[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
DEVELOPMENT, GROWTH, AND POVERTY REDUCTION IN LATIN AMERICA: ASSESSING
THE EFFECTIVENESS OF ASSISTANCE
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
THE WESTERN HEMISPHERE
OF THE
COMMITTEE ON
INTERNATIONAL RELATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
WEDNESDAY, JUNE 28, 2000
__________
Serial No. 106-129
__________
Printed for the use of the Committee on International Relations
Available via the World Wide Web: http://www.house.gov/international
relations
__________
U.S. GOVERNMENT PRINTING OFFICE
65-971 WASHINGTON : 2000
COMMITTEE ON INTERNATIONAL RELATIONS
BENJAMIN A. GILMAN, New York, Chairman
WILLIAM F. GOODLING, Pennsylvania SAM GEJDENSON, Connecticut
JAMES A. LEACH, Iowa TOM LANTOS, California
HENRY J. HYDE, Illinois HOWARD L. BERMAN, California
DOUG BEREUTER, Nebraska GARY L. ACKERMAN, New York
CHRISTOPHER H. SMITH, New Jersey ENI F.H. FALEOMAVAEGA, American
DAN BURTON, Indiana Samoa
ELTON GALLEGLY, California MATTHEW G. MARTINEZ, California
ILEANA ROS-LEHTINEN, Florida DONALD M. PAYNE, New Jersey
CASS BALLENGER, North Carolina ROBERT MENENDEZ, New Jersey
DANA ROHRABACHER, California SHERROD BROWN, Ohio
DONALD A. MANZULLO, Illinois CYNTHIA A. McKINNEY, Georgia
EDWARD R. ROYCE, California ALCEE L. HASTINGS, Florida
PETER T. KING, New York PAT DANNER, Missouri
STEVE CHABOT, Ohio EARL F. HILLIARD, Alabama
MARSHALL ``MARK'' SANFORD, South BRAD SHERMAN, California
Carolina ROBERT WEXLER, Florida
MATT SALMON, Arizona STEVEN R. ROTHMAN, New Jersey
AMO HOUGHTON, New York JIM DAVIS, Florida
TOM CAMPBELL, California EARL POMEROY, North Dakota
JOHN M. McHUGH, New York WILLIAM D. DELAHUNT, Massachusetts
KEVIN BRADY, Texas GREGORY W. MEEKS, New York
RICHARD BURR, North Carolina BARBARA LEE, California
PAUL E. GILLMOR, Ohio JOSEPH CROWLEY, New York
GEORGE P. RADANOVICH, California JOSEPH M. HOEFFEL, Pennsylvania
JOHN COOKSEY, Louisiana
THOMAS G. TANCREDO, Colorado
Richard J. Garon, Chief of Staff
Kathleen Bertelsen Moazed, Democratic Chief of Staff
------
Subcommittee on The Western Hemisphere
ELTON GALLEGLY, California, Chairman
DAN BURTON, Indiana GARY L. ACKERMAN, New York
CASS BALLENGER, North Carolina MATTHEW G. MARTINEZ, California
CHRISTOPHER H. SMITH, New Jersey ROBERT MENENDEZ, New Jersey
ILEANA ROS-LEHTINEN, Florida ROBERT WEXLER, Florida
MARSHALL ``MARK'' SANFORD, South STEVEN R. ROTHMAN, New Jersey
Carolina JIM DAVIS, Florida
KEVIN BRADY, Texas EARL POMEROY, North Dakota
PAUL E. GILLMOR, Ohio
Vince Morelli, Subcommittee Staff Director
David Adams, Democratic Professional Staff Member
Kelly McDonald, Acting Professional Staff
Jessica Baumgarten, Staff Associate
C O N T E N T S
----------
Page
WITNESSES
Carl Leonard:....................................................
Acting Assistant Administrator, Bureau for Latin America
and the Caribbean, United States Agency for
International Development.............................. 1
William E. Schuerch:.............................................
Deputy Assistant Secretary, International Development,
Debt, and Environmental Policy, United States
Department of the Treasury............................. 5
Sylvia Saborio:..................................................
Senior Fellow, Overseas Development Council.............. 18
Colin Bradford, Jr., Ph.D.:......................................
Professor of Economics and International Relations.......
The American University.................................. 22
APPENDIX
Prepared statemente:
The Honorable Elton Gallegly:....................................
A Representative in Congress from California and
Chairman, Subcommittee on Western Hemisphere........... 34
The Honorable Robert Menendez:...................................
A Representative in Congress from New Jersey............. 35
Carl Leonard..................................................... 38
William E. Schuerch.............................................. 50
Sylvia Saborio................................................... 60
Colin Bradford................................................... 67
DEVELOPMENT, GROWTH, AND POVERTY REDUCTION IN LATIN AMERICA: ASSESSING
THE EFFECTIVENESS OF ASSISTANCE
----------
Wednesday, June 28, 2000
House of Representatives,
Subcommittee on the Western Hemisphere,
Committee on International Relations,
Washington, D.C.
The Subcommittee met, pursuant to notice, at 2:20 p.m., in
room 2200, Rayburn House Office Building, Hon. Elton Gallegly
(Chairman of the Subcommittee) presiding.
Mr. Ballenger. [Presiding.] First of all, let me apologize
to the people gathered here today. Every once in a while this
place gets to be kind of a madhouse, and I am afraid this is
that time of the year when everything we do doesn't satisfy
everybody, and so we get three or four votes at a time, and we
are spending your money unwisely just for a little while here.
But this is a very worthwhile cause we have got going here, and
I would just like to say that the chairman will be here in a
minute. But this idea that we vote four votes and then we wait
an hour and then we vote four more votes and wait an hour may
continue up until the evening pretty late.
So we will go ahead and start this whole thing, and if I
may, I will introduce Mr. Carl Leonard first, the Assistant
Administrator, Bureau of Latin America and the Caribbean,
USAID, and Secretary Schuerch, Deputy Assistant Secretary for
International Development, Debt, and Environmental Policy,
Department of Treasury. Mr. Leonard, if you would, fire away.
STATEMENTS OF CARL LEONARD, ACTING ASSISTANT ADMINISTRATOR,
BUREAU FOR LATIN AMERICA AND THE CARIBBEAN, UNITED STATES
AGENCY FOR INTERNATIONAL DEVELOPMENT
Mr. Leonard. Thank you very much, Congressman Ballenger. I
want to thank you for the opportunity to testify before the
Subcommittee today, and as requested, 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. I ask that my full written statement be
included in the record.
Mr. Ballenger. Without objection.
Mr. Leonard. The work that we do every day takes place
largely outside the headlines, but we strongly believe that our
goals--drawn from the Summit of the Americas--will help achieve
greater prosperity throughout the region.
As Ambassador Lino Gutierrez testified before this
Committee earlier this month, perhaps the most important
challenge to democracy in the hemisphere is poverty. He further
noted, ``While democracy is more widespread than ever, recent
events remind us that democratic progress in the Americas is
neither immutable nor uniform.''
Despite these challenges, we remain optimistic with regard
to the future of 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.
In contrast to the lost decade of the eighties, in which
GDP per capita declined by nine percent, the economic reforms
introduced in the early 1990's have brought about a resumption
of growth and a decline in poverty in much of the region. This
improvement in the region's economic fortunes followed a
sustained reform effort by many countries aimed at enhancing
the role of market forces and increasing the region's
integration into the global economy.
It is important to note that the largest poverty reductions
in the 1990's have occurred in the countries that adopted the
reforms first. Chile, for example, almost halved the proportion
of households in poverty. Other aggressively reforming
countries also achieved major reductions, such as El Salvador
and Costa Rica. Other countries have made more modest progress,
while still others, chiefly nonreforming countries, have seen
the proportion of households in poverty actually increase.
Until all countries can show sustained progress in
attacking poverty, democracy in the hemisphere will neither be
complete nor secure. Surveys have shown a strong correlation
between income concentration and support for democracy. In
countries with the most equitable income distribution in Latin
America, more than 80 percent of the population believe that
democracy is the best form of government, while less than 50
percent are supportive in those countries with the greatest
income disparities.
The region's democracies are finding that economic growth
and the macroeconomic reforms that help generate that growth,
while essential, are not sufficient. In addition, there is
heightened recognition that good governance and positive social
outcomes are mutually reinforcing. Good governance creates a
predictable environment for firms and households to invest and
increase their productivity. These improvements support both
increases in income and improvements in social indicators, such
as literacy and mortality.
Indeed, the countries that are succeeding today, having
successfully implemented the first generation of macroeconomic
reforms, are now carrying out second generation reforms,
including rule of law, citizen participation, and
anticorruption activities.
USAID's core program in the region is based on achieving
the objectives established in the Summit of the Americas,
including strengthening democratic institutions, fostering open
markets and expanded trade, and reducing poverty in the
hemisphere. USAID contributes to increasing the income of
households living below the poverty line through targeted
activities that increase their productivity. These activities
do three things:
First, they increase access and reduce barriers to services
that the poor need to achieve their full potential, such as
financial services, education and health care, land title and
property rights;
Second, they seek to improve governance, accountability,
and the enabling environment within which the poor work to
assure that they have access to a level playing field,
participate fully in the selection of governments, and have
effective national and local government institutions;
Third, they assist countries in crisis prevention and
mitigation.
USAID combats poverty through improved access to credit,
particularly micro finance. We have learned that the chief
obstacle to credit is not risk but the cost to the lender of
administering small loans. In addition, the poor typically have
few assets that can easily serve as collateral. USAID has long
been a leader in funding innovative techniques to give the poor
access to small loans on affordable terms that cover the full
costs of the lending operation.
