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This is an archived USAID document retained on this web site as a matter of public record.
Introduction:
Mr. Chairman and Members of the Subcommittee, I want to thank you for the opportunity to testify before you today. This subcommittee has taken a strong interest in probing the major trends that affect the region -- not only the headlines, but the more subtle developments taking place behind those headlines.
At your request, I will direct my remarks to how foreign assistance programs managed by USAID are promoting the economic and social development of Latin America and the Caribbean and in particular, how these programs are alleviating poverty.
The work that we do everyday takes place largely outside the headlines, but we strongly believe that our goals -- drawn from the hemisphere-wide agreement of the historic 1994 Summit of the Americas -- will help achieve greater prosperity throughout the region while advancing U.S. interests. In implementing the work program of the Summit of the Americas, we have developed a very close, collaborative relationship with the IDB. In areas such as microfinance and basic education, USAID has provided initial funding for pilot efforts, technical assistance, training, and institutional development. The IDB has provided larger volumes of loan resources to permit broader dissemination of successful results, in areas appropriate for public sector funding.
As Ambassador Lino Gutierrez, Principal Deputy Assistant Secretary for Western Hemisphere Affairs, testified before this Committee earlier this month, "while democracy is more widespread than ever, recent events remind us that democratic progress in the Americas is neither immutable nor uniform." Recent crises in Peru, Paraguay, Ecuador and Haiti underscore the fact that democracy is not very deep-rooted in these countries. Ambassador Gutierrez also noted that poverty is perhaps the most important challenge to democracy in the Hemisphere, and that Latin America has the most unequal distribution of income of any region in the world.
Acknowledging these challenges, however, does not signify pessimism with regard to the future of democracy in the Americas. Latin America is making progress and our U.S. foreign assistance programs are achieving significant results and thereby contributing to U.S. national interests in the region.
Recovery from the "Lost Decade of the Eighties"
In contrast to the "lost decade of the eighties", in which GDP per capita declined by 9 percent, the economic reforms introduced in the early 1990s have brought about a resumption of growth and a decline in poverty in most of the Latin America region. In the 1990s, according to the World Bank, GDP per capita grew at about 1.1 percent per year. This growth has been accompanied by improved purchasing power in the region. U.S. exports to the region expanded 163 percent between 1990 and 1998, creating more than 2 million jobs in the U.S. Latin America and the Caribbean (LAC) is our fastest growing export market. In Central America alone, imports from the U.S. have nearly doubled over the last five years to almost $10 billion. This improvement in LAC's economic fortunes followed a sustained reform effort by many countries in the region aimed at enhancing the role of market forces and increasing the region's real and financial integration into the global economy. The worsening income distribution witnessed during the 1980s has been arrested and poverty rates have declined in most of the region since 1990. The proportion of Latin American households living in poverty has decreased from 41 percent in 1990 to 36 percent today.
Reforms and Growth in the 1990s
It is important to note that the largest poverty reductions in the 1990s have occurred in the countries that adopted the reforms first, most notably Chile, which almost halved the proportion of households in poverty between 1987 and 1996. Other aggressively reforming countries also achieved major reductions in poverty. These include Peru (57.4 % of the population in 1991 to 50.7 percent in 1997); El Salvador (from 59.7 percent of the population in 1991-92 to 48 percent in 1998), and Costa Rica (from 31.9 percent of the population in 1991 to 19.7 percent in 1998). Other countries, such as Honduras, have made relatively little progress while still others, chiefly non-reforming countries, have seen the proportion of households in poverty actually increase.
Good Governance and Poverty
Until democratic leaders can show sustained major declines in poverty, democracy in the Hemisphere will not be complete - and will not be secure. A recent survey identified a strong correlation between income concentration and support for democracy. In countries with the most equitable income distributions in Latin America, more than 80 percent of the population believe that democracy is the best form of government, while less than 50 percent of the population support democracy in those countries with the worst income distributions.
