*EPF416 03/21/2002
Transcript: U.S. to Link Aid to Results, Treasury's O'Neill Says
(Measures to be productivity, incomes, he adds) (3510)

The United States is determined to play a significant role in development by holding both itself and aid recipients accountable for results, Treasury Secretary Paul O'Neill says.

Speaking March 20 to reporters at the U.N. Financing for Development conference in Monterrey, Mexico, O'Neill said outcomes must be measured by productivity improvements and higher income levels in developing countries, O'Neill said.

O'Neill emphasized that measurements are a critical part of the President's new compact for development. He added that the Bush administration is sincerely interested in hearing the views of other people on aid criteria.

The secretary said Bush's proposed increase in U.S. official development assistance is substantial and tied to good policies. He added that the president wants to ensure the money will be well spent in countries that support rule of law and enforceable contracts and take concrete steps to root out corruption.

O'Neill said most economic growth in developing countries will be generated by capital flowing to poor nations to create private enterprise and jobs, not aid.

"We're not going to do it with welfare," he said.

New figures confirming a strong recovery is on the way in the United States, O'Neill said, is good news for the rest of the world because it signifies increasing U.S. demand for imported goods.

He added that the United States can help the rest of the world by running its economy close to its full potential.

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

Following is the transcript of O'Neill's briefing:

(begin transcript)

PRESS CONFERENCE
U.S. TREASURY SECRETARY PAUL O'NEILL
INTERNATIONAL CONFERENCE ON FINANCING FOR DEVELOPMENT
MONTERREY, MEXICO
MARCH 20, 2002

O'Neill: This morning I had the opportunity to do bilaterals with four countries to discuss the topics of this conference and other issues of significance in the world, including President Bush's Millennium Account idea which would bring, when fully operational, $5 billion in additional money from the United States with the task of helping the developing world improve their living standards at a much faster rate -- as the President has said, to produce real results and do it more quickly than has been the practice over the last several decades.

We also had the opportunity to discuss subjects ranging from terrorist finance -- a problem that all the civilized nations of the world are working on together. We had an opportunity to discuss ideas about converting a substantial part of our financial assistance from loans to grants, and a myriad of other issues. Rather than do extended opening remarks, I would instead like to turn directly to your questions.

Question: The World Bank today is launching officially a report on effectiveness of development aid. I wonder if you have had a chance to read it?

O'Neill: I've not seen the report in its final form. I saw a draft report a few weeks ago. I still believe we have work to do to sharpen our understanding of the lessons of the past, both in what has and has not succeeded. I'm looking forward to seeing the report in its final form.

Q: What's your most convincing argument to convince people that the U.S. recession is over and will never come back?

O'Neill: I indeed think we are on the road to substantial recovery. Every day seems to bring new figures, which confirm the strength of our recovery. Today the housing numbers were released for last month, and what they showed is continuing strength in new housing starts, and perhaps more importantly an increase in the number of permits that have been granted in the United States for housing going forward, and this comes on top of a very impressive set of figures. Productivity growth in the fourth quarter was at a rate of 5.2 percent. It appears we are going to have a very good pattern of productivity growth in the first quarter and, as we move into the year, as I say we just continue to get confirming figures that we're moving toward 3 to 3-1/2 percent real growth rate, which is very good news for the U.S. economy. But we think it's also very good news for the rest of the world, because it will represent increased demand for goods from other nations around the world. It's a way we can be helpful to the rest of the world by running our own economy at something close to its economic potential. Indeed, I do see us moving smartly now in a positive fashion, and I have no doubt we will continue on this path.

Q: You mentioned the $5 billion increase in US foreign aid. Two newspapers in the U.S. have reported an additional increase. Can you clarify exactly how much that increase in foreign aid will be?

O'Neill: The President has said we want to provide a substantial increase in aid. He said we're looking toward raising the current level, which is for comparable measurement purposes at the current moment about $10 billion a year and moving that $10 billion a year to a running rate of $15 billion a year, which will then be a 50 percent increase. We're going to work our way up beginning in fiscal year 2004, looking at a rate of spending of $1.6 or $1.7 billion on top of where we are now. In our fiscal year 2005, we're looking at 3.3 billion dollars and then the full 5 billion dollars beginning in '06 and then going forward from there.

This is a very substantial increase in assistance, but it's very importantly tied to the idea of seeing real results. Not results as measured by how much money goes in, but real results in a more meaningful way -- an improving level of living standards in developing countries around the world. We think this is a very big demonstration of commitment from President Bush and from the American people; we're determined to play a useful and significant role in world economic development, holding ourselves -- not just the receiving nations but the donating nations -- accountable for real results measured by productivity improvement and significant improvement in the average income level of people in developing countries.

Q: Can you elaborate a little more on the kind of conditions the U.S. would require in order to provide this aid, and if they are willing to forgive some debts from some countries?

