Hearing of the Senate Foreign Relations Committee - Nominations of James Steinberg and Jacob Lew for Deputy Secretary of State

HEARING OF THE SENATE FOREIGN RELATIONS COMMITTEE - NOMINATIONS OF JAMES STEINBERG AND JACOB LEW FOR DEPUTY SECRETARY OF STATE

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SEN. KERRY: The hearing will come to order, please. Thank you.

We're all very pleased to welcome our two nominees here today. And there are colleagues in the Senate who will be introducing them, Senator Hutchison and Senator Schumer.

Senator Schumer was just bragging on me about how many New York Cabinet people he's been introducing. (Laughter.) And who was it that you announced? Oh, yeah, Eric Holder actually comes from New York, though he isn't there now. So if you count him, you've got five Cabinet members. We're delighted to have you here. And I know that Jack Lew is delighted to have you too.

Let me just say a few words to start off. And then Senator Lugar will. And then we'll give each of you a chance to make introductions. And I know you have busy schedules.

Each of our nominees today bring to the table, as is appropriate, very strong public service credentials, an impressive track record -- (audio break) -- knowing how to get things done. And I think that is what particularly qualified them for these two positions.

Let me just ask you if either of you have family -- (audio break). I see we've got some young members here, yeah. Go ahead, Jim.

MR. STEINBERG: Thank you, Senator. It's a pleasure to be here. I'll say more in just a minute. But I would like to introduce -- (audio break) -- my two daughters, Jenna right there and Emma in her lap. (Audio break, inaudible.)

SEN. KERRY: Welcome -- who has -- who do you have in your lap over there?

(Off mike.)

Okay. She's ready to speak up for herself.

MR. STEINBERG: She's ready to go, Senator.

SEN. KERRY: (Laughs.) There you go. Well, we're delighted to have you here. And we know you're very proud of your daddy.

And Jack.

MR. LEW: Senator, thank you. I'd like to introduce my wife -- (inaudible) -- who's with me, and my daughter -- (inaudible). And my son -- (inaudible) -- couldn't be here today but is with us in spirit.

SEN. KERRY: Great. Well, we really welcome you. We're delighted to have all of you here, and we know that this requires a little bit of sacrifice from all of you, too, because the hours are long and sometimes with travel involved and everything, there's a lot of giving by the families. So we appreciate that.

I think both of you obviously know the challenges that we face ahead of us. And the president's inaugural address was a fresh and stark reminder that this is a moment of multiple crises: two ongoing wars; the Middle East on fire; a non-proliferation regime facing dire challenges; a changing climate headed toward a point of no return; not to mention a financial crisis and -- the full global implications of which are still unfolding.

These challenges and others demand, and the president has promised, nothing less than a bold new era of American diplomacy. That much is clear. The question for all of us is what's the most effective way to get there? A question which in many cases will be at the center of the work of the two nominees here today.

To be effective, we understand that a surge in diplomacy must be accompanied by a surge in the capacity of our civilian institutions to meet a new and far more ambitious agenda. And that will not happen unless we match our rhetorical commitment to a more powerful State Department with a serious new commitment of resources.

Jim Steinberg, the deputy tasked with policy, has a well-earned reputation for incisive analysis. He has thought a great deal about presidential transitions, the challenges of making national security decisions in the first days of a new administration. He's a master of policy detail and, famously, a tireless worker. In short, he is more than well equipped to hit the ground running in this job.

I'm also heartened by the decision to appoint Jack Lew as deputy secretary of State for resources and management. I've worked closely with Jack on environmental issues, and know him to be both extraordinarily confident and a pleasure to work with. As the administration considers how to strengthen the civilian aspects of our foreign policy, he is going to be a powerful advocate for the State Department within the administration and before the Congress.

While the second deputy position has existed in statute for nearly a decade, it's never been filled. The Obama administration's selection of someone with stature and deep knowledge of management issues and the budgetary process is a welcome sign of the commitment to deliver on the nuts and bolts that will empower robust diplomacy.

The goal of increased diplomatic and civilian capacity building is fully embraced by this committee.

And we recognize the secretary of Defense's warnings of the, quote, "creeping militarization" of American foreign policy and welcome his demand for increased resources for the State Department to take on new missions.

Getting this right is going to require significant resources. I expect to see Jack Lew fighting for every dollar he can get for the State Department, and this committee looks forward to helping him to spend it as constructively as possible.

Money alone, though, we all understand, is not going to be enough. With greater budgetary resources come increasing management challenges. I enthusiastically support the goal; it's long overdue.

President Obama has committed to increasing our Foreign Service officer corps by 25 percent. And when our Foreign Service officers are stretched too thin and constantly working their rotations at full capacity, we end up shortchanging the kinds of training that we'd like our diplomats to have. With more officers and more staffing to support them, we can supply our diplomatic corps with new kinds of expertise in the cultures, languages, places and issues where we'd like to see greatest focus in the years ahead.

And I might add, significantly, that the public-diplomacy component of America's efforts in the last years has been significantly undermanned, underconceptualized, underimplemented. And nothing is more important to our success with respect to counterinsurgency and counterterrorism.

We also need to reexamine the laws that guide civilian programs, from acquisition to actual funding. And I'm committed to working with the new administration to explore whether the Foreign Assistance Act can be strengthened. And we believe, obviously, that it can.

Finally, as a member of the Massachusetts delegation, and privileged now to be chairman, I'm very pleased to note that Jack Lew served as an aide to Tip O'Neill, and Jim Steinberg worked for my good friend and colleague Ted Kennedy on the Armed Services Committee. So while their accomplishments since then have been remarkable, I can assure you, they began their journeys with the best in the business.

Senator Kennedy has asked me to submit statements for the record with respect to both of your nominations, and I'm pleased to do that.

In sum, Jim Steinberg and Jack Lew are first-rate public servants with the intelligence, experience and savvy to help make an historic contribution to the State Department and to the country. We wish them the best of luck and look forward to hearing from them this morning as to how they intend to help America accomplish the daunting task of revitalizing the State Department and restoring our reach and our reputation across the globe.

Senator Lugar?

SEN. RICHARD LUGAR (R-IN): Thank you very much, Mr. Chairman. As a point of personal privilege I wanted to mention that on the Republican side we'll have a meeting at 11:30 in S-116 as a part of our party rules to nominate and elect a ranking member of the committee. Members may come either in person or, by proxy, cast secret ballots on that occasion.

SEN. KERRY: Am I allowed to nominate, Senator?

SEN. LUGAR: No. No, no, no -- (laughter) -- in a word. But Dave Schopler (ph), representing our leader, Senator McConnell, will be present to administer the proceedings.

I want to also mention that we have two new Republican members, Senator Wicker and Senator Risch, who are joining our committee. They have just been announced yesterday by the resolution. And we look forward to having them with us very soon.

And it's a delight to see Senator Kaufman here this morning. He's well acquainted with the committee through long association with the vice president. And we appreciate -- and, of course, Senator Shaheen, we're delighted to --

SEN. KERRY: Senator Kaufman had a slightly more advantageous seat, but less powerful when previously.

SEN. LUGAR: I see. (Laughs.) Mr. Chairman, I join you welcoming our distinguished nominees. And I also congratulate you on success of the committee yesterday with the nomination and final word of the Senate on our secretary of State and the -- (audio break) -- on the ambassador to the United Nations, Susan Rice.

We appreciate the impressive experience and talents that these nominees bring. During Secretary Clinton's recent hearing before this committee, there was much discussion of the reinvigoration of the diplomatic option relative to the use of military force. And this was a prominent issue in the presidential campaign as well.

A debate on when to pursue diplomacy and, by implication, when to pursue military force is a logical one to have arisen given the wars in Iraq and Afghanistan, but I would offer a slightly difference emphasis today in advance of our discussion with the deputy secretary nominees.

I share the view that it's necessary to shift resources toward diplomatic tools, or so-called smart power, as some have called it, but to be effective in the long run, we must do more than demilitarize our foreign policy. We have to make it less reactive. Too often in the post-Cold War era, United States foreign policy, whether based on diplomatic or military action, has been a crisis-response exercise. Often these crises have been associated with a specific country, be it Iran, North Korea, Iraq, Russia, Cuba, Venezuela and others.

Sometimes, protecting national security does come down to a crisis response, but if most U.S. foreign policy attention is devoted to problems fomented by hostile regimes, we are ceding the initiative to our rivals and reducing our capacity to lead the world in ways that are more likely to affect our future.

I'm not suggesting the United States can ignore states like North Korea and Iran. I am suggesting we cannot afford to allow our concern with such regimes to shorten our strategic horizon unjustifiably, concentrate our resources or rob us of our foreign policy initiatives.

If the United States is to remain secure and prosperous, it must seek to shape the diplomatic and economic conditions in the world. We should be asking how do we change the rules of the game in ways that benefit stability. How do we raise costs for those pursuing a course inimicable to our interest? And how do we avoid repeatedly being confronted with nothing but bad options, one of which usually is military force?

We have a tendency to glamorize the dramatic milestones of foreign policy, military operations, summits, diplomatic crises, groundbreaking speeches. In most administrations, the secretary of State's time is consumed by such events. But the long-term effectiveness of our policy usually depends on how diligently we've attended to the fundamental building blocks of United States foreign policy, especially alliances, trade relationships, well-functioning embassies, reliable intelligence, humanitarian contacts, effective treaty regimes, and a positive reputation abroad. If this preparation has been neglected, no amount of charisma, bravado or diplomatic skill by the commander in chief and the national security team will make up the deficits.

I offer these reflections at this hearing because improving the capabilities of the State Department and developing long-term strategic plans often fall to the deputy secretaries. To illustrate what is at stake, I would cite the gradual loss of our strategic advantages in Europe, Central Asia and the Caucasus as Russia strengthens its energy-supply position and the Atlantic alliance experiences intensifying divisions. The conflicts in Georgia, and Russia's recent natural gas delivery suspension, may seem to some like distant crises, but they are more accurately perceived as manifestations of the failure of the United States and Europe working together to coalesce behind a strategic diversification of energy supplies.

In the coming years, we'll be faced with a -- with numerous problems. They'll be more acute if we fail now to employ strategic initiatives. How will we deal diplomatically with the prospect of declining oil production worldwide? Even as we attempt to mitigate greenhouse gases, we will help other regimes adapt to the specific changes in the global climate that many scientists are predicting.

Do we have a plan to double or even triple global food yields to accommodate the expected surge in demand for food? How will we reinforce the nonproliferation regime worldwide at a time when interest in nuclear power is increasing rapidly? And can we preserve and expand an arms-control regime that is at risk of deterioration? What is our plan for managing our economic-security relationships with rapidly growing nations, particularly China and India?

Now, like most secretaries of State, Secretary Clinton may have little choice but to keep her vision fixed on the crisis or negotiations of the moment. But I'm hopeful that both of our nominees today will be advocates for long-term strategic vision within the State Department and the Obama administration.

As you support the secretary's efforts, I would urge both of you to consider every day what can be done to build the capacity of the department, prepare for the likely circumstances we'll face in coming years and change strategic circumstances in ways that increase our diplomatic options and leverage in the future.

I thank the chairman, and I look forward to our testimony and discussion.

SEN. KERRY: Thank you very much, Senator Lugar, for those, as usual, important observations. And we appreciate them.

Senator Hutchison, would you please lead off with an introduction?

SEN. HUTCHISON: Thank you very much. Let me just note that I heard Senator Schumer bragging about introducing five Cabinet -- (audio break). I just want to say that I used to brag like that too. (Laughter.)

Mr. Chairman --

SEN. KERRY: And you're still a Texan. That's --

SEN. HUTCHISON: -- (laughs) -- and Senator Lugar, I'm very pleased to be here on one of my few nominations that I get to introduce now. And I'm really glad that it is Dean James Steinberg to be deputy secretary of State.

I have worked with the dean in his time at the LBJ school, and it has been wonderful. He is a visionary. Obviously, he's bright. And his resume in foreign policy is absolutely the best. He is clearly the best-qualified person for this job.

He has been dean of the LBJ school since 2006. Before that, he was the vice president and director of foreign policy studies at Brookings Institution. From December 1996 to August of 2000, he was deputy national security advisor to Bill Clinton -- to President Bill Clinton -- and served as the president's personal representative to the 1998 and 1999 G-8 summits.

Before that, he was chief of staff at the U.S. State Department, director of the State Department's policy planning staff and deputy assistant secretary for analysis at the Bureau of Intelligence and Research. He's also been a senior analyst at RAND and a senior fellow at the U.S. strategic policy at the International Institute for Strategic Studies in London.

He also is an author and contributor to many books and articles, including "Difficult Transitions: Foreign Policy Troubles at the Outset of Power", "Protecting the Homeland: 2006 and 2007" and "An Ever Closer Union: European Integration and its Implications for the Future of U.S.-European Relations."

I think we can see that he has such a depth of foreign policy experience that I know he will be able to hit the ground running at the State Department to help the secretary of State, Hillary Clinton.

He received his BA from Harvard in 1973 and his juris doctorate from Yale Law School in 1978. I'm very pleased to wholeheartedly endorse his nomination and I hope that we can have a swift confirmation so that there is a seamless transition at the State Department.

Thank you, Mr. Chairman.

SEN. KERRY: Thank you so much, Senator Hutchison. We really appreciate that. And I want you to know, you elicited the first major blush I've ever witnessed from Senator Schumer.

SEN. HUTCHISON: (Laughs.)

SEN. KERRY: Senator Schumer?

SEN. SCHUMER: Thank you.

SEN. KERRY: Delighted to have you here -- (inaudible).

SEN. SCHUMER: Thank you, Mr. Chairman. It's great to be back.

And I do want to congratulate Jim Steinberg before I introduce my good friend Jack Lew. He is a brilliant person, far-reaching knowledge and his -- he also now increases the claim of diversity in the -- in the State Department.

Anyway, it's great to be here and -- to be here with Jack Lew. I have known Jack since 1981, when I came as a young member of Congress and he was a senior staffer for Tip O'Neill. And we became friends then. He taught me a lot then, and continues to.

He comes from the Queens part of my congressional district, and his wife comes from the Brooklyn part of my congressional district. So we're old friends, I know him well, and I endorse him without qualification, unequivocally and with a great deal of pride that someone of his talent has been nominated.

Jack's an accomplished manager; great public servant; brings a wealth of experiences in government, business and academia to this. As I mentioned, he was a capable staffer in the House of Representatives and in the Clinton White House. After working in the White House on the administration's budget and fiscal policy, he rose through the ranks of OMB, spending his last three -- the last three of his eight years as director of OMB, which gives him broad knowledge of the government and of the State Department as well.

