Testimony of Adolfo Franco, Assistant Administrator for Latin America & Caribbean Affairs, US Agency for International Development, hearing of the House Western Hemipshere Subcommittee, February 27, 2003

Testimony of Mr. Adolfo A. Franco,

Assistant Administrator,

Bureau for Latin America and the Caribbean

Before the House Committee on International Relations

Subcommittee on the Western Hemisphere

Thursday, February 27, 2003 at 2 o’clock p.m.

Rayburn House Office Building, Room 2172

"OVERVIEW OF U.S. POLICY TOWARD THE WESTERN HEMISPHERE"

Mr. Chairman, Members of the Committee, it is a pleasure once again to appear before the Subcommittee on the Western Hemisphere of the House International Relations Committee to tell you about the ways in which USAID’s Bureau for Latin America and the Caribbean is promoting the President’s vision for the Western Hemisphere.

President Bush's National Security Strategy reflects the urgent needs of our country following the September 11 terrorist attacks. It states clearly that the U.S. Government's aim is to help make the world not just a safer place but a better place. At USAID, we work closely with our colleagues in other agencies and departments, from the Department of State to the Office of the U.S. Trade Representative, to promote political and economic freedom for all nations, and particularly among our closest neighbors with whom we have such strong social and cultural ties.

The President has said the future of our Hemisphere depends "on the strength of three commitments: democracy, security and market-based development." USAID’s Bureau for Latin America and the Caribbean (LAC), supports the President’s goal of market-based development with a comprehensive program of trade capacity building programs to support the President’s goals of a Free Trade Area of the Americas (FTAA) and a U.S.-Central America Free Trade Agreement (CAFTA). Both the President and Secretary Powell have said free trade will lead to the sustained economic growth essential for development to occur. I wish for you to know that I have made our efforts at trade capacity building a priority for the Bureau for this year.

The LAC Bureau also supports the President’s other priorities for our region. I will tell you about our efforts to promote democracy and good governance, and reduce corruption, in the countries of our Hemisphere. I will also tell you what we are doing to promote health and education, both essential for the security about which the President spoke.

The President’s National Security Strategy recognizes the important role of development assistance. In his landmark March 14, 2002 speech to the community of donor nations in Monterrey, Mexico, the President pledged to create a Millennium Challenge Account (MCA) which would make additional development assistance available to countries that show progress in ruling justly, in promoting economic freedom and investing in people. The Administration has forwarded legislation authorizing the MCA to Congress, and I hope this Committee will act quickly to enact it.

At USAID, we know that the way in which we do things is as important as what we do. During his tenure as USAID Administrator, Andrew Natsios has taken the President’s challenge to heart and tried to make foreign assistance more effective and results-oriented, and I work toward this daily in my role as Assistant Administrator for Latin America and the Caribbean. I have initiated a substantial review of management practices in each of the sixteen missions in my region with an eye to increasing efficiency and reducing duplication of effort.

Despite the continuing challenges, USAID is proud of its contribution to the broader U.S. Government policy objectives in Latin America and the Caribbean. We have been working assiduously to remold our program to respond to the development challenges in the region and to promote the President’s priorities for our Hemisphere.

Continuing Challenge

Over the past several years, the Latin America and Caribbean region has faced increasing development challenges that threaten the national security and economy of the United States. Contracting economic growth rates, extensive poverty, unemployment, skewed income distribution, crime and lawlessness, a thriving narcotics industry and a deteriorating natural resource base continue to undermine the stability of the region. The risks of HIV/AIDS and drug-resistant tuberculosis on our borders also threaten the population of the United States. Civil unrest due to poor economic conditions threatens countries in Central and South America, while political instability in Colombia, Venezuela, and Haiti continues unabated. Increasingly, citizens’ confidence in the ability of democratically-elected governments to provide security and prosperity is waning. Bolivia has also recently emerged as a country where democracy is at risk.

The region’s GDP shrank by approximately 0.8% in 2002, the worst economic performance since 1983. Inflation has edged up after eight years of steady decline. Mediocre economic performance has caused per capita income in LAC countries to decline significantly since 1998, while poverty has increased. These woes have brought discontent and political turbulence, raised questions about the health of democracy in the region, about investment priorities, social sector policies, and the benefits of a decade of liberal reforms. The effects in the poorest countries--Haiti, for instance—and even regions within countries with generally solid economic performance—the Northeast of Brazil, for example—have been even more disheartening.

