*EPF512 03/15/2002
Transcript: U.S. Fund to Reward Poor Countries for Sound Policies
(Aid focused on trade capacity building, officials say) (5510)

President Bush's plan to increase U.S. development assistance for countries that follow sound economic policies represents a new approach to aid that is based on greater accountability on the part of donors and recipients alike, say senior U.S. officials.

Speaking to reporters immediately following the president's March 14 announcement, administration officials said that $5,000 million in new money spread over three years -- the largest jump in foreign assistance history -- would be used to reward nations that demonstrate good governance, strive to improve education and health care and promote private business and entrepreneurship.

The money, which would start flowing in the fiscal year 2004, is intended to help the poorest countries seize the opportunities created by global trade and investment flows by supporting trade, investment, and agricultural development capacity-building and related projects, an official said.

An official said that the initiative will be structured in a way that invites competition among developing countries with criteria developed in consultations with other donor countries and potential aid recipients. The Bush administration views the plan as a pilot program that would include elements of other U.S. assistance programs, and which has the potential of attracting other donors, the official added.

An official emphasized that the $5,000 million increase comes on the top of an 18-percent jump in the U.S. contribution to the World Bank, amounting to $2,500 million over three years, and the over $27,000 million annual economic development assistance that includes a $17 million provided to other countries to support security.

In response to a question, one of the officials said that the World Bank's recent call for a doubling of official development assistance is based on "arbitrary" figures.

But "however much is required, it's not all going to be filled by official development assistance," the official added.

Instead, the official said, the gap between what is available and what is required will be closed by private capital and income derived from trade.

An official said that the new initiative is designed to accelerate the process of using aid dollars more effectively to create an environment in which aid money can be leveraged to attract private capital and boost trade.

Following is the transcript of the White House briefing:

(Note: In the transcript "billion" equals 1,000 million.)

(begin transcript)

THE WHITE HOUSE
Office of the Press Secretary
March 14, 2002

BACKGROUND BRIEFING BY SENIOR ADMINISTRATION OFFICIALS ON THE PRESIDENT'S GLOBAL DEVELOPMENT AID POLICY

SENIOR ADMINISTRATION OFFICIAL: Just about a year ago, in his speech at the World Bank, the President called combating poverty a moral imperative, and made it a priority of U.S. foreign policy. In his speech today he reaffirmed that. He noted that prosperity abroad assures prosperity at home. He also noted that these impoverished nations and failed states can become havens for terrorists.

The President believes that the development debate has focused too much on inputs on levels of aid -- arbitrary levels of aid from the developed countries, and not enough on ensuring tangible outcomes, growth and opportunity, education and health, for the poor.

Now, we know that trade and investment are the real drivers of development. And, in fact, the United States, as the President noted, import some $450 billion worth of imports from the developing world each year, and that's about eight times more than all aid to developing nations from all sources.

But we also know that aid can play a critical role if it's linked to the right policies. We know that when you pour aid into a good policy environment it actually can attract private capital, private investment, two to one. But we also know the reverse, that if you pour aid into a bad policy environment, it isn't merely ineffective, it actually is harmful. It perpetuates bad policies and it crowds out private investment.

Recognizing this, the President proposed a new approach, what he called a new compact for development, based on what he called accountability for rich nations, as well as poor nations. And this compact will link increased contributions of assistance to increased responsibility on the part of developing nations. He said he would substantially increase U.S. economic development assistance by $5 billion over three years, over the next three budget years, beginning in '04.

And he said that these increased funds would be put into a new account, what he called the Millennium Challenge Account, which you ought to think of as a kind of pool of money that will be used to reward nations that demonstrate good policies in three areas -- he said that demonstrate good governance, make better education and health care priorities, and promote enterprise development and entrepreneurship.

Now, the funds in this account will be used to support capacity-building initiatives, initiatives designed to help developing nations meet the challenges and seize the opportunities of participating in a global economy, specifically initiatives focused on the key drivers of productivity growth and increases in standard of living -- trade and investment capacity-building, capacity-building for agricultural development, information technology, education, health, and good governance. The objective is to ignite a competition among developing nations by using the funds of the Millennium Challenge Account to reward the nations that make right policy choices.

