22 March 2002

Good Policy Will Attract U.S. Assistance, USAID's Natsios Says

Assistance needs to be focused on agriculture, he adds

The United States will choose countries eligible for development assistance from the Millennium Challenge Account proposed by President Bush on the basis of policies they follow, a senior U.S. official says.

Speaking March 22 to reporters at the U.N. Financing for Development conference in Monterrey, Mexico, U.S. Agency for International Development (USAID) Administrator Andrew Natsios said that the president wants the $5,000 million he proposed putting into this account initially to be distributed on a good policy rather than a political, geopolitical or anti-terrorism basis.

Natsios said that USAID experience indicates that aid contributes most to development in countries that have strong and visionary leadership, invest in their own people, adhere to the rule of law and leverage assistance to attract private investment.

Consequently, he said, the Bush administration will look for these characteristics in selecting beneficiaries of the $5,000 million presidential initiative.

The administration will then work with the governments and civil societies of these countries to establish how and where to spend the money, Natsios added.

He said, however, that agriculture will be a priority sector. Noting that development assistance for agriculture has been falling in recent years, Natsios said that all countries, with few exceptions, that have "graduated" from poverty have achieved this through high economic growth driven by agriculture.

Despite some failures of agriculture aid programs in Africa, Natsios said the green revolution can succeed on this continent as indicated by dramatic increases in agriculture production in countries like Mozambique, Ghana and Egypt.

(In the transcript below billion equals 1,000 million.)

Following is the transcript of Natsios's briefing:

The United States Agency for International Development
Andrew Natsios, Administrator
Press Briefing


March 22, 2002

Monterrey, Mexico

Ladies and Gentlemen,

My name is Andrew Natsios and I am the Administrator for the United States Agency for International Development, which is the principal foreign assistance agency of the United States Government. And I want to make some comments about the conference and the debate, which is of central importance for development in the third world over the next couple of decades.

We do know four things about development, what the conditions are for development to work, and for countries to graduate from being the least developing countries and the most developed countries.

The first condition - we call it the four P's. The first is, first condition is there must be political leadership and I think that is something that has not been talked about at all at this conference. If you have a predatory, tyrannical, corrupt, national leadership, no amount of foreign assistance is going to be successful. The country will not develop. There is no instance anywhere in the world and it is an absolute condition. If we put money into countries with corrupt leadership that are devastating the country, it simply will be wasted. If you have visionary national leadership and there is a commitment to foreign assistance and you have other conditions present, progress can be made and we know that's the case from countries like Ghana, and Mozambique, and Mali, and Uganda in Africa, El Salvador in Central America is a good example of this, or countries in Eastern Europe that have graduated like Poland, the Czech Republic, and Hungary.

The second condition is an investment in people, a illiterate and unhealthy or sick workforce is not, it is not a condition that encourages the flow of capital that's needed in the private sector for sustained economic growth, so there must be an investment in education, particularly primary education and secondly in health care. All of the countries that have graduated have made investments in these two sectors.

The third is policy reform. If the policies of the country, macroeconomic policies, the rule of law, the trade and investment atmosphere in the country are not right, the country cannot sustain, over a long period of time, high rates of economic growth. All countries that have graduated without exception, have graduated through high rates of economic growth through sustained over ten to twenty-year period. That has not taken place; countries do not graduate, period. That is an absolute statement. It is true for every instance since the Second World War. I might add, that with three exceptions, in all cases of that growth has been driven by agriculture. The three instances, the three exceptions are Hong Kong, Singapore - the city-states of Asia, which don't have agricultural land - and Moriches (?). Those are the only three countries that have graduated without having first sustained rates of agricultural increases in production. All of the other countries including I might add Japan after World War II, Korea, South Korea, Taiwan, Thailand, Indonesia, Malaysia, you go down through the list. Agriculture has been basically de-funded by virtually all of the donor aid agency and all of the international banks over the last 15 years. It is perhaps the most devastating mistake made by the northern countries and the international financial institutions in the last 15 years.