Still, it is important not to portray the region in a single-minded negative light. LAC’s economy overall is expected to recover slightly in 2003. The Argentine economy is expected to grow about 2% this year. Chile, Mexico, Peru, and the Dominican Republic are expected to top the growth league in 2003, with expansion of 3% or more, assuming that the slowdown in the United States abates and strong growth resumes. Countries which adopt sound fiscal policies and orient their economies toward foreign investment, and rules-based trade under the World Trade Organization (WTO), have tended to resist the recent downturn. The result of NAFTA has been phenomenal growth for all three partners. Since 1993, trade among NAFTA nations has climbed drastically, and U.S. merchandise exports have nearly doubled. This has had a positive development effects on Mexico, in particular.

Another area of progress is commitment of LAC countries to good governance as represented by the signing of the Inter-American Democratic Charter and the Inter-American Convention Against Corruption of the Organization of American States (OAS). Nicaragua is striving to curb government corruption, and other countries, such as Mexico, have also made important commitments to reduce official corruption. Recent elections conducted in Jamaica, Brazil, Colombia, Bolivia, and Ecuador were all judged to be free and fair.

Priorities

To address the myriad challenges in the LAC region, the United States is committed strongly to helping build an entire hemisphere that lives in liberty and trades in freedom. U.S. foreign policy priorities in the Western Hemisphere, to which USAID is an important contributor, include promoting equitable trade-led economic growth, strengthening democratic processes, improving health and education standards, and fostering cooperation on issues such as drug trafficking and crime.

Trade As The Engine Of Economic Growth

Sustained development depends on market-based economies, sound monetary and fiscal policies, and increased trade and investment. Our efforts in LAC are resulting in an improved enabling environment for positive and peaceful changes. We are mindful of the critical need to continue these efforts and build on our experiences in order to encourage further economic development. President Bush, Secretary Powell, and Administrator Natsios have all said trade and investment are essential to economic growth and poverty reduction. Without an increase in trade and investment, the region’s substantial development gains will be put at risk, and hemispheric stability could falter.

Since the 1980s, USAID has played a lead role in the LAC region by supporting programs aimed at strengthening the enabling environment for trade and investment as the twin engines for economic growth and poverty reduction. In August 2002, President Bush signed the Trade Act of 2002. On January 8, 2003, Secretary Struble and I participated with U.S. Trade Representative Ambassador Robert Zoellick in launching the U.S.-Central America Free Trade Agreement negotiations, and negotiations continue on track to establish an FTAA agreement by January 2005. USAID has responded to these opportunities by moving quickly to assist LAC’s smaller economies and developing countries strengthen their enabling environment for trade and investment as the essential foundation for building greater capacity to participate effectively in the global trading system.

Whatever the final shape of the FTAA agreement, the result will mean more trade, more jobs, and more income for the U.S., Canada, Mexico, and the other 31 FTAA countries of the Caribbean, Central America, and South America.

Trade Capacity Building

The following provides an overview of USAID support for trade capacity building in the LAC region. From FY 1999 through FY 2001, USG support for trade capacity building in the LAC region averaged in excess of $50 million per year, with an estimated 70% (approximately $35 million annually) provided by USAID. For FY 2003, USAID plans to increase its support for trade capacity building in the LAC region to the extent that funds are available. Let me highlight some of the current USAID program highlights in trade capacity building across LAC sub-regions:

USAID activities will continue to build trade-negotiating capacity, develop markets, and provide assistance for business development. Programs will assist with complying with the "rules of trade" such as sanitary/phytosanitary measures, customs reform, and intellectual property rights. Support for legal, policy, and regulatory reforms will improve the climate for trade and investment. Recognizing that remittances constitute a potentially large source of development finance, USAID will continue to support and implement mechanisms for remittance transfer with lower transaction costs. Assistance will expand in the area of commercial and contract law and property rights. USAID will continue to build on its successful efforts with promoting rural economic diversification and competitiveness, including non-traditional agricultural exports and access to specialty coffee markets. Business development and marketing services will help small and medium farmers and rural enterprises improve competitiveness and tap new markets.

In Central America and Mexico, USAID will continue the Opportunity Alliance (formerly the Partnership for Prosperity), emphasizing trade-led rural competitiveness through diversification and penetrating agricultural niche markets. The Alliance was initiated in FY 2002 in response to a protracted drought, collapse of coffee prices and resulting unemployment of seasonal agricultural workers. An estimated 52% of the population, more than 14 million people, is poor and chronically food-insecure in Guatemala, Nicaragua, El Salvador, and Honduras. USAID activities in FY 2003 and FY 2004 will continue to support democratic governance, trade and employment creation, agricultural production, sound environmental management, and training. USAID is assisting the Central American countries in their efforts to prepare for the FTAA and, more recently, to prepare for negotiation and implementation of US-CAFTA. As part of this process, USAID worked closely with other donors such as the Inter-American Development Bank to assist each Central American country in preparing a national trade capacity building strategy in support of their participation in the CAFTA process.

