Could you give us some background on this problem, how serious you believe the balance-of-payments deficit faced by Egypt is, and how much of the 1984 program will be directed at helping Egypt to solve some of these balance-of-payments difficulties?

Mr. MCPHERSON. About two-thirds of the Egyptian program is fast disbursing, in the sense that we deliver to them Public Law 480 food, which is then sold, which is budgeted for them; otherwise, they would have to buy the food on the world market.

We have a commodity import program of $300 million. A substantial portion of our assistance is fast disbursing. Part of those projects will be, for example, the very large sewer and water projects that President Mubarak put through in principle several weeks ago.

As to the balance of payments situation, Egypt had a phenomenal situation from 1976 up until 1981 or 1982, when things began to come apart. They had very large remittances from all over the Gulf. They had large revenues from the canal. They had and continue to have a fairly substantial foreign aid program, of course, from us, as well as oil revenues.

Each one of those things, except for our foreign aid program, has begun to take a bit of a nose dive. The world economy is down, therefore the canal revenues are down. Oil revenues are down for reasons we all know. Because oil prices are down and other countries are not building all they might, remittances are down. All this has meant that the balance of payments situation in Egypt has gotten tighter.

There is another facet, and that is that the Egyptian policy structure of subsidized food, cheap energy prices, and so forth, has meant basically that consumption, as a portion of GNP, has gone up faster than investment. In effect the policy structure has encouraged imports of food and other things that weren't economically efficient and that had a consumption orientation.

The long-term impact of this is that the Egyptians have a fairly serious balance of payments situation. They don't have serious debt problems, they have been able to borrow some. There is a definite possibility that they will cut back on imports of an investment nature. That we think would be unfortunate, but it might occur. I don't see them as having an imminent disaster as a result of the balance-of-payment situation. I see this as an unfortunate longterm trend.

They missed the major window of opportunity from 1976 to 1982 and decisions to reform the economy will be harder now, but it is feasible to do those things, and President Mubarak has been saying what we believe to be the right kinds of things in this regard. Now hard decisions are to follow.

FLEXIBILITY IN AID TO EGYPT

Senator KASTEN. When President Mubarak visited the United States, he and President Reagan issued a joint communique designed to increase Egypt's flexibility in managing U.S. assistance. We talked about this a year ago. Included in this communique were plans to finance more on a sectoral basis rather than by spe

cific projects, and also that the administration would seek some kind of deobligation/reobligation authority.

Where are you in this overall process? There has been ongoing negotiation with both the subcommittee and the Egyptians. What steps have you taken to implement this agreement with the President?

Mr. MCPHERSON. The sectoral assistance approach has been part of a continuing effort related to policy changes in Egypt. In other words, as the Egyptians began to pay their farmers more, began to make their agricultural sector more efficient, then we said let us put more money into the agricultural sector.

In fact, if a sector is not economically viable, is not working toward greater efficiency, then to put money into that sector is, in our judgment, not to use the taxpayers' money to make a real contribution. It would be inefficient and wasted.

President Mubarak has talked a good deal about economic reforms. He has made some reforms. We are watching closely. We have had a lot of talk with the Egyptians about the sewer and water area, and we think that the kinds of things that President Mubarak is prepared to do complement our aid along those lines.

DEOBLIGATION/REOBLIGATION AUTHORITY

Now, the deobligation/reobligation question is a matter you have taken a great interest in, and I think properly. I have been intensely interested in deobligation because you remember, I think, we were able to catch the President's interest in the early weeks of the administration by going to him with a $28 million check for deobligation of some bad projects.

Frank Ruddy mentioned the Sahel project that we deobligated. Last year we had a total of $60 million in deobligations, many of them projects that simply were not working. We see this as a very important management tool. Now we run into problems, however, in that every time you take money away from a project, it is in effect taking it away from the country.

