pull this economy back from the break with record level of youth unemployment, more than forecast in other pumped up, does that not -- [inaudible] >> i notice absolute no welcome of the fact that today unemployment is falling, employment has gone up, and youth unemployment has come to of course it is much too high. there's far more that needs to be done, but let me just bring house up-to-date with one particular scheme the work experience came on which the evidence is now growing. 50% of his young people going into that scheme are off benefits within six months and that means it is 20 times more cost-effective than the future jobs fund. that is part of the youth contract that the deputy prime minister has been spearheading and it's been doing an extremely good job in doing so. >> today, a group of mps --

[shouting] >> members shouldn't be yelling at the audible lady. border. i want to hear what she has to say. [shouting] >> perhaps they should listen first, mr. speaker, before going. a group of mps from right across the political spectrum published a report into something that is incredibly important as to how we keep our children safe online. we think that internet service providers should do more and that the government should deliver a very strong lead on this issue. with the prime minister at least agree to read the summary of the report? >> i'm very grateful to the honorable lady who dropped off a full copy of the report to the office. she raises a very important subject. as a parent and as a politician i'm keenly help protect people from this sort of material. i have got together some the technology and telephone company's and got into look at offering a choice of blocking

all adult an age restricted content on their home internet. i think we start working with the companies to deliver these changes. we can protect more people. >> the government said it wants to simplify the tax system, so why is it introducing changes to child benefits that will bring support to the treasury select committee today has said will bring further harm and? >> i would say to the honorable lady who did very work, we have to make difficult decisions to do with the debt and deficit. and i think it's not defensible to ask people to earn 20,000 pounds, 30,000 pounds to pay their taxes so the people sitting in the south can get child benefit. i don't think that's a. i know that members opposite of going to walk through the lobby tomorrow for something that they will financially benefit from. but i have to say i think it's profoundly wrong. [shouting] >> order, order.

order. i want to accommodate backbenchers first. >> thank you, mr. speaker. the industry employs thousands of people across this country. the vast majority in manufacturing. will the prime minister listen to the plea and think again about this tax which will cripple and already suffering industry? >> i listen very carefully to the point that he makes a number of a friend the chancellor has been meeting with other yorkshire mps. but again, this is an issue about how we draw the vat boundaries fairly. i don't think it's fair that a mobile caravan pays vat but a stationary care than does not. no one is talking about putting vat on park homes that are peoples permit host but this is about a fair drawing of the boundaries to make sure we have a fair approach in our country. >> mr. george galloway.

[shouting] >> as i was saying, mr. speaker,. [laughter] there is an ironclad consensus that draws from the front bench is about what we now call a nation, but given the amount of blood on the ground and the rapidly deteriorating military situation, most of us call a war in afghanistan. in the wake of her decision to accelerate the withdrawal of australia's forces from that war, and in the wake of the bradford west election, will the prime minister reconsider his current planning on our withdrawal am is more, this bloody morgan of afghanistan? >> first of all let me congratulate the honorable gentleman understanding violation in his return to this house of commons. and i know he always speaks with great power and great force. but on this issue i have to say

i profoundly disagree with them. our troops are in afghanistan, not fighting a war against islam, but at the invitation of an islamic government and under a u.n. resolution to try and help that country to have a peaceful, prosperous and stable future. and he knows the dangers in the past are walking away from afghanistan and leaving that country to become a terrorist supporting haven that it is under the taliban. we mustn't make that mistake again. i would urge him not to play to the gallery on this issue but to speak up for the work of forces are doing to make afghanistan a safer country. [shouting] >> order. point of order. >> mr. speaker, before the prime minister -- before the prime minister leaves, the prime minister just told a house that the 50 p. rate does not raise any money, a claim which is flatly contradicted both by the documents published on budget day and treasury's own figures

published on monday. can he correct the record before he leaves the house, mr. speaker? [shouting] >> order. order. order. these matters will be the subject of debate later today. i didn't know the right honorable member, as well as i do, i would think that he was trying to use the device of a contrite point of order to continue the debate. but because i know him as well as i do, he, take it for me, i know he wouldn't be guilty of such unworthy conduct. point of order. point of order. mr. paul flynn. >> can i ask you to consider -- >> be on c-span2 we will be the british house of commons now as they move on to other legislative business. you have been watching prime minister's question time aired

live wednesdays at 7 a.m. eastern while parliament is in session. you can see this week's question time again sunday night at 9 p.m. eastern and pacific on c-span. and for more information go to c-span.org, click on c-span series for prime minister's questions plus links to international news media and legislatures around the world. you can watch recent video including programs dealing with other international issues. >> several live events to tell you about today.

>> now, part of a hearing on legislation to increase accountability in overseas contracting. the proposal is based on recommendations from the commission on wartime contracting in iraq and afghanistan. which found as much a $60 billion in waste and fraud. we will show you as much of this as we can until our live coverage of treasury secretary geithner. >> i want to welcome everyone to this hearing this morning. i know that senator portman will be arriving shortly your i did want to not keep our first witness waiting. my colleague, senator jim webb, is here to give testimony about our subject today. as a brief introductory remark,

i'm not going to go into who he is and why he is here because i think most people know who he is. but i do want to say just about why he is here, when i came to the senate 2007, senator webb and i quickly found that we had a place we wanted to work on, and that was contracting and contingencies. his background in the military was a great asset to us as we put together the were contracting commission legislation. and he and i worked on it together and succeeded back in the day before senator warner had retired, senator warner as the ranking member of the armed services committee was a tough sell. people need to remove the context of this legislation was brought forward and. it was when president bush was the president and i think it was a fear is contracting commission was a political sacrifice. and, of course, it was far from

that. it with something that was really needed to take a hard look at what had gone wrong with contracting contingencies. and to build a body of work that could change the culture around contracting and contingencies for the long haul. and i want to thank him for his friendship and his hard work on this issue and look forward to his comments today as we look at legislation trying to estimate the recommendations of the commission that we worked hard to create together. senator webb. >> thank you very much, madam chairman, ranking member, and other members of the subcommittee. i know you have got to full panels. i will be brief here. i would ask that the full written testimony that i have would be included at the end of my brief oral remarks. >> without objection. >> thank you. i am here to basically express

the strongest support possible for the movement of this legislation thank you, madam chairman, and i have worked on in different capacities, for now i guess five years. at a time when this senate is like continually bogged down in symbolic votes rather than issues of governance, i'm very proud of what we've been able to do on this issue since 2007. i would say it's been one of the great pleasures of being in the senate to have been able to get this legislation into place, the first time with wartime contract commission to help it is time which we implement some of the findings of that wartime contracting commission. as the chairman mentioned, she brought a strong background in auditing to the senate. i spent five years in the pentagon in different capacities including four years on the

defense resources board. and one of my eye openers coming to the senate was sitting on foreign relations committee in '07, we had a hearing on iraq reconstruction programs with the state department. they mention in the chest with a $32 billion in iraq's reconstruction programs that had been appropriated and were in some form of, being put into play, and they asked in a way that i wouldn't have asked if i were in the pentagon years before, to see the contracts and the amount with the contractor was, and what the state of implementation was on these different contracts. and they couldn't tell us. we worked with him for months. they could not tell us where $32 billion has been spent in a specific way where we could evaluate the results.