For the Caribbean, USAID has added a trade component to the Third Border Initiative (TBI) efforts to strengthen trade capacity and competitiveness of Caribbean countries. It will build on modest trade activities underway for several years in a sub-region with many small island economies lacking diverse sources of income. When launched in 2002, TBI aimed to strengthen political, economic and security ties between the U.S. and the nations of the Caribbean. The majority of interventions and bulk of funding thus far have supported USAID’s HIV/AIDS program. Working closely with the development assistance community, USAID is now moving quickly to mobilize trade capacity building support to respond to countries’ priorities including technical training of government trade officials; developing trade-related databases; implementing trade agreement commitments in such areas as customs reforms and sanitary and phytosanitary measures; providing assistance for small business development; and fostering greater civil society outreach. USAID’s Caribbean Regional Program is developing initiatives to strengthen the competitiveness of CARICOM countries in hemispheric and global trade, and will be assisting eight CARICOM countries in preparing their national trade capacity building strategies under the FTAA Hemispheric Cooperation Program.

In South America, USAID has added a trade emphasis to the Andean Regional Initiative (ARI). USAID initiated trade capacity building activities in FY 2002 and is expanding the program for trade in the sub-region in FY 2003. USAID/Peru is developing an Andean Regional trade capacity building program to assist Andean Community countries in addressing "rules of trade" and competitiveness issues, with an initial emphasis in providing technical assistance in a variety of trade disciplines areas including customs reforms, sanitary and phytosanitary measures, competition policy, and services.

At the bilateral level, more of our missions are developing new or building upon existing economic growth programs to address trade and investment issues. For example, in the Dominican Republic, USAID has supported technical training on trade issues for government trade officials, while in Jamaica USAID has supported a private sector-led program that provides succinct information to private and public sector leaders on the benefits of free trade. As a result of these USAID-supported trade capacity building efforts, the Dominican Republic has offered better market access in recent rounds of negotiations, while both the private sector in Jamaica and the broader English-speaking Caribbean now have a better understanding of the potential benefits of free trade and have become stronger advocates for the FTAA.

At the hemispheric level, USAID has a new "quick response mechanism" to provide greater capacity to address technical assistance and training needs arising from trade negotiations. Through this mechanism, we are working with FTAA countries, initially in Central America and Brazil, to provide government officials and civil society—including business leaders¾ with information on the benefits of free trade.

An important aspect of building trade capacity is broadening the education base for a more productive workforce. USAID will support advancements at the secondary level and in workforce training that will improve the quality of instruction, increase worker productivity, and help youths prepare for entering the workforce. For example, USAID’s Training, Internships, Exchanges, and Scholarships (TIES) program in Mexico will enhance capacity of Mexican scholars and institutions to respond to the objectives and strategies of NAFTA and the Partnership for Prosperity, which together define the emerging U.S.-Mexico Common Development Agenda.

Democracy, Good Governance, and Anti-Corruption

The key to sustained economic growth and poverty reduction, I believe, is fostering a strong enabling environment for trade and investment. This requires a mix of "economic governance" institutions vital for attracting investment, creating jobs, and expanding trade. These systems are predicated on democratic systems of governance with leaders responsive to citizens’ needs and supportive of transparent public administration. Administration of justice, commercial and contracts law, property rights, and related legal and regulatory reform are key to stimulating the enabling environment and increasing investor confidence. USAID will continue to reinforce linkages between economic growth and trade on the one hand, and good governance and the rule of law on the other.

While support for democracy remains solid in the LAC region, popular disillusionment is growing with those governments that cannot reduce poverty, corruption, crime, and violence. Although significant strides have been made (with the exception of Cuba every country in the Hemisphere has a democratic, constitutionally-installed government), many of these democracies remain fragile and must make a concerted effort to reinforce the institutional building blocks of democracy. Economic difficulties tend to weaken support for free market reforms and the fabric of whole societies.

