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This is an archived USAID document retained on this web site as a matter of public record.

Testimony of Andrew S. Natsios
Administrator, USAID

Before the Subcommittee on Foreign Operations
Committee on Appropriations
U.S. Senate

Chairman McConnell, Senator Leahy, members of the subcommittee: Thank you for inviting me here today to discuss the President's budget for the U.S. Agency for International Development for Fiscal Year 2004.

The Strategic Importance of Development Assistance in the New Millennium

We live in an era that has seen dramatic change in recent years -- an era that is rapidly evolving. Globalization, technology, HIV/AIDS, rapid population growth, terrorism, conflict, weapons of mass destruction and failing states -- these are just some of the issues shaping today's world. Most of these issues - both good and bad -- do not recognize national borders. They affect us directly and are dramatically altering the way in which we think and operate.

The Bush Administration is restructuring and revolutionizing our national security apparatus so we can better respond to the challenges facing the world today. Under the President's leadership, USAID is also changing. Where appropriate, we are applying lessons we have learned over the years, whether in Afghanistan or Iraq, or in the fight against HIV/AIDS in Africa and around the world. This ability to adapt will determine our success as part of the President's resolute campaign to attack poverty, ignorance and the lack of freedom in the developing world.

In September 2002, President Bush introduced his National Security Strategy. In it, the President discussed development as a vital third pillar of U.S. national security, alongside defense and diplomacy. Thus for the first time, the Strategy recognizes the importance of both national and transnational challenges, such as economic growth, democratic and just governance, and HIV/AIDS to our national security.

The President's National Security Strategy identifies eight concrete goals. Two of them speak directly to our development mission. The first is to ignite a new era of global economic growth through free markets and free trade. The second is to expand the circle of development. Trade capacity building lies at the intersection of these two goals, and supports both. It promotes USAID's core concern with development, while reinforcing the core U.S. trade policy goal of further opening up and expanding international trade.

Foreign assistance will be a key instrument of U.S. foreign policy in the coming decades. As a consequence, our foreign assistance budget is poised to rise dramatically. The President's recent budget requested a dramatic increase in the development and humanitarian assistance account, from $7.7 billion in Fiscal Year 2001 to more than $11.29 billion in Fiscal Year 2004. It is clear that this Administration has taken development off the back burner and placed it squarely at the forefront of our foreign policy. But this is only one piece of an unprecedented and concerted commitment by President Bush and the U.S. Government make foreign assistance more effective.

The Changing Landscape of Foreign Assistance

Looking back over several decades, one must recognize that the developing world has made significant progress. Of the world's 200 countries in 2001, for example, 124 were democracies at least in some form. This is an unprecedented number. Similarly, most of the world's 6.2 billion people now live in countries where some form of market economics is practiced. This is a dramatic increase since1980. Population growth rates are down, and in some parts of the world health and education levels have surpassed U.S. levels of 50 years ago. Globalization has integrated the world's markets for goods, services, finance, and ideas. Remarkable advances in biotechnology are bringing the promise of new cures for the sick and new kinds of seeds and food for the hungry.

But we still face an uncertain future. In many developing countries, HIV/AIDS and health issues are having a dramatic impact on social cohesiveness and economic strength, blocking the very development goals we seek. Virtually all the new democracies in the world today are fragile; others are democracies more in name than substance. Nearly a quarter of the people living in developing countries, or about one billion people, live in absolute poverty. There are a host of other threats - ranging from terrorism to infectious disease and violent conflict - that challenge us and the developing nations we seek to help.

Events such as the Monterrey Conference on Financing for Development and our recent report, Foreign Aid in the National Interest, are helping us focus clearly on what has been accomplished so far and what needs to be done to meet the challenges that lie ahead. The President's Millennium Challenge Account (MCA), announced at Monterrey, is a direct outgrowth of what USAID and our development partners have learned.

