*EPF105 02/11/2002
Transcript: USAID's Natsios Interview on Development Assistance
(Says technology transfers make foreign aid work) (5120)

Foreign aid is working through technology transfers, institution building, policy reform and improved public services, U.S. Agency for International Development (USAID) Administrator Andrew Natsios says.

In a February 5 interview with the Washington File, Natsios said a series of meetings this year -- the Financing for Development Conference in March, World Food Summit in June and World Summit for Sustainable Development in August -- will focus on helping developing countries create environments to attract private sector capital and to sustain growth.

Natsios said the "green revolution" that is still underway in Asia is the result of technology transfers of improved seed varieties and equipment that allow small farmers to grow more food. "It was not capital flows [that increased production]," he said.

He added that USAID and other donors have facilitated institution building in emerging democracies by training people to manage their institutions. "That, again, is not a capital flow," he said.

Natsios said strong national leadership is critical to developing countries' economic progress. He pointed to Mozambique which, with new leadership that promoted investment, "went from one of the five or 10 poorest countries in the world" to having a 14 percent growth rate. Another example of strong leadership, Natsios said, is Uganda.

Natsios added that USAID wants to get back into education and agriculture programming "in a big way." He said the Bush administration is proposing to spend 70 percent more -- or $170 million -- on education in developing countries over the next two years.

Natsios said that absence of public education is a potential breeding ground for terrorism because extremist groups go in and teach young men and women "gross distortions" of the world.

The administration also will propose a large budget increase for agriculture and funding for anti-corruption programs, he said. The proposed budget for Africa will be the first increase for the region in 12 years, he added.

Natsios said "very, very little" official development assistance (ODA) to poor countries goes directly to governments anymore and little ODA is wasted. One third of USAID's money is spent through international, U.S.-based nongovernmental organizations (NGOs), one-third through universities, associations and local NGOs, and one-third through the private sector, he said.

He said a new USAID program called the Global Development Network seeks to form partnerships with the private sector. He pointed to a project funded with $3 million of USAID's money and $100 million of a software company's money to increase Internet access in developing countries.

Following is the transcript of the interview:

(begin transcript)

NATSIOS INTERVIEW WITH STATE FOR WASHINGTON FILE AND WEB

Question: As ministers and world leaders attend a series of major international conferences this year with development as a key theme, there is no clear unanimity on the best approach to development. Can you characterize the current debate on this issue?

Natsios: The first thing I would say is that there's been a debate that's gone on for some time over what the official government foreign assistance level should be. And I think it's the wrong debate -- it's the wrong agenda. That's the agenda for the 1960s. It's an agenda that predates globalization. It's an agenda that's sort of stuck in a more statist view of the world when socialism was still a model of development that people took seriously. Now we know it's a bankrupt model.

The discussion over official development assistance (ODA) levels is almost a Cold War relic. It really has little to do with the reality we face now. One very important statistic: in 1969, 70 percent of all capital flows to the developing world were from western governments in the form of foreign assistance. Now only 20 percent of all capital flows to the developing world come from official development assistance from donor governments. Eighty percent of the money now is private money. It's from foundations like the Gates Foundation, the Rockefeller Foundation and the Ford Foundation. It's privately raised money from NGOs [nongovernmental organizations]. It's from universities -- and the relationship of universities and the developing world. Most significant, it's from private companies investing money to build factories and to build businesses and to build infrastructure in the developing world entirely privately. If that's the case, and there's been a huge reversal of proportion here, the statistic is exactly the inverse of what it was 30 years ago. What we need now to do is to refashion foreign assistance in light of where the world is moving. Because clearly the world is moving faster than we are in terms of our understanding of what foreign assistance does.

We know that foreign assistance does work in a number of very important ways. One, we know that technology transfer works. What's the best example of that? The green revolution in Asia is still going on right now. There would have been mass starvation in a number of large Asian countries had there not been a green revolution in the 1960s. That was not a transfer of ODA. That was a technology transfer of improved seed varieties and of new kinds of equipment that will allow smaller farmers to grow more food. It's a movement of fertilizers and different kinds of inputs that can help small farmers increase food production. And it was spectacularly successful. It won Nobel prizes. And it was mainly American scientists who did this. It was an alliance between the foundations in the United States, the World Bank and USAID back in the 1960s before many western European countries had foreign aid budgets. It was technology transfer. It was not capital flows.