The region's democracies are finding that economic growth and the macroeconomic reforms that helped generate that growth, while essential, are not sufficient. Recent trends in employment generation and wages suggest that the current pattern of growth has been accompanied by high unemployment rates, a widening wage gap between skilled and unskilled labor, and, in some countries, an actual decline in the real wages of the unskilled. At the Second Summit of the Americas in Santiago, the Hemisphere's democratically elected heads of state underscored the need to remove the barriers that deny the poor access to economic opportunity. The Plan of Action they adopted proposes increased access to credit, other financial services, secure title and property, and infrastructure.
Through the Summit of the Americas' process over the past six years, hemispheric leaders have also increasingly recognized that good governance and positive social outcomes are mutually reinforcing. In fact, a recent World Bank report has found that improvements in the rule of law correlate highly with economic growth and poverty reduction.
A growing body of literature tells a consistent story about governance. Good governance creates a predictable environment for firms and households to invest and increase their productivity, and these investments support both increases in income and improvements in social indicators such as literacy and mortality. We now have a better understanding about the importance of the relationship between poverty and good governance. Indeed, the same countries that are succeeding today, having successfully implemented the "First Generation" of macro-economic reforms, are the ones giving priority to the rule of law, citizen participation and anti-corruption, carrying out "Second Generation" reforms. Other countries have not addressed either basic economic reforms or governance and are caught in a vicious circle of poverty and corruption.
The USAID Response
Let me now describe how USAID is promoting economic and social development and is supporting poverty reduction and improved governance in the region. Our core program in Latin America and the Caribbean, focuses on the poorer countries of the region. It is based on achieving the objectives established in the Summit of the Americas, including strengthening democratic institutions, fostering open markets and enhanced trade, and reducing poverty in the hemisphere.
USAID works collaboratively with other USG agencies, the World Bank and the Inter-American Development Bank, our bilateral partners, and NGOs to assist both governments of the region and their citizens to achieve higher rates of growth on a sustainable basis, accelerate integration into the global economy through enhanced competitiveness, improve governance and the administration of justice, strengthen education and health care, and address environmental degradation and disaster mitigation.
USAID contributes to increasing the income of the one-third of households living below the poverty line through targeted activities that increase their productivity. These activities do three things:
Improving Access and Removing Barriers
Reducing barriers to market access by the poor is an important ingredient of poverty alleviation throughout the region. Institutional barriers are particularly pronounced in property and financial markets, to which access by the poor has been historically limited. Therefore, USAID has introduced innovations to help address problems of market access.
USAID also combats poverty through improved access to credit, particularly micro-finance. We have learned that, despite the precarious situation of the poor, the chief obstacle to credit access is not risk but the cost to the lender of administering small loans and accounts. In addition, the poor typically have few assets that can easily serve as collateral and traditional financial institutions often find it difficult to appraise the creditworthiness of poor borrowers. USAID has long been a leader in funding innovative techniques and instruments to give the poor access to small loans on terms that they can afford and that also cover the full administrative and capital costs of the lending operation.
In countries where we have focussed on credit, a significant part of the potential market of poor entrepreneurs now has access to credit. In Honduras and in Bolivia, an estimated 31 and 23 percent respectively of borrowers have access. The challenge for USAID is to continue to expand this access and to assist microfinance institutions to achieve full financial sustainability.
Since the 1980's, we have seen much progress toward adoption of policy frameworks governing property rights and access, which operate on market principles. Yet, still today in several LAC countries, only half of all property is formally registered. The lack of formalization of property rights is a key impediment to economic growth. Formalizing title to property is essential to creating a basis for commerce, services and governance. Through formal documentation of property, governments recognize basic liberties in uses and transactions and at the same time establish an information base vital to public and private planning, revenue collection, and service provision. More broadly, the same institutional reforms and information base that empower the poor to participate in markets are also critically needed for expanded international investment in the region and a vibrant global marketplace. This, in turn, will generate jobs and economic opportunity.
On behalf of the U.S., USAID has assumed responsibility for leadership of the Summit initiative for modernizing property registry. We are working with the multilateral development banks and other partners to increase transparency, decrease transaction costs, expand access, more equitable and improve the security of tenure.
Education
The single most powerful tool for reducing poverty and improving equity in the long run is high quality primary and secondary education. Besides boosting earnings of the poor, it has been shown to have a catalytic role for those most likely to be disadvantaged: women, indigenous groups, and the rural poor.