Simply put, development assistance works best when nations have responsible institutions and governments that pursue policies conducive to economic growth. Democratic governance, sound policies, and open, transparent institutions are the keys to development. Performance, not intentions, is what matters most, so we have learned the importance of measuring that performance with rigorous and unbiased indicators.

Many of the grave issues facing the developing world require us to take new approaches. We have to revolutionize how we think about aid in general and USAID in particular. The issue of how to deal with failed and failing states is just one example. As the President's National Security Strategy stated, "America is now threatened less by conquering states than we are by failing ones."

Under the leadership of President Bush and Secretary of State Powell, we now have both the opportunity and the obligation to implement a development strategy that clearly defines our challenges and identifies the best approaches to address them. We are working more closely than ever at the interagency level to clarify the roles and linkages of U.S. development institutions. The work done on the MCA is an example of this renewed interagency coordination. Working with the State Department to develop a joint strategy should greatly improve coordination of our foreign assistance programs.

The Millennium Challenge Account and the Role of USAID

As I stated in earlier testimony on the MCA, I find it helpful to think of countries in five broad groupings:

• MCA countries or the best performers.
• Countries that just miss qualifying for the MCA and with a little help have a good chance of doing so.
• Mid-range but performing counties with the commitment to reform. For these countries, our assistance will focus on achieving progress in specific aspects of development, especially economic growth and democratic governance.
• Selected failed, failing, and post-conflict states that require specialized assistance, post-conflict reconstruction or humanitarian assistance. This is a new element of the Agency's core business. In these countries our objective will be establishing greater security, stability and order. Programs will focus on food security, improving governance, and building the collective sense of nationhood that must precede evolution to more democratic forms of government and lay the groundwork for countries to move toward longer-term development.
• Countries requiring assistance for strategic national security interests.

I would like to highlight our belief that focusing on responsible governance and good performers must infuse all our development efforts - not just the MCA. This should be the case for other bilateral and multilateral donors as well. In this way, the MCA will serve as a model for all of our assistance programs. Indeed, we are already applying an MCA lens to our country programs, informing resource decisions. The strategic budgeting system that we will be adopting will base the allocation of resources on criteria such as need, performance, commitment, and foreign policy priority. The intent is to have a more performance-driven and cost-effective foreign aid program that is fully responsive to our national security objectives.

Strategic Direction and Budget Priorities

USAID manages program funds from a number of Foreign Affairs accounts directed at addressing a broad array of international issues facing the United States.

These range from fighting the HIV/AIDS pandemic to sustaining key countries supporting us in the war on terrorism to bolstering democracy, the rule of law and good governance in countries important to our national security. Many of these issues were highlighted in Secretary Powell's excellent testimony before this subcommittee on April 30.

For FY 2004, the Administration's request from the accounts USAID manages is $8.77 billion in program funds. The account breakout is provided below followed by a discussion of program priorities.

• $1.345 billion for Development Assistance, and $1.495 billion for Child Survival and Health; $235.5 million in International Disaster Assistance; $55 million for Transition Initiatives.
• $2.535 billion in Economic Support Funds; $435 million for assistance for Eastern Europe and the Baltics; and $576 million for assistance for the Independent States of the Former Soviet Union. We co-manage these funds with the State Department.
• $1.185 billion in PL 480 Title II funds are managed by USAID.

Our readiness to manage these resources and deliver the results intended is of particular importance to me. The budget request for salaries and support of our staff that manage these programs is $604 million. In addition we request $146 million for the Capital Investment Fund, $8 million to administer credit programs and $35 million to support the Office of the Inspector General.

Economic Growth, Agriculture and Trade: The Administration's request for these programs is $2.316 billion, including $584.2 million in Development Assistance.

Economic growth is an essential element of sustainable development and poverty reduction. Trade and investment are the principal mechanisms through which global market forces - competition, human resource development, technology transfer, and technological innovation - generate growth in developing and developed countries. During the 1990s, developing countries that successfully integrated into the global economy enjoyed per capita income increases averaging 5 percent annually. However, countries that limited their participation in the global economy saw their economies decline.

