25 February 2002

Larson: U.S. Increasing Foreign Aid for Sustainable Development

Says U.S. spending more on capacity building, education

The United States is increasing foreign aid for capacity building, education, health and agriculture, an under secretary of State says.

Speaking February 25 to the European Partners for the Environment (EPE) in Brussels, Under Secretary for Economic, Business and Agricultural Affairs Alan Larson also said that using aid effectively is important for getting legislative approval of higher aid budgets.

"If we can show that we are effectively using all of the resources available for development and we are making real progress towards these development goals, we will have far more credibility in making the case for increased development assistance to legislators and citizens," he said.

Larson said donor countries should work with developing countries to strengthen property rights for farmers and ensure they have access to finance. Donors also should double efforts to achieve gender equality in education, property rights and credit access, he said.

He said industrialized countries should also help poor countries develop stronger agricultural extension systems.

Larson said donors should help poor countries use more sustainable technologies, especially biotechnology. He called on nongovernmental organizations in Europe to reconsider their opposition to biotechnology.

"We need to use all of the tools at our disposal: technical assistance, trade and new technologies. In short, biotechnology is not a threat to the environment; rather, scientifically assessed biotech crop varieties are a tool for achieving sustainable development," he said.

The Bush administration's proposal that half of the World Bank's assistance to developing countries should be as grants rather than loans is an "urgent" issue, Larson said. Grants could allow the Bank to fully support "pre-development" activities in areas such as education and sanitation without creating unsustainable debt burdens for poor countries, he said.

Larson said poor countries need to develop good governance and reliable and enforceable legal systems that allow people to have clear titles to land and other assets. He said weak legal and financial systems cause people to move their capital to other countries. "By working with developing countries on domestic legal and financial systems, developing countries can put their flight capital back to work at home," he said.

More trade is another way to finance sustainable development, he said.

(Note: In the following text, "trillion" equals 1,000,000 million; "billion" equals 1,000 million.)

Following is the text of Larson's prepared remarks:

(begin text)

February 25, 2002

Speech by U.S. Under Secretary of State Alan Larson before the European Partners for the Environment (EPE) in Brussels, Belgium

"Economic Development, Agriculture and Sustainability"

Good morning. I appreciate the invitation to participate in your discussion. Today I would like to offer an American perspective on the issues of development policy, agriculture and sustainability.

Sustainable Strategies for the Financing of Development

There can be no sustainable development that is not grounded in the economic advancement of poor people in developing nations. Indeed, extreme deprivation and oppression are the gravest threats to environmental sustainability. President Bush is committed to expanding the global circle of prosperity and freedom. That is why he will attend the very important United Nations Summit on the Financing of Development next month in Monterrey, Mexico.

Sustainable development requires good governance. When sustained economic growth and poverty eradication have occurred over several generations, it has generally been in situations where governments are open, democratic, inclusive and accountable. Good governance is just as important for environmental stewardship as it is for economic progress. It doesn't matter whether we are talking about the wise use of natural resources or of economic resources; good governance is the starting point for both.

In considering the financing of development, we must never forget that the most important resource is the hard work and initiative of the people of developing countries. The hardworking people of developing countries produce goods and services valued at between $6-18 trillion dollars each year. Their savings amount to some $1-2 trillion. The first and most basic challenge of development policy is to ensure that this vast outpouring of effort, hope and sweat produces lasting gains.

The poor can make lasting gains only when they can save safely and invest profitably in the future. Even more than the relatively well off, the poor need legal systems that confer reliable, enforceable title to land and other assets. The Peruvian economist Hernando de Soto estimates that in developing countries, three quarters of all real estate parcels lack formal title. The absence of clear title cuts off access to finance for poor families who want to own a home, for small farmers who want to improve their land and for entrepreneurs who want to start a business.

When legal and financial systems are weak, those who do manage to accumulate capital often safeguard it in foreign countries. The United Nations estimates that Africa's private sector holds nearly 40 per cent of its wealth abroad. This amounts to nearly $360 billion or roughly the amount of Africa's external debt. By working with developing countries on domestic legal and financial systems, developing countries can put their flight capital back to work at home.

Trade is another important means of financing sustainable development. Developing countries export close to $2 trillion in goods and services last year. Full liberalization of trade could dramatically increase their exports. Europe and America can help by pushing for rapid, reciprocal opening of markets in the Doha Development Round.

Foreign investment flows to and among developing countries amount to $180-200 billion annually. Foreign direct investment often brings not only capital, but also skilled management, new technology, good environmental practices and knowledge of foreign markets. Foreign investment flows to developing countries have grown exponentially and can increase much more as countries put in place sound investment policies.

Official development assistance [ODA], at $50 billion annually, is much smaller than the financial flows associated with domestic savings, trade and foreign investment. Nevertheless, ODA can play an indispensable role, especially if it helps countries tap these larger flows of finance. That is why the United States has increased to over $500 million annually our programs that strengthen countries' capacity to build market institutions, to attract investment and to participate effectively in the trading system.

The United States is increasing our assistance in other areas that are crucial to sustainable development: education, health and agriculture. In negotiations over the replenishment of the World Bank's window for the poorest nations, we have offered to increase our assistance to the poorest nations by up to twenty per cent over three years if benchmarks of improved performance are met. This is an important initiative that suggests a basic bargain: increase the effectiveness of development assistance, and development assistance can be increased. If Europe also takes this approach, we are confident developing countries and development institutions will respond. Together, we can make a difference.