One of the reasons, only one country has graduated from the LDC list in the last 30 years, which is the country of Botswana that properly use their diamond resources to provide public service for their populations and to invest in the economy. It's the only country that has graduated from the list of least developed countries and they had diamonds. The other countries have not graduated because we've stopped investing in agriculture. All of the studies show that all of this growth in the economy is driven by agricultural production. And so, we need to do more in the agricultural sector. One of the commitments of the Bush administration, of Secretary [of State Colin] Powell, President Bush is to reinvest in the agricultural sector because is absolutely essential for economic growth over the longer term. I might also add it can have a profound effect on health because people's nutritional standards improve as their income goes up, and too more importantly than anything else, it will improve the chances for success in education because as food supply increases, people and farmers have surpluses. They're much more willing to send their children to school. So, United States in the mid 1980's was expending 1.3 billion dollars in agriculture. Last year we spent $254 million. It has been a billion dollar drop in 15 years. The same thing has happened to every other donor government.

The fourth condition is partnership. In 1970, 70 percent of all AID flows from northern governments to the south, ODA. I'm sorry, all donor flows, capital flows to southern countries from northern countries in 1970, 70% was from ODA, 30% was private. This year, this is from the United States now, I don't know. I think the figures are similar for other northern countries but I know the American data better than others. Now the rates have inversed, are completely inversed what they were 30 years ago. Only 20 percent of the capital flows of the developing world are from ODA. 80 percent is private money, from foundations, from capital markets, from universities, from foundations, from remittances, the United States remits from its diasporas that work and live in the United States 30 billion dollars a year to the developing world. 12 percent of the gross national product of El Salvador are remittances from the United States, and they have all of these remittances have a profound effect in the countries they're in. There is a new study from UCLA that indicates that 50 percent of the micro enterprise financing in Mexico, is from the Mexican-American diaspora in California alone, 50 percent. So we know that these things work. These conditions are present: partnership, investment in people, policy reform and political leadership.

The debate at this Conference is most, almost has entirely been around the issue of money. How much money are we spending. The President has made an announcement of the 50 percent, that he will propose a 50 percent increase in ODA for the United States beginning in 2004. That is one of the largest increases in the last 40-years history of AID. The problem is, with the debate here is because we're focused on money, we're forgetting the rest of the argument. The rest of the argument is, is not just how much you spend, it's how you spend it, and where you spend it. And the second half of that formulation is where we failed most dramatically in the last couple of decades. And so, I would like to refocus our attention on the issue of where you invest the money and how you invest it, what is... how do you implement your programs. If you'd talk to most aid agencies, UN agencies without media there, privately, they will tell you that is what is the greatest concern to all of us. It is what works, what does not work, what succeeds, what fails under what circumstances, what are the problems we have with implementation and how to deal with them. There have been no international conferences on that unfortunately. We deal with things in a theoretic level we don't get down to the operational and implementation level.

Those are my opening remarks. I'd be glad to entertain any questions.

Oh yes, I am supposed to make an announcement here.

The United States Trade and Development Agency and the National Finance, NAFIN, of Mexico will enter today into a master grant agreement that will support private sector participation and regional development in Mexico.

It reflects the commitment of United States and Mexico bilateral cooperation that has been established by President Bush and President Fox, and there is a signing ceremony today for this new agreement.

We have two pass outs. One is Successful Developments. There's been a lot of debate, that was, had been going on in the last couple of months and what works and what does not work. These are case studies in English that can be understood by the layperson of what has worked in an operational sense in the developing world.

There's a second paper, I think it's in your package, on increasing trade and investment and what policies work and what policies do not work and specific instances where when those policies are applied, there's a dramatic increase in private sector investment in certain countries. There are some case studies in the second paper as well.

Yes.

Question: Kathy Adams, USA Radio. We are talking a lot about accountability standards and I don't sense anyone as having a problem with those new criteria, however, how is that accountability going to be measured? Who is going to be doing the measuring? Is this going to mean that the U.S. State Department is going to be having people on site in all the different countries where we are funding? Who is going to measure and how is it going to be done?