and that was one of the motivations that caused me to start working as avidly as i did, along with chairman mccaskill, to see if we couldn't have the management structures in place, catch up with the realities of what happened since 9/11 environment of military commitments overseas. this is a particular problem in the state department and the usaid. i don't think they had anticipated these sorts of programs before the situation that existed once 9/11 occurred. we were very lucky. chairman mccaskill mentioned, have gotten to support of senator john warner when we are advancing this legislation through the senate. he was my senior senator, was a republican. i have worked with him when i was a young marine when he was secretary of the navy. i followed him as secretary of the navy, and he, by stepping

forward and demonstrating that this was an issue with wide concern and for people like himself who had spent time in management positions and the pentagon, really helped us push this over the threshold and into reality. we had a bipartisan wartime contracting commission. i think they did a really fine job. i was disappointed a lot of the findings had been sealed up for 20 years, but the overall recommendations i think i something they will be able to work on, in terms of am planning legislation to get into management, policies and how we bring rigor to the processor i would would like to emphasize here, as i did and oppressed carbons earlier, that i believe, and i want to acknowledge that the great majority of the contractors who participated in

this process since 9/11 are not only reputable but they have really done a very fine job in an employment a lot of people had not anticipated. so this is not a piece of legislation, nor was it a major goal of this process simply to bash wartime contractors. we can get along without them. there has been an effort to put the right kind of structure into place so that we can have efficiently run, well managed, and effective wartime contracting and operational contingencies now in any future. so i was very pleased to have worked in detail on this legislation as it was developed. it has my stronger support, and i thank senator mccaskill for

a untiring efforts here in order to bring good governance into this body. thank you, madam chair. >> thank you, senator webb. i will make a brief opening statement, and then turned over to my colleague, senator portman, for brief opening statement and then we'll ask the first panel of witnesses to come to the table. on august 31, 2011, the commission on wartime contracting in iraq and afghanistan presented its final report to congress. on february 29, 2012, senator webb and i introduced senate bill 2139, the comprehensive contingency contact contracting reform act of 2012. this legislation is based on the findings and recommendations of the commission. this morning i had the honor of hearing distinguished reps as the defense department, state

department, usaid, and respected agencies inspectors general present their views on this important legislation. based on their contributions and what we've heard from many of the stakeholders with an eye and the subcommittee staff have met with over the last few months, and on and put up other centers we were advised to legislation and introduce a new version for consideration by the homeland security and government affairs committee. this legislation will increase accountability for wartime contracting and transform the way the federal government award, manages and oversees wartime contracts. it will help ensure that the ways fraud, abuse and mismanagement that we saw in iraq and afghanistan will never happen again. i want to make a few points about today's hearing. first come we're here today to seek input from the executive branch, agencies and inspectors general because we want to get this right. the subcommittee has previously met with contractors and to the

stakeholders regarding this legislation. however, major portions of this built the with accountability and responsibility for the government, and that is by design. therefore, i encourage you to share any suggestions you have to improve this legislation. second, this legislation builds on existing structures and rules to solve the problems identified by the commission. senate bill 2139 requires each agency responsible for wartime contracting to establish clear lines of authority and responsibility for all aspects of contingency contracting. it requires the department of defense, the state department and usaid to improve their training and planning for contract support in contingencies. the legislation reduces reliance on noncompetitive contracting practices and restrict subcontracting practices instead have resulted in a lack of transparency and visibility. the legislation requires agencies to conduct risk

analyses before relying on private security contractors, and determining unsustainable reconstruction and the phone projects. it also strengthens tools to combat human trafficking. this approach is pragmatic and will reduce the potential for waste, fraud, and abuse in future wars. many of the witnesses today have already testified numerous times before this committee about lessons learned in iraq and afghanistan. i commend the department, particularly the defense department, for recognizing that they have shortcomings in implementing changes. however, the commission concluded in its final report that quote, meaningful progress would be limited as long as agencies resist major reform that would elevate the importance of contracting. i want to put you all on notice today that such resistance is no longer acceptable. today and in the weeks and months to come women opportunity to make a real change in the way

government spends money during wartime. it is not too late to prevent further waste and afghanistan. and it's not too late to prevent the problems in iraq and afghanistan from occurring in the next work, whenever and wherever that may be. everyone knows that contracting in a wartime environment is not going to go away. it will be here with our nation in the future. it is imperative that we no longer make excuses, rationalizations, or hide behind existing structures to defend the gross inaccuracies that our government has displayed during contracting processes and iraq and afghanistan. we must fix these problems now while the memory is fresh, while the memory of these failures are fresh. and before the harsh lessons of iraq and afghanistan are forgotten. i remember on my first trip to

iraq on contracting oversight. i remember being accompanied by a general, a high ranking general in the army. and i remember the conversation where it was said, you know, we did a lessons learned after bosnia. i just don't know what happened to it. i want to make sure that the same sentences are not uttered during the next contingency, as we face contracting in the most difficult environments that contracting occurs. and that is, when our men and women are putting their lives on the line for our security and our freedom. i thank the witnesses for being here today, and i look forward to the testimony. senator portman. >> thank you, madam chair. i appreciate your comments, and i'm pleased that our witnesses, our experts who can give us input as you say, and it was good year from our colleague from virginia, senator webb. it's an incredibly important

hearing. it's an opportunity to examine the lessons we have learned from wartime contracting, from our experience over the last decade, 10 years in afghanistan, nine years and iraq. it's a chance to hear from witnesses on some of these reforms are necessary to improve stewardship of our taxpayer dollars. it's very challenging environment. this past august, as was noted, the commission issued their final report. in my view the commission can't do it very troubling, it was estimated by the commission that out of the $206 billion we spent on service contracts in iraq and afghanistan, which includes everything from building military installations to training election workers, between 31 billion, and 60 billion was lost to what they termed to be avoidable waste. so out of $206 billion spent with service contracts, between

31 and 60 billion lost to avoidable waste. it is difficult environment. winston churchill once said the only thing certain in more is that it is full of disappointments and also full of mistakes. that's true. it's a tough environment, but when it comes to wartime contracting we certain have a responsibility to look back and understand what reforms are necessary to avoid making more costly mistakes. this is not just a retrospective exercise of course because contractors are still very much engaged, particularly in afghanistan with, as we count them or 100,000 private contractors. even in iraq today, the departments of defense and state maintained roughly 30,000 private contractors. at this time of serious fiscal challenges and trillion dollar deficits we must do all we can to avoid waste, and to get the best possible value-added tax to go to the war contracting

commission on with a long series of inspector general report identified some of the issues we should be focus on. the challenges range from cruising -- price information which we'll talk about today, to ensure that government is getting a fair deal, to tightening restrictions on use of noncompetitive contracts, to strengthen oversight of subcontractors, too often insulated from direct accountability, in addition looking ahead, one of my practical concerns is that of sustainability and by that i mean how do we ensure that our work on reconstruction, development work and so on, will last, will be carried on by the afghan and iraqi government, and the people of those countries? the issue is critically important because it's making sure are good investments don't go bad. that means we've got to consider not only how many additional schools and health clinics we can construct but who will sustain them? to the have the medical professionals and teachers to be able to sustain them and keep them going? on this issue to wartime contracting commission was not very optimistic.