When Jack headed up the administration's budget, the country saw sound management and even sounder budget surpluses. In addition to his work in the government, he's been an adept manager in the private sector. He has also developed an impressive CV in the academic world, having taught at both Georgetown and NYU.

He's a member of the Council on Foreign Relations; sits on the advisory board of the Hamilton Project at Brookings, which aims to extend the benefits of economic growth to more Americans. He is a capable administrator, an accomplished public servant. And Mr. Chairman, wherever Jack goes, he leaves with just respect from just about everybody, regardless of their political affiliation.

He's a class act; will be a great addition to the State Department. And I want to congratulate Jack on this nomination, and hope it will move -- I know under your leadership, Mr. Chairman -- swiftly through the committee.

SEN. KERRY: Thank you very much, Senator Schumer. We thank you both. I know you have busy schedules, so we'll excuse you at this point in time.

And now I'd like to ask each of the nominees if they would make a summary statement. The full statement will be placed in the record as if read in full. And then we'll have a question period.

Mr. Steinberg -- Dr. Steinberg, do you want to begin?

MR. STEINBERG: Well, thank you very much, Mr. Chairman, Senator Lugar, and all the members of the committee. I'm humbled and grateful for the kind words of Senator Hutchison and Senator Schumer, and also the remarks that Senator Kennedy has forwarded.

As you observed, Mr. Chairman, I learned at the feet of the master about the Senate and about government and about public service, and I'm glad to hear he's doing better. And I know he's in all of our prayers.

I've been privileged over the last several years to be part of the historic Boston-Austin connection, and I hope to do justice to both traditions of public service if the committee is and the Senate is so good as to confirm me for this nomination.

I'm honored by the trust that President Obama and Secretary Clinton have shown to me by asking me to serve with them, and I can think of no greater privilege than the opportunity, once again, to serve our country.

I also want to thank my family for their unfailing love and support, and so glad that they can all be here today.

I'm also pleased to be here with my good friend and colleague Jack Lew, with whom I look forward to building a unique and productive partnership that will strengthen the State Department's ability to contribute to our national security and foreign policy goals in the coming years.

As you observed, Mr. Chairman, and as the committee notes, I had the honor of working as a staff member in the Senate for nearly five years in the early 1980s, so I know and respect the central role that the Congress plays in helping to formulate our national security strategy, and the unique responsibility and justifiably proud tradition of this committee in helping to assure a sustained and sustainable American foreign policy that bridges both parties and both ends of Pennsylvania Avenue.

I want to congratulate you, Mr. Chairman, my other home-state senator, for taking on the great responsibilities of leading this committee; and Senator Lugar, who has been a counselor to me for many years and a remarkable global leader; as well as the new members of the committee. I look forward to your advice and guidance, and to working closely with all of you and the members of your staff to meet the challenges and opportunities that we face as a nation.

As the dean of a school of public affairs, I've had the pleasure of spending the last three years with young men and women who feel a compelling call to public service. And I'm particularly pleased that a number of them are here this morning, though a bit apprehensive about what grade they will give me after the hearing is over. I'm constantly struck by their idealism and their commitment to dedicating their lives to filling the dreams and aspirations of our nation's founders, that America should be a beacon to the world.

As the first generation of the age of globalization, my students know that America thrives best when all those around the world who share our dreams and our values have an opportunity to seek the blessings we have fought so hard to secure. They also know that America is strongest when we work together with those who share our interests and our values to meet challenges like terrorism, nuclear proliferation, climate change and poverty that no nation, even ours, can successfully address alone. This is the vision that President Obama and Secretary Clinton have offered to the nation and to you, and one that I enthusiastically share.

As Secretary Clinton stressed so eloquently in her testimony before this committee, "For America to succeed in meeting the coming challenges, we must harness all the tools of American power and influence" -- what she and others have called "smart power." The State Department has a crucial role to play in underpinning U.S. global leadership. And as a veteran of the department from an earlier time, I want to pay tribute to the dedication that the many men and women in the foreign and civil service, and the locally employed staff, who so ably serve our country, and look forward to working with them again.

But no one agency or part of government can be effective unless it collaborates seamlessly with all of the components of our national security community -- with the Pentagon, the uniformed military, the White House, the intelligence community, the new Department of Homeland Security, and increasingly with our economic agencies and those concerned with our nation's health. So I also look forward to working with President Obama's entire team to build a national security strategy that is comprehensive and forward-looking; one that not only addresses the urgent crises of today, but sets us on a path to master the challenges of tomorrow, as Senator Lugar so eloquently addressed in his opening remarks.

I have no doubt that, working together, we can help assure that America's future will remain bright, something we owe to our children and generations to come.

I'm also excited to reach out to the best minds and demonstrated experience of so many of our people in the private sector, in NGOs, and of course in our universities and think tanks, to make sure that we are innovative and creative as we can possibly be in meeting the new challenges of the 21st century. There is enormous talent and commitment across our nation, and we must find imaginative ways to bring those perspectives and experience to the working of our government. This is the best way I know how to assure that the 21st century will be a century of hope and opportunity for America.

I've had the opportunity to closely study your hearings with both Secretary Clinton and Ambassador-designate Rice, so I am familiar with a number of issues that concern you all. Having served in the past as a deputy, you won't be surprised if I tell you that I concur wholeheartedly in their responses, but would be happy to try to amplify them wherever possible.

Thank you for the courtesy that you've shown to me, and I look forward to your questions.

SEN. KERRY: Mr. Lew.

MR. LEW: Thank you, Mr. Chairman.

And thank you, Senator Lugar.

And I'd like to thank Senator Schumer for the very gracious introduction, and Senator Kennedy for the kind words he introduced into the record. With Jim, my thoughts and prayers are with him, and I'm very glad to hear that he's feeling better today.

It is really my privilege and honor to testify before the distinguished members of this committee. To echo Secretary Clinton, I hope this is only the beginning of a close and collaborative relationship.

I'm delighted that my wife Ruth and my daughter Soshana (sp) are with me today. Together with my son Danny, who could not be in Washington today, my family has always supported my efforts (to ?) participate in public affairs.

As we all know, the sacrifices of public service often fall on those closest to us, on whom we rely so heavily. I'm always grateful to be blessed with a family that appreciates the importance of this work and bears the burdens with good cheer, support and enthusiasm.

I also want to thank President Obama and Secretary Clinton for their confidence in me to take on this new role at this challenging moment for our nation. I look forward to working closely with my friend and colleague Jim Steinberg as we form a team to advance the foreign policy of the United States.

With me in spirit are people who are not able to be here today, in particular my parents, Irving and Ruth Lew, who taught me the importance of participating in public life, and the late speaker, Thomas P. O'Neill, Junior, who for eight years early in my career was both my boss and mentor as I gained invaluable experience in the policy and legislative process.

Growing up on the hill, I developed enormous respect for the institution of Congress and the members of the Senate and House who fulfill its mission. Mr. O'Neill lived by simple maxims, none more important than "politics stops at the water's edge," that bipartisan consultation and cooperation are vital to our foreign policy. My commitment to both is deep and will be sustained.

In the speaker's office and at the Office of Management and Budget I had the privilege to participate from a vantage point that cut across the entire federal government. From that perspective, I have a strong view that we owe the American people performance that focuses on getting the job done, that resolves questions of policy, procedure and jurisdiction in the interest of that goal. If confirmed, I will focus on getting the job done, making sure that the department is well coordinated internally and collaborating effectively with other agencies and organizations, spending smarter as we build the capacity to achieve our objectives and deliver results.

In her testimony, Secretary Clinton laid out the opportunities for leadership that America faces and strategies to pursue those opportunities. She described smart power, using all the tools at our disposal -- diplomatic, economic, military, political, legal and cultural -- to protect our security, advance our interests and promote our values in the world. Diplomacy is the first choice, which is why the president is committed a foreign policy with diplomacy at the vanguard.

If confirmed, I will concentrate on making sure that the president and the secretary have the tools that they need to pursue and accomplish our foreign policy goals. I pledge to work collaboratively to augment the department's capacities to meet the challenges we face today. As you all know, this will not be simple. It will require internal coordination and close cooperation with other departments, particularly Defense Department, and with the relevant committees of the Congress.

Both Secretary Clinton and Defense Secretary Gates have said clearly that we must enhance and expand our civilian capacity to do results-oriented, sophisticated, hands-on diplomatic and development work.

In Iraq, Pakistan and Afghanistan, our Foreign Service and USAID professionals work on the ground to support stable, responsible governance. Civilian response capacity can lessen the burden on our military. And effective development and diplomatic work can reduce the need for military engagement, down the road, protecting our interests and saving dollars and lives.

I know that foreign assistance is especially important to this committee, as it is to the president and the secretary, who have pledged to increase our aid. Our support for development and good governance, and our role in defending human rights and alleviating suffering in the world, reflects our values and advances our interests.

With limited resources and tremendous need, we must ensure that the return on our investment is strong. Across our foreign assistance programs, we must use our resources effectively and efficiently.

We need to reduce overlap between programs and departments, articulate clear objectives and leverage resources of international organizations, allies, the private sector, foundations and NGOs, to maximize our impact. We must learn from efforts that do succeed -- that do not succeed and bolster those that work.

To achieve our foreign policy goals, we must use our resources well. But we will also need additional resources. It is not possible to have the international presence that we need at current funding levels.

There are simply not enough people or dollars to achieve our objectives. I pledge to work, with the Congress, to demonstrate that resources are being used effectively and to make the case that additional resources are needed.

I look forward to joining the dedicated and talented professionals of the State Department, who do the difficult work of conducting America's foreign policy, often enduring personal hardship and great risk. If confirmed, I will be honored to join their ranks.

Every day, thousands of Foreign Service, Civil Service and locally engaged staff work hard to protect our interests. I will work in my post to further enable them and their service to our country.

The president, the secretary and the other members of the foreign policy team have laid forth an ambitious mandate. I'm confident that with the right strategies, resources, training and tools, we will build the capacity to deliver on that mandate.

We face a broad array of challenges in the months and years ahead. President Obama and Secretary Clinton have a clear commitment to building a strong foundation for a successful foreign policy. I am grateful for their confidence and trust and eager to get to work.

Thank you very much and I look forward to answering your questions.

SEN. KERRY: Thank you very much, both of you. We appreciate your openings.

And let me just say to the members of the committee that we're going to -- we have a hearing next week. It'll be the first substantive hearing of the committee. And I'm pleased to say that former Vice President Gore will be here; he will be the only witness. And we will have an introduction, if you will, for this committee on the subject and the urgencies with respect to global climate change leading up to the Copenhagen meetings in December. And we sort of thought it'd be important to establish a baseline on the road to Copenhagen. So we look forward to that hearing.

And then we'll try to do the business meeting before that so that we will resolve all the subcommittees and the full organization of the committee itself. So I think we'll be in a position to do that -- and possibly on the budget; depends on the leadership, but we'll certainly get the other pieces done. And I want to be able to consult with Senator Lugar on the subcommittee issue, and then I think we'll be in a position to go forward.

We'll do a 10-minute round. My hope is that we may be able to do this in one round. And I'm confident our nominees would be delighted if we did that; let's see where we are. But there's no reason -- if people have other questions, we will do a second round. So I don't want anybody to feel constrained.

Let me begin the first round, if I can.

Mr. Lew, on the -- this -- the position of deputy for management and resources has statutorily existed now since 2000. Secretary Powell chose not to fill it, believing that the deputy and undersecretary structure, undersecretary for management, allowed him to have a sufficient chain of command to effect what he needed to.

I happen to support the filling of the position, and I think it's appropriate to be here. But I'd like to make sure that the reasons for doing it, they're sort of the same as the reasons that the committee supports the position, and also understand how the relationship will work between the two deputies, now, and the division of those responsibilities. So perhaps you can share that with us.

MR. LEW: Certainly, Senator. And thank you.

I think that the -- Senator Lugar actually made the case for this -- the -- this position quite eloquently in his opening remarks.

And the Department of State historically, for very understandable reasons, has been pulled to deal with the crisis of the moment. And we unfortunately live in a world with many crises.

One of the challenges of the State Department, historically, has been to concentrate on the institution-building and on coordinating programs that really project the strength of our foreign policy. And the notion behind creating the second deputy position was to have somebody at the very highest levels of the department for whom that's a full-time job.

You know, I think that Senator Clinton has made the case at this committee in her hearing and certainly she's made it privately to me that she views the building of the institution of the State Department as a paramount responsibility. The past number of years have been difficult years for the State Department and there's a lot of work to do.

In terms of working as a team, Jim Steinberg and I have been colleagues and friends for more years than either of us care to remember. And I think that, first, there's more than enough work to do. And secondly, the nature of the management team that Senator -- that Secretary Clinton has put together is it will be a team that will be in constant communication with one another, that there will be no blurring of lines of responsibility and that we'll be able to bring all of the resources to bear to reach deep into the department to try and accomplish the foreign policy goals of the president.

SEN. KERRY: Well, I appreciate that and I think those are strong reasons for doing it. Will you be responsible for actually formulating the budget, in essence, and --

MR. LEW: My understanding, should I be confirmed, my responsibilities will include managing the -- both the fiscal and the human resources of the State Department and coordinating programmatic activities across the different areas.

SEN. KERRY: And will there also be an undersecretary for management as well?

MR. LEW: Yes, there will.

SEN. KERRY: And your relationship will be that person reporting directly to you?

MR. LEW: That's my understanding.

SEN. KERRY: All right.

Mr. Steinberg, let me turn to a specific policy area, if I can, for a moment and ask you about Afghanistan. I raised that issue in the final comments with the secretary.

Many of us are troubled that our policy is not as clear and as structured as it ought to be with respect to the real mission in- country, and that there has been some mission creep, conceptual creep. And I wonder if you'd share with us, as you begin this journey, your view of exactly what that mission is and how you think the current strategy needs to be changed in order to meet it, if indeed it does.

MR. STEINBERG: Well, thank you, Mr. Chairman. I think you've obviously identified one of the most important and urgent questions that the president, the secretary and the entire administration is going to be facing.

I think President Obama has made clear that he thinks that the issue of Afghanistan is central to our national security, but that it much be seen in a much broader context, that to see Afghanistan in isolation from its relationship to Pakistan and the broader regional challenges is to miss both the opportunities and the risks that are present in this particular area.

I think he's also been clear, as he was throughout the campaign, that we need to have a clear definition of our objectives there, that there has been uncertainty about that in terms of exactly what we're trying to accomplish, what our priorities are and how we communicate that to the people of the region, to our partners in NATO, and to the American people, frankly.

There have been a number --

SEN. KERRY: I'm sorry, I was just going to say can you sort of specify that a little bit?

