*EPF510 04/04/2003
Text: USAID Partnerships Helping Poor Countries Upgrade Exports
(Agency official says assistance will help countries join WTO) (5700)

The U.S. Agency for International Development (USAID) in partnership with the private sector is helping developing countries upgrade and diversify their agricultural exports and move into manufacturing so they can better participate in global markets, said a senior USAID official.

Addressing American University's law school March 28, Emmy Simmmons, USAID assistant administrator, said the agency's technical assistance will also help developing countries join the World Trade Organization (WTO) and participate actively in WTO negotiating processes.

She said USAID is helping coffee farmers understand market realities and improve product processing to produce a higher quality bean. The agency also is helping non-competitive coffee-growers to identify other crops they can grow, such as fruits, vegetables, flowers and nuts, that will provide higher incomes, she added. Global coffee prices have dropped dramatically since the mid-1990s as production has increased, she noted.

USAID assistance is helping countries meet increasing demand in their own and other developing countries for higher quality, processed and convenience food products as a result of income growth, urbanization and more women in the workforce, Simmons said.

"Farmers and traders must focus on quality, and safety standards, packing and packaging, cost, volumes, consistency of supply, contracting and payment practices, product differentiation and much more dynamic consumer preferences," she said.

USAID will continue to support the development of producer organizations and alliances of these organizations with food sellers, Simmons said. The agency is also helping poor countries adopt agriculture and business policy reforms and "prudent" exchange rate and monetary policies, she said.

Following is the text of Simmons' prepared remarks:

(Note: In the text "billion" means 1,000 million.)

(begin text)

U.S. Agency for International Development
Assistant Administrator Emmy Simmons
Speech to American University Washington College of Law
March 28

Communities and Commodities: Linking International Trade and Sustainable Development

It is a pleasure and an honor to be here to talk about trade and sustainable development. These are issues which I think about, work on, and try to ensure that USAID [U.S. Agency for International Development] is addressing appropriately on a daily basis.

Of the more than 80 countries in which USAID works, approximately one-third earn more than 50 percent of their foreign exchange through exports of primary commodities. The approximately $60 billion dollars earned via these exports are important as a source of national and personal incomes in these countries. But they also signal their economies' vulnerability to price shifts and external market factors.

Our experience tells us that, without greater movement to the export of processed and manufactured commodities and services, countries are not going to be moving up the income ladder or integrating more fully into the global economy any time soon. With a continued reliance on primary commodity exports, they are looking forward to occupying an increasingly non-competitive position in world markets and are likely to have poor prospects for long-term growth.

USAID has recently articulated its strategy for building trade capacity in the developing world. We are, among all bilateral donors, the one providing the greatest volume of support to this goal. In the last four years, we have programmed more than $1.5 billion toward strengthening the ability of our partner countries to: join the WTO and participate actively in the WTO negotiating processes; to comply with WTO requirements in their conduct of trade; and, most importantly, to position their economies --- both in the private and public sectors --- to respond to the opportunities and challenges that world markets offer.

In sum, the USG [U.S. government] provides 37 percent of all worldwide assistance --- and USAID provides 70 percent of the USG total. But still more assistance is needed for the poorest countries --- the 49 least-developed countries --- to begin to participate actively and successfully in global markets. I would like to share with you three stories that illustrate how USAID works with commodity producers and countries that are reliant --- overly-reliant --- on the export of a single dominant commodity. The first story is the coffee story, the second broadens the scope to what are called non-traditional agricultural exports, and the third plot deals with oil.

COFFEE

Over the decade of the 1990s, about 5.4 million tons of coffee were marketed each year. In 2002, inflation-adjusted coffee prices plummeted to a 100 year low. The effects were particularly hard felt in Central America. Producing countries in this region lost over $1 billion dollars in export earnings between 2000 and 2002 affecting the employment of hundreds of thousand people involved in production and processing. Across the Americas, Africa and Asia, both large and small-scale producers were unable to cover costs of production.