Over the past decade, we have seen progress toward adoption
of policies governing property rights and access, which operate
on market principles. Yet, today, much property is still not
formally registered. Modernized registration systems are
essential to creating a basis for commerce, services, and
governance to reach down to the poor. More broadly, the same
institutional reforms and systems that empower the poor to
participate in markets are also critically needed to facilitate
expanded international investment in the region.
USAID is leading the Summit initiative on property registry
modernization. We are working with the multilateral development
banks and other partners to increase transparency, decrease
transaction costs, expand access, and improve the security of
tenure.
The single most powerful tool for reducing poverty and
improving equity in the long run is high-quality primary and
secondary education. In most countries of the region, primary
school enrollments now exceed 90 percent, but two serious
problems remain. First, the quality of those schools is often
deficient. Many schools lack textbooks and other basic
instructional materials, and schoolteachers are often poorly
trained. As a result, repetition and drop-out rates are
unacceptably high. Our response focuses on management,
curriculum, technology, and policy reform. Specifically, our
programs promote decentralization, increased availability of
textbooks, improved teacher training, and better testing and
evaluation systems.
Latin America has made notable progress in health in the
last decade. Declines in total fertility rates 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 health care. In the last ten
years, mortality rates for infants and children under 5
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
vaccination coverage. With USAID's support through the Pan
American Health Organization, polio has been successfully
eradicated in the Americas, the first region in the developing
world to do so.
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 in the countries
in the Caribbean that are threatened by the HIV/AIDS epidemic.
Investments in governance have paid off significantly over
the past ten years with the successful institutionalization of
democratic processes, 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, and to
protect basic human rights. High levels of crime and violence
affect all, and particularly the poor; 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. Our missions have supported a variety of
initiatives. These include automated financial management
systems to increase transparency, civil society groups that
monitor elections, and technical assistance to controller
general offices to improve their ability to audit the use of
public funds and to investigate cases of fraud.
The emergence of elected local government is an important
trend in the consolidation of democracy in the region. Elected
officials now run municipal governments in 23 countries, up
from six two decades ago. USAID is helping to strengthen the
capacity of local government to respond to citizen needs.
Since economic crises and natural disasters have a
disproportionate and long-lasting impact on the poor, USAID and
other donors are devoting increased attention to crisis
prevention and mitigation. The impact of Hurricane Mitch on the
poorest people in Central America underscores the importance of
improved environmental management. Deforestation, unsound land
use, and inappropriate agricultural practices significantly
increase the vulnerability of the poor to the impacts of
disasters. USAID's environmental programs, including park
protection, forest management, small-farmer hillside
agriculture, and watershed restoration, are helping countries
reduce their vulnerability to natural disasters.
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
policies, made a strong political commitment to change, and
took advantage of USAID's targeted programs. Although 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 a foundation of long-term
investments in education and health yielded economic growth
with equity.
Bolivia experienced a dramatic recovery from the economic
chaos and hyperinflation of the 1980's. USAID has played an
important role in helping Bolivia to build institutions,
strengthen popular participation, encourage licit crop
production, and create alternative development opportunities.
For El Salvador, the 1990's saw the signing of the peace
accords and policy reforms which ended conflict, achieved
reconciliation, spurred strong economic growth, reduced
poverty, and strengthened democratic institutions.
To continue these and other programs in the region, we will
need the bipartisan support we have received for our programs.
My written statement provides an overview of the fiscal year
2001 budget request. I also discuss priority areas, including
Plan Colombia and completion of the reconstruction program for
Central America and the Caribbean.
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 in 16 countries and our bilateral and regional
programs are an integral part of U.S. 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.
Thank you.
[The prepared statement of Mr. Leonard appears in the
appendix.]
Mr. Ballenger. If I may, Congressman Menendez, I think you
have got an opening statement, and I am sorry I started. Just
go right ahead? OK. Secretary Schuerch?
STATEMENT OF WILLIAM E. SCHUERCH, DEPUTY ASSISTANT SECRETARY,
INTERNATIONAL DEVELOPMENT, DEBT, AND ENVIRONMENTAL POLICY,
UNITED STATES DEPARTMENT OF THE TREASURY
Mr. Schuerch. Congressmen Ballenger and Menendez, I
appreciate the opportunity to discuss the central role that the
World Bank and the Inter-American Development Bank play in
helping the countries of Latin America and the Caribbean
address their formidable economic and development challenges.
In our integrating world, the United States has a growing stake
in the economic and political stability and the success of
Latin America and the Caribbean. The region is particularly
important given our strong cultural, economic, and strategic
interests as it accounts for 20 percent of both U.S. exports
and U.S. foreign direct investment.
As we know from development experience, it is a country's
own commitment to sound policies that is the most critical
factor in its ability to improve the economic welfare of its
people. When such a commitment is genuine and policies are
sound, the World Bank and the IDB can provide valuable
supporting roles in promoting sustainability economic growth,
open markets, poverty reduction, environmental protection, and
good governance.
At the same time, most Latin American countries rely far
more heavily on private financing, and the multilateral
institutions now provide only a small fraction of total
resource flows. My colleague, Mr. Leonard, has provided a
comprehensive picture of USAID's assistance programs in the
region. AID and the MDB's share common objectives--promoting
growth, reducing poverty, and improving governance--and they
collaborate on the ground, with other donors and through
consultative groups and other aid fora. There is a commonality
between the MDB's and USAID in many of their targeted
development priorities, such as addressing corruption,
institution building, public participation, education, health,
and, as we saw in the aftermath of Hurricane Mitch, economic
reconstruction.
The MDB's are also active in promoting reforms in a broad
range of areas which we often now take for granted. These
include allowing markets, not governments, to set industrial,
energy, and agricultural prices, liberalizing trade and
investment, prioritizing public expenditures, professionalizing
and shrinking civil services, reducing or eliminating public
subsidies to public enterprises, privatization and allowing
private firms to compete in all sectors of an economy, and
reforming the banking sector through sound banking and credit
policies.
I would like to provide a little bit of an overview of the
economic and social situation--their major economic turn-around
following the low decade of the 1980's. The 1990's saw
important strides in implementing sound macroeconomic policies,
adopting more outward-oriented and private sector-friendly
environments, and improving public sector management. Despite
individual country setbacks, there has been a major improvement
in the direction of democratic and more accountable government.
Real annual growth for the region was 3.6 percent over the
1991-98 period. However, this amounts to only 1.1 percent per
capita annual growth. This is a significant improvement over
the 2.6 percent annual increase during the prior 15 years, but
it is only an increase of 0.4 percent on a per capita basis
during that period.
In 1998, growth in Latin America slowed to 2.1 percent and
was virtually flat in 1999. Growth has subsequently rebounded,
and the projected rate is roughly 4 percent for this year.
During the 1990's, growth was achieved against a background
of financial crises, natural disasters, and fluctuations in
commodity prices. The Mexico crisis in 1995, the Asia crisis in
1997, the Russia crisis in 1998, Brazil's financial instability
in 1999, natural disasters of El Nino, La Nina, Hurricanes
Mitch and Georges, and the mudslides in Venezuela we all
remember.
Economic growth has also translated into important social
progress. Infant mortality rates dropped from 61 per 1,000 live
births in 1980 to 31 in 1998. Life expectancy at birth has
increased from 65 years in 1980 to 70 years in 1998. Primary
school enrollment has increased from 86 percent for males and
85 percent for females to 95 percent for males and 93 percent
for female, from 1980 to 1997. The percent of the population
with access to sanitation has increased from 46 percent in 1982
to 68 percent in 1995.
At the same time, much remains to be done. Economic and
social progress has been uneven both within and among
countries, and Latin America's record in translating economic
growth into poverty reduction has been very disappointing.
Latin American countries have the greatest income
disparities of any region in the world. The poorest 20 percent
of the population receive less than five percent of total
income while the richest 20 percent receive 53 percent.
More than 15 percent of the population are living on less
than $1 per day; more than 36 percent are living on less than
$2 per day. These shares have roughly remained constant, and
perhaps have had only a slight decline over the past 10 years
or so.
One of Latin America's most crucial development challenges
is to do a better job in ensuring that efforts to promote
economic growth, poverty reduction, and economic inclusion are
mutually reinforcing.
In addressing this challenge, we know some things about the
factors that contribute to equitable growth. For example, there
is now a broad consensus on the need to focus explicitly on
attacking poverty and by concentrating resources more
effectively on interventions that most directly affect poverty.
While it is crucial for the countries of the region to maintain
sound economic management, they also need to give priority to
investments in human development, particularly the provision of
stronger and more efficient basic education and health services
and rural development that expand opportunities for the poor.
I would like to turn to the roles of the two banks
specifically. Because Latin America's per capita income is
relatively high compared to other developing regions, only a
small portion of World Bank and Inter-American Development Bank
assistance--concessional assistance, that is--is provided to
the region, roughly about $875 million annually over the past
five years. This assistance is restricted to the region's
poorest countries: Bolivia, Guyana, Haiti, Honduras, and
Nicaragua.
The level of hard loan lending to Latin America normally
averages about $10 billion annually. There was a substantial
increase in assistance during 1998 and 1999 to a peak of about
$16 billion in 1999 to cushion the financial and development
impacts of the crises in particularly Argentina and Brazil.
Lending has now returned to more normal levels.
Throughout the 1990's, in terms of net transfers instead of
new lending, it is not unusual in some years for the Latin
American region as a whole to have a negative flow, an outflow
in repayments and charges vis-a-vis new lending, or in other
years to see net flows roughly in balance.
The effectiveness of MDB lending to Latin America varies by
country. Overall, we believe the World Bank and the IDB have
played a highly positive role in encouraging and supporting
countries of the region to build economic frameworks necessary
to make markets work more effectively and allow private
enterprise to grow.
I would like to use two examples of success stories in the
region: Argentina and Bolivia.
