LATIN AMERICA AND THE CARIBBEAN

	FY 1998 Actuals	FY 1999 Estimate	FY 2000 Request
Development Assistance	$213,561,000	$212,450,000	$233,064,000
Child Survival & Disease Fund	$80,502,000	$108,476,000	$76,214,000
Economic Support Funds	$116,383,000	$118,000,000	$160,500,000
International Narcotics Control Funds	$27,000,000	$66,000,000	$50,000,000
P.L. 480 Title II	$123,932,000	$190,611,000	$135,571,000
P.L. 480 Title III	$10,000,000	$10,000,000	---

Introduction

The LAC region has experienced significant progress in recent years. A decade ago, our programs operated amidst the debt crisis, Central American conflicts, cold war divisions, astronomical levels of inflation, a decade of declines of GDP per capita, and a decade-long failure of LAC countries to invest in their social and physical infrastructure. Throughout the region, the 1990s have brought higher standards of living, a return to positive economic growth rates, a consolidation of macro-economic reforms, and social investment that has yielded significant reductions in both fertility and child mortality rates. The shift from dictatorships to democratic governance has also been consolidated over the last ten years as we have witnessed first-time-ever transitions of power from one democratically elected government to another in credible and successful elections, reductions in human rights violations, and a strong start toward building inclusive, democratic institutions.

There are, nonetheless, real dangers that the region's advances could easily be reversed. Cynicism is growing in countries where the promises of democracy and liberalized economic policies have yet to produce tangible improvements in the lives of ordinary citizens. The LAC region still has the worst income distribution in the world (which has become even more skewed during the 1990s) and 40% of the population remain in dire poverty. The situation is even worse in Honduras and Nicaragua where, even prior to Hurricane Mitch in November of 1998, 73% and 76% of the population, respectively, lived in poverty. Additionally, corruption and lack of transparency in government remain a major challenge exacerbated by the influence of drug money, citizens in many nations stay in prisons for years without formal criminal charges or due process before impartial systems of justice, and the region continues to hold the world's record for murdered journalists. These factors undermine both citizens' confidence in their elected officials and investor confidence throughout the region. Moreover, unlike poverty of the past, poverty today takes place with new democratic governments in office -- meaning that citizens are beginning to question whether they are participants in, and beneficiaries of, their nation's economic and democratic achievements.

The recent global financial crisis -- which originated in Asia and resulted in falling commodity prices around the world and reduced world demand for LAC exports -- has also highlighted the fragility of economic progress in the LAC region. The financial crisis contributed to a decline in the GDP growth rate in the LAC region from 5.1% in 1997 to an estimated 2.5% in 1998 and estimated .6% in 1999. It also prompted a massive flight f short-term capital from the region. Additionally, Brazil's current economic turmoil already has begun to affect liquidity, export prospects and economic growth for other LAC economies. If unchanged, these declining growth trends in the region, one of our major export markets, will reverberate negatively in the U.S. economy as well.

The worst crises, however, to have hit the region in 1998 were natural disasters, from El Nino's drought and fires and floods earlier in the year causing destruction in Mexico, Central America, Brazil, Ecuador and Peru, to Hurricanes Mitch and Georges, which within a few days destroyed billions of dollars worth of development in Central America and the Caribbean that took decades to achieve. Shocks such as these, whether financial or natural, disproportionately affect the poor. There is, thus, reason for concern that these recent crises could set the region back from its path towards sustainable growth with equity; and could result in levels of illegal immigration to the United States rivaling that of the 1980s, as the LAC region's poor seek refuge and better opportunities in the United States.

U.S. National Interests

Developments in the LAC region have a clear impact on the economic, social and political well being of the United States. First, our interests are linked to seeing the evolution of stronger democracies in the region. Second, our economies are closely linked as 49% of LAC imports come from the United States and these now account for about 40% of all U.S. exports. Mexico is our second largest trading partner after Canada and by 2010 it is estimated that U.S. trade with our hemisphere's partners will exceed U.S. trade with the European Union and Japan combined. Third, due to our close geographic proximity, there is strong cross-border pressure that often results in illegal immigration and the spread of communicable diseases. Fourth, protection of the hemisphere's natural resource base enhances our quality of life in the United States, and its destruction, as we saw during the fires in Mexico, can affect the quality of the air, land and water in our country.