We are all going to be embarrassed by such deobligations if we are limited to the ability to deobligate without the corresponding ability to reobligate. Here we are in Egypt. We have some projects that we think could be run better. We have had extensive discussions with the Egyptian Government and with our Office of Management and Budget, and our expectations are that in the months ahead we will be coming up to you with something.

The problem is trying to figure out how to do it in such a way that when we reobligate it does not take budget authority to do it. Senator KASTEN. We talked about this last year. You really have not come forward to ask for this authority. You don't know exactly how to ask for it; is that the problem?

Mr. MCPHERSON. We expect that in the months ahead OMB will be coming forward with something which will address these problems. We have to work out the structures to handle this because of the budget authority question.

We are obviously interested in avoiding budget authority. If we deobligated several projects in Egypt and reobligated for others,

and all of a sudden the Egyptian program was increased, this would be a problem.

WEATHER MODIFICATION IN MOROCCO

Senator KASTEN. As you know, Morocco has been suffering from drought since 1976. As a result of that experience, there has been reduced food production within that country. This has necessitated their importing 4 million tons of wheat along to meet their shortfall.

Obviously one potential aid would be an increase in their rain. The University of North Dakota has developed an advanced aviation program with considerable expertise in this area of agriculture and weather modification. The university was consulted by the Moroccan Government. The Moroccans expressed a desire to initiate a weather modification program.

It is my understanding that an initial $350,000 is needed to get this program underway this year. I think the United States has a great friend in the King, and Morocco has been one of our earliest and closest allies and their friendship is as strong as ever. I hope that your Agency would look into this weather modification project and give it every consideration.

Are you aware of this project or this request?

Mr. MCPHERSON. Yes, I am, Senator. In fact, a couple nights ago I met with Governor Olsen of North Dakota, a Senator and a Congressman from that State, the Ambassador of Morocco, and representatives from the University of North Dakota, which would implement the project.

In the last couple of weeks Morocco has had some rain, but that is a temporary solution. There is a long-term problem there. We have gotten a proposal, and we are going to be looking at it carefully. There are a lot of questions on the technology involved.

For example, to increase rainfall in Morocco, you end up decreasing the rainfall someplace else, and there are other problems. In principle certainly it is a matter of real interest and you are absolutely right, the King of Morocco has been one of the most forthcoming people on the President's Middle East initiatives.

Senator KASTEN. I hope you will give that project every consideration.

That concludes the questions I have. There will be questions submitted for the record from other Senators. I know that Senator Inouye and other members of the subcommittee will have questions. We will submit those questions for response, hopefully in a couple of weeks.

I would like to thank all of you very much. Peter, I thank you for your cooperation in the past couple of years.

Mr. MCPHERSON. Thank you, Senator.

SUBCOMMITTEE RECESS

Senator KASTEN. This concludes the morning hearing. The subcommittee will recess until 2 p.m. this afternoon.

Thank you.

[Whereupon, at 11:20 a.m., Thursday, March 3, the subcommittee was recessed, to reconvene at 2 p.m. the same day.]

[AFTERNOON SESSION, 2 O'CLOCK, THURSDAY, MARCH 3, 1983]

AGENCY FOR INTERNATIONAL DEVELOPMENT

STATEMENT OF M. PETER MCPHERSON, ACTING DIRECTOR, INTERNATIONAL DEVELOPMENT COOPERATION AGENCY, AND ADMINISTRATOR, AGENCY FOR INTERNATIONAL DEVELOPMENT

ACCOMPANIED BY:

JOHN R. BOLTON, ASSISTANT ADMINISTRATOR FOR PROGRAM AND POLICY COORDINATION

NYLE C. BRADY, SENIOR ASSISTANT ADMINISTRATOR FOR SCIENCE AND TECHNOLOGY

R. THOMAS ROLLIS, ASSISTANT TO THE ADMINISTRATOR FOR MANAGEMENT

JULIA CHANG BLOCH, ASSISTANT ADMINISTRATOR FOR FOOD FOR PEACE AND VOLUNTARY ASSISTANCE

ELISE R. W. DU PONT, ASSISTANT ADMINISTRATOR FOR PRIVATE ENTERPRISE

CHRISTIAN R. HOLMES, DIRECTOR, TRADE AND DEVELOPMENT PROGRAM

DAVID A. SANTOS, DIRECTOR, AMERICAN SCHOOLS AND HOSPITALS ABROAD

MARTIN D. HOWELL, DIRECTOR, OFFICE OF U.S. FOREIGN DISASTER ASSISTANCE

INTRODUCTION OF ASSOCIATES

Senator KASTEN. The subcommittee will come to order.

