Testimony of Adolfo Franco, assistant administrator, Bureau for Latin America and the Caribbean, US Agency for International Development, Hearing of the House International Relaions Subcommittee on the Western Hemisphere, October 21, 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

Tuesday, October 21, 2003 at 1:30 p.m.
Rayburn House Office Building, Room 2172

Mr. Chairman, Members of the Committee, it is a pleasure again to have the opportunity to appear before the Subcommittee on the Western Hemisphere of the House International Relations Committee. The last time that I appeared before this Subcommittee, in February of this year, I took the opportunity to discuss with you how USAID’s Bureau for Latin America and the Caribbean (LAC) is implementing the President’s vision for the Western Hemisphere. Today I would like to update you on the strategic priorities, country and regional programs, and new initiatives of the LAC bureau, and brief you on how USAID continues to support the President’s foreign policy in a region so critical to the prosperity and security of the United States.

As Assistant Secretary Noriega has stated, "The ideal role for U.S. assistance is to help governments improve their own ability to meet basic social needs, with emphasis on education and health, deal with acute threats to security, and retool their economies so that their people can take full advantage of economic growth." These are precisely the areas where USAID programs work today, with focus on democracy and anti-corruption initiatives, trade-led economic growth, counternarcotics programs that provide alternatives to rural farmers, and social sector reform to encourage governments to invest additional resources in basic education and health.

The recent approval of the joint State Department/USAID Strategic Planning Framework provides a basis to improve the impact and coordination of our programs. Further, Secretary Powell’s introduction to the joint strategy states that USAID’s development programs are fully in line with foreign policy in support of the President’s National Security Strategy, a work to "create a more secure, democratic, and prosperous world for the benefit of the American people and the international community."

Strategic Focus

As discussed in USAID’s recently published report Foreign Aid in the National Interest, one of the most significant lessons we have learned in development assistance is that governance, policies, institutions and political leadership, and not resources contributed from outside, matter most. The LAC Bureau is committed to using our resources in the most effective way possible, including consideration of government performance and commitment. This includes allocating additional resources to countries which enjoy responsible governance and accountability. We continue to recognize that, ultimately, each country has primary responsibility for its own development.

USAID’s strategic priorities in the LAC region are to: (1) help promote democracy and combat corruption; (2) support trade-led economic growth; and (3) reduce narcotics trafficking. These key themes give paramount importance to the implementation of sound policies that address the principal constraints to development, with the overarching goal of furthering the overall foreign policy agenda.

The LAC Bureau’s strategy is being carried out through three major programmatic and management approaches, one for each of the three sub-regions in LAC: the Central American and Mexico (CAM) Regional Strategy focuses on trade-led development and the Central America Free Trade Agreement (CAFTA); the Andean Counterdrug Initiative focuses on counternarcotics; and programs in the Caribbean region combat HIV/AIDS and promote growth and diversification in small island economies. Because countries within each of the sub-regions face similar key development challenges, LAC is developing regional strategies to provide a single framework for both regional and country-level programs. I am pleased to announce that USAID missions in Central America and Mexico have already launched a new joint regional strategy focused on three goals: transparent governance, economic freedom, and social investment.

In addition to country-specific and regional activities, USAID in the LAC region is addressing critical transnational issues such as HIV/AIDS, a deteriorating natural resource base, trafficking in persons, and inefficient education systems. USAID is also committed to mobilizing resources from and fostering alliances with U.S. public and private sector.

Continuing Challenges

The Latin America and Caribbean region faces ongoing 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 threatens democracy in Bolivia, and political instability in Venezuela and Haiti continues. Increasingly, citizens’ confidence in the ability of democratically elected governments to provide security and prosperity is waning.

The region’s GDP shrank by approximately 0.8% in 2002. This represents the region’s worst economic performance since 1983. In 2002 inflation reached 12% 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 difficulties have brought discontent and political turbulence, shaken citizens’ faith in democracy, investment priorities, social sector policies, and the benefits of a decade of liberal reforms. The effects in the poorest countries, such as Haiti, and even in regions of countries with generally solid economic performance, such as northeast Brazil, have been more disheartening.