MR. STEINBERG: As you'll appreciate, Mr. Chairman, since -- what I was going to say is that although the Bush administration has conducted a number of reviews, I think President Obama has already made clear that he wants to take a fresh look for himself and that he wants to make sure that we have achievable and sustainable goals there; that there are lots of things that may be aspirational, but we need to understand what we can achieve.

It's my understanding that there is an expectation of a very quick, positive review to be undertaken at the president's direction to really define those objectives. And I think it would be important to give the president and the secretary an opportunity to go through that exercise, but I know they want to go through it with alacrity and be able to report back to you and to others just how they decided to prioritize and how they're going to match resources to that.

I think without taking a fresh look, frankly, without the opportunity now in office to actually have the kinds of dialogue and conversations that are not possible until you've come into office, that it may be premature to try to over-specify at this point. But I think the need to establish those priorities, to discuss them with the Congress, to establish an agreed blueprint and to match the resources to it, bringing together all the tools of our national power, not just the military, but particularly the civilian, the economic and the like, and diplomacy, I think are quite important.

SEN. KERRY: Well, I agree with that, and I'm delighted to hear that you're going -- I've urged both the secretary and the president to conduct their own baseline analysis, because I think that is absolutely critical. You got 30,000 additional troops going in there now. I think it's really important to understand -- to know with clarity how their deployment may raise the stakes, or change them, as the case may be. And I think it's very important for this administration to have that clarity about how those troops are going to be used before they even, you know, begin to get on the ground.

The narcotics issue -- I was just over there recently, and Helmand province, one province alone is providing almost 90 percent of the opium use in the world. It is Taliban controlled, fundamentally. And there's going to be a major decision that has to be made about whether or not that underpinning of all of the insurgency in the region is important enough to take on, and can American troops do it and what will the strategy be.

So obviously, those are all, I know, parts of your consideration.

Similarly, on Gaza and the current situation, we -- I think every member here is greatly sympathetic to Israel's need to defend itself against years of rocketing that was seemingly, you know -- nobody wanted to stop, obviously. But at the same time, the consequences have been to strengthen Hamas, weaken Abu Mazen, Fatah, and provide us with another difficult choice about the potential of a -- of a unity government or an isolation policy.

Can you share with us whether that sort of essential assertion may or may not have yet been made, as you folks now assume the mantle here?

MR. STEINBERG: Thank you, Mr. Chairman. I think, as you know -- and I think Secretary Clinton talked about this at some length with the committee -- getting engaged in the Middle East is a very high priority for the Obama administration.

This is something that President Obama emphasized during the campaign, the need for an active and from-the-start engagement from the United States, because there are so many risks for us there and for our friends in the region from the current situation. We've seen a bad deterioration over recent years, which threatens Israel's security and threatens our own interests in terms of a stable Middle East.

I think we're all encouraged by the fact of the cease-fire, but recognize that, one, the cease-fire is fragile and, two, without a broader framework it's going to be very difficult to maintain a stability there that is in both the interest of Israel's security and the humanitarian situation.

I anticipate, Mr. Chairman, that the president and the secretary are going to have something to say about this very soon in terms of our strategy for going forward and our method of engaging. You'll understand that I don't want to kind of steal the lead on this one. But I think that you will hear very quickly about how important they see this as an opportunity now for the United States to show its intention to re-engage, to recognize that we have a lot to contribute to dealing with the situation.

And this is a vital moment. There is an opportunity, as a result of the cease-fire and the situation that's now emerging, to try to strengthen the forces of moderation there, to try to make clear that the efforts of Hamas and others to try to destabilize the situation are not going to succeed, to work with Israel and the moderate governments of the Arab states in the region to really get this back on track. And this will be a top priority for the president and the secretary.

SEN. KERRY: Well, I know the president -- (inaudible) -- I think an announcement's going to be made today, even, with respect to it. And I won't steal thunder on it either. But I think we're delighted that that is going to begin from the beginning now. I think it's really important that that happen.

Also, are you going to appoint -- is there -- is your undersecretary on proliferation issues going to deal with the START? Are you going to have a special negotiator who's going to -- appointed with respect to START? Do you know at this point?

MR. STEINBERG: Mr. Chairman, I -- we've had some discussions about that. I think because we haven't got a nominee up before you yet, I think I want to be a little bit careful about that. But I can say more generally on START that we see a real opportunity there, that this is something -- first of all, there's a time urgency about this: The agreement is expiring. And so we need to address that.

But more importantly, as you and Senator Lugar identified, dealing with this issue of arms control and nonproliferation is of critical importance. It's an area that has been neglected in recent years. Our commitment to arms control, as an element of overall U.S. strategy, has not been -- to say the least -- at the forefront.

And I think you will see in the appointees that the president and the secretary are coming forward with, people with demonstrated experience and commitment on these things -- and -- seeing not only as an opportunity to reinvigorate this agenda, but also, frankly, as an opportunity to try to think about new ways of engaging with Russia in a more constructive way to deal with some of these problems.

So I think, again, without trying to see exactly whose portfolio it is, I think there'll be no doubt that you'll see that we understand the need to move very quickly on this. And if confirmed, I intend to be part of it, but we will have a number of officials who have specific mandates to take that on.

SEN. KERRY: Well, my time has expired, and I want to honor the times here. But let me just make two quick comments.

One, I'm delighted to hear that there will be increased focus, and we serve you notice that this committee is going to be intensely focused on this issue. We've spoken about the possibility of getting down to a thousand warheads. I think our leadership on this is critical to our bona fides with respect to Iran, North Korea, the rest of the world. If we can change those dynamics in a very public way, I think we have a much better change of being successful and achieving the goals we want. So we're going to work with you. And those will be early hearings of this committee, because, of course, the START process needs to start.

Secondly, just one caution. With the added layers of undersecretary, deputy secretary, et cetera, one of the things I know that matters over there and makes a difference to the morale and the effectiveness of the State Department is not to have a walled-off seventh floor. And I urge you to work as hard as possible to make sure that people are included and that junior officers somehow are brought into a process. I think Secretary Powell was effective at that. And I think it just flows down so that the work product overall of the department strengthens as a result.

Senator Lugar?

SEN. LUGAR: Thank you very much, Mr. Chairman.

Mr. Steinberg, I echo the chairman's thought that -- that it's reassuring that you're on top of the START treaty negotiations -- the time frame, the relationship with Russia.

I would just say parenthetically, as we discussed this with Secretary Clinton during the hearing, during my travels to Russia in December, I was impressed with the fact that this is an opportunity. And Prime Minister Putin's congratulations to President Obama were interesting, in that this is the first point that he took up as to how there might be more communication. I think that in President Obama's speech at the inaugural in which he talked about sometimes authoritarian troubled regimes and so forth, the opportunities to find those touchpoints were important, and this is one of them.

I want to start, however, by asking you about media reports that the Obama administration is considering a number of special envoys to international issues and disputes. And that is probably a good idea, but will you and the secretary commit to keeping this committee apprised of the work of the special envoys, including having those envoys testify before our committee in appropriate cases?

MR. STEINBERG: Senator, as I observed with the chairman, we'll obviously hear a little bit more, I think as early as today, from the president and the secretary on the specifics of these positions. We -- and the secretary understands how important it is to keep that line of communication open with this committee.

I think that in terms of the specific modalities, we want to work with you and the committee, but I think there is a very strong commitment to make sure that you're fully apprised, that you're fully briefed on these activities. And there is an opportunity for good interchange there, and we'll certainly work with the committee to define what those modalities ought to be.

SEN. LUGAR: Well, that would be very helpful, I think, in terms of our success in working together and following through on some of the ideas the envoys may bring back that need action.

Mr. Lew, a broad question, but do you believe the State Department currently has sufficient personnel with appropriate training, skill sets, resources, to effect the necessary work of advancing our interests around the globe, as you perceive that? And in the event that you're not, are you able, or will you be able to identify specific areas of urgent concern?

In other words, as you hit the ground running, there may be at least three or half a dozen situations in which it's imperative that something happen and you may need our assistance and vice versa.

MR. LEW: Senator, as I've gotten -- gone through the conversations in preparation for this hearing, I've developed a very strong sense that the department does not have the resources that it needs. And it goes back a number of years. It's not just in the last one or two.

I guess I want to begin by saying that the thing that I'm -- I start out most impressed by is the quality of the people that we have in the Foreign Service and in the Civil Service and in the locally engaged staff. So we may not have enough people, but we have a lot of very good people.

I think we owe it to them to give them the resources they need so that we don't ask 1,000, you know, AID Foreign Service officers to cover the whole world at a time when some regions like Iraq and Afghanistan have enormous demands. We're spreading a very small group of people very, very thin. They're dedicated. They work hard. But it's just not realistic to think that they can be everywhere at every time.

I think we're going to need to grow the Foreign Service and the Civil Service over time. It's not a one-year decision that we go from where we are to where we need to be. And I look forward to working with this committee to identifying the areas where the needs are greatest, where we can work collaboratively to get the resources.

I'm very cognizant of the difficult financial times we're in. There's probably few people more sensitive than I am to what it means to be facing the current deficit that we have. But I would argue that it is very short-sighted if we don't look at the challenge we have in terms of pursuing our foreign policy interests and, notwithstanding the fiscal conditions, invest in building the foreign policy institutions that this country needs and the new president and the secretary need to effectively implement that foreign policy.

If we look at some of the areas where you're taken a leadership role in terms of civilian response, I've been very impressed at the thought that's gone into developing an approach to have a civilian response capacity. I look at the numbers and I look at the world and the two don't match. They're just not big enough. We have to have a broader imagination if we're really going to successfully shift responsibilities back to the civilian side.

SEN. LUGAR: Well, I appreciate your comment. This is something which literally in a bipartisan team effort between our committee and our counterparts in the House and Secretary Clinton and you, we're going to have to move to correct.

You know, we had a celebration at one point in the last administration when Secretary Powell announced the Foreign Service exam would be given again. It had been stopped, unbelievably, for years, with nobody coming in. You face that problem now, just in terms of the age types and so forth as you move through the personnel of the department.

So we finally started taking on some people for foreign service. And we've been moving glacially.

But I would just say parenthetically one time, Secretary Albright called me, to ask that if I had a word with former President Clinton, it would be very helpful for him to have his own OMB, sort of up the ante because, she said, it will be sliced as soon as it comes over, to the Congress, sliced again in the second half, in the conference. And if he doesn't start big, why a role for me?

And nevertheless we go through this each time. But it's critically important, because people don't understand the capacity that is there, how big the world is, how many 150 countries we have to deal with.

Let me just ask specifically in one particular thing, we succeeded, in this Congress or last Congress, the Energy Independence and Security Act, requiring the creation of a Department of State coordinator for International Energy Affairs that I touched upon in my opening remarks.

Rather than appointing a full time coordinator, per our expectations, the administration chose a dual-hat under the undersecretary of State for Economic, Energy and Business Affairs and so forth. And thus the person dealing with energy issues remains the level of office director.

Now, hopefully we will do better. Either energy is important or is not. If, in fact, it is down in the bowels of the department somewhere, not to appear very frequently, we are not going to make an impact in the State Department on the issue. Maybe somebody else will.

But once again back to some of the basic issues, what is your general feeling about that position?

MR. LEW: Senator, we've looked at the organization of the State Department. And as we, if confirmed, take office, we'll get deeply into the specifics of each of the positions. But looking at the organization of the department's resources, to deal with economic issues, energy issues, climate change issues will clearly be a matter of high importance to the administration.

These issues are very significant issues for the United States and the world. I would ask my colleague perhaps to comment specifically on this as well. But the department is organized, in general, in a way that things are separated that often should be brought together, through a team that talks across the department.

I think that as much as the level at which things are situated, in terms of the personnel, we have to make sure that the right issues are elevated, to the very top of the department, for collaborative discussion and action.

SEN. LUGAR: Let me just elevate this, before I ask your comment.

Last summer, I traced a path around Europe, looking for -- (inaudible) -- pipeline. This is not the first time in which Europeans have thought about the fact that they would be hit if the Russians cut off the gas.

This is a question that could bring about not disintegration of NATO. But already as we visited Brussels, there were great divisions between the Baltic states -- Poland, Hungary for example and Germany and France -- on these issues and no possibility of a grid or a way of trying to solve this problem.

I had the feeling America was more interested in the European situation, than most European governments, guarding their sovereignty, and in their rivalries. Now, this is so divisive with regard to NATO and the EU. It was perfectly apparent.

(Inaudible) -- was finally sent as a special emissary. I met with him and sort of traveled along, at various points, trying to get the Turks interested in the situation, quite apart from the Azeris that have the gas.

These are critical issues. This is not a subordinate issue somewhere down the chain. This is why I sort of pressed this energy coordinator. We don't need an undersecretary of Energy, but maybe it would be helpful if it finally elevates the fact: This is absolutely vital, to the success of our alliances as well as to the security of our friends there.

But with all of that now, Mr. -- do you have a further comment?

MR. STEINBERG: Thank you, Senator Lugar. I think you have -- and for a long time have really drawn the attention of the country to these issues. And they really are central. President Obama talked a lot about this in the campaign. There is an opportunity here, as, chairman -- I applaud your efforts to bring the climate change issue to the forefront, but there is a synergy between these energy-security and climate issues, which again offers a great opportunity for us. And I think these are very much at the center of what the president and the secretory hope to do.

I'd say parenthetically that when I teach courses in policy- making, I like to use the pipelines as an example of how these different elements intersect and how economic and security and other issues all come together and develop an integrated strategy that understands all these different elements.

I had the privilege during the Clinton administration to work very extensively on the Baku-Ceyhan pipeline issue, which was another example of our trying to see in a more strategic way how energy not only meets the narrow economic needs. And I do think we have a critical need to engage better with our European allies in particular to develop an integrated strategy, because if we don't, this could become not only very divisive, but could have very serious consequences for the alliance.

SEN. LUGAR: Thank you very much.

Thank you, Mr. Chairman.

SEN. KERRY: Thank you very much, Senator Lugar.

Senator Dodd.

SEN. CHRISTOPHER DODD (D-CT): Well, thank you very much, Mr. Chairman. And my apologies to the committee and to the witnesses, not being here at the outset of your testimony.

Let me also take advantage of the moment to welcome Jeanne Shaheen as a member of the committee; and Ted Kaufman, who I've -- I almost feel he's been a member of this committee for the last 25 years, in a sense -- (laughter) -- but he's not moved up in the seniority -- (inaudible) -- along the lines; and Roger Wicker; and Jim Risch, as well, from Idaho, who's joined our committee. So we're delighted to have them as new members of the committee.