In the President's National Security Strategy, he set the goal of igniting a new era of global economic growth through free markets and free trade. At the March 2002 International Financing for Development conference in Monterrey, Mexico, leaders of developed and developing counties agreed that trade and investment are critical sources of development finance - far outweighing foreign assistance in the broader context of international capital flows. President Bush pointed out that developing countries receive $50 billion a year in aid, while foreign investment inflows total almost $200 billion and annual earnings from exports exceed $2.4 trillion.

I am proud that USAID has just issued a new Trade Capacity Building Strategy as a cornerstone of our economic growth efforts. In developing this strategy, USAID has worked closely with Ambassador Zoellick, the U.S. Trade Representative. USAID will enhance trade capacity building programs with new initiatives to support developing countries' participation in international trade negotiations and help countries develop trade analysis expertise. To support trade agreement implementation, USAID will introduce new programs to promote sound systems of commercial law and improved customs management. USAID will also help developing countries establish open and competitive markets in service sectors that are critical to trade and strengthen economic responsiveness to opportunities for trade. We will build on the success of the Africa Growth and Opportunity Act (AGOA) to provide market-access for goods produced in sub-Saharan Africa. We are also implementing the President's Trade for African Development Initiative (TRADE) and preparing Central American countries to adopt a Central America Free Trade Agreement (CAFTA), for which we began negotiations earlier this year. We are also carrying out a broad range of trade capacity building activities throughout the Americas in support of the negotiations for a Free Trade Area of the Americas.

Economic growth and poverty reduction also depend on increased productivity at the firm level. Strong micro-enterprise and small business sectors will continue to receive emphasis as important elements of USAID's approach to growth.

For many poor countries with largely rural societies, agriculture connects poor people to economic growth. A vibrant and competitive agricultural and business sector fosters growth. And a supportive policy and institutional enabling environment encourages enterprise, innovation and competitiveness.

Agricultural development remains a critical element of USAID's approach to economic growth and poverty reduction. Most of the world's poorest and most vulnerable populations live in rural areas and depend on agriculture. In FY 2004, the budget request includes $268.4 million in Development Assistance and $470.2 million from all accounts for agricultural development.

The requirements for agricultural development are well known. Increasing productivity will lead to higher incomes and more investment in the agricultural sector. USAID programs will address these factors at the national, regional and local levels and increase attention to agriculture in Latin America and Africa. Particular emphasis is being given to the President's Initiative to End Hunger in Africa. We will also boost agriculture in developing countries by restoring the budgets of global agricultural research centers, training scientists, and funding science-based applications and biotechnology. Additionally, we will work to connect farmers to global supply chains by encouraging agricultural trade reform, supporting producer organizations and promoting needed market infrastructure.

Modern biotechnology offers great promise in addressing food insecurity in Africa and elsewhere in the developing world. We are helping build national and regional biotechnology research programs that focus on increasing the productivity and nutritional quality of African food crops. A good example is our support for the African Agricultural Technology Foundation, a partnership between USAID and several private entities.

Environment: The Administration's request for environmental programs is $449.2 million including $286.4 million in Development Assistance.

Environmental degradation is an increasing threat to long-term development with severe effects on health, trade, and poverty reduction efforts in general. Effects can be felt directly in the United States, as in the case of climate change. It is in our interest to ensure that policies and institutions actually support sustainable development. USAID's efforts will focus on four initiatives: Water for the Poor; Clean Energy; the Congo Basin Forest Partnership; and Global Climate Change, as well as ongoing programs in natural resource management, forestry, reducing illegal logging, and minimizing pollution.

Democratic Governance: The Administration's request for Democratic Governance from all accounts is $1.0208 billion including $164.8 million in Development Assistance.