While the situation has often been called a "crisis", the changes in the coffee market appear to be structural in nature, with little hope for price recovery in the near-term. A number of factors have come into play: shifts in production locations and technologies, the introduction of new processing technologies, and stagnant demand.

Shifts in Coffee Production

Coffee is a perennial crop, requiring 3-4 years to come into full production. There are two basic types of coffee --- robusta and Arabica. Robustas command a lower price as the plants are more prolific and quality is lower. Arabicas are higher quality, priced higher, and more scarce.

It is estimated that 125 million people in developing countries depend directly on coffee enterprises for their livelihoods. While plantation coffee still dominates some parts of Latin America, most coffee farmers are rural smallholders working less than 10 hectares of land. They often live in isolated rural areas, and farm on steep hillsides as coffee quality is better on higher altitude farms. Coffee producers or workers often have few other economic options and rely heavily on coffee revenue to pay for critical needs such as healthcare, food, and school fees.

The current chapter of the story starts in 1995 with frost in Brazil. This frost reduced global coffee stocks and temporarily buoyed coffee prices. This led to increased planting and other production increases in other coffee-growing nations. In Vietnam, production soared by 1400 percent, catapulting them from a minor player to the 2nd largest coffee producer in the world by the end of the 90s (World Bank 2002). Simultaneously, recovery from the '95 frost combined with policy and technology changes led to expanded coffee planting in Brazil. By 2002, this greater Brazilian production began to reach the market. Brazil and Vietnam now dominate the market because of their ability to produce large quantities of coffee at very low cost.

Innovations in processing and other technologies have also transformed the industry. The advent of steam processing allows roasters to moderate the bitterness of Robusta coffee. Higher proportions of Robusta beans can be blended without negatively affecting taste, thereby reducing dependence on the more expensive Arabica beans.

Changes in the processing sector also affected the industry as a whole. Roasters began to work with smaller stocks and became more agile -- their short-term shifts between coffee types increased price volatility. The 90s also saw a shortening of the supply chain and consolidation of the market to a few major traders.

Finally, despite vibrant growth in the Specialty Coffees, overall demand for coffee remained stagnant (IADB 2002). Inventories were accumulated in both producing and consuming countries. In 2002, the coffee production exceeded consumption by about 10 million bags --- or more than half a million tons (IADB 2002). And current USDA projections forecast a record global coffee harvest for the 2002/2003 season -- further widening the gap between demand and supply.

Many coffee growers have limited understanding of the global coffee market and base their production plans on information communicated by the local coffee buyer, with whom they have a personal relationship. Many farmers don't realize that they could receive much higher return on their effort if their coffee met certain quality requirements or consumer preferences that are valued at the other end of the supply chain. As price-takers, therefore, most coffee farmers' livelihoods are highly vulnerable to price declines such as those seen recently.

Oxfam has documented some of the devastating effects on coffee-growing communities around the world. In Uganda, children are dropping out of school when their families can no longer pay school fees. In Ethiopia, falling coffee exports are affecting the government's ability to address the HIV/AIDS crisis. In Peru, Colombia and Bolivia, record low coffee prices are increasing the attraction of coca production and threatening years of investments in coca substitution programs.

Coffee producing countries have also been affected by the loss of foreign exchange from coffee revenues. Between 2001 and 2002, Central American countries lost 44% of their coffee export revenues. Some compare the economic impact of the coffee crisis in Central America with the devastation and loss wrought by Hurricane Mitch. Ethiopian coffee exports dropped from $257 million in 1999/2000 to $149 million in 2000/2001. Decreased exports negatively impact balance of payments, threaten the financial sector, and weaken the overall economy in countries that are heavily reliant on coffee exports.

USAID's Response

USAID supports coffee activities in over 25 countries in Latin America, the Caribbean, Africa and Asia. Our approach is two-fold. We try to help non-competitive farmers move out of the coffee sector, while working with competitive farmers to improve the quality and marketing of their coffee to ensure that they capture the highest possible price for their product.