Since 1991, when Argentina began a dramatic turn-around,
Argentina has been the second largest Latin American borrower
from both the World Bank and the Inter-American Bank. Over this
period, in sharp contrast to its past stagnation, economic
growth averaged five percent per year. Total GNP doubled in
real terms, and the economy was put on a sounder footing to
address outstanding problems, particularly a stubbornly high
level of unemployment and the need to improve certain social
indicators that have been deteriorating, such as income equity
and poverty. The World Bank committed a total of $12.6 billion
since 1991 in a program that evolved from support of public
sector reform and privatization to support of financial sector
reform, and then provincial reform, focused first on provincial
finances and increasingly on provincial social sector issues.
The World Bank's independent Operations Evaluation
Department recently reviewed the Bank's assistance strategy for
Argentina. Its report is highly positive in terms of the total
impact of the Bank's supportive financial and advisory role on
a highly committed government. The overall strategy was judged
largely successful, with high rates of achievement of project
objectives and low levels of portfolio problems.
Bolivia is the largest recipient of aid to Latin America in
both IDA's and the IDB's Fund for Special Operation
concessional windows over the last decade. It has experienced a
dramatic economic transformation also. Emerging from a period
of severe economic and social chaos, Bolivia has compiled an
impressive 12-year track record of stabilization and reform
despite major economic constraints, including weak
institutional capacity, major infrastructure weaknesses,
adverse terms of trade, and vulnerability to climatic setbacks.
As is the case in Argentina, it is the strong commitment of
successive democratically elected governments that has been
decisive, although MDB's have provided crucial support. Annual
growth in Bolivia averaged 4.3 percent, or two percent per
capita, in the 1990's after recording negative growth during
the 1980's. Inflation has been reduced from 24,000 percent in
the mid-1980's to about five percent today. Privatization has
reduced state-controlled enterprises from 25 percent of the
economy in the early 1990's to less than two percent.
Unfortunately, the resulting impact of economic growth and
reform on poverty has been modest. While most social indicators
show improvement, some 70 percent of the population remain
poor. The government is strongly committed to addressing this
problem and is currently in the process of developing a Poverty
Reduction Strategy Paper in the context of the World Bank's
program and IMF's concessional program that will set clear
strategies for addressing key constraints on reducing poverty.
The World Bank and the IDB will continue to support
economic reform in Latin America, recognizing that many
countries are now in the most difficult phase of the reform
process--addressing major public sector reforms, pension
reform, budgetary reforms, institutional and judicial reform,
frequently at both the Federal and local levels--where
implementation is complex and politically difficult and the
efforts needed to build necessary domestic public consensus are
time-consuming.
Future programs will also focus heavily on reducing
countries' vulnerability to adverse developments in the
international economy and financial markets, while
concentrating even more assistance on social sectors.
Both institutions are also participating in the Heavily
Indebted Poor Countries Initiative for some of the poorest
countries in the region. The United States has played perhaps
the leading role in helping to design and implement the HIPC
Initiative, and the enhanced HIPC Initiative seeks to improve
prospects for long-term growth and poverty reduction, by
reducing debt for countries that have demonstrated good
economic performance in order to provide a cushion against
future debt problems and to free up significant new resources
for productive investments to reduce poverty. Bolivia was
determined eligible for enhanced HIPC relief in January;
Honduras is expected to become eligible this July. Two other
Latin American countries--Guyana and Nicaragua--are also on the
list. HIPC is not a cure for the poverty of these countries,
but it is one of several programs, including the provision of
concessional IDA and FSO resources and USAID resources, focused
on deepening long-term sustainable efforts at poverty
reduction.
I should note the Administration request to help finance
HIPC is pending before the Congress. Passage is crucial for the
initiative as a whole, but particularly for eligible Latin
American countries. I chaired a meeting last week among the IDB
and its member countries where agreement was reached on how to
finance the IDB's full participation in the HIPC. However,
without a substantial U.S. contribution to the HIPC Trust Fund,
debt relief for Bolivia will not occur. In addition, debt
relief for other Latin American HIPC's will not move forward.
With Honduras also expected to become eligible shortly, the
need for a sizable U.S. contribution to the Trust Fund is
urgent.
In terms of the annual funding appropriations, the cost for
financing other World Bank and IDB operations in Latin America
is very modest. We no longer request funding for either
institution's hard loan windows because we believe the existing
capital bases of the institutions are adequate to sustain their
lending indefinitely. Budgetary costs attributed to IDA
operations in Latin America are about $70 million annually. The
latest replenishment for the IDB's FSO concessional window
entails no additional commitment of new resources from the
United States. The next replenishment is likely in the time
frame of 2008.
This year's Administration request for appropriations for
other World Bank and IDB developing countries' programs which
impact Latin America total $76 million; $16 million is for the
Multilateral Investment Guarantee Agency that provides
investment insurance against noncommercial risk for private
insurers and the major users of that program happen to be U.S.
companies operating in Latin America; $34 million for IDB's
Inter-American Investment Corporation, which provides long-term
loans and equity investments in small- and medium-size
enterprises, primarily in smaller and poor countries; and, for
$25 million for IDB's Multilateral Investment Fund, which
focuses on catalyzing investment reforms through grants for
technical cooperation, human resource development, and small
enterprise development as well as micro finance institutions.
In each case, I would note the amounts that are going
through the budget process and actions in the House and Senate
Committees are substantially lower than the requests that are
before those Committees.
Like all institutions, the Bank and the IDB can both be
improved and their capacity can be strengthened to respond
quickly and creatively to evolving requirements of their
membership. The Administration has worked hard with the members
of the World Bank and the IDB and with their managements to
promote reforms that improve their development effectiveness.
We have been successful in achieving significant changes in
many areas: more transparency and accountability in the
institutions and their operations; increased attention to
poverty reduction, greater attention to lending effectiveness
and project quality, more focus on governance and
anticorruption, increased attention to environmental
sustainability and core labor standards. The reform program
continues.
In concluding, Mr. Chairman, I would like to reemphasize
that the Treasury Department remains committed to working hard
with the management and members of the World Bank and the IDB
and with the Congress to ensure the institutions are able to
work effectively in supporting borrowing governments that are
committed to sound economic management and reform. The
challenge of reenergizing efforts to combat poverty in Latin
America is a complex one and multidimensional. In a good policy
environment, economic assistance--multilateral and bilateral--
can and does make a significant difference in spurring growth
and reducing poverty. We will work closely with the Congress to
maintain a selective and well-targeted program in this area.
Thank you for your consideration, and I would submit my
written statement for the record.
Mr. Gallegly. [Presiding.] Without objection, it will be
made a part of the record in its entirety.
[The prepared statement of Mr. Schuerch appears in the
appendix.]
Mr. Gallegly. Mr. Secretary and Mr. Leonard, I first of all
want to apologize for the circumstances of today's agenda. I
think everyone knows what is going on on the floor, and it is
unfortunate but it is a part, I guess, of the process, or we
would have more members here.
In the interest of time, I am going to ask unanimous
consent that my opening statement be made a part of the record
rather than me presenting it orally, and without objection that
will be the order.
[The prepared statement of Mr. Gallegly appears in the
appendix.]
Mr. Gallegly. At this point I would defer to Mr. Menendez,
if you have opening comments or if you would just--whatever
your preference is, Mr. Menendez.
Mr. Menendez. Thank you, Mr. Chairman. I ask unanimous
consent to have my full statement included in the record as
well.
Mr. Gallegly. Without objection.
[The prepared statement of Mr. Menendez appears in the
appendix.]
Mr. Menendez. I just want to use parts of my statement to
challenge both of you and the respective agencies that you
represent. I had hoped to listen to testimony that would have
dealt more--not only with what you dealt with, which was fine,
but with our funding levels, and, what I consider to be ever
increasing declining aid levels in the context of one of the
most important regions to the United States on questions of
trade, on questions of health, on questions of immigration, on
questions of illicit narcotics trafficking, on questions of
biodiversity, and the list is endless. While we speak in words
that suggest to the hemisphere that we care about them and that
we are interested in them, we act in different ways.
Clearly, if we want to seriously talk about long-term
sustainable development, we have got to talk about investments
in education, first and foremost, in health care, in property
rights, in judicial reform and good governance. But if I look
at the foreign assistance for the region, which is one of our
primary tools for addressing these development issues, I see a
drastic cut. In the 12-year period, the United States reduced
its bilateral assistance to the region by two-thirds, from $1.8
billion in 1985 to $600 million in 1997. In 1988, Latin America
represented 17 percent of total USAID programs, yet ten years
later, in 1999, it represents only seven percent, from 17 to
seven percent in a decade.
Let's put this in perspective. Latin America and the
Caribbean countries contain more than one in six persons in the
world's nations, yet it gets only seven percent of our aid. The
region accounts for over 12.5 percent of the world's
population, yet only seven percent of the aid.
Of those living in poverty in the world, nearly 30 percent
of them live in Latin America and the Caribbean, yet, again,
only seven percent of our aid, the overall purpose of which is
to reduce poverty, goes to the region.
So I look at that, I look at the wealth and income gaps in
the region, already the highest in the world during the 1970's,
widened dramatically in the 1980's, the lost decade of no
growth and high inflation, and have continued to increase even
with the resumption of growth in the 1990's.
In part, clearly my concern and my questions to both of you
and to the Secretary, only 18 percent of the IDB's total
lending last year went for social needs, a decrease from the 24
percent lent in 1998 for these purposes. At the same time,
total World Bank lending for social programs fell to $1.4
billion, only 19 percent of the total, from $2.6 billion, or 44
percent of the total, the previous year.
It seems to me that the challenge we face is to change our
policies, which includes our resources to address poverty, not
just simply drugs and immigrants. That is all we hear about
here, drugs and immigrants. If that is the way we continue to
speak to Latin America, we are not going to go very far.