An independent, efficient, and transparent judiciary is not only fundamental for a functioning democracy but also a prerequisite for increased external investment. USAID continues to support a broad range of institution-building efforts to strengthen judicial systems and increase respect for the rule of law. Increased crime and violence is consistently ranked as citizens’ primary concern, next to unemployment. The rise of violence in Jamaica has become so paralyzing to the country’s tourist-driven economy that the private sector and civil society are joining to help combat the problem at the community level with USAID assistance. The endemic problems of impunity for violent crime, as well as corruption, money-laundering and narcotics crime, undercuts social and economic growth in many LAC countries. USAID is responding in more than a dozen countries in the Hemisphere by providing direct assistance for the modernization of justice sector procedures, systems and institutions. Over the last decade, these countries have worked to change systems of justice where crimes were not investigated and legal files were lost. Instead, countries have created new transparent procedures, are retraining professionals, and are gradually implementing the use of oral, public trials to determine guilt or innocence for a range of crimes. In Honduras, for example, USAID supported a group of local reformers who began work in 1995 to change the justice system. In 2002, after years of effort, the old system was swept away, and Honduras now has a new code that entirely restructured the criminal court system and requires open trials with defense, prosecution and the public presentation of evidence. Although it will take years to implement these procedures fully, Hondurans are justifiably proud of reforming a system that responds uniquely to local needs, adapts the best solutions from many countries, and establishes the framework for confronting and reducing impunity.

USAID also helps strengthen the capacity of national and local governments to demonstrate that responsible regimes can deliver benefits to their citizens. With the direct election of local mayors and the devolution of authority to municipalities, USAID is helping citizens and elected leaders devise community development plans that respond to local needs and generate growth. In fourteen countries, USAID is helping mayors hold public hearings about annual budgets and allow citizen involvement in public decision-making. Mayors in many towns have also established transparent accounting and financial management procedures with USAID assistance to create the framework for greater revenue generation at the local level for roads, schools, health centers, and job creation. In turn, citizens monitor the use of public funds and devise "social audits" in countries such as the Dominican Republic and Bolivia to track spending in accordance with local development plans in order to keep officials accountable to the public.

USAID’s anti-corruption programs emphasize prevention and capacity-building as part of attacking weak governance, entrenched political institutions, and poor public sector management. Higher levels of corruption are associated with lower growth and lower levels of per capita income. Since corruption increases the cost of doing business, failure to act will seriously threaten the benefits likely to accrue through the FTAA. To improve transparency and decrease opportunities for corrupt behavior, USAID supports multi-faceted approaches to anti-corruption programming. In Guatemala, a coalition of non-governmental organizations has advocated creation of a national plan to attack corruption as part of local implementation of the Inter-American Convention Against Corruption. In Ecuador, the Anti-Corruption Commission has the investigative authority to uncover cases of corruption and with USAID support has played a leading role in exposing scandals in banking, municipal budget transfers, and illicit enrichment of public officials. In Nicaragua, USAID provides assistance to improve the capacity of the Attorney General’s Office to tackle high-profile corruption cases against the former government. USAID is also helping the new Office of Public Ethics in the Nicaraguan Presidency which will have responsibility for setting norms and standards for ethical conduct, training public employees and monitoring government agencies’ compliance with internal control systems. Only a combination of citizen oversight and improved capacity for government action will increase the costs of fraud and illegal behavior sufficiently to reduce corruption. USAID is working with other US agencies, international financial institutions and international organizations to that end.

Health and Education

The LAC Bureau has placed great emphasis on two of the President’s other stated goals for our region—health and education. In health, there has been significant progress in raising vaccination coverage, reducing or eliminating major childhood illnesses such as measles, and improving access to primary education. Also, because of USAID assistance, affected countries are more willing to discuss the HIV/AIDS problem. This is particularly relevant in our region, as the Caribbean has the second highest rate of HIV/AIDS in the world, after sub-Saharan Africa. USAID programs have had some success in reducing the social stigma attached to the disease, and prevention campaigns, including those which promote abstinence, hold even greater promise for lowering transmission rates. While steady progress is being made in lowering maternal mortality, and in applying proven cost-effective protocols for combating malaria, tuberculosis and other infectious diseases, rates remain unacceptably high, while new strains of the causative organisms are increasingly resistant to treatment. Because diseases do not respect geographic boundaries, and due to the high numbers of legal as well as illegal immigrants traveling to the United States, I believe USAID assistance to the LAC countries in health care at the policy, institutional and technical levels is considered critical to the health and security of the United States.