The President asked the Secretaries of State and Treasury to work with the world community to refine this framework, to develop the criteria that are going to be used. And it's important to note, as well, that what we're talking about here is not traditional humanitarian assistance, which will continue to flow as it has -- and we don't link that necessarily directly to policies -- but this is a $5 billion sum of money that will go to incentivize countries to make the right choices -- and with the ultimate objective being to no longer have aid always following aid, one more aid dollar each time.

As he said in the speech, if this is done rigorously, if it's done transparently, and if it's done fairly, what should happen here is that those aid dollars attract greater trade, greater private capital, greater domestic capital, and eventually are no longer needed.

The President also noted importantly that this approach that we're using in our bilateral assistance is also the same approach that we're using in our so-called growth agenda or reform agenda for the multilateral development banks, specifically the World Bank and the regional development banks, where we're also trying to have a closer marriage between policies and contributions. The President, for example, has now called in his '03 budget for an 18-percent increase in the U.S. contribution to the World Bank, some $2.5 billion over three years, if the Bank can show real results in key areas like health and education -- again linking contributions, increased contributions to policies and performance.

And, in addition, we've also called for an absolute increase in the amount of funds going to developing countries in the form of grants, rather than loans. We believe that this is the way to really not just drop the debt, but as he said, stop the debt. It makes no sense to pile new debt after having relieved these companies -- these countries of debt, and particularly in areas like education and health, that are so crucial to growth and development, but which don't provide an immediate return and hence don't lend themselves to a lending paradigm -- a loan paradigm -- but are more appropriate for grants.

That's it in a nutshell. We're happy to take questions. We've got folks from every arm of the government here.

Q: Will these same standards of good governance and human rights and policy reforms apply to the Pakistanis, the Uzbekistanis, Tajikistanis, who have provided space and support for U.S. troops in the fight against terrorism, or will they have a different standard to meet?

SENIOR ADMINISTRATION OFFICIAL: This fund, remember, is on top of the $17 billion that we put out annually in our total economic development assistance. And those funds will continue to flow as they have. This New Millennium Challenge Account, this new $5 billion account, is on top of those. And any country -- any developing country in the world can, in effect, compete for those funds by putting in place the right policies. So it is, in effect, a bonus pool, you could think of, to reward countries making the right choices, and accelerate the process of development by rewarding countries to put the right policies in place -- right policies being the policies that we know will lead not to greater dependence on aid, but lead to greater flows of capital and trade.

Q: The countries that make the wrong choices would continue to get the assistance they've been getting?

SENIOR ADMINISTRATION OFFICIAL: Let me just answer, add to that in another way, which is that our policy is multifaceted and they obviously are mutually reinforcing. Part of our issue is we're conducting this global campaign against terrorism; there's funding for that. What the President did today is highlight the importance of global development. And so this money is specifically attempting to leverage that development, to add to the trade agenda and private foreign investment by giving these countries some resources to launch them further on a path of development. And so you could look at it as not competing funds, but highlighting a particular aspect of our policy, which is development agenda.

Q: Just to be clear, we're talking about $5 billion spread out over three years, as opposed to $5 billion in each of the three years?

SENIOR ADMINISTRATION OFFICIAL: That's correct.

Q: So, then, can you tell me, then, how you want to see that work out? I mean, how much in 2004, how much in 2005, and how much in 2006?

SENIOR ADMINISTRATION OFFICIAL: We haven't started developing the '04 budget at this point, but I think it will depend on the progress on developing the criteria. If we feel that the criteria that we want to consult with the G-8 and other donor countries on has made progress, we conceivably could put $2 billion in the first year and then $1 billion and $1 billion in the next two years. But at this point, I think it will be dependent on the criteria.

Q: And is this money on top of the $2.85 billion addition for the World Bank?

SENIOR ADMINISTRATION OFFICIAL: Yes. That's unrelated, yes. But one clearly led into the other. I mean, he established, the President laid down the markers for the World Bank, and then this was -- directed our bilateral piece of it.

SENIOR ADMINISTRATION OFFICIAL: In fact, that's important to point out, that this money is in addition to what we talked about with the multilateral development banks. It's also in addition to any contributions made to the Global AIDS Fund, for example. This is really -- this is money that goes to countries.

Q: Is the $2.85 billion conditional on the IDA reforms that he's called for, as well?