People flee their countries because they are either mired
in poverty or to escape civil conflict. Otherwise, those
countries have enormous resources for people to stay in their
own countries. We spent enormous amounts of money in Central
America for war, and now when we have planted the seeds of the
potential for democracy, we basically abandon it, leaving to
their own devices the ability to move forward.
So we need to change our policies. We obviously need to
create a constituency with Latin America, and that is why I
propose--and I will be offering legislation--to create a
development fund for Latin America. I hope my colleagues on the
Committee will be supportive of it. I seek to create a floor,
not a ceiling. I am tired of Latin America being the one
location when there is an international issue that money is
taken away from. It is already too little.
Last, I am very happy to see in the testimony that
Professor Bradford will be offering before this Committee that
he tells the Members of this Committee--and I would love to
have him at some point before the full Committee that we could
get some attendance at and they would listen--that, the
concerns in terms of assistance, development assistance, he
says in his testimony that in an internationally recognized
report that recently was released, it demonstrates that
progress--this is speaking about development assistance--that
progress is possible. It shows convincingly how different
elements of the international development assistance efforts
under our review can achieve a reduction in poverty. It vividly
demonstrates the concerted effort by both bilateral and
multilateral development programs, the degrees of success they
have. Finally, it says something that I totally agree with him
on, which is that it is simply the case that the central issue
in aid effectiveness today is aid volume, and we cannot expect
grand results from meager investments.
With all due respect, gentlemen, listening to your
testimony and reading through it as you were presenting it--
AID, I am a great supporter of AID. It does what it can with
what it has. But you just simply should be out there advocating
much stronger for a greater part for Latin America, and the
Administration should not be opposing Latin America development
fund efforts so that we can finally match our actions to the
words that we say to the people of the hemisphere when we bring
them together in grand summits.
There is nothing worse than to defraud a people by giving
them a vision of what is possible and then totally having a
hollow response to that vision. That is really where I believe
that we have been at with the hemisphere.
Thank you, Mr. Chairman, for your indulgence.
Mr. Gallegly. Thank you, Mr. Menendez.
Mr. Secretary, the IDB's eighth replenishment required that
50 percent of the projects funded be in the social sectors,
including those of civil society and the environment. This has
been a major challenge for the Bank. Can you give us an idea of
how the Bank has met this requirement so far?
Mr. Schuerch. I am not sure, depending on what is
classified as social expenditures. There is quite a bit of
discussion as to all of the components that go into----
Mr. Gallegly. The subjectivity of----
Mr. Schuerch. Yes, the subjectivity of classification
schemes is an interesting discussion, actually, but we have
called for, as you have said, 50 percent in the eighth
replenishment. In the World Bank, on the other side, we have
called for 40 percent of lending to go into the social sector.
Both of these are major shifts, and I would say in both cases
we probably have statistics, although I haven't seen precisely
the ones you are quoting, that show them trailing what the
aspirations were in the international agreement.
Certainly I have seen that in the World Bank, and certainly
in totals. I don't think on a disbursement basis you would see
50 percent of the IDB numbers either. They have very
definitely, not just at the Bank but in the leadership of the
individual countries, come to a consensus that there needs to
be substantially more effort and more investment in the social
area, particularly education and health. But the numbers, I
believe, have yet to fully catch up with the aspirations and
where leadership is.
Mr. Gallegly. I appreciate the fact that there is some
subjectivity to the issue of social expenditures, but there is
certainly no question about the spirit, and certain areas that
clearly, as you mentioned--education, health, things of that
nature--fit in that category. But it doesn't seem like we are
getting anywhere.
Mr. Schuerch. We are in agreement with the tenor of your
remarks, and we have continued to push on this. Where there is
marginal disagreement on classification it is more in the
infrastructure areas, which elements of infrastructure, roads
and other things, or schools, can be counted in the social
area.
We continue to push on the social sector and on increasing
it. The Secretary's speeches at the Annual Meetings have also
pushed on this. There is improvement in the IDB. The IDB took
up the poverty alleviation theme and the focus in its programs
before any of the other institutions. But we are not at a 50
percent level at this point.
Mr. Gallegly. On page six of your testimony, you provided a
warning on the region's political and, I think you said,
economic vulnerability, and I don't think that is anything that
we disagree on. You also say that the World Bank and the IDB
will concentrate even more aid on the social sectors.
Is it fair to say that the IDB and the World Bank will
consider increasing its assistance to the region or just
redirect existing efforts to the social sector?
Mr. Schuerch. I think every dollar the IDB has is for this
region, obviously, so it is not a question of an increasing pie
in that particular instance. So there it is clearly
redirection.
I think within the World Bank it is redirection as well,
but there is a difference in the World Bank in that in the
concessional program, the IDA Program, we now have in place
under the last replenishment a performance allocation
structure. So countries are judged on how well they are
investing the money they are getting from the institution, how
well they are running their portfolios, their economies, and on
corruption issues and governance issues. So they get an
allocation that is based on a judgment about how well the
resource they would receive will be utilized. That judgment is
made on an annualized basis, so a country in a sense earns its
allocation under the IDA program. Latin countries can improve
their performance, and they will get more resources as they
improve their performance. This applies to every region. So it
is not a top-down direction of more resources in that case.
In terms of the hard loan windows, it is performance-based
as well as demand-based. The countries themselves need to make
a judgment about the amount they want to borrow. Many of them
can borrow on the private markets at a lot closer to the
interest rates they can get from the World Bank or IDB, so it
is not solely a judgment of need as to how much they choose to
borrow from institutions. Neither institution is fully
constrained in terms of its total resource levels today. There
is headroom for additional lending.
Mr. Gallegly. Mr. Ballenger?
Mr. Ballenger. It was strange to listen to both of you
deliver your testimony, and nobody mentioned the effect of,
first of all, losing NAFTA, having its original effect on the
Caribbean area, and then I just happened to be in El Salvador
when they announced that CBI was going to--that the Senate and
House had agreed--it hadn't passed yet, but the Senate and
House had agreed, and I was talking to a manufacturing
gentleman there that was looking for 1,200 people immediately.
Contracts were coming so rapidly that he needed to hire 1,200
people immediately.
In fact, I heard the Presidents of Nicaragua, El Salvador,
and Guatemala say, your aid is wonderful and all this kind of
stuff, but if you get a CBI, we would rather have that than
anything that you can do for us. It really is kind of strange
that neither one of you mentioned it.
Second of all, especially as far as the banks are
concerned, I know I have discussed with the President of
Nicaragua and other areas down there the fact that most of
their banks are so small that if you really wanted to be able
to develop anything down there--and I am not knocking the
social. I think jobs are almost a very important part of the
social structure. I don't know what you can do about small
banks that can't lend very much money. It is one of those
things. We don't know how you solve that, to be honest with
you. Do you have any--especially in the banking business, do
the banks borrow money? Who borrows the money? Does the country
borrow the money or do the banks borrow the money? Who borrows
the money?
Mr. Schuerch. Which money? If you are talking about IDB
money or World Bank money, it requires in the case of the World
Bank a sovereign guarantee, and in most of the cases of the
IDB, a sovereign guarantee also.
In terms of lending to small- and medium-business
enterprise, both banks have private sector windows: one, the
International Finance Corporation in the World Bank, does
somewhat larger operations, but has a major portion of its
business in Latin America; the Inter-American Bank has the
Inter-American Investment Corporation, and we have just
completed last year a replenishment for a ten-year period, $500
million, and it is targeted more at the types of countries I
think you are focused on at the moment, which is the smaller
countries, the poorer countries, because many of the large
ones, even though they have large percentages of the poor
population, in fact have internal resources that are quite
consequential. Brazil and Mexico both have development programs
that are internal and that are large. I think Brazil's exceeds
the size of the IDB's lending program, for example.
Mr. Ballenger. What I would like to say to the U.S. AID is,
having seen your operation for the--what do you call it? It is
not small loans, but small businesses that they had. First I
saw it in El Salvador. Then I think your manager that you had
in El Salvador moved to Nicaragua, and both of them, as far as
I could see, I have never seen a young girl who started off
with $50 worth of goods in Nicaragua and had built it up to
where she had a fairly nice little size area of--kind of a
shopping center of groceries and things. To my way of thinking,
when you can see the pride that was developed by those people
in that whole general area, I commend you highly for that. I
also commend you for the ability to--when you really go out in
the boon docks and you see those poor people that don't know
how to feed children and you have that program with corn and
oil and a mixture and so forth and you teach the mothers how to
feed the children, I am very happy with what you do.
I can't understand how we have cut--did we do this or did
you do this, the amount of money?
Mr. Leonard. Let me just say, Congressman Ballenger, I was
in El Salvador and I remember well some of your trips to the
region, and we greatly appreciate the interest and support you
have given to Central America and the Caribbean over the years.
When I was in El Salvador, we were supporting the peace process
and economic reforms, and I remember some of those trips to the
micro finance programs we put in place, and then your later
interest and the support after the hurricanes to get the
reconstruction assistance going. So we very much appreciate
that, and we do feel we have made excellent progress.
You are right to mention the importance of trade and CBI
enhancement. That is critical for the region, and it is a
manifestation of the bipartisan support that we need to move
the region forward, the passage of the CBI enhancement. We have
worked in Central America, we are working in the Caribbean to
enhance competitiveness, and that is very important for getting
the growth we need. We need both growth and we need the poverty
reduction programs to go forward concurrently.
In terms of the cuts, the cuts have been with us for a long
time. Congressman Menendez pointed out where we were back in
1990 and where we are today. It has happened in a context of
budget constraints that we all know about. The Agency for
International Development worldwide has fewer resources today
than we had in 1990. Along with that, programs in the region
have also been cut.