O'Neill: In making this announcement the President indicated we would create a set of measurements that we would use for this purpose, and he instructed Secretary of State Colin Powell and me to work with other nations and the international institutions that are interested in this subject to come to a conclusion about what the right measurement standards would be. The President mentioned in his own remarks that we were looking to assure that the countries that receive this aid were moving, or even have arrived, at a condition where the rule of law exists; where contracts are contracts, enforced and real; and the leadership of the countries are taking measures to root out corruption.

In addition to that, we're looking at how one should think about outcomes instead of inputs. Let me use as a specific example the area of education. For a very long time, there's been a world consensus that education, after all, is one of the fundamental things necessary for human beings to realize their full potential. For the very longest of times the development community has measured education by the number of children in schools. For myself, I would say it's an interesting measure -- but it's not the right measure.

A better measure for education is whether ten-year-old children can read and write and compute at a level so that, if they never saw the inside of a formal educational institution again but had access to a library, they could become as educated as any of us. So, moving away from input measures, or process measures, to real result measures, is what we're talking about. I offer you this education example as the kind of thinking that we're doing.

We want to see success as measured by an improvement in the living conditions and the income levels of people in developing nations around the world. The formulation of these measures is a critical part of doing this and we sincerely are interested in the views of other people -- otherwise we would have simply said, "here they are." We think there is enough value in interacting with other people around the world to sharpen these subjects that we should take a few months' time to get this as right as we possibly can.

Q: There's a development bank that's not here in any visible way but which operates the closest to Monterrey: The North American Development Bank [NADBank]. The U.S. Treasury has floated proposals since last fall (1) to merge NADBank with BECC [Border Environment Cooperation Commission] and move it from San Antonio, which is seen among San Antonio supporters of NADBank as a first step toward eliminating it. Meanwhile, Mexican President Fox and President Bush have discussed broadening the mandate of the NADBank. What is the NADBank situation as you see it?

O'Neill: I appreciate the question. As you know, President Fox and President Bush are going to spend a significant amount of time together over the next few days and, as you say, the Treasury Department is working with our counterparts in Mexico over these last several months with specific instructions from both President Fox and President Bush to work to create an institution or institutions that produce convincing and substantial results. I think rather than pre-empt the two presidents -- recognizing that I'm a Secretary -- and the two presidents should have an opportunity to tell you of their conclusions. I will only say I think the staff-level work has been very productive, and the two presidents will be together in agreeing that the steps that they will decide to take will be useful to the furtherance of the ideal that the NADBank must be a useful institution that makes real contributions.

Q: Mr. O'Neill, we really appreciate your leadership and your thoughts and some of the things you're doing in Washington. At the World Economic Forum press briefing, Bono joked about how he was able to push the right buttons of the conservatives. As we talk about aid for African countries that, because of their debt are down to their last few assets. In looking to help them preserve not only their national sovereignty but those last remaining assets, whether it be a gold mine or diamond mine or what have you, what kind of steps are being taken to ensure these African countries are not left with nothing?

O'Neill: Even before the President's new initiative, which he announced last week, there has been a substantial flow of funds to developing countries around the world. I think you know President Bush has indicated his own high level of interest, not only in the general subject of development but in the specific subject of African development. Out of one of my bilaterals this morning came a reminder to always keep in focus the fact that Africa is a continent made up of many different nations. We and the developing world may be far apart physically, but we shouldn't forget that there are many different nations in Africa, and each one needs to be dealt with as the sovereign nation that it is. I think it's a good reminder for all of us not to deal in sweeping generalizations as we think about these issues.

You mentioned Bono, and he's managed to push a lot of the right buttons. For me the right buttons are the people who not only care, but know. This is a person who has invested a great deal of his own time and energy to learn about and go see on the ground what life is like -- he has my respect. Last year, when I first met him, after spending an hour and a half with him I was convinced he was a serious person. I invited him to go on the upcoming trip that we're going to take to Africa, and especially to go places where he's been that he thinks would be particularly useful to my own understanding, and I'm going to take him to some places that I've been that he hasn't, to let him see the world through my eyes as well. I think it will be useful for both of us. One thing I like very much about this prospective trip, aside from the fact that I always like to go and see on the ground what life is really like, is that I think, because of his celebrity, it will cause the world to help understand these issues in a better way. Frankly, I don't care why the world pays attention -- if they pay attention, it's worth doing. I appreciate the fact he's willing to give up some time to accompany me on this trip.

Q: We've heard a lot at this conference about how these people are looking at the U.S. as by far the world's largest economy to somehow set the pace for increased overseas development assistance and yet, while President Bush is talking about a significant increase in spending, we're still going to be spending one-fourth what the European Union spends. Why can't we do better?