Still, it is important not to portray the region in an entirely negative light. Overall GDP is expected to grow by 1.5% in 2003, and inflation is on track to return to 8% to 9% this year. The Argentine economy is expected to grow by at least 5% by the end of this year. Chile, Peru, and the Dominican Republic are expected to show strong growth in 2003, with expansion of 3% or more, assuming that the slowdown in the United States abates and strong growth resumes. Countries that have adopted sound fiscal policies and oriented their economies toward foreign investment and rules-based trade under the World Trade Organization (WTO) have tended to resist the recent downturn and stand to benefit more from the nascent world and U.S. recovery.

Program Initiatives

The LAC Bureau is responding to Presidential Initiatives with a special emphasis on those that have implications for the Western Hemisphere. The initiatives are: the Central America Free Trade Agreement; Global Fund to Fight AIDS, TB and Malaria; Emergency Plan for AIDS Relief; Mother and Child HIV Prevention; Initiative for a New Cuba, Centers for Excellence in Teacher Training; Global Climate Change; and Initiative Against Illegal Logging. These initiatives fall into three broad program areas that I will now discuss: Democracy and Governance, Sustainable Economic Growth, and Investing in People.

Democracy and Good Governance

While support for democracy remains solid in the LAC region, popular disillusionment with governments that cannot reduce poverty, corruption, or crime is growing. Many countries’ democracies remain fragile and are in need of reinforcing the institutional building blocks of democracy. USAID is working to strengthen democracy through programs in anti-corruption, strengthening rule of law, municipal governance, and civil society strengthening.

Anti-corruption programs emphasize prevention, citizen oversight, and building the capacity of countries to attack weak governance, entrenched political institutions, and poor public sector management. USAID provides assistance to citizens groups and non-governmental organizations to devise national and local anti-corruption plans and to monitor the dealings of public officials and government agencies. USAID supports local initiatives to establish special commissions and investigative units to expose and prosecute cases of corruption by public officials. For example, in Ecuador, the Anti-Corruption Commission has the investigative authority to uncover cases of corruption. 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.

Recent increases in crime and violence are consistently cited by citizens as one of their primary concerns. The endemic problems of impunity for violent crime, corruption, and money laundering, and narcotics-related crime undercut 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 modernization of the justice sectors.

The implementation of new Criminal Procedure Codes and other criminal justice system reforms, developed and enacted over the last decade with USAID support in Nicaragua, Honduras, Guatemala, El Salvador, Bolivia, Colombia, and the Dominican Republic, is introducing profound changes as countries move from written inquisitorial justice systems toward oral adversarial systems. USAID is helping other countries, such as Peru, to transition to such systems and introduce reforms that will make judicial selection more transparent and improve oversight of the courts in order to increase accountability. In Colombia and Guatemala, USAID is expanding access to alternative dispute resolution and other legal services to millions of marginalized citizens through a growing network of community-based centers.

As a key element of the justice system, it is essential that the police do their jobs responsibly and that there is trust between the police and the communities in which they work. Section 660 restrictions of the FAA limit our ability to work on critical security issues such as community policing, which is increasingly integral to development in many LAC countries. However, specific legislative authorization has allowed USAID to initiate a community policing program in Jamaica and to continue a successful program in El Salvador. The program in El Salvador is part of a larger law enforcement institutional development program conducted in cooperation with the Departments of State and Justice.

USAID-supported training and technical assistance helps strengthen the capacity of national and local governments to demonstrate that responsible leaders can deliver benefits to communities. 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 helped mayors establish transparent accounting and financial management procedures with USAID assistance to create the framework for greater revenue generation 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.

Economic Growth

Sustained development depends on market-based economies, sound monetary and fiscal policies, sound management of natural resources, and increased trade and investment. We are mindful of the critical need to continue these efforts and build on our experiences in order to encourage further economic development. As President Bush, Secretary Powell, USTR Ambassador Zoellick, 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. USAID is supporting LAC countries to enact legal, policy and regulatory reforms that promote trade and investment as the engines for economic growth.

USAID support for trade capacity building has increased substantially in recent years, and USAID plans to continue to increase support for trade capacity building. The failure of trade ministers to reach agreement at the recent Cancun WTO Ministerial conference only serves to reinforce the importance of USAID’s work in the trade negotiation process. As I stated in Cancun at a press conference with U.S. Trade Representative Ambassador Robert Zoellick, USAID is convinced that assistance for trade capacity building, when combined with a strong commitment to openness and reform on the part of our developing country partners, is one of the U.S. Government’s most powerful tools for promoting economic growth and poverty reduction.