I would hope that we in the Administration, Congress, the
American people, we could build a consensus for greater volumes
of foreign assistance, and with that there would be greater
volumes for Latin America. But in response to the question
could we use more resources, are there needs for more
resources, the answer is clearly yes. I hope we can work
together.
Mr. Ballenger. Just one more question, and you can have it,
but our friends there say, it is strange how, if we have a war
in our country, Congressmen by the--gobs of Congressmen keep
coming down here to see us and money flows, mostly giving us
bullets and guns and stuff. But as soon as the war is over,
everybody disappears. It is kind of a strange situation.
You wanted to go ahead?
Mr. Schuerch. Yes, I thought I would give a contribution. I
maybe don't look that old, maybe I do, but I go back far enough
that I remember the first CBI, the Caribbean Basin Initiative,
and it was the early 1980's, not the current CBI you are
referring to. I would say the high point of the total foreign
aid budget--at least in terms of the Foreign Operations
Subcommittee, I spent 14 years on the Appropriations Committee
staff here--was in fiscal year 1985, during the Reagan years.
Since that time in net present value terms, in real terms, it
has been decreasing not every year, but virtually every year.
There have been a few years with a plateau and a couple of
upticks. That 1985 bill was about $18.5 billion compared to a
bill today that is in the range, in nominal terms, of $13
billion or so, $12 billion to $13 billion. That bill only grew
last year because of a Presidential veto, because it was
substantially cut, and I think a couple billion was added back
in the process late last year after the veto.
That cycle has been constant, and it has been constant
regardless of executive/legislative control in terms of the
party structure.
Mr. Ballenger. Could I do it this way?
Mr. Schuerch. Do it your way. That is fine.
Mr. Ballenger. It looks like growth from this----
Mr. Schuerch. It seems we have a dynamic that, for better
or for worse, certainly needs to be reversed. The way you pass
a bill in the House specifically is by cutting a foreign aid
bill. People need to work together. In a shrinking pie, every
region is squeezed, and some are squeezed less than others,
obviously, and Latin America has been caught in quite a
difficult circumstance.
Mr. Ballenger. As you might gather, foreign aid is not the
thing you win elections with back home. Somehow in the election
years, it gets shrunk back.
One thing I would like to ask, because it was brought up,
about the population, the growth in poverty in areas almost
across the board it appeared coming up, and I was also
wondering if the birth rate in this particular area could have
some effect on--I keep thinking of Brazil where all the kids
seem to be--you read about them all the time. We said
something, a large percentage of the whole growth in that was
in Brazil.
Mr. Schuerch. Yes. It is not just the birth rate. It is
also life expectancy. People are living longer. Improvements in
health result in longer life expectancy. You have a population
growth that reflects both birth rate and longer life.
But the population growth rate has been consistently
declining for the region. In the 1970's, you were up around an
average of 2.2 percent, obviously with some countries quite a
bit higher than that, but in the 1990's, we are down to 1.5
percent. The replacement rate is about 1.2 percent.
Mr. Ballenger. When your population gets to be 500 million
people, the percentage of growth doesn't take much to create a
New York City every year. What is the actual--does anybody have
a number for the actually----
Mr. Schuerch. I don't have the fertility rate, or desired
family size.
Mr. Leonard. I don't have the aggregated numbers for the
region, but birth rates have been declining, and that
correlates very closely with improvements in infant mortality,
child mortality. As the birth rate declines, as child spacing
has occurred, things have improved. The total population of the
Latin America and Caribbean region reached $515 million in
1999. The growth rate is now an estimated 1.53 percent, down
from 2.5 percent in 1970. Countries where population growth
rates exceed two percent include Haiti, Honduras, Guatemala,
Nicaragua, Bolivia, and Paraguay.
Mr. Ballenger. I appreciate it because it would make a fair
amount of sense. One thing I would like to say before I shut up
is I have been trying to tell my friends down there that the
education system is going to be the basis for whatever happens,
and when Intel decided to pick a place in the world to locate
their big assembly plant and they picked Costa Rica, I talked
to people with Intel, and the pure and simple reason they
located in Costa Rica was, peace, but the education system was
so much better than any of the other ones. If somebody could
somehow pass that word down there, put more money into
education and less into whatever they are trying to put their
money into.
Mr. Leonard. I agree fully, Congressman. Costa Rica is an
excellent example of the importance of investments in health
and education over a sustained period, of developing human
capacity, and they have achieved both growth and equity as a
result.
Mr. Schuerch. I would say in some cases it is not just the
amount of resources for education. It often also is how you
utilize the resources. In many cases, when you look at
education budgets--because this is an economy and a region that
is upwards of $2 trillion a year, a little bit short of that
for the region. There are lots of internal resources, although
many countries, smaller countries are quite short--you will
find that there is significant money being spent on education,
not an inappropriate level, but it is being aimed at higher
education, university education, and it is not being aimed
sufficiently at primary education where there have been has
improvements in terms of enrollment, or secondary education.
One has to focus now on improving quality as well.
Mr. Ballenger. I would like to say one thing. Venezuela,
with all of its oil wealth and so forth, the lower grades are
not particularly interested as far as their government is
concerned, and I agree with you 100 percent. The money could be
wisely applied to trying to develop the lower class into some
educated people since they have such a large number of people
that are in poverty.
Mr. Gallegly. Thank you very much, Mr. Ballenger. Thank
you, Mr. Secretary and Mr. Leonard. Again, I apologize for the
tardy start. It is going to continue to be a long day for all
of us.
Mr. Ballenger. Those of you who would like to stick around
until late tonight, we will still be here.
Mr. Gallegly. I found it kind of amazing. Many of my
colleagues today are coming to me, and probably you as well,
asking have you heard whether we are going to be in on Friday?
We are not really going to be here Friday, are we? I said, it
depends on the action of some of you that are asking the
question. It may be Saturday, it may be Sunday, it may be
Tuesday.
Anyway, thank you very much, gentlemen.
Mr. Schuerch. Thank you, Mr. Chairman.
Mr. Leonard. Thank you.
Mr. Gallegly. Our next panel is Dr. Colin Bradford and Ms.
Sylvia Saborio, if they would come forward.
Our next panel is Ms. Sylvia Saborio, who is a senior
fellow at the Overseas Development Council, and Dr. Colin
Bradford, Professor of Economics and International Relations at
the American University. Welcome.
Ms. Saborio, if you would like to make your opening
statement, we look forward to hearing from you.
STATEMENTS OF SYLVIA SABORIO, SENIOR FELLOW, OVERSEAS
DEVELOPMENT COUNCIL
Ms. Saborio. Thank you very much.
Mr. Chairman, first of all, let me thank you and the
Subcommittee for inviting me here this afternoon. I welcome the
opportunity to discuss development assistance effectiveness in
the context of our hemispheric partnership. Let me just say
before I begin, that having heard what was said here today, I
am very proud to acknowledge that I am Costa Rican.
My presentation will start with a synopsis of the state of
development in the Latin American and Caribbean region at the
turn of the century. I will then discuss some of the major
challenges facing the region in the years ahead and consider
ways in which external actors can help the countries in the
region effectively meet those challenges.
At the risk of oversimplifying the regional picture by
abstracting from the tremendous diversity that it contains, in
the interest of time, I shall focus instead on the common
threads that characterize the region at the turn of the
century.
First, the rate of economic growth has been sluggish in
comparison to world patterns. Average per capita income is
currently around $3,100--less than a third that of industrial
countries and lower than that of East Asia, the Middle East,
and Eastern Europe. This wasn't always so. At mid-century Latin
America's per capita income was higher than that of all other
developing regions and half that of industrial countries.
Second, despite great strides in taming inflation in recent
years, the region remains more volatile than other areas in
terms of unemployment, job insecurity, and real income
variability. Indeed, the growth rate in any Latin American
country typically fluctuates four points in either direction in
any given year. People who have not experienced such a roller
coaster must find it hard to fathom how anybody can live with
such insecurity and vulnerability. The answer is, of course,
not very well.
Latin America also has the worst distribution of income in
the world. A fourth of national income goes to only five
percent of the population; the corresponding figures for
Southeast Asia and developed countries are 16 percent and 13
percent, respectively.
In contrast, in terms of the United Nations Human
Development Index, Latin America is on a par with East Asia and
Eastern Europe and surpassed only by industrial countries, and
this gap has been narrowing over time. Indeed, the region has
made important strides in the area of health--issues such as
the eradication of polio--and also registered some modest gains
in education. It has entirely closed the gender gap, although
it continues to have some problems in terms of quality and
incompletion, especially at the secondary level. This, of
course, fits right back into the lack of economic opportunity.
In terms of social development, another paradox: Latin
America has moved to the forefront of the developing world in
terms of civil liberties and respect for democratic rights, but
individual violence has skyrocketed and crime rates today are
higher than those almost everywhere else, except Africa.
Finally, the initial enthusiasm with democracy has begun to
erode on the face of disappointing economic and social
outcomes. While democracy has increased people's freedom to
criticize unresponsive bureaucracies and inefficient spending,
it has not necessarily helped to solve those problems; nor has
it succeeded in stemming new threats, such as terrorism,
corruption, and gun and drug trafficking.
It is clear from the mediocre record of accomplishments
noted above that the region faces major challenges in the
economic, social, and political spheres.
In the economic sphere, the so-called first generation of
reforms--that involve things like import liberalization,
opening of the capital account, domestic financial
liberalization, privatization of public enterprises, and tax
reform--have produced outcomes that fall far short of
expectations. A recent study by the Economic Commission for
Latin America concluded that, ``Overall, . . . the reforms have
had a surprisingly small impact..a small positive effect on
investment and growth and a small negative impact on employment
and income distribution . . .''