Given the structural changes within the coffee sector, it is clear that large numbers of farmers will never be able to effectively compete in this transformed market. USAID programs educate farmers about the new reality of the market, and, at the same time, work with them to identify other crops and opportunities that will provide a higher income. In addition, new projects are being implemented that specifically target rural diversification -- moving farmers away from coffee production. In Central America and Mexico alone, USAID is investing $30 million dollars to promote new opportunities for trade, investment and rural economic prosperity by promoting agricultural diversification and off-farm employment for the region's poorest inhabitants.

A significant number of coffee farmers will be able to compete in this sector. USAID is supporting these small and medium producers by improving coffee quality and marketing, facilitating the formation of new business linkages, and securing long-term contracts with the specialty coffee industry. In a number of countries, farmers are learning how to properly process and grade their coffee to ensure that the beans retain their high quality characteristics. Coffee labs are being established, and local "cuppers" trained to identify taste characteristics that will attract premium prices from foreign buyers. Appellation systems are being established so that coffees from distinct geographic areas can be tracked and marketed in much the same way as fine wines. Finally, new market information systems are providing local producers with critical information on coffee pricing.

In Rwanda, USAID helped a coffee cooperative improve their processing to produce a high quality bean, and establish purchasing agreements with Community Coffee and Union Coffee -- gourmet roasters based in the U.S and the U.K. The 250 families that produce "Maraba Bourbon" coffee have tripled the price they receive for their coffee. At the same time, gourmet coffee drinkers in North America and Europe have the satisfaction of knowing that they are supporting Rwandan coffee families through their purchasing decisions.

Increasingly, USAID is partnering with the private sector and foundations in addition to its more traditional development partners to create new alliances. These relationships or "development alliances" bring the resources and knowledge of all partners to bear in addressing issues of common interest. They also catalyze significant resources that flow from private sources to the developing world. Several coffee alliances have formed in reaction to the coffee crisis. Memoranda of Understanding have been signed with leaders of the coffee industry including Green Mountain Coffee Roasters, and Neumann Kaffe Gruppe to explore common activities within the sector.

USAID and the Coffee Quality Institute (CQI) have established a "Coffee Corps" which recruits highly qualified professionals from within the industry who are willing to volunteer their time and expertise to assist coffee producers and cooperatives improve their competitiveness. Volunteers provide a range of technical support in marketing; quality control, conducting cupping contests and establishing purchasing agreements that bring higher prices to the producer for their coffee.

USAID bilateral Missions are also actively pursuing development alliances as well. In Mexico, USAID, Conservation International and Starbucks are working together to promote environmentally friendly shade coffee and provide farmers access to technical assistance and credit they need to improve coffee quality. USAID Nepal brought together Winrock International, The Nepal Highland Coffee Promotion Company, local producers associations and a major European coffee buyer to improve local coffee quality, processing and marketing.

NON-TRADITIONAL AGRICULTURAL EXPORTS

Let me now turn to another story -- also in agriculture but more complicated.

While the coffee story is concentrated in a relatively small number of producing countries, the ability of many developing countries to generate rapid economic growth, create jobs, and reduce poverty depends heavily on agricultural sector competitiveness. The subsistence farm that many think of as characteristic of developing country agriculture is not a competitive enterprise in a globalized world. For countries to build a competitive agricultural sector, farms need to move toward efficient, specialized production of commodities, suited either to mass markets (and thus produced at low cost) or to niche markets (where cost may be less important than quality or other characteristics).

The horticultural markets --- fruits, vegetables, flowers, and nuts --- have been documented as the fastest growing segments of the economy in many developing countries, especially in Latin America and Africa. The ability to sell high-valued products into both local urban markets and into industrialized countries is one that many of USAID's partner countries are looking to acquire.
Developing countries often require multifaceted assistance in tapping more lucrative, niche product markets. This means helping farmers and agribusinesses understand government and consumer driven quality requirements, how markets operate, legislative and regulatory environments, and the idea of business clusters. Emerging food retail trends now mean that industrial country food safety, variety and competitiveness standards are being brought closer and closer to the small farm farmgate by supermarket expansion.