And I know these comments were made by the chairman and Senator Lugar and others. We're very fortunate indeed to have two people of extreme ability and talent to be joining this administration, and have been involved, as Jack, you pointed out, many years, going back to the days with Tip O'Neill on the House side. So a long history of solid experience. And the issues are tremendous, and they've already been -- several of them, the major ones, been discussed by the chairman and Senator Lugar.

And I'll ask consent, Mr. Chairman, to have some opening comments put in the record.

But the point that you made, and I think Senator Lugar was talking about, and that is the personnel issues. We go down the long list, obviously, of Gaza and Afghanistan, Pakistan, these issues that are -- the arms controls issues are dominant. But it all comes down in the end, in my view, to personnel, good people who are willing to reach out and listen to people up here as well as others, and framing policy positions that will advance the interests of our country. And so I'm particularly pleased you're focusing on that.

And with that in mind, let me raise, if I can, Jack, with you to begin with, the issue of contracting out, because I think it goes to some of the issues that have been raised by Senator Lugar and Senator Kerry, the chairmen. There's been an extraordinary jump in contracting out and filling gaps, at yet a great cost. Not uncommon to find civil servants leaving the department and then coming back again at a substantially higher cost to the American taxpayer through contracting.

I wonder if you might comment on that policy and what ideas you bring to that debate or that discussion.

MR. LEW: Senator, I think across the government and in the State Department, the movement towards contracting out has kind of gone to an extreme that needs to be pulled back. There are some functions that are core governmental functions that shouldn't be contracted out. There are others that are appropriate to contract out, but only with supervision by full-time government employees. The ratio now of full- time State Department personnel to contractors doesn't permit that to be properly done.

We need to now evaluate which of the categories are appropriate to continue contracting in and which are not. And where it's appropriate to continue contracting, we have to make sure that there's appropriate supervision within the department. And I view that as a high priority.

SEN. DODD: (Inaudible) -- I'm assuming you'll keep us posted on that. I think it goes to the heart of these other questions, again, of how we -- and I'm not suggesting it ought to be banned in any way at all. Obviously, it can be a very valuable way of attracting people on a temporary basis to fill gaps, but the point that Senator Lugar has made, Senator Kerry has made -- if we're going to do this job, we can't sit here and wish it away -- and that you've made as well. So I'll be very interested in how that proceeds, as one member of this committee.

Let me also raise with you another matter. A bipartisan policy advisory group convened by our committee last year analyzed and briefed Senator Lugar and myself on a series of recommendations on how our aid programs could be improved. They were very, very worthwhile meetings: how it -- made more efficient, better integrated with strategic objectives, better de-conflicted among foreign agencies and the like. I must say, I was very, very impressed with these conversations and discussions and recommendations.

And Mr. Chairman, if there's no objection, I'd like to recommend that the committee's staff brief Jack Lew on those meetings. They were very worthwhile -- I think Senator Lugar would agree -- on a range of proposals the advisory group discussed.

And then I wonder, in the meantime, if you might share with us some of your ideas on how aid programs could be improved. This is a critical component, in my view, in the world in which we live today, and I know you've given it some thought, but any additional ideas you could share with us at this moment?

MR. LEW: Senator Dodd, I share the commitment that President Obama and Senator Clinton bring to the aid programs, the development programs in general.

And I look at the array of programs that we have and see a crying need for more analysis and more coordination. I've had some familiarity with the report that you refer to, and I've seen a number of other serious studies that were done in recent years.

I think we need to make it a very first order of business to look at -- across the development programs and ask questions about what's working and what's not working and use the authorities that we have and the resources that are currently available to begin to coordinate them to make them more effective.

A lot of these programs are different at their core but overlap on the margins. We've made an enormous amount of progress dealing with HIV and malaria through the PEPFAR program, but at the edge of the PEPFAR program are building the same institutions for local health care, basic health care, basic economic development that are at the core of our AID program. And I start out with a very simple notion that each of these programs is important. It has an identity that we have to respect. But ultimately, we go overseas and we represent the people of the United States, the government of the United States. We have one flag. And we ought to be working together as much as possible.

I don't think we'll get to a place or should get to a place where we eliminate the lines between programs that are very effective. What we need to do is find the points of cooperation and collaboration where we can do things more effectively, more efficiently, if we're in the same place with common supervision, if possible, in some cases. That may not be possible in many cases -- when you're in a remote location, you can't be tied to somebody at an urban embassy or consulate. But we have to ask those questions and we have to try to demonstrate that we're doing things as efficiently as possible.

I have a very strong view that the investment in aid programs and development programs, in the long run, is the way that we leave a mark on the world about what America's values are, what our aspirations are and the kind of partners we can be. And we need to put very, very serious attention into doing as much as we can with the resources that now exist, but working together to increase the resources so that we can perform more of those functions effectively.

SEN. DODD: Well, I appreciate that very much. I don't know if Senator Lugar remembers as well as I do, but someone showed us in that discussion briefing a chart that, if you brought it out, it's the kind of thing that you take one look at it and it is startling to you.

It looked like someone had dripped linguine or spaghetti on the chart. It was just all these lines that just were terribly confusing. And your point --

MR. LEW: Yes.

SEN. DODD: -- that obviously this could be made far more efficient, far more effective and I think do us all a -- not only us but, obviously, the countries and people we're trying to help, a substantial amount of good.

Let me, if I can, shift. Let me just mention, by the way, in that context as language, coming back to the personnel issues, Paul Simon, who I served with here, some of us did, years ago, wrote a book called The Tongue-Tied Americans, in talking about our lack of language ability. And this is inexcusable in the 21st century.

MR. LEW: Absolutely.

SEN. DODD: And there are much better ways in which people can learn language skills. And the idea that the United States cannot send people abroad to serve interests and can become familiar with the language has just got to stop.

As long as I live, I'll never forget that notice or, literally, public advertisements for Arabic speakers immediately after 9/11 -- the idea that we couldn't even talk or listen effectively is just disgraceful. So I hope, whatever else the differences are, that we really do recruit, train and aggressively pursue and insist that people like Arne Duncan, the new secretary of Education, begin talking about language training in our elementary schools in this country, and take advantage of that.

MR. LEW: I couldn't agree with you more, Senator Dodd. And I remember quite a number of years ago, when Jim and I were both members of the deputy's committee at the National Security Council, being shocked at the numbers when I saw what the shortfalls were in terms of foreign language speakers that we needed to perform minimally the functions that we already had identified.

That was over 10 years ago, and we have not made enough progress. And I think you're exactly right. You can't start with 20-year-olds. You have to start at the elementary school level. And we have to have enough imagination to staff for today but think about tomorrow and the future, and to work collaboratively across the government to try and really address this problem.

SEN. DODD: I thank you.

Dr. Steinberg, quickly, let me raise if I can my -- a strong interest of mine over the years has been Latin America, and I spent a lot of time on those questions. And while there's not as dominant a set of issues, obviously, as we face more immediately elsewhere, obviously, it's tremendously important. This is our neighborhood. This is -- this is not our backyard. I resist that language entirely, and it's offensive to the people of this hemisphere to be considered the backyard of this country. They're our neighbors.

And the Merida Program in Mexico is tremendously important. Mexico has lost 6,000 law enforcement people in the last year alone as a result of the drug wars -- 6,000 people. Imagine if that occurred in this country, the reaction to that. Bob Corker and I were there together only a few months ago, and that was the subject matter all that weekend, was how we could improve that program.

The Chavez problem and issue, and how we're going to address this in the region is critically important. And changes are coming in Cuba. And some of these subject matters become so politically charged, we can't even have a healthy conversation about them. That's got to change, in my view. If we're going to speak, I think there's a vast majority of people in the hemisphere who would like to see us reassert responsible leadership in the region.

There are wonderful new leaders emerging in Latin America that we need to pay as much attention to as those with whom we have significant disagreements.

And I wonder if you might just take a minute or so and give a general kind of view of how we're going to work in this region differently than has been the case over the last several years -- number of years, in fact.

MR. STEINBERG: Well, thank you, Senator. And I think everyone recognizes the leadership that you've shown on these issues over the years and the commitment that you've made.

And I do think there is an enormous opportunity here. I think that there is a sense that there are potential partnerships, which we've long seen, going back to the Alliance for Progress, and then even during the Clinton administration, the creation of the Summer of the Americas, as a way of developing a new kind of partnership with a very mature and very dynamic region that offers great possibilities as a partner for the United States on political issues, on security issues, on economic issues, on dealing with problems of terrorism and national security as well.

So there are (sic) great potential there. And yet, without tending, this is not going to happen. And we see others trying to compete with us, spending a lot of time there -- not only leaders like President Chavez in Venezuela, but from outside the region; in the attention that China, for example, has showered on the leadership there, and spending the time, including the very senior leaders.

So if we're going to have an effect and build this partnership, we have to be present, and we have to be present at the highest levels. We have to be present with an imaginative and positive agenda, rather than just attacking those we disagree with, but really offering something better.

I think there's an opportunity as early as this spring, with the next meeting, the next hemispheric summit.

SEN. DODD: Right.

MR. STEINBERG: I think we can do and present a new image there. I think it was significant that the president, while he was still president-elect, chose to meet with President Calderon to recognize the importance of that relationship.

As a resident of a border state, I kind of really appreciate how profound our stakes are in his success and the Mexican people's success in dealing with this terrible wave of violence, linked to the drug trade. But we can't see this in isolation; we have to build a broad-based partnership with Mexico, with the other leading countries in the region. We should look to the United States to provide this alternative vision.

So I think there is a sense of yearning for a new partnership of new engagement. I think it's incumbent upon us to find imaginative ways to do that, both by demonstrating that it matters at the highest levels and also for creative ideas about how to build that partnership on economic issues, on narcotics issues, on immigration and all the issues that go into building a rich relationship with the hemisphere.

SEN. DODD: Well, I thank you for that, and the time is up, but let me mention something. Obviously Mexico is terribly important. Brazil is as important, and it's very important that we, early on, establish that important relationship, and President Lula has been a very, very good supporter of the United States in many areas, and that's not to be forgotten. I'm sure you haven't.

And, lastly, in the same sort of context, I hope that we're looking at people to serve in ambassadorial posts and the various divisions -- people who really are knowledgeable about the region. It will be very, very important those signals get sent, that we don't just rhetorically care about this but we're sending our best people, who can bring a level of understanding and knowledge to the region as well.

I thank you. Thank you, Mr. Chairman.

SEN. KERRY: Thank you very much, Senator Dodd. Let me just quickly make one point, following up on Senator Dodd. For the 25 years I've been on this committee I have heard Senator Dodd, other senators raise this issue of language. And we have heard former secretaries, assistant secretaries, deputies, et cetera sit here and say, yes, we need to do something. I've heard this in the Health Committee and elsewhere. People have talked about language. I hope finally we're really going to do something about it because it's just -- it's stunning, really, the -- almost it's a kind of arrogance maybe, or something, on our part that we don't think we have to. But we just don't know countries or understand them as well, and do as well, unless we can show a greater respect and have a greater language capacity. So I think Senator Dodd has raised a very, very important point. I urge you to do that.

And we will be -- a couple of us -- several of us are going to be going to Brazil during the February break, precisely to make the point that Senator Dodd has just made about how important it is to renew that engagement in that part of the world.

Senator Corker.

SEN. BOB CORKER (R-TN): Mr. Chairman, thank you, and I think the line of questioning and comments has been very good, and certainly I welcome the two of you here. It's great to see two young, bright people, if you will, getting ready to lead this department in the way that you are, that actually like each other, and I hope that's the case four years from now -- (laughter) -- that you continue.

You know, to follow on the questioning regarding foreign assistance, the seeds of me being here probably began years ago with a mission trip, and I do think the things you have said about our foreign assistance representing the values of this country and the importance of that all are exactly dead-on.

I also have seen on this committee a situation where, you know, every trip that's taken someone comes back with a great idea on how to authorize foreign assistance, and what really happens is we authorize numerous things and then the appropriations committee, in essence, decides, and I think that makes us much less effective as a committee because, in essence, we have this plethora of things that somebody else really decides as to whether it's important or not.

But Senator Clinton, when she was here -- now secretary -- mentioned that she was willing, during the first six months of her time, to really look at foreign assistance, to look at this spaghetti that's been talked about and really narrow it down in a way that makes what we do much more focused. And I don't know if you heard her say that, but I hope that you'll be committed to that same thing and actually come back to us and really help us to understand what you believe to be as the most effective way for our foreign assistance to be given.

MR. LEW: Senator, I did hear Secretary Clinton's remarks and agree with them. As I think you would expect, 100 percent. I would actually make the following pledge to this committee: I would like to work closely with you -- we would like to work closely with you and with the appropriators -- and we would like for this effort to look across all of the development programs to be one that's a bipartisan conversation between us. And in the end, hopefully we'll be able to perhaps move away from a world where committees of the Congress and members of the Congress don't feel as connected to some of the decisions and programs that are made at the State Department.

There's not enough money for it to be heavily designated in advance and still to have enormous flexibility in running the program, so I think it's just incumbent on us to have that conversation be an effective one so that we can use the money as effectively as possible.

SEN. CORKER: And I think that may even include some de- authorizing to really get a little bit more focus.

One of the things that I've seen recently in Africa is PEPFAR obviously -- that's where the money is today; let's face it. And like anything -- you mentioned some of the USAID efforts and how some of those overlap -- I've seen efforts by good people for good reason, because that's where the money is, to basically take a PEPFAR program and, because poverty and lots of things create the whole epidemic of AIDS, if you will, then all of a sudden micro loans and all kinds of things come under the PEPFAR umbrella. And I hope that -- and I understand why people would pursue that because, again, that's where the money is, but I hope that you will help restore integrity, if you will, so that, look, if we need money for micro loans or whatever, then monies are there, that we're not really playing games with the programs that we have underway.

You understand what I'm saying, don't you?

MR. LEW: Senator, I understand what you're saying. I think the PEPFAR program has made enormous strides dealing with the critical problem of addressing HIV and malaria. There are obviously aspects of dealing with that problem that go beyond providing retroviral drugs. And I think it's important that as we look at these programs we continue, as I indicated earlier, to ask the question, are we putting our resources against the problems that are most urgent? I must confess that it matters less to me whether a dollar is spent in a program that's called A or B than that the dollar go for the purpose that we all agree is most essential. And I think working with the authorities that we have, our challenge is to get the dollars to the places where they can be used best and directed to the problems that are most urgent, and that's why I think we need to coordinate across all the programs.

SEN. CORKER: And I think what you've said is exactly dead-on and I appreciate that.

