This is an archived USAID document retained on this web site as a matter of public record.

Administrator J. Brian Atwood
Washington International Business Council
Washington, D.C., July 23, 1997
U.S. Agency for International Development

Thank you, George, for that introduction and Solveig, for the opportunity to discuss the crucial issue of foreign aid resources with concerned business people. I also want to thank George and the Business Alliance for Economic Development for the report Global Markets and Foreign Assistance: Are We Losing Ground, which was released yesterday.

The report itself asks a tough -- and very important --question about global markets and foreign assistance, "Is the United States losing ground?"

Japan, Germany, and France use development assistance to build markets for their products and services, the report observes.

Last month, when the world was celebrating the 50th anniversary of the Marshall Plan, we all were reminded that these three countries were once major recipients of U.S. aid. In the Marshall Plan days -- indeed, until just a few years ago -- the United States provided the bulk of all development and humanitarian assistance worldwide.

Today, the former recipients of huge infusions of U.S. aid have become our competitors in the global market place and fellow aid donors. During this decade -- while USAID's budget was cut by $1 billion -- Japan, Germany and France each pulled ahead of the United States in total aid to developing countries.

Just as countries we once aided now provide important markets for U.S. goods, the countries our allies are now aiding will create important markets for them in the future. The Business Alliance report states -- quote:

"These foreign assistance programs create conditions in which individuals around the world can prosper and grow. If the United States is not working to help build the resulting markets, we will not be invited to participate in them later."

Are we losing ground?

After leveling off for a couple of years, USAID's development assistance budget for Fiscal Year 1998 would rise slightly under the appropriations bill approved by the Senate last week, and under the bill now before the House. I hope we are now at the beginning of a turn-around on foreign aid, and that the current Senate maneuvering to transfer USAID authorities to the State Department will fail. Long-term development that produces emerging markets should not be at the mercy of short-term diplomatic goals.

Worldwide, total development aid from governments has been going down, even though many of the smaller donor nations increased the amount they provide. Foreign aid from the 20 OECD donor nations totalled only $55.1 billion in 1996, down from over $58 billion in 1995.

On the other hand, private investment was up by $80 billion to $234 billion last year. In other words, private investment in developing countries amounted to more than four times the aid of governments. Private investment GREW by considerably more than development and humanitarian aid from all governments.

So why don't governments just get out of the aid business -- let private investment finance the growth of developing countries?

The simple answer is that government assistance and private investment are not competitors in the developing world. Both are essential to the development of emerging economies. The bulk of private investment goes to a handful of the better-off developing countries -- especially China. Almost none of that private investment goes to the poorest countries.

The poorest countries are most likely to have high rates of illiteracy, bad roads, and limited telecommunications. They often have laws and economic policies that limit production and trade. All of these factors discourage investment.

That's where we come in. USAID provides technical and financial assistance to help developing countries create favorable climates for investment. Establishing democratic institutions and the rule of law, improving education and health systems are crucial to sustainable development. Yet private investment rarely gets involved in these areas. The assistance we provide is aimed at getting countries in a position to help themselves.

President Clinton is developing policies and programs to get all federal departments and agencies that are involved in trade and aid to work more closely with each other and with American business. The President's African Trade Initiative, for example, will target infrastructure investments in telecommunications, power, transportation, financial services, and agriculture. Investment will be encouraged to support countries experiencing temporary shortfalls in the process of making economic reforms.

USAID will emphasize "aid for trade." Although Congress has not passed a final budget for FY98, it looks like we will get some of the additional resources President Clinton requested to accelerate policy reform, trade and investment in Africa.

We will help countries bring laws and regulations into compliance with World Trade Organization standards and address policy issues affecting market liberalization, export development, and processing and transportation of agricultural products.

USAID's Center for Trade and Investment Services, through the Global Technology Network, is the central point of contact to keep U.S. firms current on commercial developments in USAID-assisted countries. CTIS provides one-on-one counselling for American businesses interested in international contracting and procurement with USAID.

We also establish partnerships with American universities and business groups to promote clean production and pollution prevention, sustainable energy and urbanization, health, telecommunications, and agricultural technology.

