Bank and Gaza, we again accepted new responsibilities that contributed measurably to the cause of peace. In some instances, we have been appropriated increased resources to handle these new responsibilities. But in other cases, we have shifted resources and made funds and expertise do double duty. The people of USAID certainly have shouldered additional duties and worked longer hours, as jobs have expanded without a fully commensurate increase in technical support, staff, or operating expenses. USAID's decision in 1993 to close more than 20 posts aligned our programs with the resources available at the time. We also were conscious of the need to concentrate our efforts in those areas where we could make a difference. But current budget realities mean that these adjustments, while painful, are simply not enough. USAID now must make adjustments to find a new equilibrium between resources and programs. We thus will close additional posts over the next several years; a significant number of these closings must occur by the end of FY 1997 to capture the savings needed. We expect that about ten additional posts will have to be closed by the end of FY 1997 to reach this new equilibrium. In addition,, we expect to accelerate plans to phase out programs in more advanced developing countries. Thus, we will graduate about five USAID recipients by 2000 and about another five by 2005. Over and above these graduates, USAID expects that by 2000, it will have achieved the foreign policy goals of supporting the economic and democratic transitions in Central and Eastern Europe and in the new independent states of the former Soviet Union. USAID will not disengage precipitately from any place where it works. It will utilize rational graduation and exit strategies to preserve assets, reinforce institutions, and permit development accomplishments to act as bridges to greater self-reliance by host nations. USAID believes that even without a local presence, a network of cooperative relationships will remain in place, providing a steady, two-way flow of ideas, innovations, and information. Wherever possible, USAID will utilize regional approaches to eliminate duplication and provide services to multiple customers from a single base. In most instances, USAID will be able to downsize its presence as a result of successful assistance efforts. A number of graduating countries are already emerging as new trade and investment partners, and in its graduation and exit strategies, USAID will focus on ways to support and accelerate this transformation. In making its exit decisions, USAID has taken into account the severity of need, the country's level of development, the quality of partnership, and the prospects for sustainable development. It has also taken into account whether countries were critical to regional or global problems such as unsustainable population growth, the spread of HIV/AIDS, the loss of biodiversity, and global climate change. Finally, in making its decisions, USAID has taken special factors into account, such as local or regional instability, special foreign policy priorities, and particular concerns of the American public. The impact of diminished appropriation hardly ends with closed missions and a reduced workforce. The impact of the FY 1996 figures will be felt on every continent where we work and in every one of our endeavors. It is curious, Mr. Chairman: Ask Americans if they favor foreign aid and you know the answer you'll get. But ask them if they are concerned about the specific problems targeted by foreign aid -population growth, environmental damage, threats to democracy -- and according to any poll, clear majorities will say yes. Polls also show that voters want far more spent on specific aid activities than is presently appropriated. Yet the FY 1996 appropriations will measurably diminish our ability to work in each of these specific areas. Let me list just a few examples: - Environment: USAID programs support the direct protection of approximately 22,000,000 hectares of tropical forests and other critical habitats worldwide -- habitat for some of the most threatened plant and animal species remaining in the wild. At current project spending levels, critical habitat in countries such as Brazil, Indonesia, and Madagascar which would otherwise be protected will be in danger of loss. The potential cost would be measured in the extinction of plants and animals that could provide medicines, materials, and foods, and in a spiritual loss to our descendants who would be deprived of these unique environments. - Population: The net result of the restrictive provisions contained in the FY 1996 bill will reduce funding for population activities this year from $547,000,000 to $356,000,000, of which, only $71,000,000 will be available at the end of FY 1996. A USAID-funded program in Brazil (BEMFAM) estimates that 250,000 couples will lose access to family planning and related health care services in the poor northeastern region of the country. In Peru, 200,000 couples will lose access to family planning, and an HIV/STD screening program will have to be terminated. Independent external groups have estimated that as a result of these FY 1996 cuts and restrictions, seven million couples in developing countries who would have used modern contraceptive methods will be left without access to these methods. As a result, 4,000,000 more women will experience unintended pregnancies, leading in turn to 1,900,000 more unplanned births, 1,600,000 more abortions, and 8,000 more deaths of women in pregnancy and childbirth. - Health: The HIV/AIDS epidemic is just emerging in Asia, but our ability to support measures that could reduce the spread of HIV infection will be diminished. In Africa, our education and field control programs have measurably reduced the incidence of infection. But reduced appropriations will mean an increase in infant mortality in Africa in the next three years as a result of HIV/AIDS. - Democracy: We are already unable to meet the demand for democracy programs and our ability to respond to new opportunities to strengthen democratic institutions will be limited. We will be unable to help NGOs devoted to strengthening the rule of law in Indonesia's nascent civil society. In the Philippines, we will be unable to carry out planned initiatives to help local