i look toward doing from about and what steps are needed to reduce this risk of future waste or against lack of sustainability. of course, beyond ensuring that wartime contracting is fiscally sound we also have to ensure it is perform consistently with our deeply held values as americans. on that score it was just turning passionate what they call the tragic evidence of the recurrent problem of trafficking of persons by labor brokers or subcontractors of contingency contractors. the report said that existing prohibition on such trafficking has failed to suppress -- coming to work for u.s. contractors only to be mistreated or exploited. one of the commission members, testified before the armed service committee here in the senate these findings were just a tip of the iceberg. both dod and state department ig told us we lack sufficient money to a clear visibility into labor

practices by contractors and subcontractors. as many of you know, that's why we recently, senator blumenthal and i, or the original cosponsors but it's bipartisan legislation, we've been joined by senator mccaskill, the chair to this progress was senator rubio, senator lieberman, senator collins, senator franken, and it's intended to strengthen the existing protections against human trafficking directly in connection with overseas government contracts. broadly defined, human contracting and forced labor and other coercive labor practices that contribute to trafficking, includes workers to leave their home countries based on fraudulent promises to limit the ability of workers to return home, charging workers recruitment fees that can consume more than a months salary and many other forms of abuse that were mentioned in the commission's report. we should be clear that the over one majority of u.s. contractors and subcontractors are law-abiding and reputable. they are doing a good job in a difficult situation. they have made it a priority to

assure that abusive labor practices play no role in the challenging what they doing in iraq and afghanistan to our proposal is designed to ensure that the best practices is adopted by this contractors because standard practice is for all contractors and they include requiring contractors to a compliance plan in place, and giving contracting officers more tools to hold violators accountable. hopefully we can work to make these comments and i'm bipartisan reforms the law of the land. we have invested heavily to achieve the goal of building a civil institutions, functioning he comes and stable constitutional governments in both afghanistan and iraq. and our military men and women have done everything they've been asked to do, and more. in iraq and afghanistan. they perform with extraordinary skill and bravery under tough circumstances. getting this overseas contracting right, especially in the area of reconstruction and development, is critical to consolidating the hard-won gains that they have achieved the

thanks for holding this thing. i look forward to hearing from our witnesses today. >> thank you, senator portman. if our first panel of witnesses would come forward. and while you were doing i will introduce you. mr. ginman retired as a rear admiral to u.s. navy after 30 years of service in 2000. prior to assuming his current position he served as principal deputy to the director of 2008-2010, and deputy director, contingency contracting and acquisition policy from 2010 until assuming the position as director. patrick kennedy has served as undersecretary for management since 2007. he has been with the department of state for 39 years and has held positions including director of the office of management policy rightsizing innovation, assistant secretary for administration, u.s. representative to the u.n., for

management and reform, chief of staff of the coalition provisional authority in iraq, and deputy director of national intelligence for management. angelique crumbly is the acting assistant to the administrator for the bureau of management to united states agency for international development, commonly known as usaid. she is a member of the senior executive service with more than 20 years of federal service and has held several key positions at usaid, including senior deputy assistant administrator in the bureau for management and director of the office of management policy and budget and performance. it is the custom of this subcommittee to swear in all with this is that appear before us. i'll ask you to stand. [witnesses were sworn in] >> let the record reflect that all the witnesses have answered in the affirmative. please be seated. we will be using a timing system today. would ask that your old

testament be no more than five minutes. your wit and testimony will be printed in the record in its entirety. i am told that we have committed a protocol gap. mr. kennedy, that under the hierarchy of undersecretary versus directors and assistant administrator that you should be first in the pecking order at this hearing so we will call on you first for your testimony concerning your input into this legislation from the perspective of the department of state. ..

>> the department worked continuously with the commission from its formation in 2008 until its sunset gaining valuable insight. we have taken many steps to improve our contingency contracting based on the work of the cwc and our own lessons learned. we are now engaged with the general accountability office on its review of the iraq transition and the cwc's final report. we have learned much from the iraq transition working closely with dod, usaid and interagency partners. on april 3 secretary clinton, addressing cadets, described the iraq transition as the largest military to civilian transition since the marshall plan.

we are now taking the lessons learned in iraq and applying them to afghanistan. state centralization of acquisitions for goods and services in our acquisitions management office which together with its two regional procurement support offices handle over 98% of our contracted dollars. the centralization of acquisitions obviates the need for the extension of policy guidance and oversight in a dispersed acquisition organization. we have hired 103 additional acquisition management staffs since 2008 using our working capital funds' 1% fee on all procurements enabling us to devote 37 support personnel to iraq and afghanistan, and we are trained and deployed more contracting officer representatives with 1 ,000 certified by the end of this

year. the secretary's quadrennial diplomacy and developing view, must now insure that adequate resources are identified early in planning. the assistant secretary must certify that planning and oversight is adequate for every service contract valued an annual expenditure of over 25 million and also verify that annual oversight continues to be efficient. we have increased accountability by mandating that contract oversight work elements include in performance appraisals of technical personnel with contract management responsibilities. all cor and government technical monitors must now complete a 40-hour training course which we updated to be more interactive, skills-based and adult learning focused. diplomatic security cors who deal with local security programs overseas, all department cors supporting dod-issued contracts for our iraq mission take additional training in the contingency

environment and in the other specialty training related to that specific contract. this insures that state personnel managing dod contingency contracts meet the dod standard. to improve our suspension and debarment efforts, we have issued details procedures and provided trainings to grant officers. suspension activities increased from no suspension in 2009 to five each in 2010 and '11 and 19 actions halfway into fy-'12. debarment activity increased from no deparments in -- debarments in 2009. this increase is due to a more active coordination between the department and our oig investigators, stronger referral activity and improved processes and focus within the suspension and debarment office. con con tin general by contracts -- contingency contracts require special vigilance -- excuse me, and issues have been undertaken at state.