The U.S. also has proposed that half of the World Bank's resource flows to the poorest nations should be in the form of grants rather than loans. Using grants rather than loans will let the Bank fully support "pre-development" activities such as education, health, and sanitation without creating, once again, an unsustainable debt burden for the poorest countries in the world. The fifty per cent grant proposal is an urgent issue. It does not threaten the viability of the international financial institutions; to the contrary, it makes them more central to our development policy. I hope you all will look into this question and ask your governments to support the U.S. grant proposal.

Let me now offer a few comments about aid volumes. For the thirty years that I have been in public service there have been persistence calls for increases in aid levels. During that same period, assistance levels measured as a percentage of national output have been declining, particularly in large countries whose taxpayers are also asked to make big commitments for global public goods like international peace and security. Perhaps it's time for a new approach. In talking about aid levels, it is important to aim for the goal line, not for a headline. The goal line is results: reduced poverty, universal basic education, reduced infant mortality, a cleaner environment and the elimination of hunger. If we can show that we are effectively using all of the resources available for development and we are making real progress towards these development goals, we will have far more credibility in making the case for increased development assistance to legislators and citizens.

A Sustainable Strategy for Promoting Agriculture and Fighting Hunger

In the time remaining, I'd like to outline how we might make a serious and sustainable effort to promote agriculture and fight hunger. To begin, let's recall some sobering facts:

-- Over 800 million people in the world are malnourished, nearly 80 per cent of them women and children.

-- Over two thirds of the world's poor live in rural areas and three quarters of these earn their livelihood from farming.

-- Agricultural productivity in Africa has barely increased in the last two decades.

-- Without new technologies, doubling food production to meet the needs of a growing population will put an unbearable strain on land and water resources.

To meet these challenges, we must move on several fronts. First, we must work with developing countries to strengthen property rights for farmers and ensure that they have access to finance for investments in increased productivity.

Second, since women are responsible for the majority of food production in most developing countries, we must redouble efforts to achieve gender equality in education and ensure that women have a fair chance to own land and obtain access to finance.

Third, we must strengthen agricultural extension systems that bring important production and marketing information to farmers.

A sustainable approach to agriculture also requires big changes in the trading system. Subsidies to agriculture in rich countries amount to $1 billion per day, about six times the amount of development assistance. These subsidies are bad development policy, bad environment policy, and bad trade policy. So as a fourth element of the strategy, I hope Europe will join the United States in making a concerted effort to negotiate the elimination, or at least a drastic reduction, of farm subsidies that distort production and trade.

We also need to foster the development and use of new sustainable technologies. In this regard, biotechnology has a demonstrated capacity to be part of the solution to the food security challenge. Biotechnology can raise productivity, producing more food on the same land. This will ease pressure on water resources and environmentally fragile land. Biotechnology can improve soil and water quality, by reducing the need for chemical herbicides and pesticides. This is one reason why farmers in my home state of Iowa have accepted so quickly biotech corn and soybeans. Biotechnology can improve the nutritional content of food and reduce losses from spoilage. This is especially important in developing countries where many suffer from lack of basic nutrients and where lack of refrigeration and poor storage facilities lead to massive losses from spoilage.

Finally, biotechnology production packages are farmer friendly. For example, in South Africa, poor farmers are finding that biotech cotton requires less complex farming techniques than conventional varieties. As Kenyan agronomist Florence Wambugu has stressed, governments throughout Africa, and indeed throughout the developing world, see biotechnology as part of the answer to their food security needs. The Africans are concerned, however, that Europe's restrictions on biotech products will stunt African efforts to use this technology safely to advance their development needs. I understand that biotechnology has been a controversial issue in Europe. I would appeal, however, to all of you who share a concern about development and about sustainability to look hard at the contribution that biotechnology, combined with the other policy elements I have outlined today, can make to sustainable agriculture.

I would encourage you to bear in mind these developmental and environmental considerations as you address the European issue of new biotech product approvals and proposed onerous labeling and traceability requirements. Your actions not only will have a large impact on trade with the United States, they also will cast a long shadow on the food strategies of developing countries. European citizens will respond to your leadership on these issues. I would also encourage those non-governmental organizations that have campaigned against biotechnology in developing countries to reconsider your strategies. Rather than spending money to sow doubts about biotechnology in developing countries, join us in a comprehensive and balanced program to increase agricultural productivity, to reduce rural poverty and to fight hunger in developing countries.

We need to use all of the tools at our disposal: technical assistance, trade and new technologies. In short, biotechnology is not a threat to the environment; rather, scientifically assessed biotech crop varieties are a tool for achieving sustainable development. Poverty and malnutrition are the gravest threats to a sound environment and to sustainable development.

Conclusion

In closing, I would like to thank you again for this opportunity for dialogue. Since September 11, the United States has changed in a deep and lasting way. We suffered a terrible attack on our own soil, in the heart of our best-known city. We know that additional attacks are being planned. The American people and the Administration realize we are a nation at war. We are determined resolutely and patiently to confront and defeat those who would seek, through terrorist acts, to take innocent lives and to shake the foundations of the civilization that we all cherish. We will never forget the solidarity and support we have received in this effort from our friends in Europe. Terrorism is an ideology that feeds on despair and poverty of spirit. It demeans human dignity by indiscriminately sowing death, destruction and fear.

Effective development policy is one of the best ways of offering young people around the world an alternative vision of hope, opportunity and freedom. The United States is serious about supporting those who yearn for meaning and who seek to build a better life for themselves and their children. We also are serious about working in partnership with Europe on sustainable development. You have just heard some of our ideas and suggestions. Now I look forward to hearing some of yours. Thank you.

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