2007 Speeches

The Role of the United States in Promoting Economic Development in Developing Countries

February 21, 2007

Dr. Roy L. Austin
United States Ambassador
Presentation to the University of the Southern Caribbean

Good afternoon! I am pleased to be able to join you at this month's "President's Brown Bag Forum" at the University of the Southern Caribbean.  I am especially pleased to be addressing such motivated students on this Ash Wednesday. I admire your commitment to learning and am sure it will serve you well in all your future endeavors.  

You have asked me to speak about the role of the United States in promoting economic development in developing countries.  The Caribbean is the region that immediately comes to mind, a region in which countries have had vastly different experiences with the process of development.  For example, Trinidad & Tobago is further along the road of development than St. Vincent & the Grenadines, the country in which I was born.  You must have chosen the topic of economic development because you realize its importance to your future and your country's.  I am happy to help you wrestle to untangle the intricacies of this subject. 

Like the governments of many developed countries, the government of the United States believes that governments and international organizations must assist with the development of less developed countries; but in addition, U.S. governments have long believed in a broad approach that encompasses investment and market-opening programs to enable developing countries to help themselves.  Today, I shall first elaborate on this philosophy and the research findings which undergird U.S. development policies and practices. Then I shall discuss the ways in which the American government and people assist with the development of developing countries. I shall, also, provide an overview of U.S. official development assistance (ODA), discussing U.S. efforts to encourage open trade and investment so that developing countries can participate fully in the global economy. 

Philosophy and Evidence Behind U.S. Development Assistance

The United States is deeply committed to helping the world's poor.  However, the United States government believes that assistance to the people of developing countries cannot consist merely of financial aid but must also include encouraging the adoption of policies to unleash economic growth.  In the past, foreign aid was often given for geopolitical reasons rather than to countries that could make the best use of it.  This strategy proved to be less than successful.  During the Cold War era, aid frequently flowed to autocratic, corrupt and/or unstable regimes, and subsequently out of these countries to Swiss bank accounts rather than being used for national development projects.  Nowadays, we give primarily to countries with the greatest need and the greatest potential to achieve econmomic success due to good governance and sound policies.  Sometimes political and economic reforms are necessary to qualify for aid;  but foreign assistance granted without regard for the recipient country's management and governance reduces the effectiveness and impact of that aid.

Countries at the International Conference on Financing for Development at Monterrey in 2002 articulated this new model for development.  They called on developing countries to establish sound economic and social policies, and for developed countries to support these efforts through an open trading system, private capital flows, and additional development assistance.  This development model mirrors our current approach which includes an emphasis on the importance of open trade.  World Bank studies have shown that per capita real income grew nearly 3 times faster for developing countries that lowered trade barriers (5% yearly) than for other developing countries (1.4%) in the 1990s. 

The economic history of the 20^th century also provides powerful evidence of the worldwide benefits of trade liberalization and the vast costs of trade barriers.  In 1930, the U.S. imposed unprecedented trade barriers in the mistaken belief that American producers would not be able to compete with foreign producers.  The consequences were disastrous – our trading partners retaliated with their own trade barriers, which led to a 70 percent fall in world trade.  The resulting unemployment only deepened the Great Depression, and the trade war fueled existing political tensions which led to World War II.  We are, therefore, committed to the WTO and its stated goals. Primary among these goals is the lowering of barriers which deter the expansion of production and trade in goods and services and restrict economic growth.   
       
Official Development Assistance

The most common kind of assistance from one government to another is known as Official Development Assistance (ODA).  The U.S. Government under President Bush has dramatically increased ODA at a faster rate than at any time since the Marshall Plan to rebuild Western European countries at the end of World War II.  The U.S. has increased  ODA funding from $10 billion in 2000 to $28.5 billion in 2005.  That’s an increase of 175%.  In the six years since President Bush took office, aid to Western Hemisphere countries will have nearly doubled if the current foreign asistance budget requested in the recently-released fiscal 2008 budget is approved by Congress.  The President has also asked for a 20 percent increase in resources for low- and lower-middle income countries over 2006 levels.