Answer: Well, first, United States Agency for International Development has 90 field missions and we monitor those things now, but the exact standards... There are three areas that the President announced in the speech we would establish standards in. One is in the area of investment in people, which means health and education, the second is in business climate, and the third is in governance, and corruption and accountability. The standards themselves, the quantitative measurements that will be used, have not been established. We need to work with an interagency process and with the Congress on deciding what those quantitative indicators are, from objective sources, and how to apply them in a way that reflects what the reality is in terms of what is going on in those countries. There are standards already that have been established. For example, there is a German international, German NGO that AID has been supporting for many years as well as other donor governments called Transparency International. They have an index, a corruption index and people are afraid of it because it lifts the relative level of accountability and corruption in countries in the world. It is a very useful standard, because they've developed it over a period of a decade. They have quantitative measurements. They go out and they survey countries every year to determine where they are on that list. So we already have a set of standards. The question is which ones should we use and how should we measure performance. And that's something that will have to be developed over the coming months.

Yes?

Question: I was wondering if you could touch on why agriculture has been de-funded over the years and what it will take to re-fund agriculture.

Answer: Well, I can give you one cynical view. The agricultural sector has not had the same level of private organized support in parliaments around the world in the northern countries. The health groups are very well organized. 46 percent of AID's budget goes to health. There is heavy lobbying every year on our Congress by private groups that believe, properly so, that that's a critical area. The question is a matter of balance. 8 percent of our budget goes to agriculture, 46 percent goes to health. If you go to Europe, the imbalance is even greater than that.

The second reason is, in the mid-1980's, there were the banks and AID and other donor governments, invested in agriculture unwisely, and they established what is called a rural, integrated rural development programs and they failed in many countries but not all countries. Remember, the most successful development program in the last 40 years was the green revolution in Asia, which basically eliminated the prospect of famine in much of Asia. That was a development scheme developed by the Rockefeller Foundation, U.S. Agency for International Development, and the World Bank in the 1960's. Even before most aid agencies were created. It was spectacularly successful. We attempted to apply the same concepts in Africa, and they were inapplicable, and it was inappropriate, and they failed. There are things that we know work in Africa because there've been dramatic increases in agriculture production in countries like Mozambique. There has been a green revolution in Mozambique. We know it works. In Ghana, for example, ten years ago, agricultural exports were 130 million dollars; this year they are 400 million dollars.

In Egypt, the only sector of the economy that's grown in the last few years is the agriculture export, agricultural sector. That sector went from 4 or 5 million dollars a year to over 200 million dollars a year and there have been consistent large increases in that. I might add that's in the rural areas where the greatest poverty in Egypt is, and so it helps with the distribution of income as well. 75 percent of the poor people in the world live in rural areas and they are either farmers or herders, 75 percent. So how can you possibly attack the problem of poverty if you do not deal with agriculture.

Yes, sir.

Question: Hi. John Authers from the Financial Times. Two questions. One, are we talking in terms of being more selective before giving aid, or in terms of imposing more conditions on the aid that the receivers should fulfill. And secondly, are there any sections on the rules on investing in people for countries that have particular, special situations. For example, Sierra Leone might justifiably argue that there are good reasons, or bad reasons, but acceptable reasons, why they have such poor health and education at the moment.

Answer: Well, once again, I want to say that we haven't established the standards yet. We know what they will be in a general sense but specifically establishing them is something we are going to do in the next few months. Are there exceptions? There are exceptions in that the local context always has to be taken into account when we look at different countries. You can't apply exactly the same matrix to every single country. But generally speaking, if there's no national consensus around systemic education reform in basic education and there's no commitment to do it, even if there aren't enough resources, then why would you suppose that the donor government going in would make the difference?

What we are going to look for, generally, is an established set of commitments by the national government. We are not interested as much in doing what the international financial institutions have done, which is to establish conditionality. Is conditionality important? It will always be with us to some degree. The problem is it has been not terribly successful in a number of countries where the countries really are not committed to the reforms. They are doing the reforms only to get the money, not because they believe they are necessary, not because the population or the people understand that the reforms are important and have to be sustained when the money is no longer there. That has been one of the failures of the international system. We are more interested in knowing whether the national leadership already has their own plan that they themselves established without outside pressure, and whether that plan deals with some of these central issues. And whether they are dealing with issues like corruption, which does not require money to deal with. It requires political will, political leadership. So if there is leadership there, and there is commitment to make policy changes, then an investment of our money makes sense. But establishing the details of how to do that will take some time.

Yes, sir.