In August 2002, President Bush signed the Trade Act of 2002, and launched the Presidential Initiative on CAFTA. In January 2003, I participated with Ambassador Zoellick in the inauguration of negotiations for the CAFTA which are expected to conclude by December of this year. USAID supported trade capacity building and civil society outreach efforts in the region included technical training on trade issues for government officials that will allow the Dominican Republic to participate in CAFTA. As part of this process, USAID worked closely with other institutions such as the Inter-American Development Bank, the Organization of American States, and the Economic Commission for Latin American and the Caribbean to assist each Central American country to prepare a national trade capacity building strategy in support of its participation in the CAFTA process. In addition, CAFTA will include an environmental chapter under which USAID will assist CAFTA partners to strengthen their environmental management and institutional capacity.

I recently attended the inaugural session of the donors’ roundtable under the FTAA’s Hemispheric Cooperation Program on October 14-15. USAID fully supports this program, along with the Office of the U.S. Trade Representative, and is committed to helping countries reach their goals under this program.

Negotiation of the Free Trade Area of the Americas (FTAA) agreement will continue to be of the highest importance in the future. USAID has also been working in partnership with the region’s smaller economies to help them to participate effectively in the global trading system by building trade negotiating capacity, developing markets, and providing assistance for business development. In response to requests from country governments, USAID will assist governments to comply with the "rules of trade" such as sanitary/phytosanitary measures, customs reform, and intellectual property rights. For example, as a result of a USAID-supported program in Jamaica, which is led by the private sector and provides specific information to private and public sector leaders on the benefits of free trade, the Jamaican private sector now better understands the potential benefits of free trade and has become a stronger advocate of the FTAA.

The U.S. Government is updating the President’s Third Border Initiative (TBI) to respond to critical security needs in the Caribbean, and we have also added a trade component to strengthen the capacity and competitiveness of Caribbean countries. We will build on modest trade activities already underway for several years, in the Caribbean, a sub-region with many small island economies which lack diverse sources of income. When launched in 2001, TBI aimed to strengthen political, economic and security ties between the U.S. and the nations of the Caribbean. The majority of TBI interventions and bulk of funding since then have supported our HIV/AIDS and trade programs. The deficiencies that became apparent after September 11 have led us to add a security dimension to the initiative. Nevertheless, because trade is also a priority, USAID is now working closely with the development assistance community, to mobilize support to respond to countries’ priorities. We are conducting outreach programs that describe the benefits of free trade agreements, 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. Meanwhile, USAID’s Caribbean Regional Program is helping to strengthen Caribbean Community (CARICOM) countries’ competitiveness in hemispheric and global trade, and assisting eight CARICOM countries to prepare national trade capacity building strategies as called for under the FTAA’s Hemispheric Cooperation Program.

Beginning in FY 2002 USAID increased its trade capacity building activities. In Peru we have developed an Andean regional trade capacity building program to assist Andean Community countries in addressing "rules of trade" and competitiveness issues, with initial emphasis on providing technical assistance in a variety of trade disciplines including customs reforms, sanitary and phytosanitary measures, and competition policy. We also started an aggressive program to improve the regulatory and institutional framework to facilitate trade and investment and help Peru’s private sector to take advantage of the Andean Trade Preferences and Drug Eradication Act (ATPDEA) and prepare for accession to the FTAA. During FY 2004, activities will focus on creating a predictable investment environment; reducing inefficiencies and transaction costs for businesses to establish and operate; and improving the regulatory framework for concessions to promote private sector investment in productive infrastructure.

An important aspect of building trade capacity is broadening the education base for a more competitive workforce. At the hemispheric level, USAID has a new "rapid response mechanism" to provide greater capacity to address technical assistance and training needs arising from trade negotiations. USAID will also support advancements in secondary education and workforce training to improve the quality of instruction, increase worker productivity, and help youths prepare to enter the workforce. For example, USAID’s Training, Internships, Exchanges, and Scholarships (TIES) program in Mexico will enhance the capacity of Mexican scholars and institutions to respond to the objectives and strategies of NAFTA and the U.S./Mexico Partnership for Prosperity which together define the emerging U.S./Mexico Common Development Agenda.

USAID plans to expand assistance in the area of commercial and contract law and property rights. USAID will continue to promote 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.