Moroccan strawberries are one case in point. A 1993 competitiveness study showed that Morocco had a comparative advantage in strawberry production and export to the European markets. Unfortunately, poor product quality and overly expensive planting material constrained export profitability and growth. The problem lay with planting material quality. Spanish input suppliers refused to pay royalties to improved plant variety protection patent holders. As a result, they provided Moroccan producers with second quality stock.

USAID supported technical assistance discovered this problem. They put Moroccan producer and export associations and agriculture ministry staff in contact with high quality plant material suppliers in California and Florida. After developing commercial planting material import agreements, USAID technical assistance developed pre-shipment quality control procedures and lined up export financing for US suppliers. The first shipment of 5 million strawberry plants arrived with near 100 percent survival and Morocco was on its way to increase strawberry production and improved quality. Additional USAID marketing assistance identified seven new European fresh strawberry outlets. Improved quality and productivity, advanced varietal access, and marketing assistance moved Morocco from next to zero export market share to major player status in the European fresh strawberry market.

Fresh strawberries from Morocco (from late October -November through late March) hit Europe's high value fresh product winter window.

Great story? Yes, but only 50 percent-60 percent of Morocco's fresh strawberries are suitable for export. So, for supply management reasons, some firms began to export frozen strawberries as well as to sell more strawberries on the local market. Frozen strawberry sales increased as production increased. A new problem cropped up: quality inspection requirements at the processing plant and customs inspection at the port slowed export flow and hurt quality. As the port had no freezer inspection capacity, USAID technical assistance suggested --- successfully -- that multiple inspections be combined at the freezer plant packing stations and that inspected product be sealed for export to avoid damage caused by opening containers, defrosting the strawberries, and refreezing.

There were other "fixes" that needed to be made by the Government of Morocco for this strawberry story to be a real success. The lack of improved planting material demonstrated that Morocco's lack of plant variety protection laws put Morocco 4-7 years behind major European and southern hemisphere strawberry and fruit tree competitors. To enable Moroccan producers to access the improved California and Florida planting material the government needed to pass plant variety protection legislation. Parliament passed this legislation, unanimously. More importantly, the legislation was implemented, setting the stage for a US-Moroccan joint nursery production venture in the Atlas Mountains and consistent supplies of high quality planting material for farmers.

The food inspection process developed for frozen strawberry exports galvanized changes in other export product inspection processes, spreading to more inland processing facilities and increasing Morocco's export competitiveness overall. Longer term USAID work with the Moroccan Export Control and Coordination Agency supported achievement of this broader impact.

In Uganda, USAID supported the growth of both mass and niche markets in agriculture. The Investment in Developing Export Agriculture (IDEA) project resulted in:

-- $29 million a year in increased high value crop export earnings. Roses, fresh fruits and vegetables, vanilla, cocoa, and papain were key high-value crops.

-- $17 million a year in increase low value crop export earnings;

-- 4,000 jobs and higher farm revenues for 23,650 small farmers and farm laborers;

-- New technologies for 120,000 farmers, boosting maize and bean yields from 50 to 200 percent;

-- A six-fold increase of cut flower exports by 2001.

This diversified approach has helped Uganda to weather commodity price volatility for its traditional exports --- maize and coffee --- as well as to generate new sources of income. In 2002, global vanilla prices were much higher than historical averages due to delays in Malagasy vanilla coming onto the market. Uganda exported vanilla worth $9.43 million in 2002, up from $240,000 in 1995. World demand for cocoa, which contributed almost $5 million to Uganda's 2002 high value export totals (up from $640,000 in 1995), also remained strong.

USAID assistance has helped farmers and agribusinesses learn how to operate in a world market economy that differs markedly from the fixed prices and domestic market controls of the past. USAID/Uganda's projects promote technology adoption, rural finance, business management, market research, and the establishment of the kind of policy environment needed in today's global marketplace.

We hope that these project approaches will also enable countries and farmers, especially in Latin America and Africa, to adapt to and profit from the major changes that are occurring in local marketplaces. What we are seeing is a rapidly emerging restructuring of food markets in developing countries. Supermarkets have expanded rapidly over the past decade. Their market expansion goes beyond a "middle class market phenomenon" -- penetrating deeply into food markets where low-income consumers are the most likely customers.