Governance based on principles of accountability, participation, responsiveness and effectiveness is the foundation of development and the key to achieving progress in the three areas named by President Bush in the MCA - ruling justly, promoting economic freedom, and investing in people. Our democracy and governance programs will give new emphasis to strengthening public administration, assisting policy implementation, and providing citizen security, all of which are integral to democratic governance. We will continue to support assistance programs involving human rights, the rule of law, strengthening political processes, promoting civil society including organized labor, and building local government capacity. Anti-corruption programs will receive special attention and funding. Programs to prevent trafficking of persons and assist victims of war and torture will also be continued.

One of the most significant lessons we have learned is that governance - policies, institutions and political leadership - and not resources alone, matter most. Thus, USAID will reduce assistance to countries where a commitment to democratic governance is lacking. This "tough love" approach is necessary, if we are to provide resources where they can be most effective. At the same time, governance is critically important in "fragile" and failed states. USAID will begin to selectively offer support in such countries towards the provision of security, stability and reconstruction which will provide the basis for future development.

While we face democratic governance challenges around the globe, they are particularly acute at this time in the Mid East and broader Muslim world.

Health and Education: The Administration's request for Health is $2,136.2 million from all accounts, with $1.495 billion in Child Survival funds. Over half of the Child Survival request, or $750 million, is for HIV/AIDS programs. The Education and Training request is $425 million from all accounts, with $262.4 million of that Development Assistance.

Fundamental to economic growth is improving people's health and education. Many developing countries' workforces will grow over the next two decades. As a result, some developing countries will have more human resources to invest in economic endeavors. But for that to happen, investments must be made today so that their economies grow, and their workers are healthy and educated.

As we are witnessing with HIV/AIDS in many developing countries, health dramatically affects a country's development prospects and must be aggressively addressed if overall development is to take place. USAID remains a global leader in HIV/AIDS prevention, care and mitigation programs. Under the guidance of the White House Office of National AIDS Policy, USAID is working closely with the Department of Health and Human Services to implement the President's Mother and Child HIV Prevention Initiative and to prepare the foundations necessary for delivery of treatment, care, and prevention, as outlined in the President's Emergency Plan for AIDS Relief. USAID will continue and strengthen support to international partnerships, including key alliances with the private sector, and the Global Fund for AIDS, Tuberculosis and Malaria.

USAID's programs in the areas of child survival, maternal health, vulnerable children, infectious diseases, family planning and reproductive health are cornerstones of U.S. foreign assistance. Our health programs save millions of lives through cost effective immunization, disease prevention, breastfeeding, nutrition, sanitation and voluntary family planning programs.

While our leadership has brought about important successes, 11 million children under the age of 5 still die every year, the vast majority of them from preventable and treatable diseases such as measles, diarrhea and pneumonia. Four out of every 10 people lack access to basic sanitation; 42 million people live with HIV/AIDS. Our effectiveness in preventing illness and pre-mature death contributes to global economic growth, poverty reduction, and both regional and domestic security.

Global markets are changing, as more developing countries shift from production based on low-wage labor to higher-end manufacturing. Doing so requires workers able to learn new skills and master new technologies. In countries where access to primary schooling remains incomplete and educational quality remains inadequate, the urgency of educational reform is increasingly apparent. Where improvements are enabling more students to finish primary school, countries need to ensure that new skills can be acquired. Taking full advantage of the global economy requires workers with the academic and technical skills to adapt technology to local conditions. While continuing to help countries make educational improvements, U.S. foreign assistance must help more successful countries maintain their upward momentum. The President's Education for Africa Initiative, which addresses a range of basic education needs, is an important element in this effort. We are working closely with the international Education for All program to provide resources for those countries who demonstrate performance and commitment to educating their children.

Internal Conflict: This budget request includes $27.7 million in Development Assistance specifically for intra-state conflict, as well as $55 million for Transition Initiatives. Additional funding for conflict management and mitigation can come from our various sector programs, most importantly Democracy and Governance and Humanitarian Assistance.