Our Office of Business Development has matched environmental trade leads with U.S. firms since 1993 resulting in contracts that will bring in $30-50 million. In December 1995, we expanded the Business Development office to reach 10 Latin American countries. In May of this year we expanded again to add Africa, health, agri-business and information technology.

In addition to these more direct services, traditional aid such as for agricultural improvement and family planning is also valuable to American business. In addition to helping prevent the conflicts that have ravaged many countries in this decade and caused hundreds of millions of people to flee their homes, this kind of aid lays the foundations for future economic growth. Food security is a goal of families, villages, nations and the international community. It will be on our agenda for the foreseeable future.

We cannot turn our backs on human suffering, but just as conflict is a major enemy of development, development is a major weapon to prevent conflict. Conflicts and mass migrations can quickly erase years of development. Fields, homes and businesses are devastated. Land mines and environmental damage add to the suffering. USAID seeks to prevent the conditions that can lead to conflict and to move war-torn societies from dependence to sustainable development.

I am particularly proud of the leadership we have shown in our work in post-conflict societies. Our Office of Transitions Initiatives has been innovative and is now a model for the UN and other donors. Their menu of interventions -- including the demobilization of military forces, election assistance, support for community development and media to reconcile differences -- has been vital in many transitions.

The Business Alliance report also shows that foreign aid is not pouring money down a rathole. Foreign aid works, even though you will never read that in the barrage of studies from the Heritage Foundation and CATO Institute. Just as the Marshall Plan fueled Europe's recovery, more recent foreign aid helped fuel today's emerging economies.

Many of you know that 80 percent of foreign aid money is spent in the United States for goods and services, supporting hundreds of thousands of American jobs.

But, more importantly, our programs create markets for U.S. exports. Today our economy is strong at home because we have entered the global economy with all the enthusiasm we Americans can generate. The export sector of our economy is the fastest growing sector with the highest paying jobs. Yes, we managed our deficit well. Yes, we took care to create domestic policies that encourage capital formation. But it is the investments we made 20 and 30 years ago in Asia and Latin America that have boosted our exports. We are today living well off the foreign aid investments of the last generation.

And those investments have paid real dividends. Our trade with South Korea, Taiwan and Thailand in just one year amounts to far more than our total investments in aid to those countries over a period of many years.

So, are we losing ground? Unfortunately, yes.

And there is great danger that we will lose more ground if we do not provide the resources needed.

If we don't invest the money to help developing countries strengthen democratic institutions and practices, to help them reform legal systems and economic policies that prevent economic growth and trade -- we will lose more ground. If we don't invest the money to control emerging diseases where they start, instead of waiting until they reach our shores -- we will lose more ground.

Remember that whenever the world faces a new crisis, the global economy is disrupted. Whenever violence breaks out, markets close down. Wherever refugees flow, the cost is far greater than the humanitarian assistance they require.

America's future is tied to the future of the people who need development aid today. If we make the necessary investments, the money we spend on foreign aid today will fuel tomorrow's emerging economies. It will open tomorrow's new markets for American products and services. If we do not make those investments, we will lose ground.

Do we have the resources to provide the foreign aid to deal with these problems?

A better question might be -- will we have the resources to deal with the problems we will face if we don't provide the foreign aid?

The Washington International Business Council is asking the right question when you ask, "Will there be enough resources for foreign aid investments that are important to America's future?"

The Business Alliance is also asking the right questions when it asks, "Are We Losing Ground?"

Make no mistake about it, in the last few years we have lost ground. USAID is no longer present in 26 countries. We have trimmed our program in dozens more. We don't train as many business people and economists in the U.S. Our scientists are not as omnipresent as they once were. We are doing much less infrastructure work abroad. Customs, tax and legal systems are less American and more modeled after the systems of other cultures.

Yes, we are losing ground, but we can come back. The developing world still prefers the American connections. People want America to lead. They want our advice, but it is difficult even to give them that without resources.

Thanks to the Business Alliance and its latest report, it will be more difficult to ignore these realities. Keep up the fight against ignorance. Your efforts are paying off. The benefits will be shared by Americans and our friends in the developing world.

This is an archived USAID document retained on this web site as a matter of public record.

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