11 February 2002
Source:

US Department of State
International Information Programs

Washington File
_________________________________

11 February 2002

USAID Administrator Natsios Interview on Development Assistance

(Says technology transfers make foreign aid work) (5,150)

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

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

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

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

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

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

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

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

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

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

Following is the transcript of the interview:

(begin transcript)

NATSIOS INTERVIEW WITH STATE FOR WASHINGTON FILE AND WEB

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(end transcript)

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