One of the things that -- you know, most Americans look at what we do here and they think there's a -- for good reason -- a lot of politics involved in appropriations, and, you know, much of that bothers them. What doesn't really meet the eye unless they focus on it is, candidly, a lot of our foreign relations efforts are hampered sometimes by various interest groups here in Washington that basically keep us from doing things that make common sense, if you will, in foreign relations. I'm obviously intelligent enough not to identify those today at the podium, but just as, you know, as assistant secretary of State deputy, working with someone who obviously has a political antenna, and someone that I support heavily -- I think she will do an excellent job -- how do you balance putting forth a good policy, if you will, to the secretary, knowing that we have these issues that sometimes keep us from doing what is in our own self- interest because of special interest groups?

MR. STEINBERG: Senator, I think it's obviously the constituencies that we have in this country -- and in some respects they're our strength because they care about American foreign policy; they give a level of engagement which is quite important. And I think it is important to have that conversation so that the American people understand why we care so much about what happens abroad. And sometimes these constituencies really do have ties in information and access. So I think they are an important part of the process. We need to have a dialogue about it.

And I think we need to be open about different ways of achieving these objectives so that we can make sure that we understand and we're responsive to the various people in our constituencies and our polities about what's important to them, and frame that in terms of a broader national interest. I think that is the obligation of both the executive branch and the Congress, to try to find ways to both be responsive to our constituencies but also to be educators, as it were, to talk about what the national interest is. We try to fame that in that way and to advance the conversation. I think there is a bully pulpit side that elected officials and appointed officials have to undertake, and I think one of the great strengths of both our president and our now-secretary of State is that they are going to be effective in communicating not only to foreign constituencies but to the American people about how to have that broader framework and how to embed these particular interests in a broader set of conceptions.

SEN. CORKER: Let me step down from that, and we -- Senator Lugar spoke to the long-term issues that you will be focused on, and I could not agree more with the comment that he made.

I look at the issue of food aid around the world, and, candidly -- you know, and we have a farm lobby in our state too, but I look at what we do in that regard, and in essence expensive transport -- we ship foods all across the world -- when in essence, if we would help on the ground, people in those countries provide their own food and learn how to grow it and do the thing that they need to do, we would be much better off, longer term, as it relates to those countries having stability and strength, and yet that does not occur. I wonder if you might speak to that.

MR. STEINBERG: Maybe I could speak briefly, and then Jacob probably wants to comment as well.

I think the food security issue is really one of the most critical issues we're facing now. I think we've learned in just this recent crisis that we experienced just a few months ago that we've, I think, come to take for granted too much the sort of benefits that were achieved with the green revolution generations ago, and recognize that there is great fragility. It also relates very much, as the chairman knows well, to the whole question of climate change, which is it could have a potentially disastrous impact on food security in many of the most vulnerable parts of the world. So this is something we can't take for granted.

There's an important meeting going on in Madrid, I think as we speak. I'm not sure of the exact dates now, but there's an opportunity to have a better global strategy to deal with the problem of food security, and the U.S. has a critical role to play in that. It's important in terms of our being able to help countries develop a long-term strategy that isn't just the humanitarian and crisis-related strategy, but rather one that deals with some of these long-term issues. Some of it has to do with basic research and science to develop new crops, new techniques to take advantage of that. Some of it is a better global partnership to work with other countries to do this.

And if we don't see this in this broader framework beyond simply responding to the crisis of the moment, then we're going to miss both more effective ways to solve the problem, but also, frankly, we're going to find that a lot of countries that we care about are going to be subject to a lot of instability. It can cause problems for us in the political and the security side with terrorism and the like, and conflict, which comes as a result of food scarcity.

So I do think we need a broader and more urgent framework that looks over the long term, that identifies where these vulnerabilities are and has a strategy that's not going from immediate humanitarian crisis, from famine to famine, but rather looks at how we develop a more sustainable approach.

SEN. CORKER: I though Senator Lugar's comments about energy were dead-on. I just came from Russia and Ukraine and Azerbaijan, and it is amazing to me that the European Union seems to care less about their energy security than we do. It's an amazing thing to witness. And obviously the whole issue of pipelines going into Europe would be beneficial to us, okay -- I think very beneficial to them. At the same time there is this sort of pull -- you know, you don't want to irritate Russia, and that's obviously what the European Union has been opposed to do.

Just as a question -- I know my time is up, but should our emphasis be on working on these major pipelines from countries that were formerly part of the Soviet bloc that in many ways have embraced democracy and are really trying to cause themselves to be stronger independent countries, or should it be through engaging Russia and causing them to be, quote, "better actors," if you will, as it relates to energy itself?

MR. STEINBERG: Senator, you probably won't be surprised to hear that I think probably there's the element of -- (inaudible) -- to the overall strategy. That is to say, it would be advantageous to have a relationship with Russia where it felt a stake with others. There are benefits to interdependence as well as costs, and I think the strategy here is, on the one hand, to provide Russia with reasons to be a more constructive actor, to understand it by acting more constructively. It advances their interest. They have a tremendous economic stake in their energy resources, and if they behave badly, then people are going to diversify away from them and in the long term that will hurt Russia and Russia's own economic development.

So I think we have to have choices. As I said, having worked on -- (inaudible) -- it's something that I personally have felt very strongly that, as a part of a global strategy quite separate from Russia, that we need to if not have independence, which is a very difficult challenge, at least to have enough diversity so that we're not vulnerable to disruptions, not only in oil but also in gas, but also to encourage all the countries and the producing countries to understand that it's in their sake to be seen as reliable rule-of-law suppliers, and who can then become partners for us. So I think we have to work on both ends of that equation.

SEN. CORKER: Mr. Chairman, thank you, and I look forward to working with both of you. Thank you very much.

SEN. KERRY: Thank you, Senator Corker. Senator Feingold.

SENATOR RUSSELL FEINGOLD (D-WI): Thank you very much, Mr. Chairman. Let me start out by saying that as this new administration begins to reassert our diplomatic strength and restore America's leadership abroad, I think it's clear that the nominations of James Steinberg and Jacob Lew are critical to that effort. I expect Mr. Steinberg and Mr. Lew, if confirmed, will work closely with Secretary Clinton to help rebuild the State Department so it can once again assume its role as our lead agency on the international stage. Developing smart interagency policies while also ensuring that the department is adequately resourced is critical to our national security.

As we've seen over the last eight years, without properly resourcing the State Department, gaps emerge that lead to fragmented and often ineffective policies. I'm pleased that President Obama and Secretary Clinton have decided to fill the deputy secretary position, mandated to focus on resources and management. It sends a strong message about the central role of the State Department under the Obama administration. And, as I said, I'm very happy to be working with both of you on this. And I understand that there has been conversation already about the lack of adequate personnel in this area, and I want to follow on that.

In 2006, then-Secretary Rice gave a speech at Georgetown University, noting that among the many goals of President Bush's Transitional Diplomacy Initiative was the need to, quote, "hire and train new staff, move our diplomatic presence out of foreign capitals and spread it more widely across countries, working on the front lines of domestic reform as well as in the back rooms of foreign ministries.

And while there was some progress on this initiative under the Bush administration, much more needs to be done to enhance the U.S. presence in places where threats to our national security exist or may emerge. So, Mr. Steinberg, I'm interested first to hear your thoughts on how, if confirmed, you'd seek to bolster, shift or expand U.S. diplomatic presence abroad. And, Mr. Lew, how will you seek to support this effort in terms of distribution of resources?

MR. STEINBERG: Thank you, Senator. I think you put your finger on something that is really critical for us because I think if we're going to be effective in this move towards smart power, then we have to understand how we reprioritize our resources to be able to achieve that. And I think that there are elements that the committee and a number of your colleagues have been talking about already about both the need to respond to crises, but also the long-term strategy, and this redeployment and focusing is very much a part of that long-term strategy. If we only think about the crisis of the moment, then we're not prepared as new challenges emerge. And we've seen this time and time again, that issues that were not immediately on the radar screen don't get the attention they deserve.

I know of your interest in East Africa and Somalia and the like. During my previous service I was the deputy assistant secretary in the Bureau of Intelligence Research during the challenge we faced in Somalia at that time, and when I came to -- I recognized that we had very, very little knowledge and presence in that bureau and in the department about Somalia, and yet it turned out to be a place where we had great challenges and we needed to think about that.

So the idea of looking forward and trying to figure out over the long term where our priorities need to be, how do we anticipate some of these challenges, and then judge how we have sort of assigned resources to take care of not only those current needs but also those long-term challenges I think has to be very important and part of a strategic planning strategy that I think the president and the secretary are very committed to, and if confirmed I look forward to being part of that.

SEN. FEINGOLD: Thank you. Mr. Lew?

MR. LEW: Senator Feingold, I believe strongly that resources have to follow priorities. The decision of where we need to be and what kinds of skills we need have to fit into a comprehensive strategy. We were talking just a few minutes earlier about food assistance and about foreign languages. These are just a few examples of areas where we know we don't have the resources that we ought to be putting out into the embassies, into the non-urban areas. We need to train people to do things like basic agricultural assistance if they're not there.

We need to work with our other Cabinet agency partners. There are 20 government agencies that have resources that work in or through our embassies. We don't need to recreate the wheel; we need to cooperate with each other and make sure that we have enough Foreign Service, civil service and locally engaged staff so that we can effectively coordinate the efforts that the United States puts on the ground.

I think that it all begins with the strategic planning process. If we don't have a clear vision of what we need and what we want, we're not going to be able to make the right resource allocation decisions. And we have to be able to look beyond this week, next week, or even next year. Some of these skills take longer to get out there and to recruit the people, to deploy them effectively. We need to take a long view, and it doesn't mean we put off until tomorrow beginning to take action. There are some steps we'll need to take right away, but we have to pay attention to where we need to be 18 months and two years from now as well.

SEN. FEINGOLD: Well, my next question really relates very much to what you just said, and that's, I think, our expansion of our U.S. diplomatic presence abroad actually serves a second purpose that is at least as important as diplomacy. The more I work on these issues and the more I travel different places, I realize -- (audio break) -- capacity to gather information that can be critical to our national security and is necessary to inform our foreign policy decision- making. And of course here I'm talking not just about intelligence; I'm talking about a much broader category of information.

Mr. Lew, what steps would you do to ensure that the State Department has the reach and the resources to increase diplomatic reporting analysis and relevant dissemination?

MR. LEW: I think, at a very fundamental level.

We need to reach not just into the building but all the way into the field and make it clear that we have every intention of bringing the resources of the State Department to bear as we deal with these kinds of problems and challenges abroad, that we have knowledge in our embassies, in our consulates, about a range of issues, not just political issues -- economic issues, scientific issues, cultural issues -- that give us the broadest understanding of what's going on in an increasingly global world.

Earlier we were talking about the need to reach in and have junior officers be involved. That's something that I think we're all committed to, that we reach into the career Foreign Service, Civil Service, and involve people when it's appropriate.

I know when I was OMB director, I had the most junior policy analyst in a meeting with me if they were the one who had the most information. I didn't do it to go around their branch chief or their division chief. I had them in the room also. But I always wanted the person who knew the most. And I found it sent a powerful signal in the organization that we respected the work that people did, and I think it motivated people to work even harder, if it was possible, than they already did.

SEN. FEINGOLD: Mr. Steinberg?

MR. STEINBERG: Senator, I think that one of the -- again, from my experience at INR, one of the things that I found was that although we have a very strong intelligence community, that there is a tremendous resource of people who've lived and worked out in the countries that we're dealing with and that, for a variety of reasons, the intelligence community is not always the best equipped to do that. They bring their own special skills. But the Foreign Service officers, and also people from outside the government, are enormous sources of information and value.

And we need to find better ways, in my judgment, to have more contact with people in the private sector, from the NGOs, from the business community, from universities and the like, as part of our being able to touch and feel what's going on on the ground. I think we have -- so many of the young people that I've been teaching at the LBJ school have lived and worked in these countries, and then they come into school. They bring a kind of experience and a ground truth which is often lacking from more formal channels. And so I think we have to find ways, both with the resources we have and creative ways of having more movement back and forth between government service and other experiences to get that benefit.

SEN. FEINGOLD: Let me follow more specifically. One gaping hole in this process is a lack of strategies to integrate all the overt ways in which our government gets national security information, particularly from diplomatic reporting with that collected by the intelligence community.

I feel very strongly about the role of the intelligence community. I'm a member of the Intelligence Committee for several years, and that's, of course, incredibly important. But until we fill this hole and identify who is best suited across our government to obtain the information we need to inform our policies and protect our nation, we'll never be able to use our resources wisely or effectively.

And that's why, in the last Congress, the Senate Intelligence Committee passed legislation by myself and Senator Hagel to create an independent commission to recommend ways to fix this long-standing systematic problem and why a broad range of former officials, including national security advisers from both parties, have endorsed this legislation.

I'd like to ask both of you whether you'd support the establishment of an independent commission to recommend how the U.S. government as a whole can more effectively collect and analyze all the information we need. Mr. Steinberg?

MR. STEINBERG: Senator, as I said, I certainly believe that the mission that you've identified is a really important one. I'd like to take a look at the specific proposal and obviously work with my colleagues, both at the State Department and others, to talk to you about what the best way forward is. But I think it is a mission and an objective and a concern that you've raised which deserves our serious attention.

SEN. FEINGOLD: I realize you might not be able to endorse legislation right now, but it would be very useful to find out soon if you can, because this has passed the Intelligence Committee on a bipartisan basis. I think it has a lot of support. So the earlier we could move in that direction, the better.

Mr. Lew?

MR. LEW: I think this is an area where, in principle, we all agree, coordination to the greatest extent possible. And we have to, if confirmed, take a look at the details of it and get back to you.

SEN. FEINGOLD: Thank you, Mr. Chairman.

SEN. DODD: Thank you very much.

Senator Isakson.

SEN. JOHNNY ISAKSON (R-GA): Thank you much, Senator Dodd.

Mr. Steinberg, I very candidly was very impressed with our meeting last week. You're better than your resume in person. In particular, I want to reiterate one thing we discussed, and I think Senator Clinton brings -- now Secretary Clinton -- brings exactly the good quality experience that's going to make her a good secretary of State in the United States.

But one of the things that was so clear was experience. And I questioned her, when she was here, about during the campaign the issue of preconditions and negotiations, and particularly as it involved the Middle East. And I was very impressed with your response on that subject in my office.

But I hope, with this newfound leverage that we have right now, and particularly in the Middle East, with the desire of the president to engage and the critical issues following the Gaza incidents over the last month, I hope we will put meaningful preconditions that will put a stop to some of the root problems of the continuing violence. Example: The Philadelphia corridor out of Egypt into Gaza, where so much of the materiel has evidently flowed in and out of Gaza.