In education, the quality and relevance of primary and secondary schooling in LAC countries continue to cause concern. The proportion of students who complete secondary school is low compared to the number in Asian countries, and many of those who do finish lack adequate skills to compete in the workplace. USAID education and training programs aim to improve the poor state of public education systems where the majority of youth attend weak and under-funded public schools and fail to acquire basic skills in mathematics, language, and science. USAID will continue to provide support for improving the environment for education reform, enhance the skills of teachers and administrators, and improve the relevance and skills of the workforce. USAID will also continue support to the newly launched Centers of Excellence for Teacher Training (CETT) initiative announced by Presidential Bush in April 2001. Established in Peru, Honduras, and Jamaica, the three sub-regional training facilities will improve the cadre of teachers in 23 LAC countries and advance education policy reform in key countries. Advancements at the secondary level and in faculty and workforce training will improve the quality of instruction, increase worker productivity, and help youths prepare for entering the workforce.

Perennial Issues

Mr. Chairman, I would now like to focus on the particularly difficult development challenges facing some specific countries and describe USAID efforts to help countries meet these challenges.

Andean Regional Initiative

Colombia

Colombia faces many problems, not the least of which is the lack of state presence in 40% of the country which has allowed the illegal narcotics trade, guerilla armies, and paramilitary forces to flourish. Colombia’s civil war has the potential to destabilize other countries in the region if guerilla activities and/or drug production spills over the borders. Events in Colombia affect the entire region. Ecuador’s northern border is vulnerable, and intensive eradication efforts by the Government of Colombia may create incentives for the narco-trafficking industry in Peru and Bolivia.

Colombia’s President Alvaro Uribe is an invaluable ally in the war against the illicit drug trade who is actively pursuing policies to eliminate that trade and expand the reach of democracy and rule of law in Colombia. USAID’s Alternative Development (AD) program in Colombia seeks to increase legal income opportunities for small producers of opium poppy and cocaine. By strengthening licit economic opportunities, alternative development gives small producers a way to abandon illicit crop production permanently. The program is on track and progressing well. AD has now benefited more that 20,000 families and supported the cultivation of nearly 16,000 hectares of licit crops such as rubber, cassava, specialty coffee, and cacao in former coca and poppy growing areas.

Infrastructure initiatives are an important component of the program as they provide short term employment for laborers during construction projects as families make the transition to licit crops. Infrastructure projects also provide communities with the physical access to markets necessary to make a viable, licit economy sustainable. To date, 208 social infrastructure projects including roads, bridges, schools, and potable water have been completed under the Alternative Development program in Colombia.

Closely associated with the Alternative Development program in Colombia is our Administration of Justice program which is modernizing and increasing access to the judicial system. Thirty-one casas de justicia (or "justice houses") currently operate. These centers have handled approximately 1.5 million cases. This year at least 12 oral trial courtrooms will be established – making the judicial system more accessible and accountable.

Respect for human rights is an important aspect of the rule of law and administration of justice. Approximately 672 municipal human rights officials have been trained in basic concepts of human rights, family violence prevention, and the rights of indigenous and Afro-Colombian groups. In addition, USAID has helped 600,000 internally displaced persons reintegrate into Colombian society.

USAID supports numerous activities to assist Afro-Colombians. The projects are focused on improving governance management and accountability; expanding social infrastructure; and strengthening citizen participation. Fifteen social infrastructure projects such as water and sewer system improvements, schools and community centers constructed recently have benefited approximately 7,500 Afro-Colombians. Training and assistance is being provided to the mainly Afro-Colombian Pacific port-city of Buenaventura (Valle de Cauca) to reduce crime and violence and foster local economic development. In Bogota, USAID is working with one of the most significant Afro-Colombian NGOs (AFRODES) to build a community/child education center and develop income-generation projects.

Peru

Peruvian President Alejandro Toledo has taken steps to promote democracy and a market-based economy. He has also promised new anti-narcotics efforts. USAID is working closely with the Government of Peru to help it strengthen the capacity of its counter-narcotics coordinating body, the organization which is charged with implementation of the Government’s counter-narcotics strategy. Projects supporting economic growth and more effective and responsive state presence in the coca-producing regions link alternative development to eradication and interdiction efforts directly.

In Peru, USAID’s alternative development activities focus on: providing immediate economic and social impact through short term, income producing activities; community organization in areas where coca has been eradicated; promoting sustainable economic and social development in and around the primary coca growing area through major road rehabilitation and other infrastructure works; and assistance and training for local/regional governments, other Government agencies, private entrepreneurs and small farmers. To date, USAID’s Alternative Development program has provided assistance to approximately 18,000 families to grow licit crops on more that 32,000 hectares; given credit to 4,800 clients; completed community infrastructure projects such as schools, health clinics and sanitation systems; and rehabilitated and maintained 1,400 kilometers of roads. This year USAID will rehabilitate a 172 kilometer segment of the principal national highway thus dramatically reducing transportation costs to producers and increasing the region’s competitiveness.