The second is institution building. Since the end of the Cold War there's been a dramatic movement of developing countries toward democratic capitalism as the operative model of governance. Many countries that had never had free and fair elections with multi parties and multi candidates were not prepared to run a parliament, not prepared to have competitive political parties, not prepared to have investigative journalism where journalists would look at the problems of government in a very public way, and not prepared to have a free radio and TV network in their country. We in AID and other donor governments have facilitated institution building, particularly in democratic institutions in these countries. That, again, is not a capital flow. That is an institution building model where we go in and basically train people in how to manage the new democratic institutions they have.

The third is in the area of policy reform. If you don't have your macroeconomic policies correct, no amount of foreign assistance is going to make a country that's poor become prosperous. Policy reform has been shown over and over again to be an absolute prerequisite for long-term sustainable development. What does that mean? If you have hyperinflation, if you have a de-based currency, if you have massive counterfeiting, or some countries have three or four currencies operating at the same time because their currency is useless, unless you get your currency to mean something, people are not going to save money in institutions. They are not going to borrow money or loan money because the indicators are wrong. Farmers will not grow more food if they can't get a reasonable degree of return on their investment. And you can see this over and over again. Where the macroeconomic indicators are correct, then it does encourage growth. And so we've done a lot of work through USAID and through the other donor agencies in helping developing countries that want to do it, to reform their system for public education, or their health care system so the systems work in the right way to deliver services, to reform their policy environment to get rid of the socialist economic model and move toward a more free market model.

And the final area is in public services. Many governments in the developing world have been unable to provide quality public services at a reasonable cost to the large portion of the population. We've done a lot of work to get child mortality rates down, to get population growth rates down in a voluntary way through family planning, through programs to increase agriculture production, through extension services run by the ministries of agriculture. You can go through a list of improvements in public services that affect people's health, their education level, and if you look over the last 30 or 40 years you can see a dramatic improvement in child mortality, in maternal mortality and in literacy levels in many countries and as a result we know that these programs work. They do work. But, once again, in many cases this is not actually transfer of foreign assistance, it's helping build institutional capacity of the ministries in these countries to carry out public services.

Q: You've outlined the philosophical underpinning of the administration's development position. But what outcome are you looking for from the series of meetings this year - the Financing for Development ministerial in Monterrey, the World Food Summit in June, the World Summit for Sustainable Development in August?

A: What we're trying to do is change the conception of what foreign assistance is for. Foreign assistance is not just transferring money from the North to the South. It is creating the environment to attract private sector capital to develop economies so that they sustain growth over a long period of time. All of the countries that were poor and have become prosperous have done it through private sector growth and official development assistance. Foreign assistance has helped these countries achieve a sustained growth to eliminate poverty. They've done it through technology transfer, through institution building, through improved health services and through policy reform. But unless we rethink of what foreign assistance is all about, rethink the purpose of foreign assistance, we're going to get stuck in numbers and total bottom lines. It's not how much you spend in foreign aid; it's how you spend it.

We know that certain kinds of spending in foreign assistance are very successful and other kinds of assistance are not very successful. We need to invest money in those programs that have a track record of success in creating the environment for private sector-led growth.

Q: The British, having recently called for a major global investment in education, would argue that education is just such a worthwhile investment. How do you see our role in global aid to education?

A: Well, the United States agrees with them. And we have increased our education budget. When I started it was $100 million. We propose it to go up to $170 million. So there's been a 70 percent increase in our budget in a matter of two years.

USAID in the 1990s got out of the education business and the agriculture business. We want to get back into those two disciplines in a big way. And we propose major increases in both those budgets.

It also, I might add, is one of the focuses of the president. The first priority of the president is an increase in spending for primary education in the developing world. And I've been given that message, in no uncertain terms, from the White House.

Q: Treasury Secretary Paul O'Neill has said that we need to make the developing countries "engines for growth." It is hard enough to get the Japanese to do that. How can we get the developing countries to implement pro-growth polices?

A: Well, there is one thing we've learned in the last 40 years in foreign assistance. If there is no local or national leadership, no amount of foreign assistance is going to create those policies. And if you don't have the leadership, it's very difficult to make a lot of progress. But, if you have strong local leadership, and I'll give you some examples of where it's made a profound difference, then countries can turn things around.