contracting officers and cors are trained as our front line in preventing worker abuses, contracting officers tailor specific oversight requirements on locale, service and contract type. contracting officers travel overseas to monitor performance at the site and enforce t.i.p. programs. in some locations we have hired a direct-hire program manager or a contracting officer representative, lives on site with construction or security staff at their housing areas. new solicitation language includes recruitment plans and submission of agreements has been developed to prevent maltreatment of workers. we continue to strive for zero tolerance of trafficking in all our contracts. the department has taken a significant number of positive steps to improve our contracting function. as the cwc recommended, we have strengthened contract administration and conflict-affected states through hiring and training adequate

federal personnel to provide strong governmental oversight of contractors. the bill you have introduced has many positive elements, and we look forward to working with you on contingency contracting. thank you very much, and i look forward to your questions. >> thank you very much. i apologize for mispronouncing your name. mr. ginman, we'll take your testimony now. thank you. >> i've learned to respond to almost any pronunciation. >> i know the feeling. [laughter] >> i welcome this opportunity to discuss the contracting reform act of 2012. the impact the legislation would have, the impact the legislation would have on the department of defense. i've addressed the department's position in my written testimony, so i'm not going to repeat that now. senator mccaskill you and senator webb also cosponsored the legislation on wartime contracting, and i'd like to thank both of you for your leadership on this important topic. in their august 2011 final

report -- many of the basis for this bill. the government accountability office is currently evaluating the department's implementation of the commission's recommendations, and we have been actively providing information on our progress to them. the department has been and continues to be focused on proving operational contract support. it has been a journey, and we belief we are making good progress. the bill we are here to discuss today is another positive step in that journey. the department of defense concurs with many of the provisions of the bill, but we do have some concerns, and we would like to work with the committee to resolve those. we are committed to enhancing contingency contracting and is in favor of legislative efforts to augment the ongoing departmental initiatives to overseas contingency operations. we are especially appreciative of the 2012 ndaa coverage of

access to subcontractor records in an overseas contingency operation and the increased authorities provided that supports the joint theater support contracting command. in closing, i wish to reiterate the department's appreciation for your continued commitment to improving operational contracting. like you, the department is focused on meeting the the war fighters' current and future needs. much has been accomplished but, of course, challenges remain. thank you for the opportunity to provide you the department's reactions to this bill. i ask my written testimony be submitted for the record, and i welcome your questions. >> thank you, mr. ginman. miss crumbly. >> chairman mccaskill, ranking member portman, thank you for the opportunity to discuss the potential 'em pact of the comprehensive contracting reform act on the u.s. agency for international development. madam chair, senator portman, as you know the more than 9,000 men and women of usaid work to

provide effective economic development and humanitarian assistance in support of u.s. foreign policy goals. how we improve our contracting practices, including in contingencies, directly impacts the success and sustainability of our mission. accountability to congress and the u.s. taxpayer for the funds we use is a duty, and it is a duty that we take very seriously. in november 2011 when the administrator asked me to leave the bureau for management, he did so because he knew i was a career civil servant making things work at the agency. i focused on making our business be practices more efficient and effective with the overall goal of enhancing performance while reducing unnecessary costs, so i understand the motivation behind this legislation very well. it addresses many of the management challenges highlighted in the report of the commission on wartime contracting that you, senator mccaskill, created along with senator webb. it also addresses some of the

most important issues in our current engagements in afghanistan and iraq, and those we could contend with in future contingencies. usaid has already begun to implement the lessons learned from iraq and afghanistan. over the past two years, administrator shaw has instituted one of the most comprehensive reform packages i have seen in my time with the agency. our four reforms, as we've named them, are designed to insure that we provide a more effective business model and deliver more sustainability and results-driven development programs. implementation and procurement reform is a key element of usaid forward, and i want to note this reform agenda is compliment complimentary to many of the recommendations, so we've made great steeds is enhancing the accountability for our acquisition and assistance portfolio. for example, we are increasing transparency. we have been working actively with our department of state colleagues to make foreign assistance data available to the

american public. as a result, anyone can view usaid spending including overseas contingency operations online at foreignassistance.gov. we have been actively engaged in strengthening our oversight. in february 2011 we stood up a compliance division within the bureau for management's office of acquisition and assistance to serve as the central repository for any and all referrals of administrator actions. in just one year division has issued 102 administrative actions and recovered nearly a million dollars in taxpayer funds compared to eight such actions between 2003 and 2007. we are promoting enhanced competition. in 2010 we established the board for acquisition and assistance reform. in it first year alone, the board's relations resulted in a 31% increase in prime awardees from 29 to 38. we are broadening our partner

base and reducing dependence on any single organization. usaid has instituted several cost-saving measures, and our acquisition savings plan has yielded approximately $170 million in cost savings or cost avoidance since 2010. while we have had some difficult challenges in iraq and afghanistan, we have also achieved some significant successes. as administrator shaw noted before the cwc, in afghanistan we put more than 2.5 million girls back in school, helped rebuild the afghan civil service, aided farmers in growing legitimate crops and assisted in dramatically improving health care, particularly among women. in if iraq we have made significant contributions toward diversifying the economy and promoting women's participation in the market. with regard to your legislation, my written statement details comments and concerns that we have on specific provisions of the bill, and i am happy to address any particular section that you wish. but i'd like to take this opportunity to compliment you

and your staff for your leadership on this issue and your willingness to engage in a dialogue. because we all share the same goal; enhanced accountability in if overseas contingency operations. again, thank you for the opportunity to be here today and for your support of usaid. i look forward to our discussion. >> thank you. i'm going to really try to make an effort today to, um, take off my, um, typical hat in this committee where i'm kind of tough on folks and try to point out inadequacies and make a point by using the power of almost a cross-examination, and i'm going to really try because i really do want this to be about how we can get this legislation in a place that it's not going to be just something that is ignored or that is, you know, checking a box that we're completing the work of the wartime contracting commission. i really want this legislation to be a framework that is

workable for your agencies. and so, um, i want to underline my sincerity about getting your input, and whether it's today in the give and take of this hearing, or whether it's by members of your staff sitting down and slogging through the difficult process of going through phrases and going through sections of the bill and double checking. what i don't want to have happen is for us to get this legislation passed in it entirety or partially and then have a hearing, you know, several years down the line and realize that nobody paid much attention to it. so this is your opportunity, um, and with that will come the danger that i hope i or somebody who will sit in this chair will not let you off the hook or your agencies off the hook in a few years when you say, well, you know, that legislation just wasn't workable. i don't want those words to ever come out of the mouths of you or

your successors in your jobs as it relates to improving contracting. so with that, let me get started on, um, what is one of my, um -- i've got several overarching concerns about this, but in the interest of time i'm going to hone in on some of my quote-unquote favorites. and i mean that, um, sarcastically. let me start with, um, debarment and suspension. i think the air force has provided such a good role model for everyone as it relates to suspension and debarment. i was interested to hear in your testimony, ms. crumbly, about how you all have really stepped it up in terms of looking at performance on contracts and whether or not a suspension or debarment is something that should be considered. just to give you, um, some big numbers, according to the defense department, um, over a five-year period, um, we had --