So I think preconditions like insisting on the Palestinian Authority or whomever else we may be negotiating with, stopping the root problems of violence from their side, can help us get people to a meaningful negotiating table for a meaningful peace for both sides.

MR. STEINBERG: Thank you, Senator. I certainly enjoyed our conversation too, and thank you for the kind words.

I think, as you and I discussed, that while President Obama has made clear that with respect to trying to engage governments around the world, that there are circumstances in which he does not believe we ought to have preconditions. He made very clear that he does not think an engagement with Hamas is appropriate because of their support for terrorism and the like.

And I think it's very clear, as you identified, that if we're going to deal with the problem of Gaza, that there is a need to deal with this problem of smuggling. This is a problem which will continue to exist if we don't find a way to get at the root causes. And I think that the president and secretary are very eager to engage with the key countries in the region who can play a constructive role in helping to do this, to provide a broader framework that deals with these underlying problems that have caused the most recent crisis.

I think it's an opportunity now for us to use dialogue and diplomacy where we can to take that forward, but also to make clear that there are circumstances that do threaten not only the security of Israel but matter to us as well.

SEN. ISAKSON: Thank you very much for that answer.

Mr. Lew, you're the first person to fill this position. Am I right? It's been vacant for 10 years since it was created. I was reading a little bit about the description of the position and I was thinking back to President Obama's admonition to go by the budget line by line and find efficiencies where we can and priorities where they need to be established.

It sounds like, from the description in my briefing papers, that's going to fall under your responsibility. Am I right?

MR. LEW: Senator, I'm going to be responsible for taking a very detailed look at the budget of the State Department and ask the tough questions about how well the resources are being used. I can't say that I start out with preconceptions about that, except the admiration of a lot of people in the agency who have been working very hard and very well. But we're going to have to ask tough questions and learn from what's worked and what hasn't worked.

SEN. ISAKSON: Well, having been director of OMB and currently working for Citibank and investments, you're probably the prime person to have done that. You've got the background for it. And I think that's something we need to do in every department of the federal government.

MR. LEW: Senator, when I was director of OMB, I prided myself on not just paying attention to the very large programs. I thought that the example that you set in that position was how much attention you paid in some cases to the smaller issues, but where there were real principles at stake. I think that we have to treat the public resources that we spend as a sacred trust. The American people work very hard, and we have to work as hard to spend the resources and allocate the resources carefully and effectively.

SEN. ISAKSON: I notice in your resume that you're the chief operating officer of alternative investments for Citibank. Is that correct?

MR. LEW: Well, I was. I --

SEN. ISAKSON: Or you were.

MR. LEW: I concluded that.

SEN. ISAKSON: That's your most immediate past.

MR. LEW: My most immediate past.

SEN. ISAKSON: Tell me what kind of alternative investments those were.

MR. LEW: They ranged from private equity investments to real estate investments and various forms of fixed-income investments.

SEN. ISAKSON: So not much of international security trading?

MR. LEW: Not directly. Some of the investment funds had international -- there was an international fixed-income fund and an international private equity fund, but they were really managed offshore.

SEN. ISAKSON: The reason I ask the question is we've talked about energy security. We've talked about food security. We've talked about climate security. I think economic security is the pending next thing to affect international relations because of the gravity of the worldwide economic condition. So your information and your knowledge in that should be very helpful to the department.

MR. LEW: I bring with me 25 years of experience in economic policy, only two years in the financial services sector. So I would say that it's been an eye-opening experience to me, the two years I've been in the private sector. The bulk of my experience has been dealing with macroeconomic policy, fiscal policy. And I must say that I have come back -- if confirmed, I will come back into government with a renewed respect for the quality of analysis that goes into public policy decisions that we all make.

SEN. ISAKSON: Mr. Steinberg, my last question before I have to leave. Talking about foreign aid, you and I had also had some conversation about a return to the American people on the investment of foreign aid.

And I think there's probably no better example of that than the continent of Africa which I think in the 21st century it's going to be THE continent of focus, certainly in the first 50 years.

And a lot of our foreign aid flows through NGOs, contractors in those countries who deliver educational or agricultural or other services. Do you think we can better leverage our foreign aid in developing countries like Africa to have it have a payback or a dividend in terms of friendship back to the United States of America? Don't you think that's something we ought to focus on and make an important point on?

MR. STEINBERG: Senator, I think, as you and I discussed it, this can happen on two levels which is, one, I think there is an enormous benefit to the United States when we are seen not only advancing our own interests but being concerned about others. In my opening statement, I indicated that I believe very strongly that we're going to live in a better and safer world for our own interests when everybody who shares our values and interests are benefiting from the kind of prosperity and opportunity that we believe in.

More practically, again as you and I discussed, the success of these countries, in Africa in particular, means new opportunities for us for trade, for investment and the like. So this is a win-win situation in which we can build new friendships, be seen as being responsive to the needs of these countries and creating an environment which is good for our business and opportunities for us, for our firms and our workers.

So this is something where if we want to succeed -- and globalization can be very much to the benefit of the United States -- we have tremendous advantages competitive advantages in a globalized world. But we can't do it if we're the only ones who are succeeding -- (inaudible) -- partnership is important.

And one of the things we've learned very much is that while there is place for dealing with government to government, I think we get enormous benefit from working at the grassroots level with the NGOs. They understand the local conditions there. They're responsive. We're able to reach down to the people. And so while it may be appropriate in some cases to work with governments, I think one of the lessons we've learned with the Millennium Challenge Corporation and others is that there are great partnerships to be had out there that not only lead to more successful programs on the ground but also create substantial good will for the United States.

SEN. IASKSON: Well, I just feel like on that continent it's important for us to win the hearts of those people before other people with bad intentions with their hearts, and a lot of that type mentality is to win people over by feeding, clothing them, housing them then use them politically, much to their detriment.

So one thing our State Department can do on the Horn of Africa and other places where you have a lot of poverty like that is to really make an investment in those people, in their lives, their health, their well being and their food.

Thank you, Mr. Chairman.

SEN. DODD: Thank you, Senator, very much.

Senator Cardin.

SEN. BENJAMIN CARDIN (D-MD): Well, thank you, Mr. Chairman.

And let me first thank Mr. Lew and Mr. Steinberg for your willingness to serve during these extremely difficult times. We very much appreciate your public service. And I want to particularly thank your families for putting up with the sacrifices that will be necessary. So we really do appreciate it, and we need you, we need you a lot.

You've already indicated that you're very familiar with the questioning during Secretary Clinton's confirmation hearings. And I just want to echo the point that some of my colleagues have made about the Middle East and Israel and how urgent that that issue is today for all of our attention.

I want to underscore Darfur and the Sudan. The secretary indicated the need to make sure that the personnel commitments are made to that region to stop the human rights violations and genocide. I would just add one other part to that, and that is war crimes. It is clear that war crimes have been committed. I think we need to pursue that. We have not yet completed our commitments to the international tribunal for the former Yugoslavia. And there are still (indictees ?) that have not been apprehended.

And I just want your commitment that we will pursue these issues and you will work very closely with this committee as to how we complete our responsibility to make sure those who've committed war crimes are held accountable, both in the Sudan and in the former Yugoslavia.

MR. STEINBERG: Senator Cardin, thank you for that. Again, during the Clinton administration, I had the opportunity to work very closely on the question of the Balkans and know the powerful and I think extremely important role that the international tribunal played with respect to the former Yugoslavia. I think it was really transformative to that overall effort, that we established very clearly what the international rules were and the international consensus against the terrible war crimes that took place there.

And we're seeing now in Africa the extension of that, which I think is very important. And both President Obama and Secretary Clinton have made clear that this is something that they see as part of American moral leadership to support these efforts. And so, if confirmed, I look forward to working with you and the secretary to look for ways to make sure that we keep the committee informed and that this remains the central element of our overall approach, both to the problems in the Sudan and elsewhere.

SEN. CARDIN: Thank you. I appreciate that. Let me go to international organizations. I've talked to the secretary about our participation in international organizations. I think they're very important. But I also think we need to look at reforms to meet the needs of the 21st century.

And by reforms, I'm referring to not only reforms within the organization but how the United States participates within the organizations. I'm very familiar with the OSCE. I will be honored to chair the Helsinki Commission for the next two years. I think that's a very important organization.

But for all of our participation in international organizations, we have the inherent issues and challenges of working with our mission that's delegated to the organization, the career people at State Department and the Congress. Now, at OSCE we have the Helsinki Commission which makes it a little bit easier because there is legislative and executive participation there.

The Helsinki Commission has been very helpful in moving forward issues that are important to the United States, whether it's been in fighting the trafficking of young girls, antisemitism, dealing with election monitoring, (field missions ?), there's a lot of issues that we have moved forward.

My question to you is I would like to have your commitment to work with us as to how we can be more effective within these organizations. I think OSCE could play a critical role in dealing with Russia as Russia is a participating state, and I think they feel that they have a better opportunity within OSCE than perhaps some of the other organizations. And I think we could enhance our objectives with our relationship with Russia, making it more effective.

I think it could be very helpful in dealing with the refugee issues which is an area that the United States really needs to play a more aggressive role internationally.

So let me start with Mr. Lew, if I might. We had a conversation about this, but I think you could play -- you mentioned in your opening statement here that you want to coordinate the roles. Now, here you have a problem sometimes between the career people at State Department and the mission we have in Vienna and the politics of Congress. And it's a challenge that I hope you will undertake.

MR. LEW: Senator Cardin, the challenge of dealing with international organizations is obviously a very significant one. We have to look at our own participation. We have to pay our bills. We have to be involved early and in a sustained way. And I think we have to keep our eye on, are they focused on dealing with the challenges of today?

With OSCE, I remember working when you were in the House, working together when the issues were human rights. And the Helsinki Commission played a vital role in keeping those issues on the public agenda and on the international diplomatic agenda. As the issues have changed, as we were talking the other day, energy issues are perhaps more prominent than some of the human rights issues. The trafficking of women is certainly a human rights issue as well.

I think we have to treat our involvement in international organizations very seriously. And we have to use it as another arena in which we can demonstrate both our partnerships and our advocacy for the principles that are most important to us.

SEN. CARDIN: I would just underscore the point, the involvement of the deputy secretary will make a huge difference in trying to be as most effective as we can in promoting U.S. policies by use of these organizations because there is a bureaucracy that has been established, and well intended, including the bureaucracy of the organization itself. And I think the attention of the deputy secretary can make a huge difference. And I'd just urge your personal involvement in that.

MR. LEW: Thank you. And frankly, the fact that we now have two deputies will free us up to be in more places and, if confirmed, with the secretary's direction, will be on the field in as many places as we humanly can.

SEN. CARDIN: I appreciate that. Let me move, if I might, to energy (with ?) both of you. I talked to the secretary about the problem of extractive. We have a transparency initiative with countries that are mineral rich but relatively poor, in some cases very poor, as to the mineral wealth getting to the people itself. These are some countries that we have foreign aid with. We're giving U.S. foreign aid plus they're mineral wealthy. And the lack of transparency in dealing with their mineral wealth is complicating the progress that the United States would like to see in that particular country.

There's international initiative for transparency. And I would just like to get your views as to how important you see this issue in dealing with the energy issue and dealing with poverty and dealing with U.S. objectives in foreign assistance, whether you will give this a priority if you are confirmed.

Mr. Steinberg.

MR. STEINBERG: Senator, I think you've -- I know you've been long concerned about it. And it's one which I think it's pretty clear right now that the danger of these various resources curses are a big challenge because they theoretically offer a great opportunity to help lift people out of poverty and create opportunity but have often proved by a source of corruption, a source of lack of transparency, as you say, and indeed of conflict. And we've seen it in many cases where the failure to have transparency has led to corruption and conflict in critical regions throughout the world.

We need to find effective ways to work with these countries to provide positive incentives for them to move in a more effective way, that allows them to conserve their resources, to use them effectively, to make sure that they are applied for the well being of others and to work with their leaders to make clear that this is, in the long run, in their own interest to develop these more effective strategies.

I think transparency is at the heart of it because once we have transparency then there's an opportunity to really sort of see what the implications of policy are and allow the voices within those countries to play a more effective role; because the international community has an important role to play to help set standards; but, ultimately, what we really want to do is empower the people within those countries to have an effective voice in how the decisions are made about the use of those resources.

SEN. CARDIN: Thank you. There is the Extractive Industries Transparency Initiative that the U.S. participates in -- I would welcome your thoughts, if you are confirmed, as to whether that is the most effective way for us to proceed and whether the United States should be more actively involved in that initiative; whether there are other opportunities that you see in dealing with the transparency issue that I would welcome your thoughts as you review a strategy for moving forward on what you said.

I agree precisely with what you said. I think it's exactly what we need to do. The question is whether this initiative is the right one or not. The U.S. participates but is not overly active in it -- whether we should be pursuing other courses -- and if you could get back to us on that I would appreciate it.

MR. STEINBERG: I'd be happy to do so, Senator.

SEN. CARDIN: Thank you, Mr. Chairman.

SEN. KERRY: Senator Cardin, thank you very much. Just for the benefit of Senator Shaheen and Senator Kaufman I think there's going to be a vote starting soon. We should be able to get both of you in that time so we'll turn to you Senator Shaheen right away, thanks.

SEN. JEANNE SHAHEEN (D-NH): Thank you very much, Mr. Chairman.

Welcome Mr. Steinberg and Mr. Lew. I would like to add my congratulations and thanks for your willingness to come back in to government service, given your experience and knowledge. I too appreciate the sacrifices that you and your families make and so I very much appreciate your willingness to do this.

There have been a number of references to our foreign policies and its impact on international economic issues. I think we particularly are seeing right now how globalization is affecting the international economy and the need to be able to address that and its impact on our policies in other areas. Will you talk a little bit more about how you see the role of the state department -- particularly in interacting with commerce and the departments of commerce and treasury, which have traditionally taken the lead on those economic issues?

MR. STEINBERG: Senator, perhaps we can both talk to this because I know my colleague has thought a lot about this as well. I think it's critical that the state department play a central role in this and I think it's something that Secretary Clinton talked about when she appeared before the committee. There are obviously a lot of resources and capacity across the federal government but we need a more integrated approach to these issues that understands all of the different dimensions of our engagement abroad -- not only in terms of our relationships with key countries and key allies but the effect on the global trading system and on the opportunities for Americans and the impact on Americans.

If you don't have an integrated approach then you end up with a lot of different sort of stovepiped efforts with different agencies who are pursuing different efforts. I think as we move forward President Obama has set up various mechanisms on an inter-agency level but he has made a commitment to Secretary Clinton that the state department will play an active role not only in the traditional NFC world but also in the NEC world.