Mozambique had one of the most brutal civil wars in the last quarter of the 20th century. Two to three million people died of starvation. Terrible atrocities were committed. The country was a complete wreck. It was one of the five or 10 poorest countries in the world. In the last quarter Mozambique has had a 14 percent growth rate in its economy. Dr. Mocumbi, Mozambique's prime minister, is very proud of having created a policy environment where there is widespread investment across the country. The areas that were famine areas during the civil war are now exporting foods as a result of USAID agricultural programs. But Mocumbi is deeply interested in agriculture, and his cabinet is among the most able ministers I've seen in many developing countries. They created the policy environments and then they went in and attracted capital to build on the base they created.

The same thing happened in Uganda. Among two of the most brutal dictatorships in African history were Idi Amin and then Mobutu There was no civil war. They just went out and massacred large numbers of people from tribes that opposed them. And then Museveni came in, unseated the Mobutu regime with the help of the Tanzanians, and he's been there now for 13 or 14 years and there has been once again sustained growth.

Uganda has made a major effort in reform of its education system and they've doubled the number of kids in school. The quality of the education, the curriculum, the quality of the teaching, has dramatically improved. That also was done with USAID assistance.

But they led the effort. They asked for our help. We helped them do something they wanted to do on their own. So there's a national commitment. It is not something we encouraged them or forced them to do. They wanted help from us to do something they had already decided to do.

You can go through many countries in the developing world that are showing substantial progress and it's because of very strong national leadership.

Q: Some critics of the U.S. development strategy say that we pushed too aggressively privatization of large institutions, particularly in the former Soviet states, and received very mixed results. What is the Bush administration's approach to privatization of state-owned enterprises and how can privatization advance most efficiently?

A: Well, the first question we need to state categorically is that anybody who thinks that state-run enterprises are working in the developing world is living in a fantasy world. Most serious students of the developing world believe that state-owned industries, coal mines, utilities, are not working efficiently in the developing world. In all cases, almost every single case, state-run enterprises are losing huge amounts of money; they do not provide services properly. If you have a state-owned enterprise that's grossly overstaffed, that's loosing money, provides lousy telephone service, and the electric lights go on for two hours a day, how can anybody defend that? And yet there are still people who still argue they need to be in the public sector.

Q: Some of the criticism is how they were privatized.

A: That is a legitimate criticism in some cases. But I might also add that the need for privatization is still being debated in some countries. I think it's a very, very silly debate.

Are there better models for doing it? Yes. The Czechoslovakian model of 10 years ago where they literally had an auction every weekend for two years and they sold off things like barbershops, grocery stores and factories to the private sector, worked very well.

In a country with endemic corruption on a massive level, any kind of effort to privatize is going to be risky. In countries where corruption is under some control, privatization has been done. It's been done in Poland. It's been done in Hungary. It's been done in the Czech Republic very successfully.

Russia has had problems with it. But some things like the coal industry have been successfully privatized. So it depends on which industry you're talking about, under what circumstances and which countries.

Q: Some domestic critics claim that more often than not new money provided to poor countries is squandered or wasted. What can both industrial and developing countries do to more effectively utilize ODA?

A: The first point I guess I would make is that there is always a time lag in perception versus reality within the United States with these programs. So many of the critics who haven't traveled to poor countries don't know that foreign assistance has profoundly changed in the last 30 or 40 years based on what we've learned. We learned that just transferring large amounts of cash into the treasuries of developing country budgets does not work very well. In some cases it's worked. In many cases it has not. And so we don't do very much of that.

Our approach is once again institution building and technology transfer and in policy reform. In none of those areas does that involve us transferring money that can be abused. Very, very little of the money we spend is squandered or wasted.
I think during the Cold War there were times where we gave foreign assistance to countries in order to attract them to the western coalition against the Soviet Union. And we did that regardless of what they did with the money. That kind of transfer, we don't do very much anymore.
A third of our budget goes through NGOs -- international, American-based nongovernmental organizations. Another third goes through universities, private associations and local NGOs. And a third is spent through the private sector. Very, very little money goes directly to governments.

Q: Do you see any change in the direction of ODA spending, and development assistance in general, both in the types of projects being funded and in the share going to different geographic regions?

A: We expect an increase in the amount of spending in Africa. Africa still contains a disproportionate number of least developed countries. The great majority of least developed countries -- 49 -- are in Africa. And therefore there needs to be more growth in that budget than in other budgets, which is reflected in the president's budget -- a 20 percent increase over two years.