SENIOR ADMINISTRATION OFFICIAL: Yes.

SENIOR ADMINISTRATION OFFICIAL: Actually, let me add -- to be specific about that, the $2.85 billion is also over three years. That's a three-year replenishment. And it's 850, 950, 1050. And that is a way -- those increments of $100-million increments are based on these same kind of ideas: better policy, better results. And so that's the way the IDA proposal is. This is now, as my colleague was saying, the bilateral component of that, on top of all the multilaterals.

Q: Have you defined which developing countries would be eligible in the $5 billion in grants, and whether or not there's a bias toward the least developed countries, or are those countries -- I understand good policies, but among those that are determined to have good policies, might India and China get the bulk of that, because they have the most experience, or are you aiming more toward Africa and the least developed countries?

SENIOR ADMINISTRATION OFFICIAL: Well, we want to develop the criteria first. And that's going to be over the next few years. And there's a lot of research and experience to build on -- private foundations, the World Bank, the EBRD have developed these criteria. So we want to first develop those criteria. That's going to be in consultation with other countries, other donors, the countries themselves. And once we do that, then we'll be deciding exactly who benefits and who doesn't.

Q: How long will it take to develop these criteria?

SENIOR ADMINISTRATION OFFICIAL: I'm sorry?

Q: How long will it take to develop these criteria before money goes out?

SENIOR ADMINISTRATION OFFICIAL: The money -- in terms of the money going out, remember, '04 is when we start this. And so that's plenty of time. There's actually a lot out there already in terms of these measures. And so we want to build on that, get something that's acceptable to other people.

SENIOR ADMINISTRATION OFFICIAL: Let me add to both questions in another way. This is obviously -- the fund is a global fund. But as I said initially, it's intended to help development. And so, specifically, looking at some of the least -- the poorest countries in the world, this fund is going to be focused on those poorest countries, because that's what we're trying to do, is a development assistance, so it's giving them a boost.

But it's part of a broader policy. It's a paradigm shift about how we do development. And it says that we're going to help you with trade. For instance, I can talk specifically about the Africa policy, since many of the countries that would qualify in terms of being the poorest countries are in Africa. Our policy for economic sustainable development focus on AGOA, the Africa Growth and Opportunity. So we have a trade aspect to it. We're trying to encourage foreign direct investment. You do that by getting a good policy framework, by having the rule of law. In addition to that, what we're saying is, development assistance is a component of the financing. But it's not the biggest component of the financing. Most of the financing comes out of trade and private investment.

And so the process of defining criteria is going to be one of consultation. I can say again for Africa, the President has already been engaged in this consultation. He's met with at least 17 different African heads of state. And so that's been a dialogue about what is necessary to put down the type of policies to get the development. And so it's a process of consultation with the G-8, with Africans, with Latin Americans, with Asians, et cetera.

Q: The President said in his remarks today that we're trying to encourage the leaders of the developing countries to walk "the hard road" of reform, and presumably bear the adjustment costs of the types of structural reforms that you're calling for. The World Bank chief economist earlier this week said that type of approach is hypocritical when the developed world is unwilling to bear the adjustment costs of, for example, doing away with agricultural subsidies and opening up agriculture to trade with the poor countries, which is ultimately the way that they have to develop. How do you respond to the World Bank's criticism?

SENIOR ADMINISTRATION OFFICIAL: Well, first of all, a lot of the policy changes that we think are going to be good for the countries are good for the countries, good for the people; they reduce poverty. So I would say they emphasize the growth aspects, the raising people out of poverty, rather than the adjustment costs. I'm always struck by how rapidly a good set of policies can deliver results.

In terms of your question about the developed economies, we're anxious to get started on a global trade round, and anxious to get trade promotion authority passed so we can proceed to reduce barriers in all countries. It's a very high priority for the President.