As remittances constitute a potentially large source of development finance, USAID will continue to support and implement programs that seek to "bank the unbanked" and increase the access of remittance recipients to a greater array of financial services, in addition to programs that seek to lower transaction costs.

Recognizing that economic growth must be sustainable, particularly with regard to management of natural resources, USAID is partnering with the State Department and other USG agencies on several new environmental initiatives. An example is the White Water to Blue Water Partnership Initiative (WW2BW) announced in September 2002 at the World Summit on Sustainable Development, which initially focuses on the 26 countries of the Caribbean Region. Its goal is to increase capacity in support of integrated approaches to watershed and marine ecosystem management to improve regional cooperation and communication, build partnerships to make the best use of resources, and increase government awareness. In March 2004 there will be a WW2BW "kick-off" conference in Miami designed to bring Caribbean and U.S. private and public sector stakeholders together to discuss these goals and identify areas of collaboration.

The LAC Bureau has been involved in developing and implementing the President’s Initiative Against Illegal Logging, which seeks to address the negative impacts of illegal trade in timber. In Peru, there are reports that illegal loggers have developed a symbiotic relationship with resurgent terrorist groups in remote areas of Peru’s tropical forests. In response, our USAID Mission in Peru is targeting more than half of its environment resources to combat illegal logging and support improved management and conservation of that country’s forest resources.

Investing in People

The LAC Bureau has emphasized the Presidential priorities of health and education for our region. In health, there has been significant progress in raising vaccination coverage and in reducing or eliminating major childhood illnesses such as measles. Also, because of USAID assistance, affected countries are more willing to discuss the HIV/AIDS problem. This is particularly relevant in our region, since the Caribbean has the second highest rate of HIV/AIDS in the world. Haiti and Guyana, our two Presidential Initiative countries, have accepted expanding their fight against HIV/AIDS by initiating national programs to prevent mother to child transmission of HIV/AIDS.

While steady progress is being made to lower maternal mortality and apply proven cost-effective protocols for combating malaria, tuberculosis and other infectious diseases, rates remain unacceptably high, and new strains are increasingly resistant to treatment. As both malaria and tuberculosis are included in the Presidential Initiative for AIDS relief and the Global fund awards, we expect that resources to combat AIDS, tuberculosis and malaria will be increasing in the region. 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 is critical to the security and health of the United States.

The quality and relevance of primary and secondary schooling in LAC countries continue to cause concern, as the majority of youth attend weak and under-funded schools and fail to acquire basic skills in mathematics, language, and science. This is particularly true for poor and indigenous children living in rural areas. Moreover, fewer than 30% of students in the region complete secondary school, and many of those who do finish lack adequate skills to compete in the workplace, let alone in an increasingly competitive global economy. USAID education and training programs have for years improved the poor state of these public education systems through the development of innovative pilots and improved service delivery models, many of which have been carried to scale by host governments and multi-lateral development banks.

USAID has also been a leader in providing support for education policy reform through efforts such as the Partnership for Educational Revitalization in the Americans. USAID will significantly increase its focus on policy reform and government accountability in education under the new Central America and Mexico strategy, as well as in other countries where the Agency has traditionally focused primarily on service delivery. USAID will also continue enhancing the skills of teachers and administrators through the Centers of Excellence for Teacher Training, an initiative announced by President Bush in April 2001. Three sub-regional training networks established in Peru, Honduras, and Jamaica are improving the cadre of teachers in LAC countries by training up to 15,000 teachers who will serve 600,000 students.

Priority Countries

Many of the democracies in the Hemisphere are fragile, and USAID works in a variety of ways in concert with other U.S. government agencies to strengthen them. I will discuss several priority countries in more detail to describe the challenges USAID faces in fostering development in support of US foreign policy.

Bolivia – To help former President Sanchez de Lozada’s administration through the difficult period following protests, rioting and looting in February 2003, the State Department and USAID redirected $10 million in Economic Support Funds to support the government in a time of crisis. This assistance was used for payment of multilateral development debt and to leverage additional bilateral and multilateral contributions.

A new cycle of conflict developed in recent weeks that led to the mid-October resignation of President Sanchez de Lozada. Worker unions, coca farmers and ordinary citizens united to prevent the sale of Bolivia’s underground gas deposits to the United States through a Chilean port. They are concerned that poor Bolivians will receive no benefit from the sale and demanding that some 250,000 homes be supplied with free gas connections before the export of any gas.