The second thing I would say is that we are going to refocus our priorities into public education and agriculture. Agriculture has been neglected. Three-quarters of the poor people in the world live in rural areas on farms or are herders. If you do not deal with agriculture you cannot eliminate poverty in the developing world.

Q: If you have an increase for Africa does that mean a decrease for some other region?

No, it means an increase over and above. We're not transferring any money from any other regions. It's just a growth in our budget.

Q: The administration's FY2003 budget talks about linking financial support to the multilateral development banks to performance. Will the same links also apply to aid from USAID?

A: We do that now. We have programs where we go through policy reform and we set up certain benchmarks in terms of balancing budget, in terms of macroeconomic reform, in terms of inflation rates. And we work with them on that to see whether or not they achieve these results each year.

Back in the mid-1990s a federal law was passed requiring all federal agencies to be far more focused on performance than on outputs. In other words, we not interested in how many conferences you have, we want to know whether the conferences result in a reduction in poverty, reduction in corruption or the improvement in democratic institutions. And USAID began to reform the way it did its strategic plans for each of our country programs. We have 75 full country programs. And in each of those countries there is a strategy and performance indicators. And those are used to judge whether or not the program is succeeding. That's been in place four or five years now even though it's not commonly known.

Q: What kind of indicators, for example, would USAID review in considering the level of assistance for primary education in a specific country?

A: How many literate children are there? How many years of teacher training have the teachers actually had? How many kids are in each classroom? Those are very clear performance indicators.

What's the child mortality rate? How many kids die before they're five? If the rate is going up you're failing. If the rate's going down you're succeeding.

What are the immunization rates against the five major childhood illnesses? Are 50 percent of the kids immunized or are 100 percent of the kids immunized?

If we find out the program is not working we will adjust the program to perform properly according to our objectives.

All development assistance in some way is like a venture capital company in the United States. You invest in something. Sometimes it does not work. Other things are spectacularly successful. And that's true with our budget as well. Some things are spectacularly successful, some thing aren't as successful.

Q: How vital is it that developing countries provide an adequate social safety net to support those populations most vulnerable in the process of economic reform?
A: Most poor countries do not have social safety nets the way we do. Some of them have them and then don't put money into the systems so the systems don't function very well. Many of these countries do not have social security and pension systems or public welfare and "food stamps" and that sort of thing that a western country would have. And that is a function of their poverty.

The traditional system for social safety nets in many countries is what we call coping mechanisms that are traditional in nature. Which is why people rely, for example, on the extended family for support during crisis so the family structure, the tribal structure, the clan structure in many countries is their social safety net. It's a traditional system developed over centuries. What we tend to do in many countries is to try to shore up and support those traditional systems rather than create a new system that is probably unrealistic given the poverty of the country.

Is it important that there be some support? Yes, there is. We provide food assistance in a number of countries where there are collapsing economies to make sure that child mortality rates don't go up. Twenty-five percent of the children in Haiti are fed through food aid programs from the United States because there are such high rates of child malnutrition in the country. We do it through the schools.

Q: Can you talk about alternative sources of aid that might provide the catalyst for foreign investment, such as microfinancing, public-private partnerships and so on?

A: We've got a new initiative in USAID called the Global Development Alliance. It's one of the four pillars of our work. It's an attempt to form partnerships or alliances with private foundations -- there are a huge number of new ones, the Gates Foundation being the most famous -- with American universities, with private money. This is not a grant program where we give grants to these institutions to go do the work. They put their own money in, we put own money in and we work side by side. Or with NGOs that have private money. Or with private companies.

We're doing some interesting work in trying to introduce the Internet in countries that have no access, using software companies that have put huge amounts of money in. In one program with one company we put $3 million in, the company put $100 million in building Internet cafes, and training schools in these countries. They have their own reason for doing it. It's good marketing for the future for their company. But the fact is these countries had no access to the Internet before we worked with this particular software company.

Now in Mali, for example, for $30 a month you can tie into the Internet and half a million people do.

I think there are about 50 countries that are involved in this computer literacy program with access to the Internet. With companies we introduced some of them to the Internet. Some of them were already there but we expanded the number of people who had access.

We're doing some interesting projects now with some environmental NGOs where they're putting their private money in. We're getting companies now to work with us on regulatory frameworks dealing with illegal lumbering and the cutting down of tropical forests, for example.