The fact that the state department will play an active role and will have officials who have a deep concern and interest in these issues -- engagement I think is going to be a clear indication of how important she sees the economic issues as part of it and the need to connect it to what we're doing in the other parts of the state department.

MR. LEW: I would only add to that, that in our experience in the Clinton administration it was not always the case that the state department and the diplomatic resources were as active involved in economic international issues as they might have been. There were occasions when we didn't necessarily reach down into the deepest levels of knowledge in the government -- sometimes during times of crisis and sometimes just during more normal times.

I think that what Jim has described is the enhanced participation of the state department in the National Economic Council process is critical; because if you're not sitting around the table and you're not engaged in the discussion you don't know what to go back and bring in to benefit the entire administration review. There can be a line between our international economic policy and our foreign policy; they're really one in the same.

SEN. SHAHEEN: And are you also comfortable that there's a real commitment on the part of this administration to encourage that kind of cooperative effort and coordination among the various departments responsible?

MR. LEW: Absolutely. Secretary Clinton has spoken with both the president and with the head of the National Economic Council. I've spoken with the head of the National Economic Council. I think the commitment is deep. I think everyone is going to have to learn their way around the new process and we're no exception to that. If we're confirmed we're going to have to learn our way around the new process -- but the commitment is deep and the need is great.

I know, having spoken at length with members of the economic team as I was on the economic team, I bring perhaps a perspective that's a little different than people who grew up in the foreign policy world. I think that there's a real desire on the part of the people who make economic policy to have access to the depth of knowledge that exists at state -- and that's really the comparative advantage that the state department brings. I think it's incumbent on us to make sure that we can, as we were talking about earlier, reach into the state department to the areas where there is knowledge that isn't held elsewhere in the federal government and bring it to pair when we have economic policy discussions. I'm convinced we can do it; it's an organizational challenge but as a policy matter it's critical.

SEN. SHAHEEN: Thank you. I would --

SEN. KERRY: Let me just interrupt for one second. Senator Kaufman, I suggest you and I go vote and Senator Casey you will be next when she completes and then you go vote; or you can judge your questioning accordingly and then we'll get back here and finish up.

SEN. SHAHEEN: I'll be quick. There's been a fair amount of discussion about energy security. I was struck by both the confirmation hearing for Senator Clinton as well as Senator Salazar -- now a secretary too -- as they were talking about energy and the importance of energy to our national security and to what's happening in Europe and the rest of the world.

I want to ask you about climate change and the role that the state department ought to be playing with respect to climate change and how we address that. Obviously energy security is a piece of that but it seems to me we have to coordinate with both of them if we're going to be successful.

MR. STEINBERG: Senator, I certainly agree with that and I think President Obama and Secretary Clinton would share that view. The administration will be in the process of making some announcements I think in the near future about the precise goals and appointments that are going to be responsible for climate policy but given my familiarity thus far with the discussions I think I can assure you that it is something that is front and center for the state department -- that there's a recognition that historically the state department has played the lead diplomatic role; that if we're going to be effective in achieving our objectives in these climate change negotiations as the chairman indicated, that it's going to require an extraordinary diplomatic effort to meet the tremendous complexity that will go into the Copenhagen meeting and any future international agreement. We need to have the resources and the perspective of the state department there.

I think we can only be effective if we really understand how we can be both a leader at home in dealing with those issues and working with the other countries abroad -- and it has to be integrated with other aspects of our national strategy because if we're going to bring key countries into the mix, and we must because we're not going to be successful in dealing with private unless both we take steps here in the United States but also key developing countries in particular, to help us meet this challenge. I think the state department is uniquely well-positioned to help make that take place.

As I say, historically we've had the lead. We are looking now at the question of how best to organize ourselves to do that but I know Secretary Clinton puts a very high priority on this because it does affect so many different aspects of our policy. The interconnection between climate and food security and energy and all the things that we've been talking about today really is a focal point as well as an urgency in its own right and I know we'll look forward, if confirmed, to coming back and discussing with you how we're going to proceed to do that and how that will relate to the efforts more broadly in the administration.

SEN. SHAHEEN: Thank you, thank you all.

SEN. ROBERT CASEY (D-PA): Thanks very much. I'll be rather brief, due to the vote, and you may even have a break between now and when Senator Kerry gets back. I wanted to first of all thank both of you for your service already -- the service you've rendered to the American people to date but also the service that I anticipate you'll be providing to the American people at a time of maximum danger and difficulty but also at a time when we have great opportunities.

So we're grateful for that.

There's a lot, and I'll submit a number of questions for the record, but I wanted to start, in the limited time we have, just with regard to Pakistan.

I had the opportunity in May to visit the region, met with then- party-leader Zardari before he was the president. We met with General Kayani; we met with Prime Minister Gilani and others, and had a general sense then about their approach to the concern that we have about cross-border incursions from Pakistan into Afghanistan, the concern we have about their own stability.

But I wanted to get your sense, Mr. Steinberg, first of all, about what your approach will be. We've spoken to then-Senator Clinton about this. We want to spend some more time talking to her.

But just the general approach you'll take to Pakistan and kind of the short-term or near-term steps we've got to take to make sure that we're focused on both the question of stability, the question of reminding them over and over -- (audio break) -- about the problem of terrorists in the region between Afghanistan and Pakistan, but also just the general threat that the -- that terrorism poses to the world, emanating from that country.

MR. STEINBERG: Thank you, Senator. And as I indicated before, I think fairly shortly we're going to hear a little bit more from the president and the secretary about their approach to this, and I think they will address quite specifically the kinds of concerns and how we're going to try to engage with this very integrated problem.

Because I think one of the things that both President Obama and Secretary Clinton have really emphasized is that you can't look at Afghanistan in isolation. And you have to understand the deep connections -- political, economic, and the like that create this challenge for us.

And we have to have a strategy that integrates all the different parts of our power and really looks at it from a regional perspective. I think that's something they're going to highlight when they come to speak about this again.

I think in particular, as you and I discussed, we have a situation here where it's quite important that in the long run we develop the kind of partnership with the government, the democratic government of Pakistan that allows us to take on these complicated challenges.

I think there's a recognition -- and, I hope, a growing one -- there that this is not something that is just a problem for us, the presence of extremists and terrorists in the border areas on both sides, but one that actually threatens the government of Pakistan itself.

And we've seen, from the recent bombings in Pakistan, that this really is a shared problem. And I think building that sense of how we cooperate together in dealing with it and working with the government in Afghanistan to develop long-term strategies to really undermine the extremists is quite important.

And that democratic governance opportunity in Pakistan, I think, is part of the long-term solution. So we have to see this as one where we both have a shared interest.

We have to understand that for us it's obviously critical that this be addressed. It is a direct and immediate threat to us, as the president and the secretary have said. But again, it's not something that is being done for us and disconnected from the very substantial interests that President Zardari and the prime minister themselves face.

So I think it's important that we have a direct engagement there, that we work at this as much as we can as partners, while addressing the very real threat that we face to our national security.

SEN. KERRY: Thank you. Because of the interests of time, I'm going to take a break.

But Mr. Lew, thank you as well for coming to see us and to spend some time talking about the management questions. I know both of you have responsibilities there.

But I was particularly impressed by Secretary of State Clinton's understanding of and appreciation for managing a big, big government agency. And we'll -- we will submit questions for the record that focus on that as well, some of the substantive challenges.

So at this point, we'll take a break until other members return from the vote. Thank you very much.

MR. LEW (?): Thank you, Senator.

(Recess.)

SEN. KERRY: Thanks for your patience -- (word inaudible) -- as we --

Senator Kaufman?

SEN. TED KAUFMAN (D-DE): Thank you, Mr. Chairman, and I mean thank you.

I can't tell you how pleased I am to see the two of you sitting here. I think, with Secretary Clinton in place and the two of you by her side, I just feel so comfortable as we move into such a difficult area. I really --

The professionalism that the two of you bring, your experience -- the breadth of experience, the unanimity of support. Anyway, I just feel good about things. And I just have a few short questions.

One is I've seen a lot of survey data on Afghanistan, and the survey data I've seen says people don't like the Taliban, by and large, but they like the war even less.

And we're beginning to get the case where people that don't like the Taliban say, if I have to choose between the Taliban and the war, I'll take the Taliban.

Especially, Mr. Steinberg, what are your thoughts about how we deal with that?

MR. STEINBERG: Thank you, Senator. And congratulations to you. It's just a tremendous personal pleasure for me to see you there. It's wonderful!

I think -- as you put your finger on and the chairman and others -- we have a big challenge there, which to say I think by every assessment -- including the outgoing administration's own assessment -- we are not on the right track in Afghanistan. And this is -- because it's (across ?) culture, this really matters a lot.

By almost every metric, this is a situation which is not totally lost, but is clearly going in the wrong direction. And if we can cannot convince the people of Afghanistan that the efforts that we're undertaking are in their interests as well as ours, we're not going to be successful.

As I mentioned, there were policy reviews under way, conducted by General Lute, for the outgoing administration. General Petraeus is doing some work on this. We need to pull this altogether and really look at how we got off track and understand that this is something where we have a big stake and can't simply walk away from it. But we also need to find a more effective strategy to work with the people there, for them to see this as being in their interests, and to make sure that it's not just something that we're carrying the water and they see it as not something that concerns them, because I don't think we can be successful in the long term unless it's seen that way.

We need to be creative about how we bring all the elements of our strategy to bear. There's a role for the military. The president indicated that he thought that we needed additional military forces there, but that is not going to be a solution by itself. And if the war is simply seen as a military exercise, it's not going to be successful.

So that engagement with not only the government of Afghanistan, but the people of Afghanistan, I think, is going to be critical to our long-term success and it is going to be a focus of the policy review that the administration intends to undertake.

SEN. KAUFMAN: And the other question on Afghanistan is clearly, you know, we need more troops there. And how do we -- and the State Department -- this is going to be the lead in terms of making sure that while we add more troops, our NATO allies don't reduce their troops and in fact, increase their troops.

What are you current thoughts about that?

MR. STEINBERG: There's no question that the engagement of our allies is a critical part of this effort, and that this is something that President Obama talked a lot about during the presidential campaign.

We have an opportunity, as you know, with a number of important NATO meetings coming up over the next several months. We have both a -- well, we have a NATO defense ministers meeting, a NATO foreign ministers meeting and then finally the NATO summit in April. And there's no question in my mind -- and I would have every expectation for both the president and the two secretaries -- Secretary Clinton and Secretary Gates -- that this is going to be a major focus there.

But I think in order to be effective with our allies, we have to have our own strategy in order. And that's why I think it is a matter of high priority for us to help, as the chairman asked us to do, to identify our objectives and a strategy there and to make clear to our allies that this is not just about us. They have a great stake there too.

We've seen that this is an area which has been a source of terrorist attacks, not just affecting the United States, but directly affecting our NATO allies. So it is a common interest and we need to be effective in both conveying that and having a strategy that makes clear that this is part of our partnership to work this together -- not just because it affects the United States, but because it affects our NATO allies as well.

SEN. KAUFMAN: Great, thanks.

Could both of you comment on kind of both the structural and policy relationship between the Department of State and the Broadcasting Board of Governors?

MR. LEW: Well, obviously, there was a change in the structure of the relationship a number of years ago. And I guess the question is, where will we go from here with making sure that we have the right level of independence, but also attention to public diplomacy and communications? I think it's a broader question than the kind of institutional structure of the Board of Governors.

But how we have an effective program to communicate throughout the world -- it's something that we think is very important both in terms of the Broadcast Board of Governors, but also in terms of the personnel we have doing public diplomacy and communications in the embassies in confluence around the world.

We need to have an effective voice for the ideas and ideals that we carry. And if confirmed, that's one of the areas we're going to pay a lot of attention to.

SEN. KAUFMAN: But there's kind of a conflict between kind of the broadcasting part of public policy and the non-broadcasting part. The non-broadcasting part has to be structured as strategies, goals, objectives operated at the highest levels of government; whereas broadcasting primarily is a news and information organization. And the only reason we've been successful is we've been -- has been because of the independence of our journalists.

We found that when the government gets involved in actually what's going on the air, that it's not successful. People just turn off their radios and televisions and the Internet and the rest of it. So I'm kind of concerned that under any restructuring that we would maintain the independence of the journalists and make sure there's a firewall between them and the rest of government. Is that something --

MR. LEW: I think we share the concern that there be independent, credible broadcast standards going back to the kind of (house hand ?) days of international broadcasting. It's a long time since Edward R. Murrow was there, but we all know what the standard is.

SEN. KAUFMAN: Good.

And what are your thoughts about Zimbabwe?

MR. STEINBERG: Senator, I think this is -- the tragedy is one that I think is palpable at this point. We not only have a situation where there are serious violations of human and political rights, but now because of the neglect and malfeasance of the government there, a true health catastrophe.

I think there's a clear situation where the will of the people are not being reflected by the decisions of the government, that there's been a good-faith effort to try to find a compromise solution to bring the opposition into it and to work with Mr. Mugabe to try to find a way forward, and we're not seeing that kind of cooperation.

So while the administration is now just forming, and I can't presume precisely what the policies are going to be, I think there's not doubt that this is an urgent matter and that's important not only for the United States, but for the countries in the region to really address the fact that even the most recent agreements and understandings are not being observed and respected.

SEN. KAUFMAN: Good.

You know, when you look around the world, freedom of the press -- which was very much on the ascendency not too many years ago -- is definitely going the other way. I mean, just everywhere you look, no matter what continent you're on.

What are your thoughts about how the Department of State can help deal with this freedom of the press decline around the world?

MR. STEINBERG: I think, as you heard from the president in his inaugural address, that these values and principles are critical to him -- the ability to speak out; the ability to protect, defend and the like -- are sort of at the core of what he articulated in his vision. I think it was a very powerful statement and I think it was heard around the world.

And I think there's nothing more important at the beginning than to have that clear sense of commitment from the United States, from our president, about the fact that this is something that he cares deeply about and puts at the center of our foreign policy and national security.

So I think that that very fact that he has put it central to his approach puts other countries on notice that in terms of developing a relationship with the United States, that this is not a marginal concern. This is a central concern.

I think we need to find ways to be effective in integrating that into our operational strategy to take that very strong statement of principle to make clear that this is something that we do care about; that it is something that is not peripheral to national interests, but really is a lot about who we are in the world.

SEN. KAUFMAN: And it's the same problem with freedom of religion. And the problem is -- having been involved in some of this -- there's so many priorities, you know.