Despite growing economic opportunities, our close proximity to the region poses some serious demographic concerns, since almost 75% of illegal immigrants to the U.S. come from the LAC region. Although Mexico is by far the largest country of origin, illegal immigration from other nations has also been significant. El Salvador alone has been the source of more illegal immigration to the United States than all of Europe, Asia and Africa. USAID's programs are critical for achieving the U.S. Government's (USG's) strategic goal to "address the underlying causes of large-scale illegal migration by promoting regional stability, democracy, and broad-based growth, particularly in Central America and the Caribbean."

To both reduce pressure of the LAC region's poor to seek refuge and better opportunities in the United States, and enhance political stability and economic prosperity in all of the Americas, it is critical that the U.S. Government ensure that LAC countries continue in their transitions from conflict to peace and reconciliation, from dictatorships to democracy, and from controlled economies with massive inequity to open markets and determined efforts to alleviate poverty. To accomplish this, the United States must continue supporting democratically elected governments throughout the region, consolidating peace agreements in Central America, encouraging emerging democracies such as Haiti, and supporting activities that enhance the likelihood of a peaceful democratic transition in Cuba. The United States must also support efforts to enhance economic growth, improve income distribution, and decrease poverty and food insecurity in the region. Equally critical, the United States must ensure that post-hurricane reconstruction in Central America not only replaces what was destroyed, but, indeed, transforms these societies in a way that supports the economic and political gains of the last decade and lays the foundation for sustainable growth.

The Development Challenge

To accomplish the goals described above, continued U.S. leadership in support of the Summit of the Americas' agenda is crucial. The Summit meetings in Miami, Santa Cruz and Santiago produced an historic common agenda for the region -- an agenda that reflects converging values, North and South, in democracy and human rights, education, economic growth and poverty reduction, environmental protection and sustainable development. Our ability to consolidate the progress already achieved, as well as to help shape the future, depends on our commitment, working closely with our partners, to assist the countries of the region to confront the myriad challenges and threats that still exist.

Political Stability, Democratic Governance and Transitions to Peace: USAID assistance plays a crucial role in supporting the transitions from war to peace in Guatemala, on the Peru/Ecuador Border, and in Colombia. In Guatemala the USG is supporting implementation of the Guatemalan Peace Accords. Signed in December 1996, the Accords contain over 400 commitments that are making fundamental changes to the economic and political life of the country. The USG joined other donors in pledging a total of $1.9 billion over four years (1997-2000) to support this historic effort and the FY2000 request contains the balance of our pledge to complete this commitment to the first phase of implementing the Accords. USAID also proposes to support, with ESF funds, the Peru-Ecuador border integration program that will undertake small-scale development projects to improve socio-economic conditions in the severely underdeveloped border region . In Colombia, the USG is actively supporting the newly elected Colombian Government in seeking a lasting peace and an effective counternarcotics campaign.

Economic Growth and Poverty Reduction: A key Summit objective is to reduce regional poverty by half in the LAC region by 2015. However, recent estimates show that absent measures to improve income distribution and increase growth, the region will fail to reach the 2015 target. USAID is thus committed to helping the countries of the region to increase economic participation of the poor by assuring access to credit and financial services, to formal title to property and land, and to education and productive resources. And, because many of the region's poor are small farmers found in marginal, rural areas, USAID is committed to enhancing the agricultural productivity and sustainable resource management of such areas . USAID also supports the countries of the region which have renewed their commitment to regional integration as part of a Free Trade Area of the Americas (FTAA). This requires a substantial improvement in the ability of some Latin American countries to implement free trade policies, and to enforce sanitary and phytosanitary standards, fair labor practices, and trade-related environmental policies.

Another objective of the Summit Plan of Action is to focus on "second generation reforms" -- those addressing human capital development; the removal of the barriers that keep the poor from participating fully in the national life of their countries; and the ability of governments to carry out essential public services reliably, efficiently and impartially. First generation reforms, which concentrated on dismantling inappropriate government intervention in the economy and strengthening fiscal, monetary, and foreign exchange policies, have been largely successful. Further consolidation of these first generation reforms is needed at the same time that countries address "second generation" governance reforms to transform the essential functions of the state. Critical reforms include strengthening local government and decentralizing responsibilities, resources and power, They also involve fundamental revisions in the rule of law, real independence of the judiciary and effective due process; as well as the prudential regulation of financial institutions (including those that serve the poor), and speedy and effective judicial resolution of commercial disputes.