But we know if you run development programs that run counter to or ignore the incentives of the marketplace or of the private sector, you loose. You fail. Because one of the most powerful forces in the world is the market. And so your programs will be much more successful if you leverage them against the incentive structure of the private sector. We know that even in the United States. It is not just in the developing world that that's the case.

Q: What will the new food programs look like with the shift from less food aid to more agriculture aid?

A: I've just written a book on the famine in North Korea so I'm very interested in the whole subject of foreign assistance and food aid and famines. It is very clear that food aid is a critical element of dealing with civil wars and famines. If it's done properly it can save a lot of people's lives.

However, becoming dependent on food aid is also very dangerous because you can damage the agricultural system. We are very careful, however, in our food assistance programs not to have that happen. I think we learned our lesson in the 1960s and 70s of what to do to avoid damage to the agriculture system. Ideally people will grow their own food and be self-sustaining.

We do know, though, that many of the countries that were huge food aid recipients in the 1960s and 70s from the United States are no longer getting food aid and are now importing commercially huge amounts of food aid from the United States. And so having these programs ultimately leads to a more prosperous future for these countries because people are healthier. You can't start to build factories if your people are completely malnourished. They're just not going to be able to work in the factories. And it affects children's' physical and intellectual development.

We know food programs do work but there are limits and we have to respect those limits. The United States has been a leader in illuminating and in ending famine. I know that one of the president's instructions to me is "no famines." We're going to try to avoid them to the extent that we can.

Q: Do you see a link between global poverty and the growth of terrorism? If so, doesn't this suggest the need for additional foreign aid to improve the human condition and provide some hope for opportunity?

A: Well, in fact, while there's been a debate over our foreign assistance levels. The fact is the budget that the president just submitted to Congress contains, for example, a 20 percent increase over two years in the level of funding for U.S. government development in Africa. That's the largest increase in 12 years. In fact, there has been no increase. There's been a flat budget since 1990 for Africa. There are major new initiatives in agricultural development, in agricultural production to end hunger. There is a major new initiative -- bilateral -- for HIV/AIDS programming in Africa to stop the spread of the disease and drive the infection rates down.

There are major new initiatives in the president's budget also to end or to reduce the level of corruption in many developing countries, which is the most damaging thing to development beyond policy framework. Corruption creates an atmosphere that no person in the private sector wants to invest in. No country with that level of corruption is a good attractor of capital.

There has been sort of somewhat, in my view, some loose thinking. Poverty does not necessarily cause terrorism. However, it is the case that some elements of collapsed states -- or they're called failed states -- do lend themselves to an atmosphere that can be taken advantage of by terrorists. For example: We know among the worst and most aggressive and violent of all of the extremist groups in the world at some point came out of refugee camps or internally displaced camps in the developing world, most caused by conflicts. Almost all of the terrorists that we're dealing with in terms of the foot soldiers being recruited come out of those camps. Why? People aren't working.

When people, particularly young men in their 20s who have nothing to do because they have no jobs, they get into trouble. Refugee camps and displacement camps tend to break up traditional structures that would generally control the violent tendencies of younger men. This is the case in all countries all over the world. It's not a function of North versus South. There is an aggressiveness of teenage boys and younger men in their 20s. And the worst place to control that is in the refugee camp where the traditional religious systems, the system of elders and the extended family -- all ways of modifying the behavior of young men so they grow into productive adults -- are missing. The failure to deal with the conflicts that result in very long-term displaced camps and refugee camps, in my view, is a major breeding ground for terrorism.

A second breeding ground is when there is no educational system that educates young men and young women to see the world as it is in a broad and accurate and reasonable way. In some areas of the world, the absence of public education means that extremist groups go in and can teach younger people things that are gross distortions of the reality of the world and they have no way of understanding that there is another point of view, another way of looking at things because there is no public education systems. So, ignorance and illiteracy is, again, a potential breeding ground under certain circumstances for terrorism.

A collapsed economy where there is 60 to 70 percent unemployment and huge amounts of hopelessness makes it easier to recruit people into violent, organized militias that commit atrocities, into terrorist groups and into illicit sorts of activities like counterfeiting, and growing illicit drugs and getting involved in the drug trade. So, there is a relationship, butit's not as precise as some people might argue.

(end transcript)

(Distributed by the Office of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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