Sustained by USAID assistance, primary school enrollments, in most countries of the region, exceed 90 percent. Girls' school enrollment rates are equal to or greater than those of boys in most countries, except in Haiti, Guatemala, and Bolivia. Nevertheless, two serious problems remain. First, although access to schools is almost universal, the quality of those schools, in many areas, is deficient. Many schools which serve the poor lack textbooks and other basic instructional materials. Rural schoolteachers are often poorly trained, and curricula are often antiquated and of little relevance to the poor rural population. As a result, repetition and drop out rates are unacceptably high. In many Latin American countries, more than one-third of all students fail to reach the fifth grade. In addition, the lack of access to secondary schools for the most talented students, especially in rural areas, is a major obstacle to their escape from poverty. USAID's response focuses on management, curriculum, new Internet technologies, and policy reform. Specifically our programs promote decentralization and local control and accountability, increased availability of textbooks and other instructional materials, improved teacher training, and better testing and evaluation systems.
Health and Population
Latin America has made notable progress in health in the last decade. Declines in total fertility rates, particularly in USAID-assisted countries, have improved the health status of mothers and their children. Decreased family size increases the probability that children will remain in school and will have access to needed health care. In the last ten years, mortality rates for infants and children under five significantly declined in the region, even in the poorest countries. USAID has helped countries improve water and sanitation, widen access to health services, and raise rates of coverage with vaccines that prevent life threatening conditions such as whooping cough, measles, polio, and tetanus. With USAID support through the Pan American Health Organization (PAHO), polio has been successfully eradicated in the Americas, the first region in the developing world to do so. USAID continues to support PAHO's work to eradicate measles in this hemisphere.
Despite these successes in Latin America, health problems associated with poverty remain. Maternal mortality ratios in some countries are still more than ten times the rate of developed countries. Although national indicators demonstrate greatly improved health conditions in Latin America where USAID works, these averages mask great differences between rural and urban populations, between elite and ethnic populations, and between those who are educated and those who are not. Among indigenous populations in Peru, Guatemala and Ecuador, the rates of child survival and basic access to services are much lower than the national average. Meeting the needs of these underserved and marginalized populations is a priority of USAID programs in the region.
Although HIV is still in an early phase in most of Latin America, the Caribbean region is the most severely affected with some of the highest prevalence rates outside Sub-Saharan Africa. USAID is working to reduce cross-border HIV/AIDS transmission and is placing renewed attention on countries in the Caribbean that are threatened by the HIV/AIDS epidemic.
Access to Justice and Responsive Government
Our programs also focus on increasing citizens' access to justice and good government. Through public education programs and the strengthening of governmental and NGO capacity, citizens, particularly women, children, and disadvantaged groups, are gaining access to needed services. Programs focusing on access to justice have had a profound impact on women and indigenous people. For example, in Ecuador the Ministry of Social Work and the Ministry of Justice have collaborated on an innovative program to provide specialists in neighborhood police stations to assist women who are victims of domestic abuse. Over 30,000 poor women availed themselves of this service last year. Missions are also increasing their support of successful models of "Justice Houses" which provide one-stop neighborhood assistance for the poor. The programs meet a wide variety of needs from domestic and child abuse to resolution of property disputes. What they all have in common is providing, often for the first time, access to a fundamental right that all governments must ensure.
Improved Governance, Accountability and the Enabling Environment
Investments in the region have paid off significantly over the past ten years with the successful institutionalization of democratic processes, the end of conflict in Central America, reductions in human rights violations, and peaceful transitions of power.
Over the past decade, USAID has expanded its support for rule of law. We have supported major Constitutional reforms to improve justice systems, to provide access to justice for the poor and disadvantaged, and to protect basic human rights. High levels of crime and violence affect all and threaten to undermine people's belief in democracy. Therefore, USAID works with national and local governments and other U.S. government agencies to develop the capacity to provide basic security and justice.
USAID is a leader in treating corruption as a significant development issue. USAID missions support anti-corruption initiatives through justice, civil society, or other public sector support programs. These include: automated financial management systems to increase transparency; civil society groups that monitor elections, procurement, and selection of judges; and technical assistance to controller general offices to improve their ability to audit the use of public funds and to investigate cases of fraud. USAID has encouraged the participation of other donors in this important area and led the formation of a donors' forum that focuses on improving transparency and attacking corruption throughout the hemisphere.