Illicit drug production in Bolivia and poverty continue to weaken democracy and undermine prosperity. Bolivia remains a strategic ally of the U.S. in Andean counter-drug efforts and plays a leading role in South American initiatives for democratic reform and trade liberalization. Its current economic difficulties are largely a result of external factors. Due to the success of counternarcotics efforts, coca production in Bolivia has declined an estimated 36% since 1998 at a cost of about $200 million to the Bolivian economy. The loss of this illicit income was felt most by the small-scale farmer. There is also concern that the country’s economic problems, coupled with the intensive aerial eradication program in Colombia, will translate into pressure from the narcotics industry for new production in Bolivia. These concerns have heightened the importance of and the need to continue USAID’s alternative development program in Bolivia.

Working in partnership with the Government of Bolivia, USAID’s alternative development program is bringing the benefits of Bolivia’s anti-narcotics strategy to major urban areas and market towns. As in Colombia and Peru, USAID is working to eliminate illegal and excess coca from Bolivia by: establishing sustainable, farm-level production capacity and market linkages for licit crops, and improving municipal planning capacity, social infrastructure and public health in targeted communities. Also, USAID is targeting increased resources in urban areas to provide employment and thereby diminish the pool of unemployed persons who are easily lured into the illegal drug trade. Increased emphasis will be placed on assisting small, medium and micro enterprises, and on small infrastructure projects for increasing rural competitiveness and generating employment, especially in drug prone areas. Additionally, USAID is supporting criminal justice system reforms through implementation of the new Code of Criminal Procedures as an important complement to the alternative development program.

Colombia –The scourge of narcotics threatens the social and economic fabric of Colombian society, and poses a threat to the U.S. as well. Despite the bold efforts of Colombia’s strong reformist President, Alvaro Uribe, to combat narco-trafficking, lack of state presence in large portions of the country has allowed both illegal narcotics production and armed, drug-dealing terrorist organizations to continue to flourish. Drug-related spillover crimes make Ecuador’s northern border vulnerable, and intensive eradication efforts by the Government of Colombia may create incentives for the narco-trafficking industry to move back into Peru and Bolivia. USAID is working in partnership with President Uribe, who is pursuing policies actively to fight narco-terrorism and expand the reach of democracy and rule of law in Colombia.

In order to provide small farmers a means to abandon illicit crop production permanently, USAID’s alternative development program in Colombia seeks to increase licit income opportunities for small producers of opium poppy and coca. This program has benefited approximately 33,000 families and supported cultivation of over 30,000 hectares of licit crops such as rubber, cassava, specialty coffee, and cocoa since 2001 in regions under the influence of illicit agriculture. However, some of the coca growing areas currently are not suitable for sustainable agriculture for both agronomic and security reasons. Therefore, USAID also works with the Colombian private sector outside of the coca growing areas to increase licit income opportunities and make coca production less attractive. Infrastructure initiatives are an important component of the program. Construction of roads and bridges provides short-term employment as families make the transition to licit crops, and provide communities with physical access to markets necessary to sustain a licit economy or develop the skills and acquire funds to pursue economic alternatives. As of June 2003, USAID has helped the Government complete 410 social infrastructure projects including roads, bridges, schools, and water treatment facilities.

USAID is implementing a program to strengthen the Colombian criminal justice system, expand access to community-based legal services, promote alternative dispute resolution mechanisms, and strengthen the capacity of justice sector institutions to carry out their functions in a more timely, open, and fair manner. USAID has established 34 community-based centers for alternative dispute resolution and other legal services to increase access to justice for the urban and rural poor. Over the last seven years, the centers have handled 1.8 million cases, the majority of which are related to intra-family violence. Women represent the highest percentage of beneficiaries under the program. As a first step in facilitating Colombia’s transition to a modern accusatorial system of justice, USAID has helped establish 19 oral trial courtrooms and trained 6,160 lawyers, judges, and public defenders in oral procedures designed to reduce impunity and quicken the judicial process.

USAID’s transparency and accountability program seeks to harmonize accounting and internal control standards within the Government of Colombia and increase citizen awareness of available instruments to combat corruption. Last year, this program completed a public awareness anti-corruption campaign that reached six million citizens through radio, newspaper and television messages, and standardized internal control units in five government entities.