As the United States has increased assistance levels, it also has introduced new mechanisms.  The Millennium Challenge Account (MCA), an innovative mechanism that President Bush announced in 2002, best exemplifies the American belief that development aid must be accompanied by sound policies and good governance in order to reduce poverty effectively and promote sustainable economic growth in developing countries.  The MCA supports lower-income and lower-middle-income countries that govern justly, invest in their people, and promote economic freedom.  Since its inception, the Millennium Challenge Corporation has signed Compacts with Honduras, Nicaragua, El Salvador and eight other countries, totaling almost US$3 billion.  The Millennium Challenge Corporation has approved an additional US$286 million for eleven "Threshold" countries.  These are countries that do not yet meet all criteria for a Compact but have demonstrated a commitment to reform and meeting the MCC criteria.  Threshhold countries in the Western Hemisphere include Paraguay and Guyana, although Guyana does not yet have an approved program.
  
The President’s Emergency Plan For Aids Relief, nicknamed PEPFAR, is the five-year, US$15 billion initiative to combat the disease around the world.  This is the largest commitment ever made by a single nation to any international health initiative.  In 2005 we spent US$2.7 billion to provide prevention outreach to 42 million people in 120 countries, and to offer counseling and testing for almost 10 million more.  PEPFAR also has supported care for more than 1.7 million people living with HIV/AIDS and a further 1.2 million orphans and vulnerable children.  In three years, the number of people worldwide receiving antiretroviral drugs has increased sixteen-fold, from 50,000 to 800,000.  In his 2008 budget request, President Bush has asked for $5.3 billion for HIV/AIDS programs to expand the number of people in Africa and the Caribbean receiving life-saving treatments for HIV/AIDS to 2 million by 2009.  You may be aware that the incidence of HIV/AIDS in the Caribbean is second only to that in Africa.  In this region PEPFAR is heavily targeted at both Haiti and Guyana.

The U.S. Agency for International Development (USAID) is the government agency with primary responsibility for providing assistance to countries that are recovering from disaster, trying to escape poverty, and engaging in democratic reforms.  USAID is one of the primary implementers of PEPFAR, but it also funds and manages additional assistance for HIV/AIDS.  In Fiscal Year 2004, USAID provided around US$48 million to the Caribbean region, focusing on expanding access to quality HIV/AIDS prevention and treatment services, improving the availability and use of accurate and reliable information to better target the pandemic, and targeting HIV interventions to most at-risk populations to reduce further transmission of the virus.  This is one branch of a five-year sustainable development strategy for the USAID Caribbean Regional Program which began in 2005.  This program, aimed at the English-speaking member-states of CARICOM, focuses on the two most daunting challenges facing the region: how to compete in open markets and how to control HIV/AIDS.   

In the sphere of trade, USAID aims to help the region succeed in an open trade environment.  USAID is conducting pilot programs in Antigua, Barbuda and Dominica on economic growth, trade and competitiveness that are aimed at helping the region meet requirements to participate in open trade regimes, reduce business constraints and leverage market opportunities, as well as strengthen the legal and environmental frameworks related to open trade.  The Caribbean Regional Program also focuses on reducing the region’s vulnerability to natural hazards like hurricanes.

To complement the objectives of the Regional Program, USAID is funding the Caribbean Center of Excellence for Teacher Training (CETT), one of three educational centers established by a U.S. presidential initiative in 2002.  An alliance among the public and private sectors, CETT is improving reading instruction in elementary grades 1-3 and upgrading the knowledge and pedagogical skills of teachers. The Caribbean CETT, based in Jamaica, serves the English-speaking islands of the Caribbean by targeting rural and urban poor communities, especially those in remote areas.  Trinidad and Tobago's Ministry of Education introduced its own CETT into T&T schools in 2005.  It is anticipated that over a three year period, 61 schools, 3 Teacher Training Colleges, 183 teachers and over 4,000 students will benefit from the program.

USAID is also involved in the President's Malaria Initiative, a $1.2 billion, 5-year initiative to control malaria in Africa. On this continent, this disease is killing at least one million infants and children under the age of five every year.  US assistance on malaria also extends to the Caribbean.  During the recent malaria outbreak in Jamaica, USAID donated US$200,000 to the Government of Jamaica to help that country maintain its non-endemic status for malaria.

While we are talking about USAID activities, we cannot forget humanitarian and reconstruction assistance.  The U.S. was the largest donor country for victims of famine, war and natural disasters, giving US$7.8 billion in 2005.  USAID managed US$100 million of U.S. government assistance after the hurricanes in late 2004 for hurricane rehabilitation activities in the Caribbean.  We give humanitarian aid to people without regard to political or diplomatic relations with their governments.  For example, we have offered assistance to both North Koreans and Iranians in the last two years.  Our emergency relief includes food, water, shelter, and medicines.  Often, the U.S. military is mobilized in order to deliver life-saving aid to victims as quickly as possible.  We did this after the Asian Tsunami of 2004 and the Pakistan/South Asian earthquake of 2005.