The emergence of elected, local governments is an important trend in the consolidation of democracy in the region. Our support to local governments is strengthening opportunities for citizen participation and decision-making and the provision of improved services needed by local citizens. Elected officials run municipal governments in 23 countries, up from only six two decades ago. In twelve countries, with USAID support, small and medium size municipalities are strengthening their ability to respond to citizen needs. By bringing the responsibilities of governance closer to the people most concerned, we are helping to reinforce the foundations of democracy.
Crisis Prevention and Mitigation
The poor are especially vulnerable to economic downturns and natural disasters. Latin America is particularly vulnerable to natural disasters and these have an impact similar to those of economic crises. Hurricanes Mitch and Georges have had severe impacts on the poor in some of the poorest countries in Central America and the Caribbean. The poor are more likely to have to remove children from schooling, to postpone needed medical treatment, and even to sell productive assets, merely to survive. As a consequence, they are less able to participate in the subsequent recovery. This underlies the importance of sound economic management, effective regulation of financial systems, and prompt, effective and well-targeted safety net programs.
A particularly important aspect of prevention is sound environmental management. The impact of Hurricane Mitch on the poorest people in the two poorest countries in Central America demonstrates the relevance of improved environmental management to the welfare of the poor. Approximately one dollar invested in improved watershed management can save several dollars of post-disaster reconstruction costs when the inevitable storms and floodwaters strike.
Another aspect of prevention is microfinance. A recent study by USAID demonstrates that a very important benefit of microfinance is that it enables the poor to build an asset base to carry them through difficult times, to borrow additional sums to carry them through both personal and systemic crises, and to diversify their sources of income.
One of the most striking facts of the experience of the 1980s and early 1990s was the degree to which the poor suffered more in the decline than they benefited from the subsequent recovery. We in USAID are working very closely with other donors through the Stockholm Consultative Group and other processes to assist countries to prevent crises and to improve the resilience of the poor to cope with the crises that do occur.
Deforestation, unsound land use, and inappropriate agricultural practices significantly increase the vulnerability of LAC economies and the poor to the impacts of natural disasters such as hurricanes, floods and fires. USAID's environmental programs, including parks protection, forest management, small farmer hillside agriculture, and watershed restoration, are helping countries reduce their vulnerability to natural disasters. For example, in Mexico, Central America and Brazil, USAID, collaborating with other U.S. government agencies, NGOs and national governments, provides education programs that promote alternatives to slash-and-burn agriculture and unsustainable logging practices. The establishment and protection of the Meso-American Biological Corridor conserves globally important biodiversity and is key to a viable tourism sector. In Central America, Haiti and the Dominican Republic, USAID is assisting in watershed management as these countries recover from Hurricanes Mitch and Georges and reduce their vulnerability to future disasters.
Importance of the Prosperity of the Overall Economy
While our targeted poverty interventions are key to the success of our overall efforts, we cannot overlook the critical importance of economic growth. Achieving that growth will require continued macroeconomic stability and effective implementation of a broad range of policy and institutional reforms aimed at improving the enabling environment for both foreign and domestic productive investment.
Examples
From 1988 until 1997, I served as USAID Mission Director in three countries, Costa Rica, Bolivia and El Salvador. Each of these countries established coherent and growth oriented polices, made a strong political commitment to change, and took advantage of USAID's targeted programs. While no one would claim that foreign assistance is the determinant factor in their success, our programs in each country worked with governments and citizens alike to achieve significant results. In Costa Rica the stabilization and subsequent restructuring of the economy built on long term investments in education and health brought the country's per capita gross domestic product to around $5,800 - 70 percent higher than the world average. Today Costa Ricans are well educated, healthy, with a life expectancy equal to that of the United States.
Bolivia experienced a dramatic recovery from the economic chaos and hyperinflation of the mid-1980s. USAID has played an important role in helping Bolivia to build institutions, strengthen popular participation, discourage illicit crop production, and create alternative development opportunities.