For example, in Nicaragua, the poorest Latin American country, there are already 40 supermarkets, up from 5 in 1994. The 3 supermarket chains there plan to build another 17 supermarkets over the next 3 years. Supermarkets represent an essential element of global and domestic market convergence with fundamental effects on agricultural systems, domestic markets, regional and international trade.

Supermarkets' market share in the US was 5-10 percent in 1930. In 2000, supermarkets accounted for 80% of marketed food. That is roughly 1 percent market share growth per year. In comparison, supermarkets in Brazil have grown in number from 30 in 1990 to 75 in 2000, roughly 10 percent per year. In Argentina, supermarkets have grown from 17 in 1985 to 57 in 2000. In Latin America, supermarket growth has accomplished in 10 years what it took US supermarkets to accomplish in five decades. Although East and Southeast Asia is 5 years behind Latin America, supermarket growth there is even faster. There are currently 3000 supermarkets in China with post WTO investments planned to start up 5 to 10 times more. Supermarkets have never grown as fast as they are growing in China.

Developing country income growth, urbanization and the entry of women into the workforce have increased demand for higher quality, processed and convenience food products. Wider use of refrigerators and cars, due to decreased import taxation, means people shop less frequently but farther from home. Trade and capital policy reforms have led to increased foreign direct investment (FDI) in developing country food retail sectors while industrialized country retail market saturation has led investors to seek higher returns in emerging markets. New retail management and logistics systems have opened up inventory and distribution monitoring and control possibilities that underpin profitable management of broader distribution networks. Mergers and acquisitions have resulted in 70 to 80 percent of Latin American supermarkets being owned by multinationals Wal-Mart (US), Carrefour (French), and Royal Ahold (Dutch).

The implications for farmers, agribusiness, poverty reduction, improved food standards and globalization are significant. Latin America exports $8 billion in fresh fruits and vegetables annually, but supermarkets sell $24 billion in fruits and vegetables to Latin American consumers (excluding bananas). Linking poor farmers to these markets means overcoming the challenges of supermarket procurement practices. Farmers and traders must focus on quality and safety standards, packing and packaging, cost, volumes, consistency of supply, contracting and payment practices, product differentiation and much more dynamic consumer preferences. There are also benefits to consumers as supermarket food safety and purity standards strive to mirror standards found in industrialized country markets. This should reduce food borne disease transmission, one of the biggest detractors from labor productivity in the developing world.

Some farmers will not make the adjustment. Most of the 330 members of the ASUMPAL Cooperative in Guatemala, for example, decided they couldn't make it. In the early 1990s, they formed a cooperative using irrigation to grow Roma tomatoes for the Guatemala City market. By 2000, their incomes were falling as the central market became glutted with Roma tomatoes. They thought they were fortunate to find a new opportunity, selling salad tomatoes to McDonalds in Guatemala City. Fast food chains are similar to supermarkets, as they have consolidated procurement systems and tough size, quality, safety, volume and supply consistency requirements. These standards required steep investments in drip irrigation, greenhouses, worker hygiene facilities, trucks, plants and sheds. The smallest 300 of the cooperatives 330 farmers considered these investments beyond their means and left the field to the 30 willing to take the investment risk.

USAID is taking on this challenge of helping small farmers and their communities to connect to markets. We will be investing in some tried and true, but also new, development interventions. We will continue to investment in producer organization development. Producer organizations will speed farmer education, supply aggregation, technology and finance access, and contract enforcement. They can also set the stage for transboundary producer alliances to achieve the volumes, quality and supply consistency necessary to win regional contracts let by multinational supermarket chains. Forming alliances between producer organizations and supermarkets will also help farmers understand and respond to the specific needs of supermarkets and wholesalers. Second generation policy reforms, such as the implementation of commercial laws and regulations governing contracts, will reduce supply and payment uncertainty for suppliers and buyers. Finally, science and technology must be embedded in every day agribusiness and producer organization decision-making. An array of technological upgrades will be needed on an ongoing basis: drip irrigation, production calendars, certified seed, greenhouses, post harvest techniques, market information, packaging, and food safety equipment essential in satisfying ever more stringent sanitary and phytosanitary requirements.