They found that the reforms did not solve, and quite
probably increased, two problems: that investment continued to
be concentrated among large enterprises that have few linkages
with smaller firms, and that supplier chains were destroyed by
increased imports.
They also found that the majority of foreign direct
investment actually went to purchase existing assets--either
through the privatization of public firms or takeover of
private firms--rather than creating new assets.
Clearly, then, the next generation of reforms must be more
pro-growth and more pro-poor. At the macro level, stability
needs to be consolidated and the resource allocation improved,
and at the micro level, the tendencies toward polarization and
concentration have to be constrained, if not reversed.
In the social sphere, there are at least three areas where
further action is needed. The first is, as Mr. Ballenger
mentioned, employment generation. Employment has been squeezed
on two fronts. Recent shifts in relative prices have favored
capital-intensive production and import competition has wiped
out a host of small, relatively labor-intensive producers. The
``informalization'' of employment is not a socially desirable
option. Alternative employment opportunities in the formal
sector must be developed. In this regard, affirmative actions
to create an environment where efficient, small production
units can thrive is the most promising way to generate
employment and improve the primary distribution of income.
Second, social spending. Latin America has a lot of
catching up to do in terms of human capital accumulation.
Ensuring greater and more efficient social expenditure,
especially in education, must be a priority. Mechanisms must be
found to improve the delivery and financing of social services
in ways that do not segregate access and quality according to
social strata and that protect social expenditures from
cyclical downturns.
Finally, social protection. In a region subject to as much
volatility as Latin America is, safety nets are simply a
necessity.
Last, but certainly not least, in the political realm,
issues of governance and institutional development are a major
and urgent challenge. Indeed, in my view, this is where Latin
America has the greatest deficit.
Far-reaching institutional reforms are needed to enhance
both economic efficiency and social equity, as well as to
facilitate the interface with others in the hemisphere and
beyond, in a rapidly globalizing world. This is a societal
issue that transcends the government itself. In the public
domain, mechanisms for decisionmaking, conflict resolution, and
accountability need to be improved and the institutional
capacity to carry them out enhanced. In the corporate sector,
socially responsible entrepreneurship must replace the
clientelistic, rent-seeking behavior of yesteryear. Civil
society must find a coherent voice and a constructive role to
play in this new scheme of things.
Now, while Latin America must remain the main protagonist
of its own development, external actors can and should play an
important supporting role, basically in three areas:
First of all, by providing an enabling environment. Now
that the region has embraced an outward-oriented, market-based
development strategy, open markets and a stable international
financial system are critical to its success.
U.S. leadership is essential in this regard. On the trade
side, it should secure fast-track authority so that it can
engage in serious negotiations with regional partners toward
the completion of the FTAA by 2005, and so that it can credibly
push for global trade negotiations in the WTO--here I would
like to acknowledge the recent passage of the CBI legislation
which, for the countries in the Central American and Caribbean
regions, will provide increasing opportunities in the trade
area. On the financial stability side, the U.S. should bring
its considerable weight to bear on the G-7 and on the IMF in
order to improve both the mechanisms for crisis prevention and
for crisis management. The U.S. should also weigh in on the
private financial sector to improve risk management practices
and exercise corporate responsibility.
The second is the area of development finance. Meeting the
region's hefty needs in terms of physical, human, and social
capital is going to require the mobilization of considerable
resources, both from domestic and external sources. The
particular resource mix needed will vary widely from country to
country, depending on size, stage of development, and
particular circumstance. But in most countries, public funding
is still needed to crowd in private funding.
The IDB and the World Bank have important roles to play in
supplying some of those funds. Recent analyses suggest--and my
own experience with both of these institutions confirms--that
there is vast room for improvement in the way they perform
their development finance function. In my view, this is true of
the way they allocation their corporate resources and their
loan portfolio, as well as of the way they handle the project
cycle. Corporate incentives are skewed in favor of loan
approval, and partly as a result of that, especially smaller
borrowers tend to get short shrift in terms of the allocation
not only of funds but of high-quality personnel. These are not
arguments for closing down these institutions but, rather, for
improving them. To be fair, the mounting criticism is beginning
to have an impact. I myself am not a great believer in the
Comprehensive Development Framework and the way it is being
applied: I find it a bit too grandiose, involving too many
actors, and prone to overload existing institutional
capacities. But, clearly, some organizing principle is needed
to set development priorities and see to it that they get
financed. Time will tell whether the CDF is the answer. . . or
the problem. I have similar misgivings regarding the poverty
reduction strategies that are being linked to the HIPC
Initiative.
Second, there is the area of bilateral development
assistance, which also has an important role to play in some
countries in the region. Clare Short, the British Secretary for
International Development, recently declared that the European
Commission is ``the worst development agency in the world.''
That may be so, but it has company.
A study of USAID I recently conducted led me to conclude
that the system of resource allocation is vastly over-
determined; it is micro managed in myriad ways rather than obey
a strategic concept, and this I have to say largely reflects
the many ceilings, floors, and earmarks imposed by the Congress
itself. But the effectiveness of U.S. development assistance is
further compromised by the fact that a large portion of U.S.
bilateral aid is tied: three-quarters of it versus just one-
quarter for the Development Assistance Committee as a whole. A
recent World Bank study concludes that tied aid reduces the
value of development assistance by some 25 percent. Last, but
not least, of course, is the fact that at 0.1 percent of GNP,
the U.S. has the lowest development assistance ratio in the
DAC. This I find unconscionable at a time of unprecedented
prosperity.
[I have brought some material from my colleagues at ODC who
have done an immense amount of work in this area, but in the
interest of time, I will not read it.]
Finally, a very important component of the development
assistance package is not money but ideas. Here we need to be
creative and eclectic. Development paradigms come and go, but
in the process, they affect real people. We need more research
and more technical assistance to share best practices and best
policies more widely and, in so doing, reduce the overall cost
of development.
In closing, I would like to thank the Subcommittee for this
opportunity to share my views and concerns regarding Latin
America and at the same time make an appeal to give the region
more than the intermittent attention it usually gets, except
for such perennial issues as Cuba, drugs, and immigration.
After all, Latin America is already the U.S.'s most important
trading partner, accounting for 45 percent of U.S. exports and
36 percent of its imports. We are engaged in the process of
creating the largest, and hopefully most prosperous,
partnership in the world. We know that development assistance
works best within a strategic long-term framework. The
framework for hemispheric cooperation is already there, agreed
at the Miami and Santiago Summits. Now all we have to do is
make it happen!
Thank you.
[The prepared statement of Ms. Saborio appears in the
appendix.]
Mr. Ballenger. [Presiding.] Yes, ma'am, I liked your finish
there.
Dr. Bradford?
STATEMENT OF COLIN BRADFORD, PH.D., PROFESSOR OF ECONOMICS AND
INTERNATIONAL RELATIONS, THE AMERICAN UNIVERSITY
Mr. Bradford. Thank you, Mr. Ballenger. I appreciate your
patience and endurance. I think one remark I would like to make
before I begin is that I think it was impressive, really, the
number of people that were in this hearing room for the first
hour and a half or so.
Mr. Ballenger. Again, I apologize.
Mr. Bradford. No, I think that was a good sign, and as a
couple of people have remarked, the number of people that were
here were mostly younger people. That is, a very good sign to
have a hearing on the Hill in which the next generation is
showing some considerable interest, and I just would like to
remark on that.
I would appreciate it if you would agree to put my written
remarks in the record.
Mr. Ballenger. Without objection.
Mr. Bradford. Thank you. I would like to follow on Sylvia's
excellent presentation and just make a few remarks to you.
Sylvia just said a very important thing that actually goes to
the heart of the contribution that I wanted to try to make to
your thinking, and that is, she said there needs to be some
organizing principle to set priorities. As I sat here and
listened and tried to put myself in your shoes, listening to
the excellent presentations by Carl Leonard and Bill Schuerch,
I realized the welter of detail that is being thrown at you in
12 minutes and the difficulty there is in trying to understand
what in the dickens this is all about, and how can we get a
handle on it so that we can tell whether we are doing what we
should be doing and whether we are effective in achieving the
goals that we have.
The international community has made more progress in this
area, I think, than is generally realized. I brought with me--
and you may have it in front of you--a copy of this report that
was just issued on Monday. It is called ``2000: A Better World
for All; Progress toward the International Development Goals.''
This is an unprecedented report which is published and signed
by the--I have extra copies here if you need one.
Mr. Ballenger. OK.
Mr. Bradford. This is signed--I am told that this is the
first document ever signed by the heads of the United Nations,
the World Bank, the IMF, and the OECD together.
Mr. Ballenger. Sounds like a put-up job, doesn't it?
Mr. Bradford. No, I think--I was afraid you might think
that. I think what it shows is a great deal of coordination and
common purpose behind these institutions, and let me tell you a
little bit the story of what this is really all about.
In the period after the former Soviet Union collapsed,
there was a concern that the whole aid business was going to
simply disappear and that all of us who have been concerned
about development, had a problem of communicating with our
parliaments and congresses and our publics about what, in fact,
the enterprise was about. So there was a long process that was
begun in the DAC, the Development Assistance Committee, which
Sylvia and others have referred to, which is the coordinating
body for bilateral donors but in which the World Bank, the
UNDP, and the IMF are observers. There was a year-long process
which got going to discuss what kind of vision do we have now
in the post-Cold War period, and this involved senior people in
agencies and ministries of development and cooperation
throughout the OECD world, and it involved the ministers
themselves and heads of agencies, like our own Administrator of
AID. In fact, Brian Atwood at the time was very involved in
this.