O'Neill: It's a very good question and the answer is very simple -- we need to demonstrate, not only for ourselves but for the world development community, that we know what we're doing. And by knowing what we're doing, I don't mean spending more money; I mean getting results for money spent. I think that as we in leadership positions can demonstrate that we know what we're doing, not just passing out money, the people of the world and the people of the United States will demonstrate their deep compassion and sense of charitable giving. I would remind you of a fact which doesn't often get told: If I remember correctly, according to the latest Statistical Abstract, charitable giving in the United States in 1998 -- the most recent data available -- was $175 billion. One hundred seventy-five billion dollars. It's not that the American people lack compassion or a charitable spirit. And as we do what President Bush says we must do and get results -- and let me say again what results are; substantial increases in the earned income level of the people of the world -- as we can demonstrate that we know how to cause that to happen, there will be plenty of funds flowing.

One other very important thing: If you take all of the money that flowed from all of the donating nations last year, it was about $45 or $50 billion. In that same year, foreign direct investment in China -- this is private investment in China -- was the same amount. This is an important point because it says very clearly something that we know: If we're going to have real economic development in the world, most of the real economic development is going to come from capital coming into the country to create private enterprise that creates jobs, that creates higher levels of living. We're not going to do it with welfare.

Q: It was reported that you disagreed with the U.S. government decision to impose tariffs on imported steel. The issue of market accessibility is the central issue here. Can you elaborate on your position regarding this matter please?

O'Neill: First let me say this, on this issue and as a general point, your question comes from hearsay.

Q: It was reported in the New York Times, I guess.

O'Neill: Yes, that's what I said; your story comes from hearsay. (laughter)

Let me say this as a general proposition. I'm in the government because I believe in what President Bush stands for. I believe that his value system is very deep and very positive, both for the people of the United States and for the people of the world, and I'm also in the government because the President asked me to come and he didn't ask me to leave my brain in the private sector. And so when he asks me what I think, I tell him. And when he decides what he believes is the right answer, and has decided what is the right answer for the United States, I'm always, 100 percent behind the President of the United States, because it is his constitutional responsibility to decide these large matters for the people. So I have no difference of opinion at all with decisions when they are made by the President as to what we should do as a people. But believe me -- when he asks for my counsel before decisions are made, I don't try to figure out in advance what he wants to hear, I try to tell him from my experience and my knowledge what I believe, but believe me, I have no difference with the President of the United States on the decisions that he is making.

Q: Some countries like Brazil have been complaining that this conference and all this controversy surrounding ODA [official development assistance] have shifted the attention from vital matters such as emerging markets in poor countries and protectionism, the decision on steel, and Argentina. Do you have compassion for Argentina as well? Why is the U.S. waiting to give the green light to the IMF [International Monetary Fund] to re-lend to Brazil?

O'Neill: You identified several different subjects. I guess your question is about Argentina. Let me remind you of a few facts. Let me go back to November of 2000 when President Clinton was still President of the United States and Larry Summers was Secretary of the Treasury. They decided that Argentina's situation was critical, and they supported a program for Argentina through the IMF that in public and private funds would total $43 billion. Then, in April, of 2001, Argentina was out of money again. The IMF was presented with a proposition that said Argentina needs another 20-plus billion dollars. As much as we were concerned about the sustainability of yet another big allocation of money for Argentina, we agreed to go along. By August it was all gone as well. So, we agreed to another program that was never fully drawn and you know the rest of the consequences.

So, I have a question for you. How much is enough? Subsequent to that question is: Can anyone look at the social disorder on television and find anything but sorrow in what's taking place in Argentina? Your question suggests somehow that it's an act of willfulness to in effect say to the people, "too bad." But the truth of the matter is that no one cares more about Argentina returning to stable economic conditions than President Bush and those of us in his Administration. I detest the social situation in Argentina, and we have been working behind the scenes to try to be of help to President Duhalde and his cabinet ministers. They have struggled with a difficult issue that ultimately only they can deal with in order to create social stability in Argentina and the basis for economic growth for their people. Tomorrow I will have a bilateral meeting with the Argentine Finance Minister; I've been talking to them as have my people on a regular basis and believe me, we are prepared to provide any kind of technical assistance or advice or suggestions that we can to help them remedy this situation. The sooner that circumstance can occur, the happier we all will be.

Q: Back to the flow of private investment money and direct assistance. The other day at a briefing we heard from the U.N. ambassadors from Bhutan and Tuvalu, small countries that are concerned that there is no money reaching their countries. Will investment also go in that direction, not only to Poland or Korea? And if I may, another small point -- the world is listening to so many promises and announcements from the United States, but then it sometimes ends up as a deadlock in the Congress. Do you think Congress will say yes to the $5 billion?

O'Neill: To your last question, what I've seen so far from members of Congress is a very positive response to the President's suggestion, so I believe there will be a positive response from Congress and the American people that this is the right thing to do.

With regard to the countries that have now already put the right things in place and some additional assistance could be helpful, this is exactly the purpose of this new initiative the President has announced -- that we will use the criteria of demonstrated movement toward the underlying principles and create successful economic development as a device for deciding where money should flow.

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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