House subcommittee hearing on foreign aid focuses on reports of corruption in Ukraine (04/20/97)

House subcommittee hearing on foreign aid focuses on reports of corruption in Ukraine

by Michael Sawkiw Jr.
Ukrainian National Information Service

WASHINGTON - The House Appropriations Subcommittee on Foreign Operations on April 9 heard testimony from three senior administration officials regarding fiscal year 1998 funding for programs in Central and Eastern Europe and the new independent states (NIS). The Clinton administration has requested $900 million in assistance for the region, an increase of $275 million over last year's appropriated amount.

Testifying before the subcommittee were Ambassador Richard L. Morningstar, special advisor to the president and secretary of state on assistance to the NIS; Thomas Dine, assistant administrator of the U.S. Agency for International Development for Europe and the NIS; and Ambassador James Holmes, coordinator for East European assistance at the U.S. Department of State.

Members of the subcommittee in attendance included: Chairman Sonny Callahan (R-Ala.), Frank Wolf (R-Va.), Ron Packard (R-Calif.), Joseph Knollenberg (R-Mich.), Rodney Frelinghuysen (R-N.J.), Nancy Pelosi (D-Calif.), Nita Lowey (D-N.Y.) and Thomas Foglietta (D-Pa.).

The hearing began on a negative note when Rep. Callahan, chairman of the Foreign Operations Subcommittee, referred to The New York Times story headlined "Ukraine Staggers on Path to the Free Market." The article, published the day of the hearing, focused on official government corruption in Ukraine. The chairman said he and his subcommittee wished to explore the issue in more detail.

Although Rep. Callahan said he recognizes the presence of corruption in countries other than Ukraine, he said this is exactly why his constituents are against foreign aid and one of the reasons he would not approve an almost $300 million increase in funding for FY 1998. "If you want to resubmit your request and tell us how you want to allocate it (the $625 million allocation from FY 1997), go right ahead, but forget about the $300 million increase ... (it) is not in the cards," he told the witnesses before they testified.

Chairman Callahan raised the issue of earmarks for Ukraine and Armenia, stating that last year's earmarks had been requested by the Senate, not the House of Representatives, particularly not the House Foreign Operations Subcommit-tee. According to Rep. Callahan, the administration would have greater flexibility in developing policy if it were not forced to function within the restrictions of earmarks. (An earmark is funding allocated by the U.S. Congress for a specific program or country. Ukraine and Armenia are the only two countries within the NIS and Central and Eastern Europe that have received earmarks in previous fiscal years.)

Rep. Callahan suggested administration officials urge the Senate not to include earmarks in FY 1998 legislation. Several other House members, as well as Ambassador Morningstar, agreed that deleting these earmarks would allow the Clinton administration to respond to certain needs and emergencies as they arise.

During his testimony, Ambassador Morningstar focused on the successes of the region in general, and Ukraine specifically, pointing to advances in privatization, reasonably fair and open elections, a developing civil society, an independent media, functioning capital markets and financial institutions.

He also outlined the Partnership for Freedom (PFF) program, a new presidential initiative that refocuses the U.S. approach to assistance to the NIS. The PFF will comprise activities such as investment and capital mobilization, and consolidation of gains in building democracy and civil society that will include expanded law enforcement and criminal justice reform to address problems of crime and corruption.

Mr. Dine's testimony included charts and graphs to illustrate and compare economic progress and democratization to date in the NIS. He said that, although none of the countries are ready for European Union or World Trade Organization membership, it is imperative to continue working in the region to ensure that reform progresses and has a lasting effect. In highlighting some achievements, Mr. Dine mentioned USAID's work in restructuring the energy sector, stating that the program is "showing great progress in Ukraine."

Classifying NIS countries' reform efforts as ranging from progressive to non-progressive, Mr. Dine grouped Ukraine, Russia, Uzbekistan and Kyrgyzstan as states within the "middle sector" of development.

Following the witnesses' testimony, Chairman Callahan asked Ambassador Morningstar to specifically address funding for Ukraine and the situation reported in The New York Times article that morning. The ambassador noted that the FY 1998 request for Ukraine is $225.5 million, a slight increase of $500,000. He stressed that this funding level is warranted based on recent successes in Ukraine, such as the removal of nuclear weapons from Ukrainian soil, adoption of a democratic constitution, introduction of a new currency and the evolution of the U.S.-Ukraine strategic partnership.

Ambassador Morningstar acknowledged that Ukraine, along with other countries of the former Soviet Union, is dealing with problems of corruption. He noted that a major economic restructuring package proposed by President Leonid Kuchma is stalled in the Verkhovna Rada of Ukraine, contributing to "a worsening environment for foreign investment, evidenced by several well-publicized cases of U.S. companies facing serious harassment and corruption," with some companies deciding to pull out of Ukraine.

"Our [assistance] numbers ... are based on the assumption that the major reforms that have been proposed by President Kuchma will take place, that the investment climate will improve, and steps will be taken to clean up corruption," he said. "If steps are not taken, then we will have to review the program and look at how much money should go to Ukraine."

In reference to The New York Times article, Rep. Pelosi, ranking member of the subcommittee, said the U.S. should continue its assistance and "use leverage to fight corruption ... [and] set up opportunities for privatization and free markets." Although no time remained for additional questions, Rep. Pelosi did refer to alleged arms deals between rogue states and the NIS, specifically mentioning Ukraine and Russia. Her questions were submitted to the Clinton administration to be answered in writing.

Rep. Lowey expressed her opinion that the U.S. should and can have an impact on a country's economic and democratic reform process since the U.S. is the one providing the aid. When questioning Ambassador Morningstar on the doubling of efforts and resources within the PFF program to fight corruption in Ukraine and other countries of the NIS, Rep. Lowey indicated her support for progress in this area. Rep. Lowey also related her previous experiences when traveling in Ukraine and Russia and the need to focus future funding on exchanges with local governments and micro-economic programs.

Rep. Frelinghuysen focused on technical aspects of the PFF initiative, including questions regarding funding levels and a timetable for the program. Ambassador Morningstar responded that there was no set timetable for implementation or completion of the initiative, stating that much depended on Congress' approval of the program, allocation of funding and an evaluation of the program once it is implemented.

By far the most negative comments came from Rep. Packard, who cited Ukraine as the "most vivid example of failure" and said that U.S. assistance to Ukraine was "simply subsidizing crime and corruption." He went on to say that Ukraine is a bad investment for the U.S. In light of the fact that Ukraine was losing the battle on reform, he said writing "a bigger check" is not the solution. Rep. Packard expressed the need to tie dollar amounts to demonstrable achievements in fighting corruption and to stipulate so via language inserted into the foreign operations bill.

Rep. Foglietta disagreed with Rep. Packard's statement, noting that $300 million is a small amount to invest in such an important goal. Assisting countries of the former Soviet Union in their struggle to establish democratic governments and free-market economies is essential to "prevent recurrence of the Cold War, after spending trillions of dollars to win it."

Responding to House members' comments and criticisms, Ambassador Morningstar said the Clinton administration has plans to send a tough message to Ukraine regarding the need to push reform legislation through the Parliament and to fight corruption within the president's administration. He added, however, that putting conditions on U.S. assistance would severely limit their ability to respond to problems as they arise. He clarified a statement made by Rep. Packard, pointing out that the U.S. government does not send aid directly to the government of Ukraine, or any other country, but that it provides assistance through a variety of specially designed programs and exchanges.

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