Most people do not think of debt relief when they think of official development assistance, but debt relief actually constitutes 20 percent of all ODA worldwide.  The U.S. led efforts on debt forgiveness at the G-8 summit last year to obtain support for what is now the Multilateral Debt Relief Initiative for the group of Heavily Indebted Poor Countries, such as Guyana.  This bold initiative could result in the elimination of up to $60 billion of debt over 40 years.  Additionally, the U.S. government cancelled a total of approximately $4.2 billion in bilateral debt during 2005, including 100% of Iraq 's debt.

Turning to multilateral contributions,  the U.S. is the world's single largest contributor to the United Nations and to the multilateral development banks.  In 2005, the U.S. donated $2.2 billion to multilateral organizations including the UN, World Bank and other development banks, such as the Inter-American Development Bank.  U.S. contributions to the United Nations totaled half a billion dollars ($531 million) last year.

Moving from official development assistance, I shall speak briefly about other forms of government-to-government assistance which can impact economic development.  Security training and assistance comes most quickly to mind.  Crime is an issue on all our minds these days, and an uncertain security situation can negatively impact the economy, creating an obstacle to development.  President Bush introduced the Third Border Initiative in 2001 to strengthen the ability of Caribbean institutions to address social and economic problems, combat transnational crime and promote regional security.  Through this program, $1.2 million has been provided to the Organization of American States (OAS) for Cricket World Cup security. 

What I have just gone through is not at all an infomercial.  All of these programs have relevance to this region, some more than others.  Clearly, T&T does not need debt forgiveness or a Compact through the Millennium Challenge Corporation.  To the contrary, T&T is a lender in terms equivalent to the debt that Guyana owes to the world.  But smaller countries in the region are significant recipients of U.S. assistance.  And all countries in the region are at risk for HIV/AIDS, which can hinder economic growth if it gets out of control.

Private Assistance and Remittances

Aid programs are far reaching.  They may help to promote democracy, defend human rights, and fight poverty; help to protect the environment; strengthen the rule of law; and support growth-oriented economic policies.  But official government-to-government aid is dwarfed by private international economic transactions.  In fiscal year 2005, ODA represented only about 20% of U.S. financial flows to developing countries.  Grants by private U.S. institutions and citizens, remittances and net private investments accounted for $118 billion.  I shall touch on each of these areas briefly before speaking about trade, the true motor of economic growth for developing countries. 

Year after year, Americans are among the world’s most generous people.  American foundations, religious organizations, corporations, educational institutions and other non-governmental organizations provide billions in assistance.  During 2004, non-governmental organizations in the U.S. gave US$6.8 billion to developing countries.  This total represented 62% of private contributions from major donor countries, but comprehensive data are limited on private giving, so estimating the total level of donations by private charities is difficult.   However, the Hudson Institute, an independent organization, placed the value of total U.S. private assistance in 2004 at over US$24 billion.

Four years ago, the U.S. Agency for International Development (USAID) created a Global Development Alliance to use public-private partnerships to stimulate economic growth, address health and environmental issues, and expand access to education and technology.  The Alliance includes more than 1,400 governments and organizations, including international and local businesses, private foundations and NGOs operating in 97 countries in the developing world.  USAID has funded nearly 400 alliances by leveraging over $1.4 billion in government funds with more than $4.6 billion in partner resources, a better than 3-to-1 matching ratio.   U.S. Government financing agencies such as the Overseas Private Investment Corporation (OPIC), the Export-Import Bank, and the Trade and Development Agency also engage in public-private alliances.

The U.S. is also an important source of private financial flows to the developing world, from remittances to portfolio and direct investment.  Besides trade, the largest private financial flows in 2004 included personal remittances of $47 billion from the U.S. to developing countries, about two-thirds of which went to countries in this hemisphere.  The total net private sector flow of $6.5 billion between the U.S. and developing countries consisted of both net foreign direct investment and the net flow of securities.

The Overseas Private Investment Corporation (OPIC) is an independent U.S. government agency that seeks to mobilize U.S. private capital and skills for investment in developing countries to support economic and social development.  At the last Summit of the Americas in Mar del Plata, President Bush announced that OPIC would invite proposals from private sector fund managers to create private equity funds in Central America and the Caribbean.  On April 27, 2006, OPIC’s board approved up to US$80 million in financing to support the establishment of the Advantage Investment Counsel (AIC) Caribbean Fund.