For El Salvador, the 1990s saw the signing of the Peace Accords, and policy reforms that ended the conflict, achieved national reconciliation, spurred strong economic growth, reduced poverty and strengthened democratic institutions.
FY 2001 Program: USAID's FY 2001 resource request for the LAC region totals $ $646 million. Of this amount, $264 million is Development Assistance (DA), $86 million is Child Survival, $133. 5 million is Economic Support Funds (ESF), $55.5 million is International Narcotics Control (INC) for alternative development (out of a total of $219.3 million for all INC funding), and $106.9 million is PL 480 Title II.
The USAID FY 2001 program for LAC addresses the highest priority goals for the region:
Special Priorities for USAID:
Support for "Plan Colombia" and Reducing Regional Drug Trafficking
The United States has a compelling national interest in reducing the flow of cocaine and heroin to our shores, and in promoting peace, democracy, and economic growth in Colombia. As in Peru and Bolivia, success in battling drugs requires a concerted array of programs, including improved governance, economic development, and justice reform. The Clinton Administration has proposed a multi-year integrated U.S. response to "Plan Colombia." The proposal includes $127 million in FY 2000 and $90 million in FY 2001 for USAID managed programs. These programs would address three high-profile areas of U.S. policy in Colombia: reduction of illicit crop production through alternative development, programs for internally displaced persons (IDPs), and increased democracy through citizen participation and rule of law.
Concluding the Hurricane Reconstruction Programs in Central America and the Caribbean
The two hurricanes -- Mitch and Georges -- that devastated the Caribbean and Central America in late 1998 were a serious setback to the people and to the economies of the region. The two most devastated countries, Nicaragua and Honduras, are the poorest countries in Central America. In a week's time, decades of developmental progress were lost as roads, bridges, schools, health clinics, crops, and livestock were destroyed. In Central America, the U.S. Army Corps of Engineers estimated the damage at $8.5 billion.
On May 21, 1999, Congress approved the Administration's request for $956 million in supplemental FY 1999 funds for the Central American countries affected by Hurricane Mitch and the Caribbean countries hit by Hurricane Georges. It included $280 million to repay accounts that were used to fund the emergency relief effort and $621 million for reconstruction. Principal foci of the reconstruction assistance are the restoration of national health care delivery systems, community water and sanitation, and economic reactivation through rebuilding farm-to-market roads, and re-establishment of agricultural production. The replacement of lost housing and shelter, rehabilitation and re-supply of damaged schools, disaster mitigation, watershed restoration, and support for local governments are also critical priorities that USAID is addressing.
Immediately following the Hurricanes, our Missions put all available resources to work, including funds from our Office of Foreign Disaster Assistance (OFDA), food aid, and funds reprogrammed from ongoing activities to respond to humanitarian and emergency needs. With the passage of the supplemental appropriation, we've worked hard to design sound reconstruction programs in all countries and USAID missions have obligated 98% of the supplemental funds they manage.
As we continue to expedite implementation of the hurricane reconstruction programs, USAID is doing everything possible to ensure an extra layer of accountability. We have included concurrent auditing and hired independent accounting firms to assist the work of host country Controllers General, who play a role similar to our General Accounting Office.
We will continue to work with other donors to create additional monitoring mechanisms that will review procurements, audit financial records and inspect work completed under the reconstruction program. We believe that all these steps are necessary to give the American taxpayer, as well as the citizens of these countries, greater confidence that these funds are being spent wisely.
We continue to view this undertaking as one of our highest priorities and we will achieve the relief and reconstruction results promised to Congress by the end of December 2001.
Conclusion
In conclusion, for democracy to flourish in the region, we need to sustain efforts to expand access, improve governance, and confront crises. Because of our close geographic, economic and cultural ties, development and democracy in Latin America and the Caribbean matter greatly to the United States. USAID's field presence and programs are an integral part of US foreign policy.
The nations of the Hemisphere have set ambitious goals of greater prosperity, reduced poverty, and strengthened democracy. That will require an acceleration of growth and reduction in inequality. With sustained commitment, we know steady progress can be achieved. We look forward to working closely with the Subcommittee and Congress in the achievement of these shared goals.
This is an archived USAID document retained on this web site as a matter of public record.
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