Drug Trafficking: Illegal production and trafficking of narcotics is the greatest plague of the Americas. Illicit drugs corrupt leaders and institutions within the LAC region and constitute the leading cause of violent crime in the United States. The USG, in support of its strategic goal to "reduce the entry of illegal drugs into the United States," has a comprehensive program in place to take the profit out of the cultivation and processing of narcotics. USAID plays a pivotal role in this initiative by helping Latin American governments improve law enforcement systems and educate citizens about the dangers of drugs. USAID also helps key source countries provide environmentally sound, economically sustainable alternatives to crops produced for illegal drug production, and improve their administration of justice to deal with narcotics traffickers and narcotics-related crime.

USAID is pleased that coca reduction programs in Peru and Bolivia have begun to produce significant results. In Peru, with the participation of 239 communities, coca production has decreased a dramatic 56% over the past three years, thus slashing the supply of cocaine by 220 metric tons. In Bolivia, coca production decreased by 22% over the same period. Moreover, as a result of USAID alternative development funding in Bolivia, the land area devoted to licit crops in a major coca growing area is now three times the area devoted to coca cultivation.

Human Capacity Development: Considerable progress in education has been made in LAC over the past three decades, including significant gains in overall access to basic education. However, poor quality schooling undermines the system and access to secondary schooling remains limited. Repetition and dropout rates in Latin America are also the highest in the world. Nearly one of every two students repeats the first grade and only 60% of students complete primary school. In the face of the Summit goal of universal primary education by 2010, these levels must be improved. To address these problems, USAID activities focus on assuring equity, enhancing quality and increasing efficiency of education in Latin America and the Caribbean.

In addition to educating children, there is a need to ensure that children stay in school and out of the workplace -- a key issue raised at the Santiago Summit. To do this it is critical to ensure that children not only have access to quality education, but also that poverty -- the key factor that forces children into the workplace or onto the streets -- is reduced.

Health and Population: Curtailing the Spread of Epidemics: U.S. assistance to the region is also critical to achieving the strategic goal to "protect human health and reduce the spread of infectious diseases." These diseases include cholera, HIV/AIDS, tuberculosis, malaria, dengue fever, chagas and measles, some of which could reach epidemic levels following the floods and destruction of clean water sources caused by Hurricanes Mitch and Georges. The accelerating transmission of HIV within Latin America and the Caribbean is also particularly disturbing -- nearly two million HIV infections have been recorded in the LAC region and the epidemic is growing by about 1,000 cases per day.

These problems are daunting and high fertility and child mortality rates persist in some countries. Nonetheless, the health and population sector in the LAC region has, overall, made significant progress with USAID support. In the area of child survival, for example, increased vaccination coverage in LAC-presence countries has met USAID's 85% mid-decade target. Deaths due to diarrhea and pneumonia are also decreasing in most LAC countries. It is also cause for optimism to see that the total fertility rate for the LAC region is on track for a 5% decline between 1996 and 1999. However, it is sobering to note that Haiti is an extreme outlier with a very high fertility rate of 4.8 children per woman (1996). Yet even in Haiti, between 1997 and 1998 there was a 50% increase in the use of modern contraceptive methods in areas supported by USAID programs.

Protecting the Hemisphere's Resources: Rapid population growth in the LAC region puts pressure on all systems, including natural resources. Environmental degradation, the irreplaceable loss of natural resources and biodiversity, and pollution spread from the borders of Latin America into the U.S. A good example is the 1998 fires in Central America and Mexico, whose smoke affected air quality in the southern U.S. for weeks -- underscoring how environmental degradation in the region can have direct implications on the health of the people of the United States.

In addition, the LAC region has the world's highest rates of deforestation and loss of habitat. Such figures are alarming when one considers that the LAC region contains 40% of the globe's species, roughly 50% of the world's remaining tropical forests, and globally important coral reefs and marine ecosystems. Additionally, of the world's 25 most biodiverse countries, nine are in the LAC Region (e.g., Brazil, Mexico, and the Andean countries). To address these concerns, USAID focuses on preserving biodiversity, through encouraging passage of biodiversity-related legislation; supporting natural resource management, including sustainable forestry and agricultural practices; supporting Global Climate Change activities, including clean energy alternatives; and reducing urban and industrial pollution.

Natural Disasters: 1998 brought some of the worst natural disasters to Central America and the Caribbean than have ever been experienced in the recorded history of this hemisphere.