USAID's goal is to be an agent for peaceful change, wherever and whenever possible. We cannot realistically prevent every conflict. We are, however, working hard to improve our ability to mitigate and manage conflict. Some two-thirds of the countries where we work are entering conflict, engaged in conflict, or just recovering from a conflict. The causes are complex, and there are no quick and easy solutions. Yet at a general level, conflict prevention and management entail a continuum of interventions that, done carefully, can strengthen the capacity of states to manage sources of tension. A crucial part of the solution is encouraging innovative institutions that can deal with problems - local, regional, national, and international - and resolve them peacefully.

Our Office of Transition Initiatives provides a fast and flexible response capability to address the needs of countries experiencing significant political transitions or facing critical threats to basic stability and democratic reform. Recent interventions, for example, helped Afghanistan, Burundi, East Timor, and Macedonia. New programs are being initiated in Angola, Sudan, and Sri Lanka.

Among the most important things that donors can do is develop a deeper, context-specific understanding of what drives conflict. This will require a significant investment in research and analysis among donors and in countries where conflict programs are being considered. Every major focus of our assistance has at least some bearing on conflict - from economic growth, to agriculture, to democracy and governance. We will apply a cross-sectoral, multi-disciplinary perspective when designing programs in environments of conflict. We will apply a conflict lens to each area in high-risk countries. Recognizing the complexity of conflict prevention, mitigation and management, we will coordinate closely with other USG departments and agencies, donors, and other partners.

Humanitarian Aid and Failed States: The Administration's request is $1.69 billion, including $1.185 billion for food, $200 million for the new Famine Fund, and $235.5 million for disaster assistance programs. USAID is addressing the challenge of forging a comprehensive response to failed and failing states: examining the sources of failure, working to build institutional capacity, and providing critical humanitarian aid to the most vulnerable.

More than three million people lost their lives in the disasters of the 1990s. Conflict-related emergencies were the most deadly, with many hundreds of thousands of people killed in direct fighting. Millions more have been internally displaced or forced into refugee status. By the end of 2000, failed and failing states displaced 25 million people within their own countries and 12 million refugees who fled across national boarders. While conflict-related disasters have dominated the funding and focus of international assistance over the last decade, natural disasters still take a tremendous toll worldwide. There were three times as many natural disasters in the 1990s as in the 1960s. Extreme weather related events are projected to increase. In addition, HIV/AIDS and other communicable diseases are on the rise in complex humanitarian emergencies, with more than 75 percent of epidemics of the 1990s occurring in conflict areas.

The United States is the world's largest humanitarian donor. We provide life-saving assistance to people in need of food, water, shelter and medicine. Coordinated by our Office of U.S. Foreign Disaster Assistance (OFDA), USAID deploys quick response teams that include experts from USAID and other USG agencies. Our P.L. 480 Title II emergency food aid has provided critical food needs in Afghanistan, Ethiopia, Southern Africa, and other protracted emergencies. USAID is playing a lead role in providing humanitarian aid in Iraq. We are prepared, and with the support of other USG agencies and our implementing partners, we will do our utmost to avert a humanitarian crisis. Along with immediate humanitarian relief, USAID is prepared to contribute to political reform and stability.

We will continue to respond to humanitarian needs to save lives and minimize suffering. But we need to do more to reduce vulnerabilities that transform natural, socio-economic and political events into disasters. For example, the promotion of accountable governance and a free press will help defend against famine and conflict. The development of local and global capacity to anticipate and respond to emergencies will be reinforced by enhancing early warning systems that guide policies and public action in countries at risk. We will do more to link humanitarian response with longer-term development goals, in particular in health. Child immunization programs, for example, have sometimes served as a bridge to peace, with cease-fires respected even in war zones. Closer coordination with other donors will ensure our response is effective and the burden of humanitarian aid is more evenly shared.