USAID is working to improve respect for human rights in Colombia and prevent human rights violations by strengthening governmental and civil society human rights institutions; protecting more than 3,000 human rights workers, community leaders, journalists, and locally elected officials under threat; and by improving Colombian government systems that respond to human rights violations. As a result, a national Early Warning System (EWS) was established and 17 regional offices opened to prevent massacres and force displacements. To date, 170 Government of Colombia responses were made to alerts issued by EWS.

Colombia has one of the largest populations of internally displaced people (IDP) in the world, about 2.5 million people, and the only IDP population in the western hemisphere. USAID has provided relief to about 1,092,000 IDPs and demobilized child soldiers, targeting aid specifically at female heads of household. Recently, the Government of Colombia has requested USAID support with the design of a demobilization and reinsertion program for ex-combatants which could be the first step toward a negotiated settlement of Colombia’s prolonged civil conflict. This program will provide assistance to approximately 35,000 ex-combatants if the Government is able to sign and implement demobilization agreements with irregular armed groups that have been fighting with Government forces and each other for more than 40 years. The USG is currently assessing whether USAID should also assist the reintegration process by providing documentation, training and logistical support to ex-combatants after they have been demobilized and vetted for human rights abuses, narco-trafficking, or other criminal charges.

Haiti – I would now like to shift to the continuing challenge presented by Haiti, where poor governance and economic mismanagement has brought the country to a near standstill, and provides the impetus for continuing attempts at illegal migration to the United States, the Dominican Republic, and the Bahamas. Today, Haiti is in a state of protracted political turmoil, pervasive poverty, debilitated institutions and infrastructure, and depleted productive assets. Eighty percent of the rural population lives below the poverty line. Haiti remains by far the poorest country in the Western Hemisphere; its economic and social indicators compare unfavorably with those of many sub-Saharan African countries. Recurring droughts in some areas and heavy rains in others exacerbate the already dire conditions and place additional strains on our humanitarian relief efforts in the country. As a result of natural disasters last year, USAID provided $3.6 million in emergency food assistance.

The growing authoritarianism of President Aristide and his Fanmi Lavalas party frustrated USAID’s efforts to bolster the Haitian judiciary and national police in the late 1990s. Consequently, we shifted our emphasis to helping civil society resist the growing authoritarianism of the Haitian government. We 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 2004 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 and economic growth in Haiti.

In addition to our work with civil society, USAID's programs in Haiti are designed to meet essential humanitarian needs and generate employment in a difficult economic environment. The FY 2003 AID funding was $71.5 million. The P.L. 480 Title II food program is a key element of USAID's support for humanitarian needs in Haiti, where food is distributed both through school feeding programs and principally through maternal-child health care facilities in remote areas. This approach ensures 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. We also put substantial resources into improving health. Haiti is one of 14 countries worldwide selected for the President's Emergency Program for AIDS Relief.

Venezuela – The political challenges facing Venezuela continue to spark protests and concern around the country. Over the past few weeks there has been movement toward a peaceful, electoral, and legal outcome to the situation in Venezuela and I would like to take a moment to update you on those events and USAID’s response to them. The U.S. is a strong proponent of the recall referendum process. The constitution passed overwhelmingly in 1999 by the Venezuelan people allows for a vote to recall the president if 20 percent of the electorate sign a petition calling for a referendum. At the end of August, the Venezuela Supreme Court appointed an election board (or CNE) that will govern the process. Initial indications are that this five-member panel will mediate honestly between the Chavez government and the political opposition in navigating the rules and electoral disputes that will arise. On September 28, the CNE issued rules for the process of collecting signatures for the petition.

USAID has played an important role in promoting a peaceful resolution. Over the past year, USAID has provided over 70 grants worth over $2 million to work on Venezuela’s conflict. Activities support local initiatives to find common ground on substantive issues. These often involve mayors or governors or local business and community leaders.

In addition to these efforts, USAID is working with grantees to help political parties establish a stronger role in the country and regain the trust of the electorate. We also assist organizations to conduct informal civic education workshops for leaders of neighborhood associations in poor neighborhoods in and around Caracas. USAID funds another program that monitors the status and operation of the judicial system and its operation, and works with the Venezuelan Congress to improve legislation and laws. Finally, we help organize Venezuelan civic groups to collaborate with the National Assembly in developing legislative initiatives and debate around three separate bills on municipal government, electoral procedures, and political and citizen participation.