Hurricanes: The nations of Central America -- not long ago the center of military conflicts and plagued by enduring poverty -- over the last decade have made incredible strides to consolidate democracy, open their economies and address their major development problems. Unfortunately, the most powerful and destructive storm of this century -- Hurricane Mitch -- devastated these countries, especially Honduras. In a few days it destroyed what took decades to achieve. Losses are estimated to total up to 70% of GDP in both Honduras and Nicaragua. Victims of these disasters are left without homes, schools, jobs, health facilities and clean water; and severe flooding has provided a breeding ground for the transmission of gastrointestinal, respiratory and infectious diseases. Hurricane Georges also caused massive levels of destruction to countries of the Caribbean, particularly the Dominican Republic, where 60% of the bridges, 60% of the national forests and 75% of the agriculture sector were destroyed. In total, for the countries of Central America and the Caribbean, the hurricanes resulted in 9,500 people killed and 25,000 wounded or missing; as well as total damages of approximately $10 billion.

To address the devastation caused by these hurricanes, the USG launched the largest foreign disaster response in U.S. history -- one that involved almost every part of the USG and provided more than $300 million of immediate relief, delivered by USAID, the U.S. Department of Agriculture and the Department of Defense. To move beyond relief, USAID is refocusing some of it programs to reconstruct what was lost and help these devastated countries reactivate their economies. Because additional resources are required so that the United States can contribute its fair share of the total international donor assistance needed to address critical reconstruction needs, an emergency package of nearly $1 billion in FY 1999 supplemental resources has been proposed for hurricane reconstruction and debt relief. More than a dozen Cabinet agencies will be involved in the reconstruction and relief efforts, being coordinated by USAID. In addition, this proposal allocates $10 million of FY 1999 supplemental resources to Colombia to help address needs arising from its recent earthquake.

USAID hurricane reconstruction support, which will be implemented quickly, efficiently and with minimal chance for diversion of funds, will focus on: preventing the outbreak of infectious diseases; resupplying medicines and medical supplies; restoring and rebuilding water distribution and sewage systems; repairing critical infrastructure, including farm-to-market roads; assisting small farmers to reestablish crop and livestock production; ensuring access to credit and technical assistance to support housing, small farmers and microenterprises; helping countries and municipalities delineate habitable lands for relocation/development; providing temporary balance-of-payments support to Honduras; resupplying damaged and destroyed schools; and encouraging redevelopment that is more environmentally sound, so the countries of Central America and the Caribbean are better prepared to deal with future natural disasters, should they occur.

Fires: Just as the effects of the hurricanes were exacerbated by environmentally hazardous development practices (e.g. slash-and-burn agriculture, deforestation, construction on flood plains and poor watershed management), so too were the effects of the 1998 fires of Mexico, Central America and Brazil exacerbated by inappropriate land-use practices. The start and spread of the fires were the result of El Nino which caused drought throughout the region. The fires destroyed over a million acres of land, destroyed critical tropical forests, threatened some of the world's richest and most fragile biodiversity, and severely affected air quality and airport operations throughout Central America and Mexico. Moreover, the fires in Latin America released a level of greenhouse gases that rivals that produced by the region's industrial and energy sectors. USAID, working with the U.S. Forest Service and Department of Defense, responded quickly to help suppress the fires. Support included assessment teams, technical assistance, fire fighting and safety equipment, and aircraft. To help these countries better prepare for such disasters in the future, USAID proposes to work with the Mexican, Brazilian and Central American governments to implement preventive measures needed to mitigate the effects of future fire seasons. Support will focus on the promotion of sustainable agricultural and forest management practices.

External Debt and Debt Relief

Although the LAC debt situation has improved enormously since the crisis of the 1980s, as a result of economic recovery and the implementation of growth-enhancing policy reforms, in a number of the poorer countries the debt burden remains an obstacle to economic growth. To address this the international community has developed the Highly Indebted Poor Country (HIPC) initiative, under which certain highly indebted poor countries that have a track record of strong economic policies and economic reforms can receive debt reductions. Bolivia has already successfully concluded this process and Nicaragua is in the beginning stages. Honduras was in the process of being evaluated for possible HIPC treatment when Hurricane Mitch struck.

Additional debt relief under the Paris Club, Naples Terms and HIPC is planned for the countries devastated by the Hurricanes (particularly for the highly indebted countries of Honduras and Nicaragua). However, because as much as 60% of Central American debt is to multilateral creditors which cannot be rescheduled, the World Bank has established the Central American Emergency Trust Fund to which donor countries can make contributions that will be utilized by recipient countries to make debt service payments. Commitments already exceed $100 million. The lion's share of resources will go to Honduras and Nicaragua.