The Fund is making investments in businesses located in CARICOM countries, with an emphasis on Jamaica, Barbados and Trinidad and Tobago.  The fund will focus on the tourism, telecommunications, health care, energy and financial services sectors, and it has a target capitalization of $250 million.

Trade -- Motor of Economic Growth

I spoke earlier about the benefits of an open trading system for development.  I did not mention that trade flows are far larger than any conceivable ODA that the developed nations of the world would ever be able to offer.  The United States is the leading importer of goods from developing countries with over $650 billion in 2004.  These imports have increased each year since 2001 and are at the highest level in the decade.  Consider that the level of remittances from the U.S. to Trinidad and Tobago, $88 million in 2004, is less than 5% of the revenue from T&T's gas exports; and then consider that oil and gas revenues have permitted Trinidad & Tobago to offer free tertiary education, and you will begin to understand the developmental power of trade. 

The U.S. is pursuing trade liberalization on several fronts.  President Bush believes that it is essential to continue progress toward the economic integration of the Hemisphere.  The experience of the United States, Canada and Mexico with the North American Free Trade Agreement (NAFTA) reminds us that relations based on free market principles benefit all partners to such accords.  Our free trade agreement with Chile is in force, and we have ratified CAFTA with our five neighbors in Central America and with the Dominican Republic.  Meanwhile, negotiations for free trade agreements are under way with Panama, as well as with three Andean countries.  I will add briefly here that the U.S. has not abandoned the Free Trade Area of the Americas. 

As you can see, however, the lack of movement in that arena has not impeded our progress with our trading partners in sub-regional negotiations.  The U.S. has further demonstrated its commitment to helping developing countries benefit from the global trading system by pledging to double annual “Aid for Trade” assistance from $1.3 billion in 2005 to $2.7 billion by 2010.  This money is used to build the capacity of developing countries to participate in the global economy.

Some may argue that there are drawbacks to globalization and free trade and point to difficulties countries may encounter in more open trading regimes.  In the Caribbean, for example, some view the elimination of preferential access to the European market for Caribbean bananas as detrimental to Caribbean economies dependent on banana export revenue.  Removal of preferential treatment may cause some heartache in the short-term for these countries, but it may also motivate these countries to invest in industries that will allow for longer-term sustainable development in the global trading system.  For example, St. Kitts-Nevis has become a regional leader in electronics assembly.  By emphasizing their proximity and ties to the U.S., which allows for shorter production runs and real-time communication, they are marketing themselves as an alternative to Asia for electronics assembly.  Other creative solutions like this can help developing economies fully benefit from free trade in the Western Hemisphere and all around the world.         

Caribbean Basin Initiative - CBI

At this juncture, permit me to turn to the hallmark U.S. program of benefits that is the cornerstone of our trade relations with this region – the Caribbean Basin Initiative (CBI).

Countries in this region have enjoyed Caribbean Basin Initiative benefits since its establishment in 1984 under President Reagan.  CBI is a broad program to promote economic development through private sector initiative in Central American and Caribbean countries.  By offering duty-free access to the U.S. market, CBI seeks to expand foreign and domestic investment in nontraditional sectors, thereby diversifying CBI country economies and expanding their exports.

Looking at the record of trade and development over the 22 years since CBI was established, it is fair to say that the goal of export diversification is being achieved.  Most of the region's exports to the United States in the early 1980s consisted of traditional and primary products, such as coffee, bananas, and mineral fuels.  Today, manufactured products such as apparel and electrical machinery account for more than 60 percent of U.S. imports receiving preferential treatment under CBI.   The total value of CBI exports to the United States reached US$27.8 billion at the end of 2004, roughly three times greater than in 1984.  Caribbean countries have yet to fully take advantage of the benefits available under CBI. In the first half of 2006, only 44% of the US$5.5 billion in CARICOM exports to the U.S. entered under a preference program, of which US$1.4 billion was crude or refined petroleum.  By taking better advantage of CBI trade preferences, Caribbean countries can expand exports exponentially in sectors like electronics assembly, as St. Kitts-Nevis has done, or fuel ethanol.     

Closing remarks

I shall close my prepared remarks at this time to open the floor for discussion.  I am eager to hear your thoughts on foreign assistance, developing economies, and open trade.  I also welcome any questions on points I have raised in my presentation.