let me get the exact numbers because i want to make sure i get it right. in 2011 the defense department found that over a ten-year period the department had awarded $255 million to contractors who were convicted of criminal fraud. and 574 billion to contractors involved in the civil fraud cases that resulted in a settlement or judgment against the contractor, many of whom were never suspended or debarred. in 2011 gao reported that the state department had only had six suspension or debarment cases with over 33 billion in outstanding contracts. um, now, look at air force. air force has had 367 suspension or debarment actions in a single year last year. the state has had six in five years. the air force suspension and ce

barment -- debarment officer is independent from the acquisition chain. so somebody who's involve inside acquiring stuff is not involved in determining whether or not there should be a suspension or debarment. the state department, sdo, does not have those attributes. the state department suspension and debarment officer has other duties involved especially, also, in acquisitions. why don't you speak to that, secretary kennedy, about any resistance or reluctance you might have to separating out the suspension and debarment officer from any duties particularly related to acquisition. it's kind of hard to be in charge of buying something or buying services and then turning around later and saying, you know, i really screwed up and gave it to a bad guy. it seems to me that separating that duty makes so much common sense, and i'm curious as to

your input on that. >> um, senator, i fully agree with you. but i believe that is the process that we have in place at the state department now. we have a head of contracting activity, a senior career, senior executive service civil servant who is responsible for all of our contracting activities. it is her responsibility to buy, and it is her warranted contracting subordinates who do all our buying. we have a separate senior executive servant, career civil servant, who we call our procurement executive. he has no responsibilities to actually buy anything. he sets the policies and the practices of the state department, but does not engage in buying. he is in charge of the suspension and debarment activities. so we fully agree with you, senator. we believe that it is absolutely

correct to split the duty of buying from the, in effect, the duty of oversight with due rpt to our inspector general who also has the larger oversight framework. so it is our procurement executive who is the debarment official and who, thanks to his good work, we've increased the number of suspension/debarments significantly as i outlined in my testimony. so we agree with you, senator. >> so in our briefing we were told that corey reiner is in the office of procurement executive, an office that also assists state in contracting for supplies and services. that is incorrect? >> he writes the policies, ma'am. he does not, he does not buy anything. he is, he is a warranted contracting officer, yes. but he does not secure any goods or services for the state department. we have hired -- it was actually my predecessor who hired him. someone with wide and deep experience in contracting because who better know how to

set policies and to discover when you should suspend or debar someone if you don't have that background. but he does not engage in procurement activities. >> would it make sense for, um, you to have somebody full time just on suspension and debarment with the amount of money that is being contracted by state? wouldn't it be better to have someone whose full responsibility was just suspension and debarment? >> he has staff assisting him, and in that staff is a professional staff, and so we believe that we have constructed a pyramid in the procurement executive of professionals who know how to write the regulations so that we can hold contractors responsible and then implement a full-fledged suspension and debarment program should it become, should it become necessary for us to take that action. so we, we believe that we are complying with both the letter and the spirit of what you put

forward because we agree with you. it is our responsibility to insure that every single taxpayer dollar is administered and used to the best interest of the national security of the unite. united states. >> okay. i'm hoping that we can get you to have somebody that is at the top of the organization of suspension and debarment. i don't know whether you need assistants under him, but who has just that responsibility because we think it's that important in terms of setting the tone, but we can talk about that going forward. um, another one of my, um, big problems is sustainability in terms of projects. and i have a -- we tried to do our greatest hits list for this hearing, and this is examples of waste, fraud and abuse on projects in iraq and afghanistan. i think if i ask all of you to guess three or four of the prompts that would make this d projects that would make this list, i'm hopeful you would know

what they were without me reminding you because it's not good. and i, i think that the notion that we have actually done a full bore sustainability analysis is just not borne out by the results of many of these projects. and i, um, think it's very important that, um, this legislation include something that requires a certification on sustainability. um, you know, i know under the foreign assistance act usaid is required to have, um, a certification. you know, that is, that is because aid traditionally has been the one doing these projects, and as we know, it's a whole new world out there with afghanistan infrastructure fund ask with what i call cerp and son of cerp and, you know, the way cerp has morphed into

something far beyond what was explained to me when i first arrived in the senate. in a report by isaf which i previously discussed, there's no persuasive evidence that the commanders' emergency response program has fostered improved relationships. arguably, it's a counter success. this legislation would impose a much more rigorous review of these projects, and i've circled several of them. i've got a usaid project in afghanistan which is the power plant, $300 million power plant. clearly, whatever certification was required it was flawed because that's not, um, sustainable. um, i've got the, um, coast guard in afghanistan, i've got the water treatment plant the state department did in iraq. it was almost $277 million that we know sigar found was

operating at 20% of capacity because of the failure of the iraqi folks in knowing how to operate or maintain it. i've got the fallujah water waste treatment system which was a state department/defense department joint project. um, is there any, is there any argument or pushback from any of you on the sustainability front that this has been failure and that even going as we speak we're building things in afghanistan that will not and cannot be sustained. >> clearly, at least from the defense department perspective, we have not always covered ourselves in glory in this area, and you've listed those examples. in august we did create the afghanistan resource oversight council. i think we're in our fourth or fifth meeting of that. um, it has, it has been chaired by alan estevez, the assistant secretary of defense and basically filling in as

principle deputy. current acting role has continued to be the chair. and sustainability has clearly been on the topic and the agenda in each of those meetings for what we can do or not do. i think when mr. kendall testified before the senate before with general bash, expressly talked about what we would attempt to do to go in familiarly in the -- particularly in the corpses of engineering when we were evaluating sustainability, it was an issue that was discussed and addressed. and i know at the osd level over a million dollars. we're asking the question up front, what's the sustainability. and so have we done it well in the past? no, senator. are we attempting to do a significantly better job as we go forward? yes. do i think we've put the structures in place to insure that we can do a better job, i think we've done that as well. >> i guess my biggest problem with this is that i know and

understand that our military is the best in the world because there's nothing, there's no mission they cannot accomplish if we set our minds to it and put the power of the resources of this country behind it. and it feels like to me that in some room somewhere there is not an acknowledgment that we are, um, using fairy dust to really justify what this country can do when we leave. and what they're capable of doing when we leave. now, i'm not even talking about the security forces. i'm not even talking about creating an army for a country that's never had a centralized army. i'm not even talking about creating police forces that are capable of sustaining the rule of law after we leave. i'm just talking about who's going to pay to fix the roads, who's going to operate power plants, i'm just talking about who's going to actually have the technical expertise on these water projects. and i -- it's just hard for me

to imagine with the gdp of this one once you take out the huge influx of american dollars, they don't have any money. and, i mean, is somebody, is somebody being brutally honest about going forward with these reconstruction projects as it relates to the reality of what this country is once we're gone? >> so, again, from aroc perspective, those three individuals are consciously looking at what are the current projects that are there, what do you think the long-term tale is. cstc-a and tma, the people who are, in fact, overseeing, you know, the training of the military forces and the ability to do it are participants in that discussion, and then from my standpoint i think we have got the right people together to, in fact, attempt to address that question. and can we, in fact, afford it and how is it going to be paid for in the future. >> we're building highways for a country that doesn't even have a