Program and Management Challenges

USAID has taken major steps to enhance the impact and sustainability of its programs; and link its programs more closely to U.S. foreign policy interests. USAID has also had to respond to constantly changing and unforeseen needs throughout the LAC region, including the hurricanes and fires of Central America and the Caribbean; U.S. foreign policy imperatives that led to decisions to maintain development programs in Panama and Colombia; and political openings created by peace efforts along the Peru/Ecuador border and positive national elections in Colombia and Ecuador.

USAID has responded to these needs and opportunities, within lower budget and staffing levels, by finding better ways of doing business. This has included closer cooperation with other donors, streamlined procurement procedures that reduce the number of procurement and financial management transactions; and regionalization of Mission services wherever feasible.

Other Donors

Among major donors, the United States ranks second in Official Development Assistance after the United Nations. The other lead donors in the region are Japan, the European Commission and Germany. USAID's coordination and collaboration with other donors is a critical and expanding focus of its strategy in the LAC region, particularly as U.S. Government assistance has declined over the last decade. USAID has strong working relations with the Multilateral Development Banks (MDBs), the European Union (EU) and Japan, as well as several U.N. organizations. Primary partners are the Inter-American Development Bank (IDB), the World Bank, the Pan American Health Organization and the Organization of American States.

As a key source of development finance in the LAC region, the IDB is a natural partner for USAID in implementing the commitments made by President Clinton at the Santiago Summit of the Americas held in April, 1998. For example, in support of the Presidential Initiative on Food Safety, USAID expertise in adequate safety standards for US food imports is contributing to the IDB's design of food safety programs in Central America and the Caribbean. In support of Summit education initiatives, efforts are underway for USAID to collaborate with the IDB and World Bank on regional initiatives in areas such as education standards, technology and teacher training.

Within the context of the Transatlantic Initiative, USAID collaborates closely with the European Commission (EC) on critical democratic governance activities, as well as the Guatemalan Peace Accords. Within the context of the Common Agenda, USAID collaborates closely with Japan on critical environmental initiatives, including conserving globally important ecosystems and their biodiversity; protecting the Panama Canal Watershed; addressing key regional environmental challenges in the Caribbean; and developing Haiti's agricultural sector in an environmentally sustainable manner.

Because USAID has been a pathbreaker in judicial reform, education for indigenous populations, alternative dispute resolutions and other democracy-building areas In the LAC region, other donors are now increasing their support to areas once left to the U.S. government. This includes programs dealing with justice, legislative support, crime and violence, anticorruption, accountability, local government, and national institutional strengthening. For example, in Honduras, Bolivia, Guatemala and El Salvador, the IDB and World Bank are working together to develop major judicial reform initiatives that build on existing USAID activities. Additionally, USAID initiatives have contributed to the IDB's recent expansion of microenterprise assistance.

In addition to close working relations with other donors, USAID implements its programs in close collaboration with other U.S. Agencies, including State, Environmental Protection Agency, Education, Interior, Commerce, Justice, Agriculture, Housing and Urban Development, Health and Human Services, Labor, U.S. Trade Representative, National Security Council and the Inter-American Foundation. Many of these U.S. Agencies have been working closely with USAID and other donors in developing a coordinated and complementary reconstruction response to Hurricanes Mitch and Georges.

FY 2000 Program

The resources requested by USAID for the LAC region in FY 2000 total $653.3 million. Of this, $233 million is Development Assistance (DA), $76.2 is Child Survival and Disease, $160.5 million is Economic Support Funds, $50 million is International Narcotics Control funds, and $135.6 is P.L. 480 Title II.

The activities planned for FY 2000 will directly contribute to achieving the shared vision for the hemisphere as ratified by the Summit of the Americas and its follow-up process. USAID's program will provide impetus to a second generation of reforms vital for substantially accelerating growth, improving income distribution, ensuring political stability and increasing participation in decision-making by all segments of society. Additionally, the USAID request will provide critical hurricane reconstruction support to help the countries of Central America and the Caribbean regain what was lost in the storms and reactivate their economies.

The USAID FY 2000 program will contribute to the following results:

• Strengthening democratic institutions, promoting broad citizen participation, and promoting respect for human rights;
• Expanding economic growth, reducing poverty and improving income equality;
• Reducing levels of illegal emigration to the United States;
• Stemming the flow of illegal narcotics to the United States;
• Reducing fertility and population growth, improving maternal and child health, and slowing the spread of HIV/AIDS and other infectious diseases.
• Increasing sustainable development and sound environmental practices; and
• Improving the quality of education.

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