Complementing the Alternative Development program are economic growth activities aimed at increasing access to markets for micro-entrepreneurs and small producers of licit crops and goods. Occurring mainly in the seven-department area where Peru’s coca production is concentrated, USAID will help identify markets for local products and then link entrepreneurs/producers to organizations that improve their productivity and competitiveness in the marketplace. USAID will also continue to support sustainable forest and protected areas management including concessions for forest products.

Ecuador

In Ecuador, President Lucio Gutierrez has only recently assumed power but has made anti-corruption one of his top priorities. President Gutierrez seeks to increase transparency in government procurement; oblige public officials to declare their financial assets and facilitate the processing of citizen complaints on corruption. USAID has been actively promoting anti-corruption efforts through strengthening citizen oversight of local governments, developing more secure and transparent information systems and procedures for Customs, the Ministry of Finance, the domestic tax authority and the Superintendency of Banks and eliminating frivolous and redundant laws to make the legal system more transparent. We have just completed an assessment of the corruption problem and will be working closely with the government to develop strategies for addressing it.

Ecuador’s President Gutierrez also faces economic challenges. He must fight in order to keep dollarization afloat and strengthen the country’s financial stability in order to address long standing social issues and to reduce Ecuador’s vulnerability to spillover from Colombia’s narcotics-related problems. USAID is assisting the Government of Ecuador to develop a strong and sustainable microfinance sector in Ecuador and improve the macroeconomic climate for more equitable growth.

USAID is also paying particular attention to the northern border with Colombia. USAID’s Northern Border program is improving the lives of people living in six provinces adjacent to Ecuador’s northern border by strengthening their communities. Principal activities include support for social infrastructure such as water, sanitation, and roads; activities to strengthen civil society organizations; and assistance to displaced Colombians and receiving communities. Future activities include improving local government capacity, strengthening democratic governance, and increasing employment and income. To date, more that 132,000 Ecuadorians have benefited from water systems or improved access to markets via bridges. About 50,000 Ecuadorians, mostly Afro-Ecuadorians and members of the Ecuadorian indigenous community have benefited from better-led community organizations. During his recent trip to Washington, President Gutierrez committed himself to a continued fight against illegal narcotics and closer cooperation with Colombia to combat narcotraffic. We will continue to support him in these efforts.

Bolivia

In Bolivia, poverty and social unrest are eating away the democratic processes and economic stability that the country has been trying to maintain for the past two decades. I will refer later to USAID’s efforts to stabilize the economic situation following civil unrest earlier this month but wanted here to mention Bolivia’s development problems. The fact is, many Bolivian citizens feel neglected by their Government. From 1998 to 2001, due to the success of counternarcotics efforts, there was a 70% decline in coca at a cost of $200 million to the Bolivian economy. The loss of this illicit income was felt most by the small-scale farmer. Financial problems in neighboring Argentina and Brazil are exacerbating the economic problem, and illegal coca replanting is a growing threat to the successful implementation of Bolivia’s anti-narcotics strategy. There is also concern that the intensive spraying program in Colombia will translate into pressure from the narcotics industry for new production in Bolivia. These concerns and the uprisings of early February have heightened the importance of and the need for USAID’s Alternative Development program in Bolivia.

USAID is working closely with the Government of Bolivia (GOB) to find ways to meet these challenges. We are working to eliminate illegal and excess coca from Bolivia by establishing sustainable, farm-level production capacity and market linkages for licit crops; increasing licit net household income; and improving municipal planning capacity, social infrastructure and public health in targeted communities. The Alternative Development program is focused on reducing the poverty level of former and current coca producers to allow them to make a successful transition to licit income generation and bringing the benefits of the Government of Bolivia’s anti-narcotics strategy to the community level.

* In the coca-producing Chapare region of Bolivia, road maintenance and improvement assistance will reduce transportation costs for licit crops, while marketing services and grants will address the shorter-term problems of farm families in the areas where coca is eradicated.

* In the Yungas region, USAID will introduce improved agricultural technologies for selected products to improve competitiveness. The adoption of low cost forestry and agro-forestry practices will improve soil fertility and increase licit crop yields. USAID will also focus on highly visible, high-priority projects such as road improvement and bridges. These projects will be defined by the communities themselves and be contingent on coca reduction.