What happened was we came out with, the international
community came out with, after a long discussion, six goals
which I guess I--if you have the single-spaced version of my
testimony before you, it is on page 3. If you have the double-
spaced version, I will steer you somewhere else. But the goals
basically are--the primary goal, the first goal, and certainly
the most important one, is reducing by half the proportion of
people in the developing world living in extreme poverty by the
year 2015. So the reduction by half of the proportion of people
living in extreme poverty by 2015 is certainly the most
important one and the one that is most relevant for the topic
of this hearing.
But, of course, you just aren't worried about people's
incomes. You are worried about their health, their education,
their environment they live in and so on. So the rest of the
goals are: achieve universal primary education, reduce
mortality rates for infants and children, reduce maternal
mortality rates, demonstrate that progress toward gender
equality and the empowerment of women, especially in primary
and second education, provide access to reproductive health
services--one of the questions that you asked earlier on about
population growth rates and the management of family planning--
and then an environmental objective which is to put in place
national strategies for environmental improvement to reverse
the deterioration in resource sustainability in countries by
2015.
Then a quite important one that is not quantifiable is the
idea that democratic accountability, protection of human
rights, the rule of law, of course, are fundamental to
achieving these goals, but is not so quantifiable as to be able
to be monitored in the same way that these other goals can.
This report, which was issued on Monday, this week, in
Geneva by the four international organizations in the followup
to the Copenhagen Social Summit, what this report does, as you
flip through it, you can see it takes the seven goals and it
follows the progress of each region toward those goals as we go
toward the year 2015, which is the target date for most of the
goals.
I have reviewed for you here how Latin America is doing on
page five, but Sylvia and others have already mentioned that.
But I think the thing I would like to bring to your attention
is more the process of this than the content. The process is
that these goals were distilled out of the many hundreds of
recommendations and goals that came from the U.N. Summits that
began in Rio and on through five or six summits on various
issues like the environment, population and development, women,
human rights, et cetera. It distilled off only seven of these.
They are quantifiable goals. They relate to each other and
reinforce each other. So it is, a strategy. It is, to use
Sylvia's word, an organizing principle. It is an organizing
principle to set priorities. It is a strategy that the
development community now has, and the significance is, I
think, several-fold.
First, these are priorities which are established by
governments. These were not generated by a think tank somewhere
or even by the international organizations themselves. They
came out of the summits, which meant that the political
leadership in countries approved of them.
Second of all, they were endorsed by not only development
cooperation ministers but also finance and foreign ministers of
OECD countries in the OECD Ministerial in 1996, but more
importantly, became prominent in the communique of the Denver
G-7 summit and even more prominent under British insistence in
the Birmingham summit in the U.K. in 1998.
So these have political salience, then, and they aren't
just technical things that come from the development community,
but these came out of a political process by people who were
political appointees or elected officials in the cases of heads
of state.
Furthermore, since they came from the U.N. Summits, they
have involved also the developing countries, so that the
developing country leadership has also been--it isn't as if
this was something that was generated by industrial countries
to foist on the developing world; rather, they had agreed to
these as well, and in the Development Assistance Committee,
there was a considerable effort in the course of developing
this strategy to include leaders from the developing world as
this process went forward.
The second thing that I would like to point out about this
is that it has become a strategy for development agencies, both
bilateral and multilateral, all around the world. The
importance of this report is that this demonstrates that the
UNDP and the other U.N. agencies, the IMF--in his concluding
speech in the IMF/World Bank this last fall, Michel Camdessus
handed everyone a card that had the seven pledges, the seven
goals on it, and to have the head of the IMF, which is
criticized roundly for not caring about the environment, not
caring about social matters, having the head of the IMF be
handing out this card for everybody to see how important he
thought these goals were, he featured it in his speech at the
Bank/Fund meetings.
The World Bank is thoroughly behind this. They have a staff
of people that generate now a World Development Indicators
Report, which began in 1997 after the goals were established,
which reports annually in the framework of these targets.
So what you have is the multilateral institutions and the
bilateral donors are on the same page, so that we are all going
now for the first time ever in the aid effort in the same
direction, bilateral donors and multilateral donors, NGO's are
aware of this, private sector groups are aware of this
strategy. We have a unified strategy.
The third element of it which I think is important from the
point of view of your concern in this hearing is that because
these goals are quantifiable and because the World Bank and the
group of agencies that are represented in this report are
together in doing a statistical monitoring of progress toward
the goal, so you can tell, so the world community can tell, are
we actually progressing or diverging in terms of achieving the
goals--are we making progress or are we not? Do we need to do
more or can we let up?
There was some discouragement, for example, in 1998 after
the Asia crisis, those indicators went backward. But the point
is we had benchmarks so we could tell and we didn't have to go
into long orations. This is pretty telegraphic stuff. It gets
across relatively easily what it is trying to say.
So I just submit to you and really hope that it can make
some difference in your deliberations as a Subcommittee and in
the full Committee itself and in the Congress that I think we
haven't really--those of us who have been involved in this
inside and outside the Government have, I think, not been as
helpful to you as we should be in bringing this particular
effort to your attention, because I think it can help you
decipher--to organize detail and to figure out how to group
things so we can understand a bit what we are doing, why we are
doing it, and whether we are doing it. So that is the first
point.
The second point I would like to just talk to you about
just briefly is the issue of chemistry, really, if I can put it
that way--I hope you won't mind--between the Congress and
executive branch on this issue. It relates, of course, to the
issue of volume, which Congressman Menendez was nice enough to
bring up. I had just had a concern--while I played a role as
chief economist in AID in the whole period--I was, for most of
the time there the chief person in AID dealing with donor
relations. I just became aware that one of the reasons why
there was so much convergence around these targets was because
the Europeans especially, and the Japanese also, because the
Japanese went ahead of us for a year in terms of overall
volume, were very concerned that we had a problem back home
that we couldn't--that the Congress and the executive branch
weren't together on what we were trying to do in the
development assistance, development cooperation area. I just
think we need to mend that fence. The reason I think we need to
mend it is because we owe it to ourselves to be together about
what we are doing rather than to be divided about it. We owe it
to our partners.
I began to feel badly in relation to my colleagues in
Europe and the Pacific because they were really concerned
about--they wanted us to lead, and we weren't able to. We were
falling behind because the volume was dropping. The reason was
that we didn't have the kind of relationship of dialogue,
discussion, and consensus between the Congress and the
executive branch about development cooperation. I think in
order for us to live up to the leadership which we owe
ourselves, in order for us to live up to the leadership which
others expect of us, we have really got to follow the
Europeans, who really have managed to work out their executive/
parliamentary relations in a way that is better than we have.
I cite here that we have lost in the last several years the
chairmanship of the Development Assistance Committee for the
first time in 50 years, the External Relations Vice Presidency
in the World Bank being handled now very expertly by former
Minister of Development Cooperation Mats Karlsson from Sweden,
but we used to hold that position, and the UNDP in New York has
also traditionally been American, now held by Mark Malloch
Brown, a senior British person, who is also excellent. I don't
have any problem with the best people serving in these
positions. I have a problem with us losing the positions
because of volume only. I think that we, therefore, owe it to
ourselves to reconnect with the Congress and the executive
branch in a different chemistry, in what I call positive
circularity, picking up on a DAC report of 20 years ago, and
really try to get our act together here in River City and see
if we can't put ourselves back on the map in this field.
The final thing I would like to say is just to point out to
you some figures, some little calculations that I did yesterday
as I was working on this, which, stunned me. What I did was I
just took the figure that you are considering here of $736
million for AID's programs for Latin America, and I said to
myself I wonder how much that was back in the 1960's when we
had the Alliance for Progress going and when it was a great
priority in the Kennedy administration and there was
considerable support in the Congress for what President Kennedy
and, after him, President Johnson were trying to do.
As you may have figured out, as you deflate these numbers,
$736 million in 1960's dollars becomes about $150 million, we
are doing 30 percent today of what we were doing back in the
1960's. Then I began to think, I wonder how population growth
and GDP growth have been in Latin America. I don't think the
issue really is per capita aid to Latin America, in other
words, how much does each Latin American get from our aid
program. That is not the point. The point is, we are trying to
leverage through these goals, we are trying to leverage major
national societal, political, and economic change. We are
trying to do it with financial resources. Yet Latin America is
bigger in population today and Latin American GDP is very much
bigger today than it was then because they have experienced
substantial growth.
So if you take that into account, we are, in per capita
terms and in share of GDP, our aid to Latin America has dropped
to 15 percent today of what it was in the 1960's, and yet we
have these ambitious goals that we are trying to achieve.
So I just think that we are going to have to worry about
volume--if we are going to worry about aid effectiveness, as
much as I would rather not bring it up, it almost seems
impolite, but it seems to me that we have to confront the
volume issue, and that we need to think about it in wholly
different terms. I really wonder whether we couldn't--whether
there hasn't been a sea change enough in the way the American
people feel about these things to be able to think in terms of
very different orders of magnitude and a different kind of
leadership.
I have one other small suggestion for you at the very end
of my paper, which may or may not be worthwhile, but I thought
since your Subcommittee is focused just on Latin America, it
might be helpful, since this process goes on at the global
level, it just might be interesting to encourage a biannual
meeting to correspond to the Western Hemisphere summits, which
happen every 2 years in Latin America, to have the senior
officials in the Inter-American Bank, the World Bank, the IMF,
the UNDP and other agencies get together, have a paper written
which reviews patterns and trends and policies over the last 2
years, put them in some context the way this publication does,
but by region, and have a report which could be reviewed and
discussed by them and some critics and analysts from Latin
America. That discussion and regional report would then funnel
into the summit process and which, as we do now with these
kinds of reports, go to the G-7 summit every year, and to the
ministers of development cooperation, so that you can tell what
is going on specifically in the region and you can make some
judgment using the organizing principle idea that Sylvia put
forward, and that this could be useful to you here in Congress,
could be useful in other parliaments around the world, and
maybe we could change the whole dynamic here where foreign aid
isn't such a bad world after all, that people really think this
is important, we need to do it as a nation, the world expects
it of us, we should expect it of ourselves, and we just need to
do it.
