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PUBLIC POLICY UPDATE May 24, 2013 WASHINGTON UPDATE Budget and Appropriations On Tuesday, the House Appropriations Committee

approved its proposed 302(b) allocations by voice vote, after lengthy, partisan debate. The 302(b) allocations establish caps for each of the annual spending bills that allocate federal funds to specific discretionary programs. The House's State, Foreign Operations (SFOPS) appropriations bill was capped at $40.6 billion –$34.1 billion for the base budget and $6.5 billion for Overseas Contingency Operations (OCO). This is approximately 21% below the current funding levels and 22% below the president’ s budget request. While most of the 302(b) allocations were significantly lower than current spending levels, several of the spending bills received higher allocations than current spending levels, including the Department of Defense and Homeland Security. InterAction released a press statement in response to the House’ s proposed 302(b) allocations. The Senate Appropriations Committee is expected to propose its version of the 302(b) allocations in early June. The House Appropriations Committee also approved the Military Construction-Veterans’ Affairs appropriations bill on Tuesday and the Department of Homeland Security appropriations bill on Wednesday. Sen. Barbara Mikulski (D-MD) announced that the Senate Appropriations Committee will consider the Military Construction-VA appropriations bill first (on June 17). Syria Legislation Also, on Tuesday, the Senate Foreign Relations Committee voted 15-3 to pass the Syria Transition Support Act of 2013 (S. 960). The committee’ s press statement can be found here. The legislation would provide arms to members of the Syrian opposition who have gone through a vetting process; broader humanitarian assistance authority; and sanctions on arms and oil sales to the Assad regime. Food Aid Reform Senators Chris Coons (D-DE) and Mike Johanns (R-NE) filed an amendment this week to the Senate Farm Bill, which will likely be considered on the floor on Monday, June 3, when the Senate returns to session. It would increase the limit for Local and Regional Procurement (LRP) to $60 million annually (from $40 million in the current Senate version of the Farm Bill) and has garnered the support of InterAction and several InterAction members. We will continue to track its development when the Senate returns to session. HEARING SUMMARY Different Perspectives on International Development Senate Committee on Foreign Relations –Subcommittee on International Development and Foreign Assistance, Economic Affairs, International Environmental Protection, and Peace Corps May 22, 2013

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Witnesses:    Bill Lane, Caterpillar; U.S. Global Leadership Coalition John Murphy, United States Chamber of Commerce Todd Moss, Center for Global Development

Opening Statements: Chairman Tim Kaine (D-VA)  This hearing is meant to compliment FY2014 budget hearings and looks at development from the private sector perspective.  Historically, foreign assistance investments were generally justified by national security concerns.  There has been a huge shift in where development assistance funding comes from over the past several decades: o Dramatic increase in private sector resource flows. o 87% of global total development assistance is from private sources.  Developing countries share of global GDP is rising and half of U.S. exports going to developing world.  How can the U.S. better leverage private partners?  How can the U.S. measure the success of its efforts? Ranking Member John Barrasso (R-WY)  Constituents want to know what the purpose of foreign aid is, how it is effective, what value it adds to the U.S.?  With national debt increasing, it is irresponsible for the government to continue to borrow to fund programs that have not been implemented effectively.  Congress needs to evaluate effectiveness of all foreign aid programs, support programs that are getting results and eliminate ineffective programs. Todd Moss  U.S. development policy is not just about foreign assistance.  U.S. needs to look at using multilateral channels as well.  U.S. aid and development policies have underachieved many times.  Many of these failures resulted from structural problems. o USAID Forward, the Quadrennial Diplomacy and Development Review (QDDR), and the Presidential Policy Directive on Global Development were initiated by the administration but will not fix U.S. development policy. o These problems can’ t be solved by providing more money or adding another bureaucratic layer.  Three problems: o Too many federal agencies involved (24 agencies) in foreign assistance. o Foreign aid has too many often conflicting objectives. o Interagency process is broken, which results in the delay of key decisions, duplication of work, etc.  Three possible solutions: o Limit number of agencies involved. o Link budget process to goals and results; allow experimentation with new development models (example: MCC compact model); Congress could also experiment with cash on delivery programs. 2

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Should focus on development finance; demand for traditional development finance is shrinking and shifting to debt relief and other forms of development finance.

John Murphy  No priority facing our nation today is more important than putting Americans back to work.  World trade must play a central role in reaching this job creation goal.  One in three manufacturing jobs relies on exports; one in three acres of agricultural land is exported.  Business case for international affairs: o Protects diplomatic efforts. o Provides technical advice for countries to become better markets for U.S. companies.  Competition is fierce in development markets (example: China).  China’ s programs grew 25-fold from 2002-2007.  Export-Import Bank (Ex-Im) is important to small- and medium-sized businesses. o Without Ex-Im, U.S. businesses wouldn’ t be able to provide the amount of exports they currently do. o Ex-Im generated more than $1 billion in profits to Treasury last year.  Overseas Private Investment Corporation (OPIC) is a hallmark of public-private partnership and operates at no cost to U.S. tax payer.  U.S. Trade and Development Agency (USTDA) helps U.S. firms compete on international playing field.  U.S. companies need the support and funding for these programs (OPIC, USTDA, Ex-Im). Bill Lane  Trade supports more than 38 million jobs in the U.S.  Reality is that trade and aid are mutually supportive.  Teamwork approach of private-public partnerships is key (Plan Colombia program in the 1990s is a good example of this).  Development and diplomacy programs in 150 account provide foundation for development.  International affairs programs have been cut by 20% in past few years and this is not in U.S. best interest.  Opposes further cuts and encourages investment in strong international affairs budget. Questioning: Chairman Tim Kaine (D-VA) 1. How can you balance better organization of agencies with the desire for a comprehensive approach?  Moss: o U.S. is always going to have complex interests overseas. o The three Ds (development, diplomacy and defense) sometimes come together, but very often they don’ t. o More often than not, examples like the success of Plan Colombia are the exception and not the rule.  Lane: o Where there is truly a unified mission, it really works (example: Plan Colombia). o Some consolidation must take place. 3