governments operate more effectively and responsively. We have already had to reduce funding for key democratic governance activities in Kenya, Zimbabwe, and Madagascar. The impact of cutbacks ultimately will be measured in these terms: societies that are more repressive, institutions that are less responsive, and nations that are closer to conflict and failure than they might have been. - Broad-based Economic Growth: We will have to cut funding for agricultural development and small and microenterprises which are critical to creating employment and income, breaking the cycle of poverty in Africa and Latin America, and preventing future crises. These programs help developing countries sustain previous investments that are now bearing fruit. Programs affected will include food crops, agricultural income, enterprise development, natural resource management, market liberalization, employment creation, and privatization and agricultural reform. - U.S. Trade: Thanks to development investments, American trade with the nations of Central and South America has grown explosively. But our efforts to promote the further expansion of U.S. trade with the Latin America and the Caribbean region will be decimated under FY 1996 budget levels, leaving us ill-prepared to respond to initiatives aimed at expanding free trade within the hemisphere. Programs to train foreign business owners about U.S. technology, including high value energy-efficient machinery and environmentally friendly equipment, will have to be discontinued. These cutbacks ultimately will cost the U.S. exports and jobs. The FY 1997 Budget Request Every dollar requested for Fiscal Year 1997 is essential to maintaining a disciplined, efficient, modern, responsive foreign assistance program. The fat is long gone. Any cuts from the budget request will not simply cut into muscle; they will dismember USAID and permanently diminish our capability to act. Mr. Chairman, the U.S. Agency for International Development is not a faceless bureaucracy ripe for the trimming. We are a unique concentration of talent that this nation needs and on which other nations rely. We are an assembly of the most experienced and highly trained development experts in the world. In countries in transition -- either from conflict or non-democratic rule -USAID will continue to work to strengthen institutions of democracy and free markets. We will maintain missions in these countries for the transition period or until we feel that stability has returned. In much of the world -- especially in Asia and Latin America -- the most basic challenge now is how to build on our successes. Many of these nations are poised to become manufacturers, exporters, and large-scale purchasers of American goods. It is our task to help these nations graduate from the need for foreign assistance and become full members of the global economy. In these nations, we will work to facilitate trade and investment and use our programs to better link the recipient country's economy to global trade and investment flows. To advance this objective, we will combine existing resources in our Global Bureau's Economic Growth Center and establish an Office of Emerging Markets. This office will bring together technical capacity to strengthen capital markets, provide expertise on legal and regulatory reform, and help create an enabling environment for trade and investment. We also plan to strengthen our ties with other agencies of the U.S. Government responsible for trade promotion. These actions will enable USAID to scale back its presence in a select number of countries over a five-year period, and eventually to phase out our field missions in these relatively more prosperous countries. We would expect, as in the past, to receive a "development dividend" for the United States economy as graduated foreign aid recipients build on our investments and emerge as important new trading partners. USAID Over The Next Five Years As a result of projected changes in its budget and mission, USAID will be configured very differently in five years. These changes are not inevitable, but we recognize that existing resource constraints will not be solved in the short run. These resource shortfalls challenge us to concentrate resources where they can accomplish the greatest good. In the next five years, the number of full scale missions will decrease, from the current 43 to approximately 30. These remaining missions will be located in key countries important to U.S. interests, where the need is great, and specific, measurable objectives can be achieved. We will pick our partners carefully. In countries in transition -- either from conflict or non-democratic rule -USAID will continue to work to strengthen institutions of democracy and free markets. We will maintain missions in these countries for the transition period or until we feel that stability has returned. In much of the world -- especially in Asia and Latin America -- the most basic challenge now is how to build on our successes. Many of these nations are poised to become manufacturers, exporters, and large-scale purchasers of American goods. It is our task to help these nations graduate from the need for foreign assistance and become full members of the global economy. In these nations, we will work to facilitate trade and investment and use our programs to better link the recipient country's economy to global trade and investment flows. To advance this objective, we will combine existing resources in our Global Bureau's Economic Growth Center and establish an Office of Emerging Markets. This office will bring together technical capacity to strengthen capital markets, provide expertise on legal and regulatory reform, and help create an enabling environment for trade and investment. We also plan to strengthen our ties with other agencies of the U.S. Government responsible for trade promotion. These actions will enable USAID to scale back its presence in a select number of countries over a five-year period, and eventually to phase out our field missions in these relatively more prosperous countries. We would expect, as in the past, to receive a "development dividend" for the United States economy as graduated foreign aid recipients build on our investments and emerge as important new trading partners. USAID Over The Next Five Years