Complementing the Alternative Development program is reform of the criminal justice system through support for implementation of the new Code of Criminal Procedures. The new code makes justice more accessible and transparent through use of an oral system and citizen judges. The previous written, inquisitorial system lent itself to corruption and delays and discouraged the average citizen from seeking judicial redress. Improved court processes have reduced case processing time by two-thirds.

Challenges to Democracy/Countries of Concern

I have cited the number of democracies in the Hemisphere as an indicator of progress in the region. Many of these democracies are fragile, however, and USAID works in concert with other U.S. Government organizations, in a variety of ways, to strengthen these democracies.

Bolivia: As I have said, Bolivia has significant development challenges, many of them linked to the narcotics trade. However, as we all saw earlier this month, Bolivia faces significant immediate challenges to its democratic process. Bolivia remains a strategic ally of the U.S. in Andean counter-drug efforts and played a leading role in South America in democratic reform and trade liberalization. Its current economic difficulties are in significant part a result of external factors. Although Bolivia has achieved unprecedented success in reducing illicit coca, this has also contributed to economic hardship. The crisis began with Bolivian President Sanchez de Lozada’s February 9 announcement of an austerity budget and payroll taxes aimed at securing an agreement with the International Monetary Fund. Coming on the heels of a multi-year economic downturn and high unemployment, these fiscal measures triggered violent demonstrations which left 32 dead and over 205 injured. Of particular concern was a nationwide strike by the Bolivian National Police who demand overdue salaries and a lifting of the salary freeze imposed by the new budget. The army finally mobilized to restore order. Despite the turmoil, democracy held and the elected government remains in control, although the situation remains fragile. President Sanchez de Lozada requested immediate support from the U.S. and other donors. The IMF indicated it would consider a more flexible short term solution to the budget as part of a standby agreement, provided that additional donor funding became available immediately to meet the financing gap. USAID intends to obligate $10,000,000 of Economic Support Funds for an economic stabilization program in Bolivia. USAID’s assistance will be used by the Government of Bolivia for payment of multilateral development debt and will leverage additional bilateral and multilateral contributions.

Guatemala: As the members of this Committee are well aware, Guatemala is of continuing concern because of lack of cooperation with U.S. anti-narcotics efforts and because of continuing levels of corruption. When I appeared before you last October 10, I told you about USAID efforts, working through non-governmental organizations, to increase transparency in the court system and promote accountability in public institutions. Since then, I have traveled to Guatemala and expressed my continuing concern to the Guatemalan Vice-President and Chief Justice. I intend to raise these issues again during a meeting of the Consultative Group later this year.

Haiti: I would now like to shift to the continuing challenge presented by Haiti, where the democratization process has stalled and is now actually moving in reverse. A decade of poor governance and economic mismanagement has brought the country to a near-standstill, and illegal migration to the Dominican Republic, the Bahamas, and the United States is again on the rise. A pernicious drought the country’s Northwest and Central Plateau regions has made things even worse and placed additional strains on our humanitarian relief efforts in the country. In the late nineties, USAID channeled tens of millions of dollars through the Department of Justice’s ICITAP program to bolster the Haitian judiciary and national police. With the overwhelming dominance of President Aristide and his Fanmi Lavalas party, however, these efforts bore little fruit, and we shifted our emphasis to helping civil society resist the growing authoritarianism of the Haitian government. We are continuing in this vein, and recently have added activities to strengthen political parties and the independent media. The country’s direction now depends on whether the government can establish a climate for free and fair elections in 2003 and secure the participation of Haiti’s opposition parties, many of which boycotted the election of President Aristide in November 2000. We also keep in close contact with the Haitian human rights community and incorporate these groups whenever possible into our activities. Last but not least, we are actively engaged with the Haitian Diaspora, seeking ways to help them foster democracy in Haiti.

In the meantime, USAID will continue with programs designed to meet the population’s essential humanitarian needs, generate employment in a difficult economic environment, and strengthen civil society’s ability to resist growing authoritarianism and lawlessness. Overall, we plan to ensure that Haiti’s funding for FY 2003 holds steady at $52.5 million (including $22 million in food aid) in spite of the elimination of ESF funding. The P.L. 480 Title II food program is a key element of USAID’s support for humanitarian needs in Haiti. Some food is distributed outright -- formerly through school feeding programs but now principally through maternal-child health facilities located in remote areas. This shift in the program is important to ensure that U.S. food aid is reaching the neediest and most vulnerable Haitians -- rural children under five and nursing and/or pregnant mothers. The bulk of the Title II food commodities are sold to local millers and the proceeds used to finance projects in health care (including assistance to orphans), primary education, and food production.