highway department. i mean, they don't even have any revenue to support their highways. um, they have no, there's no fuel tax, there's no tax out there that would sustain a highway, um, and it u.s., it's -- i just think that this sort of justification is included in this. what about the issue of sustainability, and then i'll turn it over to mr. portman. ms. crumbly, who decided a dual-fuel, $300 million power plant was a good idea in turk hill? i know that's not what it's typically called. i don't know if i'm pronouncing it right. >> request i call it the kabul power plant. >> i always say it's in the kabul. >> exactly. it was an interagency decision to move forward with the power plant, and i do want to note

that the power plant is working in terms of performing at peak or surge capacity. >> yikes. $300 million for -- that's one expensive generator in an emergency. >> no, i understand. and we have turned it over to what they call daps or the afghan utility portion of the government, so we are looking at how that can be sustainable in the long term. so it is meeting some needs in the country. you noted that the foreign assistance act requires that we focus on sustainable development, and we do do that in usaid programs. it's a key factor for consideration whenever we're developing program or projects. i would say that we've had some work to do, and we've taken seriously the cwc recommendations and, in essence, we have, um, put together a sustainability policy in afghanistan and, actually, i was talking with the deputy director of our office of afghan and pakistan affairs, and he noted that when he was out in afghanistan recently, they're implementing the sustainability

policy at the reconstruction team level. so we are taking it seriously, we are, indeed, putting policies into place, and we're looking at the longer-term sustainability in afghanistan. >> anything from state, secretary? >> i would agree that there clearly are issues. we tried to do a lot in very, very difficult environments and, obviously, we have not succeeded completely. i think my two colleagues have addressed that. the major state department activity in this regard is our police program. we are working very carefully with both the government of iraq and the government of afghanistan to insure that we are providing them the kind of training that they need and the kind of training that will have a long-term, positive impact in their police programs. we have a senior state department officer who is assigned in both iraq and afghanistan as the coordinator for foreign assistance to make sure that we are focusing on sustainability. >> okay.

>> but just as the admiral said, there is a lot that we can do better, and i believe we've learned our lessons. and we welcome the dialogue as you suggest on how we can insure that sustainability is institutionalized and carried forward. >> let me know if there's anything about the sustainability portions of this legislation that you think are not sustainable. secretary portman. senator portman. >> had a lot of titles. i can't keep a job, but it's never been secretary yet. [laughter] first of all, thanks for getting into the sustainability issue. i didn't get to hear the entire dialogue, but i think that's a critical part of what needs to be done as we talked about in the opening remarks. and i know you also talked about enforcement, suspension and debarment and other ways to have enforcement play a more credible role. i want to talk a little about database of pricing information which is something that's in senator mccaskill's bill and

has also been talked about by the wartime contracting commission. it's basically, you know, how do you get a fair price. and competition, i think, is the best way. but another way, of course, is to insure that we have a database of pricing information that is transparent, that's accessible and that is one that the agencies and departments can rely on. one dramatic example is a report that came out of the special inspector general's office in july last year which found that one department of defense contractor was charging $900 for a control switch that was worth $7, this some cases the ig found markups ranging from 2300% to 12,000%. so we've, again, had plenty of examples of this brought forward by ig reports and by the commission itself.

and, again, enhanced competition is a powerful tool. but i'd like to hear from our witnesses about the feasibility of a more systemic way to approach this issue, tracking pricing information to insure that contracting agencies are getting a good value. mr. ginman, we can start with you, that'd be great. i understand dod has established a pilot program under the director of defense pricing, and the notion here is to create a more transparent and accessible, again, accurate database on prices. can you talk about the status of that program and whether you think it's working? is it producing savings? >> certainly. so i'll start out that the department agrees unequivocally that competition is the best way to get good pricing. the pricing database -- the pricing effort, the pilot that's under the director of defense pricing is born from frequently we do not have good competition, and it's an effort to what is it

we need to do to be able to put into the hands of contracting officers when they're negotiating with companies the information they need. so examples i would give, um, the director from his former life when he speaks, um, he frequently when he would negotiate missile buys, um, with the army, navy and air force, he would be the one person at the table that, in fact, understood what the entire department was doing because the army, navy, and air force did not speak with each other well and understand. so the thought process behind the information that we are gathering is to put in one place. so when a navy contracting officer is doing a missile buy or buying a ship, whatever, for that particular company they can turn to this, they can turn to this, you know, to this database and find what was the last negotiation that was done -- >> just a few moments left in this hearing. you can see it in its entirety at c-span.org. live, now, for remarks from treasury secretary tim geithner at the brookings institution

discussing the u.s. economic recovery and future domestic and global challenges. >> secretary geithner this morning and also david ignatius from "the washington post." and all of you, welcome. it's an interesting moment when the imf and world bank spring meetings are going to take place in just a few days, and a moment of the world economy where there are some good news, particularly in the united states. but still a lot of soft spots, still europe is a big worry, and in some of the emerging markets we see a market slowdown also. so i think we're not out of the woods in terms of the world economy, and it will be, i hope, fascinating, i'm sure fascinating to listen to the exchange between david and secretary geithner. and then you'll be invited, of course, all to come in. mr. geithner's the 75th secretary of the treasury of the united states serving as treasury he served as the president and chief executive of the federal reserve bank of new

york. in that capacity he served as a vice chairman and a permanent member of the federal market committee, the group responsible for monetary policy. secretary geithner has a long career at the treasury, but also worked at the world bank -- sorry, at the imf directing the policy development and review d.. so he has very strong both international and national experience, bringing it together. secretary geithner studied international economics and east asian studies at dartmouth and ice. the event will -- sais. he writes a twice a week foreign affairs column and contributes to a blog. david has also written eight spy novels, the most famous of which is probably "body of lies" which in 2008 was made into a hollywood film starring leonardotyty cap ri pri owe and-

dicaprio and russell crowe. he became foreign editor in '93, he began writing his column in '98 and continued even during his three years as executive director of the international herald tribune in paris. ignatius worked at "the wall street journal" covering a large area of topics. he studied political theory and economics at harvard and cambridge. so welcome again, many thanks and up to you. >> well, thank you, kemal. i'm always happy to be linked to leonardo dicaprio in any public setting. mr. secretary, as kemal says, we have the imf and world bank convening here. there's great curiosity about the world economy, but i want to start with the u.s. economy and ask you about the growth picture. the imf latest forecast is for growth this year of 2.1%,

consensus estimates all seem to be under 2.5%. we had signs of faster growth in last year's third quarter, but then a slowing. and i'd like to ask you the basic question i think everybody has which is, what's going on? what's your mental snapshot of the u.s. economy right now? >> well, the u.s. economy is gradually healing, gradually getting stronger. growth has averaged about 2.5% since the recovery began. slower than the average of recoveries in the postwar period. why has it been so moderate? really the following reasons: one is the basic reality that when you're digging out of a financial crisis caused by too much borrowing, too much leverage, the economy built too many houses, you face a lot of headwinds as you work through those imbalances, and that makes growth slower than it would normally be because people are