The "Dutch Disease" and Development: Issues for Aid Donors and Trade Capacity Builders

Finally, let me turn to the story of oil.

In many long-term studies of growth and development, a paradox emerges. Countries that are richly endowed with natural resources often do not achieve as rapid economic growth as countries where such resources are relatively scarce. One explanation of this "paradox" is known as the "Dutch Disease."

The problem was first noted in the case of the Netherlands, which started to export natural gas more than four decades ago. New technologies and higher prices for natural gas enabled the Dutch to extract and export large gas reserves in its North Sea coastal regions. The sea had always been a threat to the low-lying country, but suddenly the sea was generating billions of dollars of export revenue.

These flows put upward pressure on the exchange rate, which made many Dutch manufacturing products uncompetitive. Eventually, the price and exchange rate changes associated with the natural gas boom got back to more sustainable levels. But while the Dutch economy was not continuing to get increasing revenues from natural gas, it was stuck with manufacturing industries that were no longer competitive.

A similar sad story can be told in other countries. In addition to natural gas, the "boom" can be caused by oil (e.g., Ecuador and Brunei), diamonds (Botswana), or sugar (Jamaica). Some analysts have referred to the "Dutch Disease" as the "resource curse thesis," or by the less judgmental phrase: "booming sector model."

The ways in which a commodity boom can have deleterious effects on the manufacturing sector, and on economic development, take several forms.

The exchange rate effect is most obvious. Large inflows of revenues in the commodity sector lead to a stronger local currency and less export competitiveness in other sectors.

Analysts have also noted a resource movement effect. Capital and labor move into the oil or other commodity sector relatively quickly, but only move back slowly if the boom ends.

There is a financial constraint effect sometimes. The oil industry, for example, typically has ready access to international financial resources. Credit for domestic manufacturing firms, however, is often not available from those same sources.

There is an enclave effect, particularly in the case of oil extraction. Unlike most other industries, the oil industry has relatively less of a tendency to generate positive externalities or to build up transferable skills. By contrast, a boom in a particular manufacturing sector --- textiles, electronics -- typically can be more easily broadened into other sectors. For example, if a country achieves success in textiles, there are natural synergies with the clothing, footwear, and machine goods industries. International buyers that gain knowledge of the potential suppliers in one sector can be quick to notice quality improvements in the other sectors.

There is also a trade barrier differential effect. Oil and minerals exports face relatively fewer trade barriers as they cross national boundaries. The costs of what barriers exist to these exports are typically borne by the importer. By contrast, trade in textiles and other manufactured products, as well as agricultural products, face relatively more barriers. The burden of the cost of those barriers does not fall as one-sidedly as in the oil sector.

There is also a cost of information effect. In the commodities markets, potential exporters have ready access to price and other information. By contrast, marketing information for manufactured goods is typically less available. Not only is it less available, but also it is also more vital for the exporter of manufactured goods.

Although product differentiation exists in the commodities sector, it is of a smaller degree than in the industrial sector. An investor in the oil industry can base decisions on expected trends in the various benchmark prices for crude oil. An investor in electronics or textiles understands that the ultimate price to be gotten for exports in those industries is simply less predictable. There is some truth to the old television commercial, where the cranky driver tells his passengers: "Motor oil is motor oil!"

One way to sum up the problems for development is that economies respond quickly to price changes in the commodity sector, but less so in response to changes in the industrial sector. If a country begins to export commodities such as oil or diamonds, the wheels of foreign investment and international creditors turn quickly. Workers from the oil-exporting country will gain employment in the new sector, but the key roles that demand the most experience can be quickly filled by foreign workers.

By contrast, a country that is beginning to build up its competitiveness in a textile or other industrial sector requires more time to win over skeptical foreign investors or bankers. The burden of acquiring or possessing the skills to be competitive falls more on the local workforce.