Guatemala – As the members of this Committee are well aware, Guatemala has recently improved its cooperation with U.S. anti-narcotics efforts and was re-certified by the President. Nonetheless, corruption, organized crime and weak enforcement of the rule of law have made it difficult to promote democracy effectively. Use of death threats and kidnapping to manipulate government officials, increasing human rights violations, continued growth in crime, and concerns about citizen security all suggest that progress toward democracy has stalled in Guatemala. Local and international observers are concerned about the level of violence in the current presidential election campaign. Despite this atmosphere, pressure from the international community and civil society has positively influenced the government to take some significant actions that lay the groundwork for greater inclusiveness and responsiveness in Guatemala’s democratic system.

USAID has been helping Guatemala’s judicial sector strengthen its ability to combat corruption. USAID also helped establish an autonomous, professional public defender service throughout the country. Today, 27 USAID-assisted "justice centers" help local communities, churches, and governments access police, prosecutors, judges and public defenders to fight crime, ensure respect for human rights, and mediate disputes. Case file and information management system reforms are significantly improving efficiency while reducing the potential for corruption. The time to locate case files has dropped from several hours to less than 15 minutes, and cases are now randomly assigned to judges. Due process has improved because information on time required for various stages of court procedure is now available. The Supreme Court is using statistics on workload, productivity, case intake, and bottlenecks to improve efficiency and identify problems. A major reform of Guatemala’s principal law school has been completed and a new curriculum instituted for the first year.

After several months of training and planning sponsored by USAID, eight civil society coalitions are now actively combating ethnic discrimination, promoting transparency and anticorruption, improving congressional oversight, and enhancing public security. Over the last few months, the Alliance for Transparency, a coalition of the Chamber of Commerce and two regional organizations, developed a model profile, selection criteria, and procedures to elect the new Comptroller General and focused public attention on this process for the first time. A coalition engaged in preventing crime is bringing together gang members, the media, citizens, and police in working to reduce crime in six target areas. A civil society group drafted new legislation to address domestic violence and promoted understanding and application of current laws. For the first time, local human rights organizations played an important role in the selection by the Congress of a new Human Rights Ombudsman.

Positive Developments

While I have discussed several issues of particular concern, I want to highlight positive developments, as well. The signing of the Inter-American Democratic Charter and the Inter-American Convention against Corruption of the Organization of American States demonstrates a commitment to good governance by LAC countries. Nicaragua is striving to curb government corruption, and other countries, such as Mexico, have also made important commitments to reduce official corruption. Recent elections in Jamaica, Brazil, Colombia, and Ecuador were all judged to be free and fair.

Ecuador continues to recover from the disastrous, twin effects of a military coup and the collapse of the economy and the banking system that befell the country in 1999. Rampant inflation and capital flight in that same year caused Ecuador to dollarize almost literally overnight, and the country experienced five changes in government in little over a year. Thanks in part to growing USAID assistance in the areas of democracy and governance and macroeconomic policy support, Ecuador has brought inflation under control and has achieved greater macro-economic stability. Moreover, USAID’s assistance has enabled the GOE to obtain balance of payments assistance under a Standby Agreement with the IMF. Since the events of 1999, USAID has provided major assistance to democratic institutions, including the justice system, almost two dozen municipal governments, and the nation’s electoral system. As a result of USAID’s work with both governmental and non-governmental groups, Ecuador’s democratic institutions have begun to improve, most notably in the areas of local government and management of electoral systems.

Alliances

Private investments in Latin America, including contributions from civil society and faith-based organizations, now far exceed Official Development Assistance levels. Linking USG investments with private investments will assure a greater impact for both, as was articulated by the President at the Monterrey Conference last year. The Global Development Alliance (GDA) and the Development Credit Authority (DCA) are exciting business models where we have made the USG dollar and impact extend much farther by partnering with businesses, municipalities, universities, and philanthropic groups.