We will work to strike a balance among political, military and humanitarian strategies. By coordinating closely with the U.S. military we can carry out relief operations even in the midst of war. At the same time, we strongly affirm the neutrality of humanitarian assistance, which should be based on assessed need. More emphasis must be placed on protecting those who receive emergency relief from violence or human rights abuse, whether refugees or internally displaced persons (IDPs). We will encourage our implementing partners to improve accountability of humanitarian aid by adopting standardized measures of effectiveness.

In his FY 2004 budget, the President announced a new humanitarian Famine Fund. This is a $200 million contingency fund for dire, unforeseen circumstances related to famine. Use of the fund will be subject to a Presidential decision and will be disbursed by USAID, under the same authority as International Disaster Assistance, to ensure timely, flexible, and effective utilization. The Famine Fund is intended to support activities for which other funding is either unavailable or inappropriate and will increase the ability of the United States to anticipate and respond to the root causes of famine.

Mobilizing Private Foreign Aid: Today private sources of foreign aid account for over 50% of the total assistance coming from the United States. Foundations, corporations, private and voluntary organizations, colleges and universities, religious organizations, and individuals provide $30 billion a year in aid. Given this new reality, we at USAID are expanding our partnerships with a full array of private sources and undergone a fundamental reorientation in how we relate to our traditional development partners.

Two important approaches to achieving this are: 1) our Global Development Alliance which works to mobilize resources from and foster alliances with U.S. public and private sectors in support of USAID objectives; and 2) Development Credit Authority which is an Agency mechanism to help develop credit markets and to issue partial loan guarantees, thereby mobilizing private capital for sound development projects. Examples of these partnerships are:

• In Brazil, USAID is working with private companies and NGOs to encourage low-impact logging.
• The Digital Freedom Initiative (DFI) is an outstanding example of what can be accomplished when several branches of the U.S. Government and leading American companies like Cisco and Hewlett-Packard join forces to help long-time friends like Senegal build on Senegal's already significant information and communication technology base. The DFI will also facilitate the development of information communications technology applications that enable small and medium-sized businesses to become more profitable, find new markets, and access credit and other inputs more easily. Over the life of the pilot activity, we envision that more than 350,000 small businesses will be involved.
• In Angola, USAID is cooperating with a U.S. oil company to promote business development in rural communities. The first activity planned will assist 150,000 Angolan families affected by the civil war (former soldiers and internally displaced people) by providing agricultural support and training. We view this as an important step in consolidating the recent peace.
• In Guatemala, a credit guarantee covers a portfolio of loans to small businesses, small-scale producers and cooperatives operating in the Peace Zone, a rural area of Guatemala that has suffered from political unrest, and normally is without access to commercial credit.

Operating Expenses and Staffing

The President's budget request calls for us to manage a program budget of $8.8 billion at a time when foreign aid challenges are growing increasingly complex and the environment in which we operate more dangerous. We face the triple challenge of addressing: (1) the increased strategic importance of funding key countries and programs; (2) rising costs of protecting U.S. personnel overseas; and (3) rapid retirement of many of our most experienced officers. These call on us to:

• Reform our business systems to enable innovative and streamlined business models for Washington Headquarters and our field missions to strengthen our ability to quickly respond in today's political environment.
• Strengthen our future readiness by ensuring that our Civil Servants and Foreign Service Officers have the skills and competencies needed in increasingly complex settings.
• Expand our intellectual/knowledge capital to meet future demands.
• Ensure accountability in program implementation in increasingly complicated structures.
• Recruit the right people at the right time, train and deploy them to meet our development mandate.
• Protect the safety of our staff, overseas and in Washington.

We request a total of $604 million for our operating expenses. This amount, combined with $49.7 million from local currency trust funds and other funding sources, will provide a total of $653.8 million to cover the Agency's projected operating expenses.