Q: Could we clear up something about the numbers? You use the figure $17 billion -- I thought the figure for U.S. ODA was something more like $10 billion. But can you give us -- I mean, can you clarify that? And what -- so this would basically -- I mean, if it's $10 billion, then you're talking about a $5 billion increment on top of $30 billion, basically, so roughly 15 percent, right? So I'd like you to clear up the numbers. And then to get to the substantive part of my question -- the World Bank has estimated that even if everything goes great and the countries do all the things that they're supposed to, that they'll still need something like a doubling of aid to meet the Millennium Development goals. The President said, you know, I -- the Millennium Development goals are now a commitment in my heart and all that stuff. So how do you square this -- I mean, this is still a substantial amount of money, but by the World Bank's reckoning, it's not nearly enough to achieve the Millennium Development goals. So, what do you say to that?

Q: Can I throw in one more while you're doing the numbers? If it's -- this says it's the largest three-year increase in history. If it's a new fund, there is no history. So I don't understand --

SENIOR ADMINISTRATION OFFICIAL: Well, the largest increase in foreign assistance history.

Q: Okay, well, maybe that's -- keep going with the numbers, then.

SENIOR ADMINISTRATION OFFICIAL: The Foreign Assistance Act that the appropriators pass every year covers a range of issues. It's Economic Support Fund, development assistance, child survival funds, export promotion programs, and FMF -- foreign military financing -- and IMET -- international military education and training.

That pool of resources is what we would characterize as our support for the developing world. We've excluded from that the administration of the State Department and public diplomacy. But what we provide to other countries to support security, which we characterize as key to possibilities for development, we count in the $17 billion -- that $17.1 billion.

What you talked about in terms of the $10 billion number is a much smaller subset of that, which is traditionally humanitarian assistance, economic development assistance, and multilateral development bank contributions, and food aid -- those last two, by the way, are in the $17.1 billion, as well. So the $10 billion you're talking about is what is known as official development assistance defined by the OECD, whereas -- I think there's a much broader -- having been the clerk on the Foreign Ops bill for many years -- there is a much broader category of assistance that we view as key to development.

Q: And what is that number as the OECD defines it?

SENIOR ADMINISTRATION OFFICIAL: It's about $10 billion. That smaller subset of pure economic is about $10 billion, and then the broader -- pardon me?

Q: For '02?

SENIOR ADMINISTRATION OFFICIAL: Right. And the ODA number, just as one example, doesn't include -- they exclude countries like Russia and Ukraine and Belarus and Bulgaria, for some reason. So they exclude any kind of economic support for those countries, which we obviously provide, because they view them as, I guess, better developed.

Q: Does that include Israel and Egypt?

SENIOR ADMINISTRATION OFFICIAL: ODA? No.

Q: But the kind of things you're talking about with this fund are more closely aligned with the smaller $10 billion number than the $17 billion.

SENIOR ADMINISTRATION OFFICIAL: If you believe that you can proceed with economic growth absent security, I'd say the answer to your question is yes. We believe that the two are mutually reinforcing, and that you can't do one without the other.

Q: Egypt is in the $10 billion.

SENIOR ADMINISTRATION OFFICIAL: Egypt's economic support fund would be counted within --

Q: But not the military? Oh, okay.

SENIOR ADMINISTRATION OFFICIAL: -- but not the security assistance.

SENIOR ADMINISTRATION OFFICIAL: Yes, let me just say, let me just say the $10 billion is total official development assistance as defined by the OECD, which understates our engagement with the developing world, because, as the President said in his speech, you can't have development without security, and we provide a lot of that.

But the total official development assistance is roughly $50 billion. That's where this $50 billion number comes from; let's double it. And I think our response to that is, look, I don't think -- these are arbitrary, these are estimates. No one knows how much it's going to cost. What's clear, though, is whatever the gap is, however much capital is required to get these countries to the point where they're addressing -- where they have significantly higher standards of living, where they have quality education and health care, et cetera -- however much is required, it's not all going to be filled by official development assistance.

That gap is going to be closed by using those assistance dollars more effectively to, in turn, leverage and attract private capital and trade. And that's what this initiative is designed to do, is, in effect, accelerate that process by using aid dollars more effectively, and by encouraging countries to put in place the kind of environment where those aid dollars can be leveraged, as we said, two to one -- two to one in good policy environments. For every dollar of aid you put in, you attract two dollars of private capital. That's the World Bank's own studies. That's a compelling paradigm. And this new fund speaks directly to that paradigm -- or this new account.