Venezuela: Political conflict over the policies of President Hugo Chavez has seriously shaken Venezuela’s economy and threatened development in the country. Since taking office, Chavez has demonstrated increasing disregard for democratic institutions and intolerance for dissent. Venezuela now stands at a dramatic juncture in its democratic history. The two month strike that recently paralyzed the country has now ended, but President Chavez is moving against strike leaders. Carlos Fernandez, President of the Chamber of Commerce was arrested recently for his role in the strike, and there is a warrant for the arrest of Carlos Ortega, the President of the Confederation of Venezuela Workers. The arrest of prominent strike leaders could undermine the dialogue between the two sides. Acts of violence against strike leaders and participants raise concerns about respect for human rights in Venezuela.

USAID, through its Office of Transition Initiatives (OTI), supports non-partisan activities aimed at bringing the two sides together, lowering tensions, and bridging divisions among the population. USAID has expanded opportunities for government and opposition forces to meet at the bargaining table and helped them identify common interests. USAID is also providing training in conflict mediation and negotiation techniques to government and opposition representatives involved in the national dialogue. We have also assisted government institutions to increase transparency and better respond to the needs of their constituents.

Cuba: The Only Non-Democratic Government in the Hemisphere

The "Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1996, enacted by the U.S. Congress and signed by the President of the United States, provides important guidelines for helping promote a peaceful transition to democracy in Cuba. I am very proud to say, since 1997, USAID has provided more than $20 million to U.S. universities and other U.S. non-governmental organizations to implement Section 109 of the Act. USAID assistance has been indispensable in helping increase the flow of accurate information on democracy, human rights, and free enterprise to, from, and within Cuba. Among other actions, grantees have: sent more than one million books, newsletters, videos and other informational materials on democracy, human rights and free enterprise to the Cuban people; provided more than 7,000 short wave radios to Cuba’s human rights activists, independent journalists and independent Cuban non-governmental organizations; provided more than 50, 000 pounds of food and medicine to the families of political prisoners and other victims of repression; helped train over one hundred of Cuba’s independent journalists and published thousands of their reports on the Internet as well as in hard copy for distribution on the island; sent international human rights monitors to the island to help build solidarity with Cuba’s human rights activists and to report to the international community the Cuban Government’s violations of human rights; and developed research papers, conferences and seminars on transitions to democracy in other countries to exchange information relevant to the future Cuban transition and share those lessons with the Cuban people.

I believe USAID is uniquely positioned to continue to facilitate progress toward a peaceful transition to democracy on the island. In accordance with the President’s Initiative for a New Cuba announced in his landmark speech of May 20, 2002, USAID has plans to expand its assistance. Additional support will enable USAID, working with U.S. universities, to offer scholarships in the United States for Cuban students and professionals who try to build independent civil institutions in Cuba, and scholarships for family members of political prisoners. USAID is currently working with Georgetown University to implement this type of Cuba scholarship program. There is so much work to do in Cuba, and I thank the Committee for its continuing support of USAID efforts there.

Conclusion

Hemispheric commitment to democracy remains high, with the creation of the OAS Democracy Charter and agreement to an ambitious democratic reform agenda each time the Hemisphere’s leaders meet. So far, democratic systems have persisted even in the face of severe economic crisis and, in some cases, either very weak or even virtually no effective governance. The political crises of Colombia, Venezuela, Ecuador, Bolivia, and Peru -- all very different -- have not yet caused permanent ruptures in democratic practices. They nonetheless demonstrate the fragility of institutions and the need to strengthen the building blocks of democracy if the progress of the past two decades is not to be undone. As President Bush has said, this hemisphere of eight hundred million people strives for the dream of a better life, "A dream of free markets and free people, in a hemisphere free from war and tyranny. That dream has sometimes been frustrated – but it must never be abandoned." President Bush knows there are millions of men and women in the Americas who share his vision of a free, prosperous, and democratic hemisphere. At USAID, our programs in trade capacity building, health, education, and support for good governance are helping our friends and neighbors in the Hemisphere fulfill their aspirations.

Mr. Chairman, this concludes my testimony. I would be happy to answer any of your or the Committee’s questions.

As of February 28, 2003, this document was also available online at http://www.house.gov/international_relations/108/fran0227.htm