In addition, we request $146 million for the Capital Investment Fund (CIF) to fund Information Technology to support major systems improvements that will strengthen the Agency's ability to respond and operate effectively; develop enterprise architecture in collaboration with the Department of State to enable an integrated accounting system worldwide; and, fund new office facilities co-located on embassy compounds where the State Department will begin construction by the end of FY 2003.

We also request $35 million to ensure continued operations of the Office of the Inspector General associated with USAID's programs and personnel and $8 million for managing credit programs.

Management Improvement

Mr. Chairman, I know that you and this Committee are very interested in our management reform efforts. I would like to update you, therefore, on our progress in this area. Meeting foreign policy and program management challenges requires a modern, flexible and well-disciplined organization. In close coordination with the President's Management Agenda, USAID is aggressively implementing an ambitious management reform program including the introduction of new business systems, processes and changes to our organizational structures.

• In conjunction with the State Department's Diplomatic Readiness Initiative, we will ensure that the Agency has adequate numbers of staff to meet present and future national security challenges. In FY 2004, for example, USAID will recruit, train, and assign up to 50 additional direct hire staff overseas to address staffing gaps resulting from retirement of Foreign Service Officers.
• We are also evaluating, with the Department of State, the feasibility of more closely linking some of our business systems to achieve operating efficiencies.
• And we are working closely with the Department of State to improve our support for U.S. public diplomacy and public affairs efforts overseas, especially targeting the Muslim and Arab worlds.

I am pleased to report to the Committee that:

• We have implemented improvements to the Headquarters core accounting system and improved financial and performance reporting. We have expanded cross-servicing and outsourcing, including grant management (HHS), loan management (Riggs) and payroll (NFC).
• We have closed the Agency's material weakness on reporting and resource management, and received an unqualified audit opinion on four of five principle financial statements (and an overall qualified audit opinion for the first time.)
• We have made progress in improving employee morale and employee satisfaction with management services. For example, my second annual Agency-wide survey of all employees' opinions and attitudes, completed in November 2002, showed that 63 percent of those responding rated their morale as "good" or "outstanding." Improvements in performance by business function ranged from 20 points for human resources and information services to 37 points for financial management and procurement services. While the results indicate we have made progress, there remains room for improvement and we still have a lot of work ahead of us.
• We are in the process of developing a comprehensive Human Capital Strategic Plan designed to address both USAID's particular needs and the President's Management Agenda requirements. The plan will address a critical need to rebuild and train our workforce, to put the right kind of people with the right skills in the right place. It will also address our need to have surge capacity to meet crises such as in Afghanistan and Iraq.
• We have piloted an automated e-procurement system and deployed e-procurement capabilities to speed the purchase of frequently used goods and services.
• We are drafting a knowledge management strategic plan to reposition the Agency as a global leader on development issues and to facilitate knowledge sharing among partners and staff. Completion is expected by mid-2003.
• We have developed a strategic budgeting model to enable us to link performance and resource allocation more efficiently.

This year we began implementing the plans for human capital, knowledge management, and strategic budgeting. We will procure new acquisition and assistance software, begin pilot testing our Phoenix financial management system overseas, and reintroduce the International Development Intern program for recruitment and training of junior Foreign Service officers.

In Conclusion

This budget request is founded on three precepts:

• Foreign aid and the Agency for International Development are essential elements of our country's national security apparatus.
• Our programs are evolving to meet the challenges of the new millennium.
• We are pressing ahead with the management reforms begun in 2001 and transforming USAID into an organization of excellence.

Mr. Chairman, I would like to assure Congress that USAID's budget request for Fiscal Year 2004 rests on a solid foundation of professional analysis and a strong commitment to performance and management reform. We know it is impossible to satisfy everyone who looks to us to address every problem that arises. We have spent many hours trying to determine the best use for our resources and have had to make many painful choices. I hope my remarks today have been helpful in explaining our priorities, and I look forward to working with you over the coming year as we move our foreign policy agenda forward.

Thank you.

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