Q: Can you provide some -- just a few concrete examples of the types of things that this aid would go to fund? I know you don't have all the details, but this would go to road building, clean water --

SENIOR ADMINISTRATION OFFICIAL: No, no, let me give you a specific example. We've remarked upon how important trade is. It's obvious you all know that. What's interesting is that we have -- and my colleague can speak to this -- we have created these trade preferences through the African Growth and Opportunity Act. Not all of the countries in Africa are taking advantage of those preferences, because there are certain things that they need to put in place. One of those things is the fundamental mechanics of a customs regime.

Capacity-building says, we're going to help you put in place the tools that you need to take advantage of these kinds of trading opportunities. So one of the proposals that we created at the AGOA II conference that was held late last year were these competitiveness hubs, where we would put in countries hubs with experts who were able to train customs officials, put in place the kinds of information technology systems needed to manage tariff systems, et cetera.

That's the nuts and bolts of being able to participate in a global economy. The competitiveness hubs are a great example of the kind of initiative that could be funded through this. I suspect that others here have other examples, as well.

SENIOR ADMINISTRATION OFFICIAL: Actually, I think this idea of giving technical assistance to countries so that they can develop their private sector more effectively is -- there's going to be a lot of this. We'd like private sector development -- that's where the jobs are coming from, that's where the productivity is coming from. And that's where it's really going to make a difference to reduce the poverty. So technical assistance is a very important part of this.

SENIOR ADMINISTRATION OFFICIAL: I would just add to that. Obviously, if you look at the examples that the President has said in the speech today, countries like Uganda that have increased basic education, primary education, gave access to students -- this fund would help for HIV/AIDS, education, technical assistance on the trade side, as well. It is really -- I would say it really is filling a portion of the gap. But the idea is to fill a portion that would lead to human capital development, legal systems, regulatory systems that would allow for trade and private investment really to be the motor of sustainable development.

Q: These conditions are provisional upon actions by governments, not poor people themselves. And understanding that it's an incentive and it's part of a bigger package, how concerned are you that these conditions end up punishing some of the poorest of the poor, particularly those who have no effective political voice in the countries where they live?

SENIOR ADMINISTRATION OFFICIAL: I don't see it really as conditions that would punish. It's trying to encourage countries to have the type of good governance that would actually unleash entrepreneurship. And again, as I said, if you look at the President's speech -- Uganda was one of the countries that were cited. You look at USAID right now, it helped the government of Uganda to put in place education policies that led for parents -- greater transparency for parents to find out how the budget was being used in each and every school. And so it was extremely important to have that type of transparency and link the citizens to a government that is responsible and accountable. So we don't see it as punishing them.

SENIOR ADMINISTRATION OFFICIAL: Let me just add one point, because it's a really good question and this is a critical point. This fund is designed to reward those that are -- the better performers. We've learned that over years and years, decades now of providing development assistance, that we perpetuate misery if we continue to put money into poor policy environments, large sums of money. Humanitarian assistance is, as we said -- traditional humanitarian assistance goes without reference to policies. That will continue. This doesn't change it.

In fact, the beauty of putting this new additional $5 billion in a separate account on top of everything else that's flowing out the door now is that it is a carrot, and a carrot only. We hope every country qualifies, every poor country in the world qualifies for this. Everybody -- we hope this is a huge competition, so that countries work to put the right policies in place. This will act as a reward and an incentive for countries -- and we think, by virtue of that, accelerate the development and really serve human needs much faster and much better.

Q: The IDA money is distributed according to performance criteria.

SENIOR ADMINISTRATION OFFICIAL: Pardon?

Q: IDA money in the World Bank -- yes, they make a list of who gets how much, based on performance criteria. Why do we have to spend the next year or two coming up with new performance criteria before we can put money out the door?

SENIOR ADMINISTRATION OFFICIAL: The amount of funds within IDA are distributed that way, and there's a lot of questions about how it should be done better. And we're going to try to do it better -- remember, this is the bilateral part of what we're doing. And the World Bank has developed some indices. Not all of those are well-known by people. The EBRD has some indices. Private foundations have indices. So we want to use ones that combine all those.

And let me just add one thing on this. There is a huge need to do better in terms of measuring performance and measuring outcomes, so that we can be sure that the aid is being used effectively. So these indices, we want to be able to be so good that the countries are going to be able to measure progress on the basis of them. So it's not a small job to get these things put together well.