As a result of projected changes in its budget and mission, USAID will be configured very differently in five years. These changes are not inevitable, but we recognize that existing resource constraints will not be solved in the short run. These resource shortfalls challenge us to concentrate resources where they can accomplish the greatest good. In the next five years, the number of full scale missions will decrease, from the current 43 to approximately 30. These remaining missions will be located in key countries important to U.S. interests, where the need is great, and specific, measurable objectives can be achieved. We will pick our partners carefully. USAID will have the institutional capacity to mount missions in 10 transitional countries at any one time, responding to paramount foreign policy objectives. Today, we have such programs in Eastern Europe, the former Soviet Union, Bosnia, South Africa, Haiti, and Cambodia. One cannot predict where the next transitional crisis will occur, but if the first five years of the post-Cold War period are an accurate guide, we know the U.S. must be ready with the tools to deal with the types of ethnic, political, or regional conflicts that can quickly threaten our security, our trade, our borders, and even the health of our citizens. In an additional 20 or so countries, USAID will maintain the capacity to target problems -- such as weak governance, environmental degradation, unsustainable population growth, or the spread of infectious diseases -- with no or minimal additional direct-hire staff in the field. All these changes will mean that from the start of the Clinton Administration until the year 2000, USAID will have been radically transformed. We started in 1993 with programs in over 120 countries, with over 70 missions. By the year 2000, USAID's programs will be targeted on approximately 75 countries, with no more than 30 full sustainable development missions. Mr. Chairman, I still believe the best way to ensure that our programs achieve their goals is with an on-the-ground USAID presence. But we need to face facts -USAID cannot afford to maintain missions in every country that needs our help, nor can we disperse our personnel so widely that we lack the critical mass needed in the missions that remain. In five years, our direct-hire work force will be smaller -- both in Washington and overseas. We have cut our direct-hire workforce over the past three years by a higher percentage -- 19 percent -- than all but one other Federal agency, the Office of Personnel Management. Our total workforce is down from some 11,500 employees in 1993 to just over 8,700 today. And we will get smaller still -- reaching a goal of fewer than 8,000 employees (U.S. and foreign nationals) by 1998. The RIF of U.S. direct-hire staff announced on April II will accomplish part of this reduction; there will also be cutbacks of Foreign Service National Employees (FSNs) and Personal Services Contractors (PSCs). We also will continue to reduce staff through retirements and attrition, and where appropriate, by combining positions. Wherever it operates, USAID will continue to stress people-to-people partnerships that link everyday Americans with their counterparts in the developing world. Above all, what USAID provides -- and will continue to provide -- is expertise and experience that enables nations to improve their institutions, policies, and social conditions. To accomplish this aim, our agency uses everything from training, to technical assistance, to credit programs, to public-private partnerships, to research. This diverse approach is cost-effective, and it reinforces investments that pay enormous and continuing dividends. Wherever USAID is engaged, limited resources and a shrinking field presence demand that USAID become increasingly collaborative. We must continue to find ways to stretch the development dollar through improved donor coordination, by tapping into private sector capital flows, and by encouraging networking among both governments and nongovernmental organizations to advance the development cause. U.S. Leadership in the 21st Century The United States continues to play a unique role among nations. America's leadership has helped to shape a world that is more prosperous and more peaceful. American leadership helped secure the Green Revolution, wipe out polio in the Americas, and achieve revolutionary breakthroughs, like oral rehydration therapy, that now save millions of lives. America's values and vision inspired the emergence of a record number of democracies around the globe, helped nations like Haiti and South Africa embrace peaceful change, and brought humanitarian assistance to the innocent victims of war and natural disaster. I appeal to this Committee and its members to help us fight to preserve America's international leadership in the vital fields of development and humanitarian response. I appeal to you to preserve our nation's capacity to utilize a range of effective responses to the diverse and emerging problems that characterize our world today. Mr. Chairman, I would conclude my remarks today with a plea that I hope that you and the Committee will consider seriously. I think you would agree that recent cutbacks in foreign assistance have been made almost entirely on the basis of budgetary considerations. We certainly have had budget debates, yet we have not yet conducted a foreign policy debate, a debate about the role of foreign assistance in the post-Cold War era. Such a debate is long overdue; it is essential if we are to target our spending for USAID and the 150 Account in general. Such a debate is essential if we are to concentrate our resources where they can best serve the interests of the United States. The delay in discussing the direction of foreign policy is at odds with past American practice. In 1948, the United States committed itself to rebuilding Europe through the Marshall Plan. In 1961, the United States established both the U.S. Agency for International Development and the Peace Corps, and committed itself to assisting poor nations and people in need. In both instances, there was extensive public debate, in Congress and throughout the nation, before we assumed these responsibilities. That debate continued for many years; it reinforced the decisions we reached and the commitments we