Several GDA-type partnerships are being forged in the region. For instance, due to a steep decline in coffee prices in Colombia and Ecuador, USAID partnered with Yachana Gourmet, the Foundation for Integrated Education and Development, the Ecuadorian Canadian Development Fund, the IDB, and Amanecer Campesino to combat mounting poverty. By ensuring the long-term profitability from higher prices for a premium quality cacao production, the alliance will increase the income of 3,200 families. In Brazil, we are partnering with the Instituto de Hospitalidade, an organization of 32 private sector, governmental and non-governmental entities, to increase employment opportunities for 600 poor youth in the tourism sector in Brazil. Another alliance, forged mainly between USAID and the local chapter of the international corruption-fighting NGO, Transparencia por Colombia, will oversee the distribution and refinement of a self-administered ethics course that instructs Colombian small- and medium-sized enterprises on ethical business practices. Lastly, USAID will work with Conservation International (CI), Starbucks, and the Verde-Ventures Fund to improve farmers’ access to coffee niche markets and credit and develop incentives for improved conservation and socio-economic conditions. The alliance will expand upon a pre-existing CI/Starbucks alliance in Mexico by including Panama and Costa Rica.

USAID’s Development Credit Authority (DCA) offers an opportunity to mobilize local capital to fund development initiatives. Through DCA, USAID provided guarantees to two Mexican microfinance institutions in the last fiscal year. The programs were designed to allow both institutions to leverage the guarantee by accessing private capital especially longer, fixed-term savings, and turning it into a significant source of lending capital. Both programs have greatly exceeded expectations, with the banks increasing total deposits by $4.8 million and $5.7 million respectively. In Guatemala, investment efforts in market towns also exceeded expectations. The Non-Traditional Exporters Guild was directly responsible for promoting $4.25 million worth of new investments in the Peace Zone and the BANCAFE Development Credit Authority mechanism leveraged an additional $4.7 million for micro-lending. In Peru, USAID has provided DCA guarantees to three rural savings and loans, allowing them to expand services in coca-growing areas. Clients will be drawn from producers who are able to meet specific market demands. Based on the DCA guarantee, USAID leveraged $12 million from the Peruvian private sector.

Enhancing Management Efficiency and Effectiveness

By responding to initiatives in the President’s Management Agenda, including the Strategic Management of Human Capital, USAID is maximizing the impact of foreign assistance in addressing complex development challenges. Administrator Andrew Natsios recently approved a staffing template to rationalize the allocation of staff in our overseas missions and ensure best use of personnel. Following the completion of a thorough review of management practices in several key missions in the LAC region, we have taken measures to improve efficiency by consolidating financial management and other support services in four of our LAC missions to serve sixteen country programs. In addition, we have transferred management of the ongoing regional LAC initiative to combat malaria in the Amazon to Peru in order to further improve resource effectiveness. There are many areas in which USAID is increasing efficiency; however, the many pressing priorities, new challenges, and increasing security concerns around the world are increasing the Agency’s costs of doing business.

The LAC Bureau is also working creatively to improve the alignment of USAID programs with US foreign policy objectives. One of the tools to accomplish this will be an incentive-based Performance Fund to be initiated in FY 2005 that rewards good performance by countries receiving assistance. The Performance Fund will serve as an incentive to LAC missions and host countries to focus on performance, national level impact, and the achievement of measurable results.

Conclusion

Secretary Powell stated that no region of the world is more important to the long term prosperity and security of the United States than the region of Latin America and the Caribbean. Nowhere else do events such as political instability, terrorism, drug trafficking, and economic crises have such profound capacity to affect our national interests and the well-being of the American people. USAID programs in the region support United States foreign policy fully, promoting sustainable economic growth through support for CAFTA, FTAA, and other programs; strengthening democracy and rule of law; improving access to health care and education; and fighting the illegal trade in narcotics. At the same time as USAID’s programs are effecting change across the region, we are constantly reviewing our own management and organization to maximize the impact of assistance dollars. Much remains to be done, but USAID will continue to promote a more secure, democratic, and prosperous Latin America and Caribbean region for the benefit of the American people and the international community. 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." There are millions of men and women in the Americas who share this vision of a free, prosperous, and democratic hemisphere. At USAID, our programs in democracy and governance, sustainable economic growth, and basic social needs are helping our friends and neighbors in the Hemisphere fulfill their aspirations.

Thank you, again Mr. Chairman for the opportunity to appear before the Subcommittee today. I welcome any questions that you and other Members of the Subcommittee may have.

As of October 24, 2003, this document was also available online at http://wwwa.house.gov/international_relations/108/fran1021.htm