But I'd just say one thing, and that is: When you don't mention these things when you meet with people that are not promoting it, it gives them the distinct feeling -- I know this from firsthand experience -- it gives them the distinct feeling it's okay. And I also know when the agenda gets set up for these meetings, there's a million of these on them. But freedom of the press and freedom of religion are so basic to our society and so basic to what our president brings to the office, I'm just saying, you know, try to fit it in there, because there is a price to be paid. When it's left off, I know the perpetrators just feel free to move ahead.

I think Bosnia is the final area. And you know, it looks like we're faced with a political crisis there. What are you thoughts about Bosnia?

MR. STEINBERG: Senator, as I mentioned before, this is an area that I had an opportunity to work with quite a bit during the Clinton administration. And I do think that it's a matter of concern that it has kind of slipped a bit off the radar screen.

This has never been a perfect solution. In Bosnia, the political arrangements there were, I think, the appropriate ones at the time to bring an end to a bloody and violent conflict. It created an opportunity to move forward, but for a variety of reasons -- some of which have to do with U.S. efforts and some with Europe and others -- we've certainly not kind of gotten over the divisions and the difficulties of the structure of the government there to really make real progress.

I think it is critical that we take a serious look at this and that we elevate this, because as we were talking about earlier, if we wait until the crisis erupts, then it's going to be even harder to deal with. And so while I think all of us recognize that there are a lot of challenges on the plate, sometimes I think it's incumbent upon us to make sure that we have the tools within the State Department and through the government that we can do multiple challenges at one time.

And if confirmed, because of my own background and interest, I have a particular concern to make sure that we don't lose where progress was made. And that we find ways for the United States -- working with Europe, frankly, because they are a critical part of this -- to try to see if we can reverse some of the deterioration.

SEN. KAUFMAN: Great. Good luck. Thank you.

And thank you, Mr. Chairman.

SEN. KERRY: Thank you, Senator. And may I remark that I think you may be sitting way down at the end there, but it's obvious from your questions the value you bring to the committee immediately from your years here. We appreciate it.

SEN. KAUFMAN: Thank you, Mr. Chairman.

SEN. KERRY: Thank you.

Senator Menendez.

SEN. ROBERT MENENDEZ (D-NJ): Thank you, Mr. Chairman.

Let me welcome you both, and sorry that the Treasury secretary's nomination didn't have me here for a lot of your questions and answers. But I did read your testimony and I had the privilege of sitting with both of you, so I got a pretty good sense.

One of the things that I care about deeply in this committee, and have for the 16 years that I've been in the Congress, is Latin America. You know, we spend a lot of time talking about Chavez, but Chavez only has success because we have had a vacuum. And it is, in my mind, more important about what we do than what he does, at the end of the day.

And so -- but the one place in the world in which overall development assistance has been cut for three consecutive years in a row has been Latin America and the Caribbean -- not in the national interest of the United States, not in even our security interest.

If you want to stem the tide of undocumented immigration to the country, have people have economic opportunities in their homeland. They only leave for one of two reasons -- dire economic necessity or civil unrest. If you want to help us and help the issue of global warming, then diversity of the rain forests in the Amazon is incredibly important. If it is destroyed, we increasingly pollute our collective environment; how we deal with credits and other efforts to ensure that doesn't happen; diseases we had largely eradicated that are resurfacing along the border with the United States, like tuberculosis. Again, health issues know no boundaries.

You know, if you want narcotics trafficking to cease, one is you have to reduce demand at the same time that you are reducing cultivation. And you have to give a poor coca farmer some sustainable development alternative. And the list goes on and on. This is not about just simply being a good neighbor. This is about policies that are in the national interest and security of the United States.

So I'd like to get, Mr. Steinberg, a sense from you about where you see our policy moving forward in Latin America under this new administration, and from you, Mr. Lew, about what you see as the overall, you know, development assistance. How important is Latin America going to rate in this process?

Particularly I'd like to call your attention to something that passed this committee in the last year, a bipartisan approach; ran out of time on the floor -- Social Economic Development Investment Fund of the Americas. That sends a very strong message to the Americas that we are engaging them in a very significant way, that we have a broad agenda, not just simply trade, which is important, and narcotics interdiction, which is important. That's all we've talked largely to these countries about. I think it's a fundamental mistake.

So give me a little sense about where we're headed in that respect, from your perspective.

MR. STEINBERG: Well, thank you, Senator. And your leadership obviously has played a critical role on keeping our attention focused on the hemisphere.

I think you put it just perfectly in talking about the problem of a vacuum, that we've had a policy which has tended to react to provocation rather than really reaching out and having our own strategy. And I think if we had that, as you suggested, these provocations would both be ineffective and would be beside the point.

We need to restore that sense of leadership and sense of partnership with the hemisphere. And there is an opportunity, I think, that people have seen that the kind of examples that Chavez and others offer is not leading to a better life or more success for their people.

And so we need to revalidate the strong friendly partnerships that we have and that we care about their well-being for the reasons that you said. We're so deeply interconnected and interdependent with this hemisphere that we can't succeed in meeting these important issues for us unless our partners in the hemisphere are doing it.

We have an opportunity -- I mentioned this earlier -- with the coming hemispheric summit to really have a chance for the president and the secretary to engage with the leaders there, to present their vision of a different approach, and to begin to lay out some of the specific policies. We've got a lot of hard work to do, and if confirmed between now and that summit, to really have something to say. I think the president --

SEN. MENENDEZ: You have less than 100 days.

MR. STEINBERG: Exactly right.

SEN. MENENDEZ: It's either going to be the summit that we inherited from the previous administration or a summit that we fashion in our own view.

MR. STEINBERG: Well, and I think, for precisely the reasons that you suggest, I think the president is eager and it's certainly his wont to move quickly to change the tone. This is about change. And I think, again, talking about what he had to say on Tuesday, that he really made clear about how dramatically he wants to change the orientation of U.S. foreign policy in this respect.

And we have some very critical opportunities all through the spring. We talked about the NATO summit. There's the G-20 meeting. There is the hemispheric summit. And these are tremendous opportunities, because the president does reflect such a different approach, the president and the secretary. And if confirmed, Jack and I are going to be working with the department and the interagency to make sure that we have something more than just rhetoric to say to make clear that we do have a different approach.

MR. LEW: Senator Menendez, the question of resources for development is a central one. Dealing with the kind of root causes of unrest, the threats to democracy, means addressing the problems of poverty around the world. And economic development is ultimately the way to do that.

Over the last few years, the development assistance budgets have been terribly constrained. The demands for assistance and reconstruction flowing from our involvement in Iraq and Afghanistan have been enormous. And I think that we're going to have to quickly, if confirmed, look at where the development assistance budget is going and very quickly reach a determination of what we would do with the resources that are there and how much additionally we need in order to be the kind of partner that we should be in parts of the world where our absence or our diminished presence is really very shortsighted.

So I can't sit here today, not having been there, telling you that I start with a notion of the exact dollars or percentages. But I think ultimately what Jim was just talking about, what the president and the secretary have been talking about, ultimately only has meaning if we put resources behind it. We can't go to these meetings empty- handed. And we're going to have to work quickly, if confirmed, to come up with an agenda.

SEN. MENENDEZ: I appreciate that, because the Chinese are quite engaged in the hemisphere with resources. Obviously Chavez is quite engaged in the hemisphere with resources. Even the Russians have begun to focus a little bit on the hemisphere. So there's got to be a reason they're all here. There's got to be a reason they're all here.

Let me -- before I just move to foreign assistance real quickly -- and I've heard a lot of the discussion on this -- I just want to concentrate on one specific thing that we've been focusing on as the -- I've been privileged to be the subcommittee chair in that field and did a bunch of hearings in the last two years. But I listened to the president's inaugural speech, and he had a line in there that I think is very pertinent. I just want to mention it here, because it is a very passionate issue for me.

He said, "We are willing to open our hands and offer you a hand in friendship if you are willing to unlock your clenched fist," which I took, you know, very meaningfully in that speech. And I think about Cuba. We have tried, at different times in different ways, through different administrations, to sort of like offer an open hand. But we have seen still a clenched fist.

More people are still languishing in Castro's jails today. Human rights activists, political dissidents, independent journalists, independent economists are jailed simply because of their thoughts and their views, their attempts to try to create a civil society. Millions of Europeans, Latin Americans, Canadians, Mexicans and others who travel to Cuba have not created one iota of change. The regime has become more oppressive.

The famous mantra of the president during the election, "Change" -- we sent into Cuba a very simple plastic white bracelet which Cuban youth wore throughout Cuba. It had one word on it. It was the word "Cambio," which in Spanish means change. And they were arrested simply for having a simple bracelet that says "Change."

We just rejoiced in that mantra of change here in this country that led to an incredible victory. In Cuba, young people who just have a simple white bracelet that says "Cambio" get arrested for wearing it. That is the realities of Castro's Cuba.

And so I look forward to how we're going to move forward to try to help the Cuban people achieve the freedom and democracy we enjoy here. Hopefully there will be an opening of the clenched fist, something that we have not seen for over four decades.

Let me finally ask you, Mr. Lew -- you and I have had long conversations about foreign assistance, incredibly important; I believe one of the most powerful tools of peaceful diplomacy and something that has, you know, really suffered body blows during the last several years, and also a transfer to the Department of Defense in a way that I don't think even the Department of Defense, to the secretary's credit, has said, "We really need the State Department to be beefed up." So I hope that those same views prevail and that resources will flow, however they may flow.

But who is going to control foreign assistance at the department? Who will have budget authority over USAID? What's going to happen to the F bureau and the F process at State? How do you envision that moving forward?

MR. LEW: Senator, as we discussed the other day, we're going to take a careful look at the F bureau and the F process. I believe, if confirmed, it will be one of my responsibilities to look across the department, including AID and all the other foreign assistance programs, to play that coordinating role.

You know, we're going to, you know, take the process that was developed in the F process and actually broaden it because that process didn't take into account MCC and PEPFAR the same way that we think all of the programs ought to be looked at kind of horizontally.

We will have to make some judgments about the organizational structure once we're there and knowledgeable enough to do it in an informed way, but I think kind of the opening view is that a lot of progress was made in taking a look across the foreign assistance programs -- but not enough. We need to make more progress so that we really embrace all of the foreign assistance efforts and evaluate them and come to the Congress with recommendations that are well- coordinated.

SEN. MENENDEZ: Well, Mr. Chairman, if I may one last moment. We need -- and I've expressed this to you privately and I hope I can get your commitment here publicly -- a strong advocate. I mean, you will have, you know, a horizontal responsibility and as we discussed you will be responsible with the secretary with the overall budget process. And so that has challenges. You know, it's a little bit of what we said in the Banking Committee about having credit rating agencies be both the referee and the coach -- that doesn't quite work -- at the same time being the one responsible for figuring out the priorities, the budget-cutting in the overall element of the Department's needs and then being the advocate for foreign assistance.

We need a strong advocate for foreign assistance. You know, if you do PEPFAR and you do MCC and you don't raise the overall amount now, you've got less and less for the core development assistance programs. I think PEPFAR's great. I think MCC has a lot of merits to it, but at the end of the day MCC was supposed to be additive, not a replacement of. And PEPFAR is very important but if you -- you know, those categories continue to rise then your overall function is decimated. So we need an honest discussion of that and we need a strong advocate.

MR. LEW: Well, as I indicated to you privately, I have every intention, if confirmed, of being a strong advocate for development assistance and foreign assistance. I couldn't agree with you more that we can't have the new programs grow within the current totals without decimating the old approaches, and that's one of the reasons that we need more resources. I think that there's a lot of good that has been accomplished in PEPFAR. MCC is getting off the ground and making real progress. But if we have increases in those programs within the existing totals that are available for foreign assistance, the little bit that's left in a traditional AID and foreign assistance programs just won't be there anymore. So the totals have to grow. And I give you my commitment to be an advocate to run the programs well but also to come into this committee, before Congress generally, as an advocate to size appropriately the resources that we've put into this vital area.

SEN. MENENDEZ: Well, I look forward to supporting both of you.

Mr. Chairman, this is the -- we had -- your first chairmanship was the nomination hearing of Secretary Clinton, and I just think you did a fantastic job on the floor. But I want to say I look forward to working with you under your leadership now of the committee and I appreciate some of your initial instincts of where the travel is going to be a very powerful statement to parts of the hemisphere that are going to be incredibly important. It's going to be a very powerful statement. I look forward to working with you.

SEN. KERRY: Well, thank you Senator Menendez. I'm delighted you're going to join me on that trip -- Senator Menendez and Senator Graham, Lindsey Graham, and we look forward very, very much to sending exactly that message. We also look forward to working really closely with you folks. I hope you sense that from the committee. I'm confident we will.

I need to ask you just a couple of pro forma questions. One, do either of you have any issue from which you will need to recuse yourself, Mr. Steinberg?

MR. STEINBERG: Any matter affecting the University of Texas.

SEN. KERRY: Fair enough -- but a foreign known --

MR. STEINBERG: I'll probably decline to comment on that one, but since I'll be on leave from the university as a professor, just anything specifically is --

SEN. KERRY: Well, I'm glad you state that specifically and we appreciate it -- Mr. Lew?

MR. LEW: As my letters indicate, I will need to not participate in matters that have particular impact on Citigroup.

SEN. KERRY: Fair enough. And do either of you have any matter from -- with which you have been advised by counsel or that you know you have a conflict of interest at this point in time?

MR. STEINBERG: No sir.

MR. LEW: No sir.

SEN. KERRY: Fine. Thank you very much.

Well here's what we're going to do: we're going to try to expedite this process. We will leave the record open for one hour. There are, I think, a couple of additional questions. We ought to be able to get them done early in the afternoon, and then our hope will be to discharge from this committee as rapidly as possible and conceivably move on the floor even today. I know it's very, very important to get both of you in place as rapidly as possible. We want to do that. And so I assure you we'll do everything possible to try to get that done.

On that note, again, we really congratulate you. And I just want to emphasize how much we look forward to working with both of you. Congratulations to you and thank you today -- and your daughters were unbelievably well-behaved. (Scattered laughter.) How did daddy do, okay? Did he do well? Yeah. (Laughs.) And -- I don't know, your students I think abandoned you. Are they here still? Did they give you a grade?

MR. STEINBERG: Well, if I could just add this to the record. (Laughter.) This note says thanks, Senator Kerry. Signed Emma Steinberg. (Laughter.)

SEN. KERRY: Well, we're going to speed this up then even more. So thank you all very, very much -- glad to have you all here from The University of Texas. We appreciate it. And we do want to keep the Boston-Austin connection going big time. We stand adjourned.

MR. STEINBERG: Thank you Mr. Chairman.

END.

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