SENIOR ADMINISTRATION OFFICIAL: In fact, I would add that we have a huge opportunity now. There is a body of knowledge out there. There's a much greater body of knowledge than there was some years ago. And we intend to tap that body of knowledge and find the best indices, the best criteria that we can, in order to guide this money most effectively. So we'll be talking to organizations like the Bank. We'll be talking to NGOs that develop indices of governance. We'll be looking at all sorts of data and knowledge that's out there as we construct this in a collaborative way.

Q: This is a new idea, but one of the newer ideas in development were micro-loans, which relied on individuals, sort of empower them and to spread that empowerment through a community, and not rely on governments to change themselves, in many ways because they're resistant to change, and find it much more comfortable to stay the way they are and keep oppressing people. Why is this better than the micro-loans?

SENIOR ADMINISTRATION OFFICIAL: It's not an either/or. I mean, I think that's -- I'm trying to think of the right analogy, in terms of what the $17 billion buys you versus what this will buy you. And it's a carrot in terms of this Millennium Challenge Account.

You know, look at the $17 billion that goes into micro-lending, that goes into agricultural development, or education or health initiatives, as the foundation. And then this is going to build on top of it. But we're not going to terminate micro-lending. We're not going to stop school feeding programs. We're not going to end key economic development initiatives that are -- that have laid the foundation for --

Q: You could have put the $5 billion into micro-loans, for example. And that was clearly a policy change --

SENIOR ADMINISTRATION OFFICIAL: At the rate that micro-lending spins out, which is -- it's very tough to get a lot of money through the micro-lending window at a bank.

Q: Isn't there a risk, though, that -- you're talking about micro-lending, you're talking about the U.N. Secretary General's AIDS fund, which we've contributed to, the IDA for the World Bank, you talked about the EBRD performance criteria. Now we have a separate component of bilateral aid, which is grants based on certain performance criteria. Isn't one of the problems with the foreign aid community and the foreign aid process too much bureaucracy, too many different sets of funds and criteria that generate paperwork, but don't generate results? Isn't that one of the things you've been talking about?

SENIOR ADMINISTRATION OFFICIAL: I think that's -- part of the beauty of this for me is that if this works, and if it gets the -- it ignites the competition, to use the President's expression -- if it has the capacity to generate the kind of trade that it does, hopefully, all the other assistance programs come in behind and use the same kind of modeling. I think what you're trying to do is create a pilot that has the potential to attract other donors and other components of our own program.

SENIOR ADMINISTRATION OFFICIAL: Let me just say one thing about this. I think -- we want to emphasize outcomes, outputs, not inputs. So your question about paperwork is just the kind of thing we want to avoid. So we want to have good measures of what's happening at the end. And an emphasis on the input is not what the emphasis should be.

Q: Can I ask a question about the notion of 50 percent of the grants -- 50 percent of the money from World Bank being in the form of grants? Given the continued disagreement over grants with some other government entities, what options is the Treasury considering to resolve the issue, and when do you expect a breakthrough?

SENIOR ADMINISTRATION OFFICIAL: Well, there's discussion continuing. I think people are getting closer. I think there's a good chance to get an answer before long. And I hope the President's speech today indicates how serious he is about the grants and about development itself. And I think this Millennium Challenge Account and the funds behind it are indicative of what we want to be doing in the future. So it will help. I hope it helps the process.

SENIOR ADMINISTRATION OFFICIAL: Let me just say, we've got some 20 African countries on record supporting this proposal. We've got organizations from the AFL/CIO to Friends of the Earth to the Heritage Foundation saying that this makes sense. And it does intuitively, it does empirically. It is the way we do our own business -- 98, or almost 100 percent of U.S. economic development assistance goes out in the form of grants. We think that this is the right way to go and that countries are increasingly recognizing that.

Q: Can I ask you one question about the President's speech today? The President took a sort of tenuous step toward tying terrorism to the sort of what he called "hopelessness and despair of poor countries." Can you talk a little bit to us about how important a consideration that is in this?

SENIOR ADMINISTRATION OFFICIAL: I think the speech says it all. I would refer you right back to it; I couldn't say it clearer. And I certainly couldn't do any better than the President did.

Q: Thank you.

(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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