bringing down debt, and they're naturally more cause of action cautious in that context. the weakness that induces temporarily is, should be a source of strength going forward. and as you know and many people have written, we're much further along in that adjustment process than many countries, so we brought down risk quite dramatically. you know, we're four years into the adjustment in housing, and even individuals are bringing down their debt levels quite a bit. so that's good. we also got hit by a series of pretty substantial external shocks in 2010 and '11; europe's crisis, japan and oil. those are large enough to bring down the growth rate quite significantly in the united states. and then we had, of course, the debt limit drama of last summer which was very damaging to consumer confidence at a time when the world was very fragile. those are the main reasons why recovery's been more moderate than you might have thought

about an economy coming out of this crisis. but we're making quite a bit of progress. we're in a much stronger position than we were six months, a year, eighteen months, two years ago. and if you look at the basic indicators of economic strength of the united states, what's encouraging about it is the strength is pretty broad-based. you see it in manufacturing, in high-tech, agriculture, energy. private investment growth has been pretty strong actually. even job creation in the private sector's been relatively strong since the restart, and export growth is pretty good, productivity measures pretty encouraging. where there's weakness still in the housing and construction, it's understandable. necessary as we work through these imbalances. so i think we should find that encouraging. again, just to finish this, still some risks and uncertainty ahead. obviously, europe's going through a very long, protracted, difficult set of challenges. although oil prices to date

haven't, doesn't look like they've had a materially significant, negative effect on overall growth so far, still a lot of uncertainty around oil markets. and, um, as everybody is sort of becoming aware if you look forward to the end of the year in the united states, you face the expiration of a substantial number of tax cuts, the potential impact of a large automatic cut in spending, another debt limit debate. and it'll be a big test to washington, big test of the capacity of this country to govern itself in how washington deals with those challenges. and, you know, hopefully we use it as an opportunity to make another significant step towards long-term fiscal reform at that time. but, you know, the engine of the american economy, the engine in the private sector is humming along, and obviously, more we can do to reinforce that and,

you know, we're just going to keep looking for opportunities with congress to try to get congress to approve additional measures that would strengthen the pace which we're growing and, therefore, bring the unemployment rate down more rapidly than it's coming. >> you and i were talking the other night informally about the famous keynes definition of an economy that's growing robustly, animal spirits of investors who see a chance to make money next quarter and so invest, and then you get this virtuous cycle. and we see a restraint in investor behavior. yes, investment numbers are up, but i'm wondering if you could just speak a little bit to the concern many people have that we're in a new normal, that the animal spirits are going to be less animalistic for a while. people are going to accustom themselves to lower risk, lower rates of return, it's just a different kind of economy. do you think that's a correct picture? >> well, i think there's something to that, but i think

it's probably overdone in the context of the united states. again, remember, the forces that produced the growth of the previous, of the decade coming up to the crisis were really unsustainable, untenable, and that created a set of expectations about future performance in the financial sector and other sectors of the economy that was not plausibly sustainable over time. so there's been a bit of gravity in expectations as people think about what it's going to take for us to grow in a more balanced, sustained way going forward. you know, we can't have an economy where we expect growth to come from sustained borrowing by individuals' income to finance overinvestment of housing. you know, not a plausible, not a plausible long-term strategy. so, again, i think the broad adjustment you're seeing in the u.s. economy we should find encouraging. it's more investment and export-led, it's coming with a improvement in private savings

rates. even the beginnings of improvement in public savings, public fiscal debt is coming down, that's encouraging. people are bringing down their debt burdens, financial sector's much more stable. and we have a very resilient, very dynamic american economy. you can see that, again, across the broad strength you're seeing. and i think if you look ahead the world is, i think, still at the early stage of what's going to be a long period of pretty substantial growth in most parts of the world, and we are better positioned than most developed economies to take advantage of that, and that's partly why you're seeing the strength you see today, again, in agriculture, in the manufacturing, high-tech in the united states. >> let me ask you about the year-end set of interlocking crises that you mentioned. in the newspapers we've been referring to that as taxmaggedon

with our usual restraint, but there are a lot of uncertainties that are out there, and you could argue that the president by introducing the idea of the buffett tax, 30% minimum tax for millionaires, is adding to that sense of uncertainty as we head toward year end. i want to ask you to address that question. is it just unlikely that we'll see a firming of business confidence until these issues are resolved which probably will be after our presidential election? and on the question of the buffett tax, a lot of people have wondered why the president hasn't looked instead toward more comprehensive tax reform. a lot wrong with the u.s. tax system. you could argue that equity's part of what's wrong, but why this limited approach to a big problem? >> good questions, and can thanks for raising them. you know, among the challenges we face as a country, they're

not the only challenge we face is trying to find a way to build political consensus around a balanced mix of tax reforms and spending savings to restore sustainability to our fiscal position. it's not the most urgent challenge we face, but it'll be critical going forward, and at the end of the year, you know, we have this huge incentive, huge opportunity to try to get people to come together and, again, make some progress in that direction. for that to happen, you're going to need some additional revenues through tax reform alongside some significant savings across all parts of government. health care, all the other things, you know, that dominate the spending picture of the government. and, but they have to happen together because i hi it's untenable -- i think it's untenable to ask people to bear the burden of the significant savings that are going to have to come across the government

which is going to effect all parts of the american economy and middle class families unless that's accompanied by some shift towards modestly higher burden of taxation on the most fortunate americans. i just don't see how you justify it economically, don't know how you do it politically unless you have that combined process. so what we've been trying to do is lay the foundation for the debate that's going to have to come on tax reform. the president has proposed very detailed, very complex tax changes, higher -- letting the bush tax cuts expire for the top 2% of americans and a significant limitation in the ability of those, that 2 percent of americans to take advantage of deductions and excludes in the -- exclusions in the tax code. we think that's the necessary and essential element of tax reform alongside changes on the business side that would lower the rates and broaden the base and clean up all the corporate tax code, create stronger

incentives for investment. so the two basic centerpieces of reform that are going to have to happen are ways to restore a greater degree of progressivity in the tax code with a modest increase in the effective tax rates of the most fortunate americans. that's what the buffett rule tries to do by making it clear, as many republicans have said, you need to limit the deductions in the tax code which benefit rich americans, and you want to have that alongside comprehensive reform of the business tax system which would lower rates, broaden the base and improve incentives for investing in the united states. and what we're trying to do is lay the, again, lay the broader foundation for those reforms so that when the betterings positive at the -- brgs position at the end of this year to set up a process to move in that direction can. but those should be alongside of, not a substitute for, a broader set of savings on the spending side. just one last point on this. all of the bipartisan proposals