Question: Richard Bauer from (a newspaper) in Switzerland. I have two questions for you. One is, could you give a sort of a break down of the $10 billion dollars that you are spending just now in direct or official foreign AID? Does it go to very specific countries - Israel and Egypt - is it in there or not? The second question is Mr. Soros said the other day that there is a danger that the United States could fall back into the times of the Cold War where you were giving out money in the form of development aid for countries which you considered very good allies. I mean there is also the question does this new money has to do with fighting terrorism. Thank you.

Answer: The first question is how we spend out ODA. $3 billion dollars of the money goes to development assistance, which is administered through AID without a political overlay. We do not make decisions based on geo-strategic decision-making. That's called DA, Development Assistance. It's about, that will be about $2.9 billion dollars next year, almost 3 billion dollars. Another, almost a billion dollars goes in food assistance and that is again not distributed based on politics. It is primarily for famine relief emergencies and there is some food for development that is also used in that account. There is an account called economic security fund, which is controlled by the State Department. We administer it for them. They will tell us, we want to spend this much money in this country. Help us design the program with the local government. The money that is spent, sent to Egypt in Israel. By the way, that money is declining. There is an agreement with the Congress to reduce that spending by 5 percent a year. Egypt will go from, I think it is $900 million to $600 million over a period of, I think it's, I don't remember the number of years but it gradually has been going down over three years and Israel will just go away. That will eventually cease to exist as an account. Those two accounts are sizeable part of the ESF account. I think it would be probably 1.7 billion dollars of the ESF account. Right. Of that, $800 million goes to Egypt for development purposes. It's not for military purposes. We, for example in Egypt, we constructed a third of the water and sewer system of the country. They're serving 22 million people. We built 2,000 schools. We built huge infrastructure projects in Egypt over the last 20 years with that money. So it was used for development purposes in the case of Egypt.

There are other accounts that go for debt relief. There are accounts that go for IDA, for IDA replenishment. There is about a billion dollars that is for refugee assistance and disaster relief, in complex emergencies, in famine relief, in natural disasters, that's another account.

The President, and this is the answer to your second question, specifically said that he did not want this additional assistance, this $5 billion dollars [to be] distributed based on political or geo-strategic or terrorist, anti-terrorist overlay. That is the purpose of the ESF account is to do that. And we will certainly do that, but we'll do it through that specific account which already exists. He is proposing a new account, and the new account will have new standards attached to it, and it will not be based on a political overlay, and it will not be used for the purposes that you mentioned. That did take place during the Cold War in the ESF account. The Development Assistance account though is an example, or the humanitarian assistance account. Humanitarian assistance is not distributed based on need. We are the largest food donor to North Korea, not exactly our best friend, and we have been now for 3 years.

Yes.

Question: Lori Pearson with Catholic Relief Services. There has been a lot of debate recently about development effectiveness and I think experience has shown that local ownership of development strategies is vital to effectiveness. And I'm wondering with this new account that Bush has announced what kinds of discussions have taken place about promoting local ownership and perhaps even building on something and improving upon something like the PRSP process, so that we are sure we are following local country strategies and not imposing our own perspectives and conditionalities.

Answer: There is some question as to whether the PRSP strategies are actually locally owned. If you want debt relief you have to go through that process and a lot of developing countries will privately tell you it's a western imposition on them to do those strategies because they do not reflect what their priorities are. But that's another question. There are two decisions that will be made and we will not confuse the two. We will choose to spend the $5 billion dollars in a limited number of countries that we believe have established the essential elements for creating the atmosphere in the country, the conditions in the country for investment in the private sector that will lead to long-term development. We will choose those based on these standards. Once we choose them, we will have to work with the government of the country and the civil society in the country to decide how to spend the money, in what sectors, in what areas. We have not done that well in my view, and I have to tell you I will go back again to agriculture. If you ask African heads of state where we should be investing money, it is not what we are spending money on now. They all say that almost all of the heads of state come from rural areas themselves and are from farms, or still owned farms and they will tell you agriculture is where we should have been investing money. That is not what we've been doing, and we need to do it. So frankly I've been listening to them because that's where I got the message that we were investing in the wrong areas. So we will have to work with them once we establish which country, what the levels will be, how to invest the money, and how to spend it, to the extent that we have discretion in that matter.

Thank you very much.

end transcript