2. Can you explain more about trade finance?  Murphy: o There has been a huge increase in trade finance internationally to support exports. o In China, it is estimated that the government trade agencies provide four times as much trade finance as the Ex-Im Bank. o In many cases, U.S. exporters are going head to head with exporters from other countries and if they don’ t have adequate support from Ex-Im (export finance) they will not win the bids.

Ranking Member John Barrasso (R-KY) 1. Can you explain how the “ cash on delivery”approach works for foreign aid?  Moss: o Traditional way to measure programs was inputs; next level was measuring outputs; best level measures outcomes. o Need to think about flexibility in funding foreign assistance over multiple years. o This model pays for outcomes:  Example: to support girls’ education in Pakistan, would pay for educated girls in Pakistan (how many children take an additional test and what are those results?). 2. What development policy objectives should we prioritize?  Moss: o Makes sense that there needs to be a lead agency for a program. o In projects that should be largely commercially driven, OPIC or another agency like that should take the lead. 3. Should U.S. assistance still be provided in countries that take expropriate from U.S. companies?  Murphy: o Those benefits shouldn’ t be given to countries that expropriate from U.S. businesses. 4. At what point does the U.S. undermine what another branch of the government does by postponing free trade agreements?  Lane: o We let the perfect become the enemy of the good. o At some point, need to take a good deal and move on (example: free trade agreements with Colombia, Panama and South Korea). Sen. Chris Murphy (D-CT)  The U.S. will increasingly be in a position where it provides more economic aid to new democratic governments with Arab Spring etc. Are there issues regarding direct government funding vs. funding to NGOs?  Lane: o U.S. needs to show patience and consistency with what is happening in the Middle East.  Murphy: o Working with private sector and NGOs makes a lot of sense; less than 7% of U.S. foreign assistance goes directly through foreign governments. 4

Moss: o This issue gets to the point of what you want to achieve:  If there is a humanitarian crisis, funding should go to NGOs and contractors.  If you want to build a stronger government, then it is important to not go around the government.  Innovative pay for performance contracts can balance need for getting taxpayer value while also building the capacity of partner states.

Chairman Tim Kaine (D-VA) 1. How do you determine the right metrics in this new reality where bulk of money is coming from the private sector?  Moss: o Development projects in general try to achieve difficult things in a short timeframe. o People should have the flexibility to experiment and innovate. o The current system has made people risk adverse and led to a lack of creative solutions. o Need to be clear about objectives of a particular project and create specific metrics.  Lane: o Best programs are where you don’ t measure success based on any one matrix but overall success (long-term perspective). o The MCC has been a breakthrough policy. o Should be cautious to have any one measure that defines success or failure. Ranking Member John Barrasso (R-KY) 1. Is there a point where too much aid detracts from accountability?  Moss: o Whenever anyone faces a windfall gain, it changes the dynamic of everything. o Pressures become enormous when you get a windfall and that undermines your incentives to work as usual. o Having too much money (especially in weak states) can make things worse. Chairman Tim Kaine (D-VA) 1. What are other nations doing in the development finance arena?  Moss: o Development finance is the future of development policy. o There will still be a need traditional grants, but things are moving to development finance. o Creation of U.S. Development Finance Corporation could bring a lot more bang for your buck. 2. What do you think about the president’ s food aid reform proposal?  Moss: o Huge supporter of reform and it could go further.  Murphy: 5

o Need approaches more similar to the changes in the reform to make sure there aren’ t market interruptions in the nations receiving food aid; this is a common theme with WTO members. Sen. Chris Coons (D-DE) 1. How, in the context of Africa, can the U.S. government do a better job working with private sector?  Murphy: o What is needed is the concerted approach that was seen in Plan Colombia (bipartisan support, sustained funding, host-country buy-in). o These approaches need to make trade and commercial engagement a key driver. 2. U.S. Global Leadership Coalition (USGLC) has done a wonderful job of building and sustaining bipartisan support for 150 accounts; what has made this successful?  Lane: o USGLC is unique in its bipartisan support and collaboration with NGOs and businesses. o Must make sure that people are rewarded for doing the right thing. 3. How can we be more efficient and streamlined? What has been most successful and least successful about MCC?  Moss: o Very big fan of the MCC. o It wasn’ t an accident that MCC was started as a separate agency; wanted to start fresh. o Real innovation of the MCC is the five-year compact, which is judged over a multiyear timeframe with set metrics. o MCC has pushed evaluation agenda. o Using a rigorous, independent evaluation like the MCC does is really important. 4. How can American companies compete in an environment where others might not have the same standards for democracy, transparency, human rights violations?  Moss: o U.S. can help to raise the bar across the marketplace if we stick to our values when working with other countries. o U.S. should take the long view here and not sell out our values in order to get a particular deal. o In the long run, if U.S. is right, the world will move to standards like ours (anticorruption and transparency standards).  Lane: o Caterpillar was one of the first companies to create global standards and proved that you can still become a successful company while playing by the rules. Note: There are no upcoming hearings next week, as Congress is in recess.

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