for fiscal reform share with the president's a basic judgment they need to have spending savings alongside some modest increase in revenues. so everybody has looked at this whether it's bowles-simpson, the senate six, or the whole range of other nonpartisan or bipartisan efforts out there have all came to the same judgment, that there's no plausible way politically and no really sensible way economically to try to restore fiscal sustainability without that. and tax reform should be part of that. but it's, but it requires some spending savings too. >> so just to clarify for our audience, am i right in understanding you to be saying that the president would be interested at year end in a broad discussion about tax reform as you address the series of questions that you, that you

mentioned? >> oh, absolutely. again, you need a -- i think tax reform's coming. it's inevitable. it's necessary. it's all about the shape of it. and, you know, we're going to have to make another substantial contribution on the spending side, too, and those things should be -- they should proceed in parallel, and we're going to have to find some way to put in place a framework for doing those things at the end of the year. >> so let me shift now to -- >> could i just say one more thing? >> yes, please. >> because i think it's important. the important thing about the uncertainty that people see ahead at the end of the year, and i just would say i don't think there's any plausible argument that today in the behavior of businesses, in the broad behavior of the american economy or in financial markets you can see much evidence really any evidence of that uncertainty about the ultimate resolution of our fiscal problems materially affecting growth or behavior. that just doesn't exist today.

that might come in the future, but not today. the big source of uncertainty around this and i think what people can do to provide a little more reassurance and balance and context is around the debt limit and the potential scope of changes on the tax side. to some extent, the pace of the decline in deficits. so let me just say the three things that would be reassuring and helpful for markets to hear from politicians in washington are the following: one is that congress will pass the debt limit without all the drama and be politics and damage that republicans in congress imposed on the country last summer, two, it's important to recognize that the tax proposals we're debating would effect 2% of american individuals, taxpayers, 2%. they would involve a modest increase in the effect of -- [inaudible] those americans. about 3% of small business affected, very small fraction of the american economy affected by those changes.

and the third thing is, and this is very important too, is to recognize that when you restore fiscal sustainability like this, you've got to do it in a way which is calibrate today the strength of growth and recovery. because if you cut too quickly, if you try to bring about too precipitous a withdrawal of fiscal stimulus in that context -- and the risk is you do damage to recovery, and you undermine the objectives you're trying to lay forward. so those three things are important to recognize, and if people want to emphasize a commitment to those basic three tenets, that will help reduce some of the uncertainty around what might happen at the end of the year. >> i want to turn now to europe which is a source of great interest and some concern as the imf and world bank gather for their meetings. the imf economist in his latest analysis just out in the last

few days notes the problem of investors demanding fiscal consolidation, fiscal cuts and then getting upset at the slower growth that results from those cuts. it's a kind of a trap that if you do what you're required to do, then people are upset with you. and i want to ask you more broadly, looking at the situation and the risk of very low or declining growth, what do you think, what does the united states think is an appropriate response beyond what's being done now? >> well, excellent question. i think it's a centerpiece of the policy choices europe faces now going forward. they have put in place a stronger set of tools for managing this crisis, stronger set of financial tools, stronger firewall if you look at the combined force of the ecb and what the government's put together in terms of these funds. better stool tools -- tools, and they have governments that are doing some very tough things on the reform side, and i think the

governments of europe who are helping support those reforms have a lot more confidence in the governments of, for example, spain and italy, which is good. but very important to get that balance right between just to say it more simply, growth and austerity. and you what you want to do is avoid a situation where since there's a risk of a prolonged period of economic disappointment and weakness on the growth side in many of those countries, you want to avoid getting in a situation where since economic weakness produces in the short term larger deficits than you'd hope for, you don't want to offset that increase in the deficits with immediate, difficult cuts in spending or taxes right away. the best way to do it is to respond to those with some gradually-phased-in, medium-term plans for reform. if you try to do it all up front, then the risk is, again, you're undermining the prospects for some stability and growth,

some recovery and growth, and you may be undermining and setting back the because of reform. -- the cause of reform. in addition to that, of course, as you've heard from all these debates, it's very important there be a clean and unequivocal commitment by the central bank and the broader fiscal authorities of europe that they're going to provide the financial commitments necessary for those governments to be able to borrow at sustainable interest rates and for those banks systems to be able to fund and to function. and those two things are critically important for this very difficult, very protracted process of reform to have any chance of traction. and, again, just to etch size what the governments -- emphasize what the governments of italy and spain are doing are very difficult, very tough, but i think they're quite promising in many ways because you're seeing them confront not just the sustainability problems on the fiscal side, but -- and not just the problems in their financial sectors, but they're trying to put in place a set of reforms in the labor markets and

over the broader business community that'll make it easier for them to grow in the future, easier to start a business, for example, and to hire people. and those things are important and promising but very difficult, tough, long road, very fragile, very tough politically and important that they get a little reinforcement along the way. >> we still seem to go week by week in our monitoring of the european crisis, and so in that context i'm interested in what you're hearing as you talk over these last days with european finance ministers and with ecb chief mario da hi about what's happening in these economies. >> well, again, i would say that the really most important change that you've seen over the last six months is i would say the governments of germany and france and the ecb have a lot of

confidence in what the governments, new governments of italy and spain are doing. just to do -- that's very important. because without that it's very hard to get anything to come together. and that's very important. the other thing is they've done, as i said, they've put in place a better set of tools. they're not, they're still in the early process of building the architecture of a set of things that'll make it work over the long run, but they're in a much better position in terms of financial tools than they were just six months ago or so, and those are very important things. and the combined effects of those actions have been to calm significantly the tensions in markets that you saw periodically in 2010 and '11. but, you know, we can see every day, of course, the recognition that this is going to be a long, difficult, protracted process, politically very difficult, and it's going to require some reinforcement and sustained effort over time. >> and so to sum up, am i right in taking from what you said a

sense that europe has turned the corner in terms of the severe liquidity problems that were evident several months ago? >> well, i think what they've done is they've done a better job of, um, reassuring the world that they're going to take the risk of catastrophic failure out of the plausible range of outcomes, out of the markets in some sense. catastrophic meaning, you know, cascading defaults by governments or systematic collapse of financial systems or the dismembering of the -- they've worked very hard to take those catastrophic risks out of the market. that's absolutely essential, necessary. nothing's possible without that reassurance. they're going to have to keep working hard to do that. and even when they achieve that, they're still left with, you know, formidable, very difficult set of reform challenges. but even there they've got a better set of tools in place to help reinforce those reforms.

>> ask a final question from me, and then we're going to turn to the audience for your questions. and i'd like to ask you about the final, big piece of the global economy, and that's china. two things of particular interest now. first, the chinese announced last weekend they were widening the band within which the rnb can move, and be i'm wondering -- and i'm wonder willing and to what extent that addresses longstanding u.s. concerns about the value of the yuan and the way in which it's allowed to trade, and then more generally there's a growing discussion about whether the chinese economy is slowing. it seems to be looking at the latest figures. and so if it's slowing, whether it's heading for what we'd call a soft landing, soft decline or whether there are concerns that your analysts have, that you have that there could be somewhat more trouble ahead for the chinesec