made. Does it make sense now to unshoulder these same responsibilities with so little discussion? Does it make sense to do so at a time when foreign assistance, at less than one-half of one percent of the federal budget, consumes far less of our gross national product than it did during the 1950s or 1960s? I would readily concede that a consensus no longer exists in Washington or the United States about what foreign aid is supposed to accomplish. While the Cold War raged, there was a general understanding that foreign assistance was a necessary weapon in our struggle against the spread of totalitarianism. The end of the Cold War meant the end of the traditional rationale for foreign aid. I understand that no agency of the federal government can be exempt from doing its part to help balance the budget. I understand that appropriations reflect a political will to act, and that diminishing appropriations reflect the loss of consensus about how to act. But the arguments for the continued value of foreign assistance do exist -- indeed, in the multi-polar post Cold War world, I believe they are as persuasive as any argument offered during the Cold War, possibly more so. Our nation has an obligation to consider those arguments, certainly before USAID has been irreparably diminished. I fear we will undermine the ability of our nation to project its interests abroad if we discard a tool of foreign policy before determining if we still need it. I and other members of the Administration have not been shy about arguing for an expanded role for foreign assistance in our diplomacy. We have argued that the prospect of disorder and the failure of nations to develop is a legitimate strategic threat -- possibly, THE strategic threat in the post-Cold War era. It is a strategic threat because it endangers our economic health and political security. It is a strategic threat because it threatens our future markets and the wellbeing of the next generation of Americans. We have pointed out that this threat is rooted in persistent problems of development: - Persistent repression and the absence of democracy and the rule of law; - Unabating poverty and the absence of opportunities for broad-based economic growth; - Unsustainable rates of population growth and the absence of needed services for basic health, including family planning; - Environmental damage and the absence of institutions and policies to encourage conservation and cleanup; and, - The after-effects of natural disaster and civil war and the absence of transitional assistance to resettle ex-combatants and refugees, rebuild institutions, and restart the economy. We have pointed out that development problems exacerbate each other: Expanding populations compete for scarce land; poverty brings desperation and a resort to violent, anti-social behavior, perhaps even terrorism; the absence of government accountability sustains patterns of economic inequity and is the driving force for social conflict. The result is a continuum that can run all the way from social disruption to the collapse of nations. And we have asserted that a concerted program of foreign assistance constitutes the most effective response. Such a program targets the problems of development and helps local citizens create institutions, attitudes, and policies that liberate their creative energies and permit them to be full participants in the decisions that affect their lives. I believe our prescription is gaining adherents. Interestingly, some of the strongest advocates are America's military leaders, who understand from first hand experience what armies can and cannot accomplish in states divided by civil conflict. They also understand that the U.S. military should not be the tool of first resort, that the most effective American policy is one that can employ a variety of responses. Our military leaders also know that the American people have neither the will nor the resources to support an endless series of peacekeeping operations. They understand that foreign assistance is an investment in prevention. I also believe that our prescription is gaining adherents because of the emergence of new trading partners in Asia and Latin America. These onetime aid recipients demonstrate that investments in human capital pay enormous, continuing dividends. For instance, our annual trade with Latin America, now in excess of $90 billion, is three times the total of all the aid invested there over thirty years. The Asian market continues to grow by leaps and bounds as onetime "basket cases" like Bangladesh and Indonesia emerge as major trading partners. The same pattern is starting to emerge in Africa, a market of 500 million people. If our policy prescription is correct -- and I am confident it is -- and if the feelings of frustration and opportunity that have characterized the last five years now militate for a foreign policy that can seize opportunities and prevent conflict, the we as a nation should carefully consider which institutions and resources can best advance such a policy. I daresay that USAID will be happy to take our chances if such a debate takes place. In conclusion, Mr. Chairman, I believe that the FY 1997 request is the absolute minimum USAID needs to responsibly downsize its international presence and concentrate its remaining resources. The request is an integral part of President Clinton's plan to balance the budget by 2002. It will permit USAID to continue making a valuable contribution to the interests of our nation. We are continuing to move forward in dramatically transforming the agency; but any cut in the requested level would undermine U.S. influence and increase the possibility that future crises could be met only with a military response. Such cuts would serve no one's interest. We know that a positive, proactive foreign assistance will not only save people from misery and despair, it will be far cheaper for the United States than reacting to one costly crisis after another. If we fail to address today's problems and pursue tomorrow's prosperity, we will have failed in our responsibility to this generation of Americans and the generations that follow. I am convinced that the people of USAID have much yet to give to our nation, and to its security, and to its wellbeing. Thank you. 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