Based on all this research and experience, you can imagine a hypothetical scene in a small developing country twenty years ago. The economic minister meets with the prime minister. "Sir," he says, "I've got some good news and bad news.

The prime minister asks for the good news first and is told that the country has just discovered large reserves of petroleum. The prime minister is happy, given his desire to accelerate income growth in his country. "What could the bad news possibly be?" he asks his economic minister. The reply is: "The bad news is that we have discovered large reserves of petroleum!"

If part of the underlying problem behind the "Dutch Disease" is that commodity markets can adjust much faster than markets for manufacturing products, what are the features of economies that can mitigate the problem? How can the adjustments in the industrial sector be accelerated and how can sustainable participation in world trade be achieved?

First, lower the costs of market information. Developing economies that are vulnerable to the "Dutch Disease" benefit enormously when export information and marketing savvy are more readily available. USAID and other donors have taken several steps in this area. The Leland Initiative and the Digital Freedom Initiative have successfully put African economies "online," with business information being rapidly disseminated. The Global Technology and Trade Network has placed dozens of agents in developing economies, helping to identify business leads for buyers and suppliers in those countries.

In Bangladesh, USAID sponsored the Jobs Opportunities and Business Support, or JOBS, program. The goal was to increase the exports of shoes to Japan by supporting marketing research, e-commerce tools, and industry fairs. To ensure that foreign buyers were aware of the high quality of shoes being produced in Bangladeshi factories, the JOBS program produced CD-ROMs with virtual factory tours for potential buyers. The JOBS program needed less than three years to triple the number of shoe-exporting companies in Bangladesh and raise the total annual value of exports to Japan from less than four million dollars to more than twenty million dollars.

A second step to take to mitigate the possible effects of "Dutch Disease" is to reduce the trade barriers for manufactured and agricultural products. USAID, along with several other agencies of the United States Government, has provided technical assistance to numerous as they accede to, and participate in, the World Trade Organization and its manifold agreements. USAID has assisted countries as they craft regional trading agreements among themselves and create new markets for their industrial products. Presently, USAID is providing key technical assistance to countries in the Southern Africa Customs Union and to Central American countries increasing their regional market linkages.

A third area of activity is to improve the functioning of financial markets and institutions in developing countries at risk of some variant of Dutch Disease. As a team of economists working in Russia noted at a conference four months ago in London: Financial sector reforms belong to the set of reforms which must be given priority in order to reduce the dependence on primary commodities and sustain adequate rates of economic growth against a possible backdrop of lower oil prices.

USAID has an extensive track record of support for financial sector development in all regions of the world. In India, for example, the Financial Institutions Reform and Expansion, or FIRE, project has already provided more than a decade's worth of support to the Government in its ability to revamp the capital markets. The results are a better regulatory system for financial institutions and a deeper market for financing industrial and infrastructure investments.

A fourth area of activity is to foster prudent exchange rate and monetary policies as a way to mitigate possible harm from the Dutch Disease. USAID works with advisory teams from the United States Department of the Treasury to improve the functioning of central banks and finance ministries in developing countries. When countries start to ride a commodity export boom, the appropriate targets and indicators for monetary policy can change. Advisory teams can play a key role in enabling a developing country to maximize the developmental benefits of a commodity boom.

Finally, a key overall role for USAID and other donors to play is supporting diversification and the economic competitiveness of developing countries. USAID has designed a number of technical assistance tools to increase the chances for economic diversification and participation in world trade. The technical assistance helps businesspeople and governments in developing countries to see the potential for industrial clusters and export markets.

Given the experience of USAID and other donors in helping countries to diversify their economies and participate in trade, we can now imagine a hypothetical scene in a small developing country today -- with a different outcome.

The economics minister again is meeting with the prime minister, and tells her that she has some good news and bad news. The prime minister of today asks for the bad news first. "The bad news is that we have discovered large reserves of oil," she is told. The prime minister, who had earned a graduate degree at Leiden and knows about the "Dutch Disease," is gravely concerned and quickly asks, "What could the good news possibly be?" The reply is: "The good news is that your next meeting is with some nice people from USAID who are here to help!"

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

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