This afternoon we will continue the hearing on the fiscal year 1984 request for the Agency for International Development. The principal witness is the Administrator of AID, Peter McPherson, and officials of the AID.

Peter, if you would like to make any statement in addition to what you said this morning; second, if you could introduce the officials that are with you. Those accompanying you can make 2 or 3minute highlight statements. We have the prepared statements from all of you. Then we will proceed to questions.

Peter, go ahead.

Mr. MCPHERSON. With me are several key officials of AID. Ms. Julia Bloch, concerned with the American schools and hospitals abroad and relations with PVO's; Nyle C. Brady, Assistant Administrator for Science and Technology; John Bolton, Assistant Administrator for Program and Policy Coordination; Thomas Rollis, Assistant to the Administrator for Management; and Elise du Pont, Assistant Administrator for Private Enterprise.

I do not have any further statement myself.

Senator KASTEN. We request that you do not make a formal statement, but I thought it would be helpful to have the highlights. Ms. Bloch.

16-524 0-83-27

FOOD FOR PEACE AND VOLUNTARY ASSISTANCE

STATEMENT OF JULIA CHANG BLOCH, ASSISTANT ADMINISTRATOR

Ms. BLOCH. It is a pleasure for me to appear before you as Administrator of the Bureau of Food for Peace and Voluntary Assistance and the Office of Private and Voluntary Cooperation and American Schools and Hospitals Abroad [ASHA.]

To summarize, our fiscal year 1984 development assistance request totals $38.6 million for programs funded from the functional accounts and $7.5 million to ASHA.

Most of our functional account request-$33.1 million-will provide support for the centrally funded PVO grants program administered by the FVA Bureau. This centrally financed support to PVOS and cooperatives will enable them to carry out a wide variety of development programs in agriculture, rural development, nutrition, health, education, and small enterprise.

Last fall, AID issued a policy paper on its relationship with PVO's. The paper provides a policy framework in which AID views PVO's as its development partners, both as intermediaries for AID programs and as independent development agencies in their own right.

Briefly stated, the objectives of this policy are to increase the development impact of AID-supported PVO programs; to discourage undue dependence on U.S. Government financing; to simplify management and administrative procedures relating to AID-funded PVO programs; and to insure that AID funds are used in ways that reflect AID's legislative mandate, yet to do so in a way that is supportive of, and sensitive to, the PVO's unique capabilities as agents of development.

The fiscal year 1984 request also includes $1 million in support of the ongoing development education program as directed by the Biden-Pell amendment. This amendment authorized AID to facilitate widespread public discussion, analysis and review of issues related to world hunger and poverty, particularly by encouraging development education activities through PVO's.

Programs funded by the FVA Bureau comprise only one element in the Agency's extensive and varied support to PVO's. For fiscal year 1984, this proposed support will total over $210 million, exclusive of Public Law 480, title II, commodities and related ocean freight.

Over 13 percent of AID's fiscal year 1984 request for development assistance functional accounts, disaster assistance and Sahel development will be channeled through PVO's.

Our fiscal year 1984 request also will enable continuation of several development-assistance financed activities directly supportive of the food-for-peace program. Largest among them is the title II outreach project, which assists voluntary agencies administering title II programs to target food aid to the more needy population groups.

These food-for-peace support activities are part of AID's broader effort to make increasing use of food aid resources in ways that enhance the developmental impact of Public Law 480 and foster its integration with other assistance activities.