[The prepared statement of Mr. Bradford appears in the
appendix.]
Mr. Ballenger. Thank you. I would like to say one thing
that specifically seems to fit with the discussion, which is
the fact that our Foreign Affairs Committee, which is basically
the group of people here that are interested in whatever we do
around the world, is broken up into five different areas, and I
think those of us that are on the Western Hemisphere are
finally interested in what is going on here. But when you end
up with 10 people out of 435, somehow you don't build very big
fires with those numbers.
In fact, as I remember, my wife and I have been involved in
Central America at least for 35 years, and we found that you
couldn't change the world, but you could pick a little piece of
it and see what you can do with it. I am not sure that we
weren't more effective before I got to Congress than I was
after I got here. Somehow it appears that our Government gets
in the way of being able to do it.
One of the ways that I think this--really I like about it,
and I think it would be a very positive approach to be able to
somehow measure--one of the reasons, the money--we look at--a
lot of times we get in arguments here with throwing money at a
problem, big government, we just throw money at it and forget
whether we have accomplished anything. If there was a way to
measure progress, which I think is what you are talking about
here, we would have something to work with and say we are
accomplishing this and so forth. You mentioned the
effectiveness of aid, ways to increase the effectiveness of
aid. Do you have in the back of your mind to measure it? I
think difficulty we have with the American people is, first of
all, we are very insular. If you lived in Europe, you would
speak three languages and go to different countries all the
time, and sometimes we don't even leave the State that we are
in because we are very insular. You like it where it is. So,
therefore, you don't develop the need or the purpose of what is
going on in the rest of the world.
I think one of the biggest changes you can see about the
effectiveness of doing something as far as the Western
Hemisphere is concerned is the fact that I don't know of an
area of this country--and I know where in live in North
Carolina, we are having explosive growth of the Hispanic
population--Mexican, Costa Rican Guatemalan and so forth--and
all of a sudden you realize you have to--I have got a business,
a manufacturing company, and in it we now have two Salvadorans
and ten Mexicans and two Guatemalans and two Costa Ricans. All
of a sudden these people in my plant are working with people
that they didn't even know existed, probably. You ask them
where is Guatemala, and before these people came, they wouldn't
have the slightest idea where it was. If somehow in your mind
you could work up a way of increasing the effectiveness of aid,
I think I like the micro enterprises that I have seen working
in El Salvador and in Nicaragua. Those are things that you
actually are creating an atmosphere of a free enterprise
system, which in my considered opinion develops democracy. At
the same time, we might be able somewhere along the line to
measure.
Your idea of maybe getting--I hate to have studies because
usually it is a bunch of eggheads that don't go there very
often that put a study together and they don't know what they
are talking about when they are through. But you used the words
``asset inequality.''
Mr. Bradford. Yes.
Mr. Ballenger. How would you approach that? How do you go
about--it is a term we don't use. I just wonder what you mean
by it.
Mr. Bradford. Yes, I was mulling over this problem that you
had articulated yourselves about why is it we have had policy
reforms in Latin America and a return to democracy and why the
results have been so meager, especially on the poverty
reduction and economic growth front. I think what happens is
people think that the distribution of income in Latin America
is bad. Why is the distribution of income bad? You are a
businessman. You have probably figured it out before everybody
else. The reason it is bad is because the distribution of
assets is hugely skewed in Latin America in terms of capital,
certainly financial capital, in terms of education. That is
extremely important.
I think Latin America is moving quite nicely on this front,
needs to move quicker, has further still to go. But it is
impressive.
As Sylvia mentioned, the gender balance in education in
Latin America is actually the women; there are more girls in
school in Latin America than there are boys, which may or may
not--maybe the problem now is to get the boys back in schools,
but still----
Ms. Saborio. I wouldn't worry about that.
Mr. Bradford. I wouldn't worry. I don't know. But the point
is that the educational investment has got to be really a
crucial thing. I think for a long time, to be very frank as an
economist in saying that for a long time economists just didn't
realize how--we spent too much time thinking about financial
capital and not enough about human capital. We didn't think
enough about investing in people. We always thought about
investing in plant and equipment.
Then the final thing, which is probably the most sticky
wicket of all in Latin America, is land. There just isn't a
market for land in Latin America in the way that there is for
other things, and the concentration of ownership of land really
pushes out and excludes a lot of the rural population where a
lot of the poverty is that I think Carl Leonard or Bill
Schuerch mentioned in their testimony.
So I just think that--and what I really was trying to get
at there is the--and I am not just trying to get at it for
reasons of sustaining budget levels, but in a way I suppose
that is the bottom line. This is a long process, and the fact
that, we have reforms in the early 1990's and they don't pay
off in the end of the 1990's, let's just hold on a little
longer. The problems are deeper, and as Sylvia said, we need to
go into second generation reforms, more social content. But the
truth of it is these asset inequalities are much more difficult
to deal with, take much longer than changing policies or
changing income in a given year.
So I think that asset inequality really drives the
politics, also. One of the reasons why you are not getting more
socially responsive policies in Latin America is if you have
got concentration of assets, you have got concentration of
power, you don't have full democracies working, the majority
doesn't have a voice, a real voice, can't really affect
resource allocations in a fundamental way. So we have got a
long way to go in democracy, too. Even though we may have
elections, we don't have really strong representative systems
where the poor can get their due. I think it is going to take
decades, really, and I hate to say it, but it is going to take
another 10, 20, or 30 years before--under circumstances where
people are trying to rectify this to get this done.
Ms. Saborio. I just wanted to add that development is a
complex and an extremely long-term process. It requires
patience, persistence, perseverance. But throughout all of
this, you really need to have clear objectives so that over
time you are building toward something. This is why a framework
is absolutely necessary, so that at the end of the day you get
results, however long it takes.
But I do think it is very troubling what we are seeing in
some of these trends in Latin America, and it is the delinking
of growth from poverty reduction. I don't want to be technical,
but now it takes a lot more growth to produce the same amount
of poverty reduction than was true in the 1970's and before.
I think it has partly to do with what you were saying in
terms of asset allocation. But I think we really have to make a
concerted effort to improve the primary distribution of
income--that is, economic opportunity, how the production
process actually happens--because I do not think that we have
the political resolve in that region to do a lot of
redistribution. So the best hope is to improve the primary
distribution, to make room for small- and medium-sized
enterprises to competitively participate in the production
process.
Some of the Asian countries have developed very interesting
supplier networks so that larger enterprises can pull along the
smaller ones, which cannot really be expected to jump into a
globalized, very competitive world on their own. But these
things have to be fostered. We have to have that as a goal. If
we do not pursue it, it is not going to happen on its own.
Mr. Ballenger. In each of those situations--and I won't
string this out a whole bunch, but one of the things that was
so effective in the 1960's when we first started being involved
in Central America was the International Executive Service
Corps. I don't know whether we still have a very active group
there or not, but that is how--I got involved through my wife's
father, and not only did we send people down there, but in my
own particular case, I brought several of the people that we
were working with up to my place just to see how we ran a
manufacturing company in the United States. They went back--and
I am not saying we did a good job, but I still think El
Salvador probably has done a good development of nice light
economy, light industry, with jobs for most people. I don't
know how the poverty level stacked up there, but that is the
country I spent most of my time in until Mitch came along and
then that aimed us in a different area.
But one of the things--and you recognize this--every time I
see one of the Presidents back home, they are talking about you
all are about to redraw your INS laws, your immigration laws up
there, and in El Salvador and Mexico and places that will speak
very strongly to you, say, please don't send those people back.
I think just about every country down there, their second
largest cash-flow of money comes from the people that are
working in this country sending it back. That is an aid that
you can't really measure, but you don't know how effective it
is. If the people are still living in a poor little place and
they are not going to create new jobs, they just have money to
keep them at the same level of humanity, if you want to call
it, have you accomplished a great deal? Except there is
substantial funds flowing in that direction.
Mr. Bradford. Right. Sylvia mentioned the fact that there
is--the informalization of the labor market, I think was what
you said, is not actually a good thing. It is better than--if
there is no room in the formal market, it is better to have an
informal economy than none at all. But I think what she was
pointing to was the fact that we really need to be aware that
there is a limit to that, and we need--it is interesting that
we didn't consult at all in our testimonies, but we both used
this term, ``pro-growth'' and ``pro-poor'' economic policies,
which I think really does mean shifting the emphasis not just--
I was a little bit concerned about the discussion earlier, and
I am not necessarily against it, but about focusing attention
on the composition of lending by the international institutions
and shifting more toward social programs.
That will help. Pressure on the governments to shift their
budgets toward social programs and away from defense would help
probably more. Altering economic policy so that economic policy
is more pro-growth and pro-poor, for example, having a more
progressive tax system, things like there, where, in other
words, it isn't just a question of taking the social agenda and
saying, we have an economic agenda which is represented now by
the Washington Consensus, which you probably heard about, but
it is really about going back into the orthodox Washington
Consensus macro policies and putting social content in them so
that, the macro policy of the country that matters really is
moving the country in a direction of greater employment in the
formal sector, more incomes and less reliance on foreign aid
and less reliance on remittances from immigrants here back to
Central America.
Mr. Ballenger. I don't want to keep you all here forever,
and this conversation with three is probably not what either I
planned or you planned.
Mr. Ballenger. But I would like to say that I think it has
been a very constructive hour that we have spent here, and the
reality is I like this. I think I probably ought to look at it
really seriously and be frank with you. My interests will
continue to be in Central America and South America, and
anything that I can do here, if you come up with some fabulous
idea that we can assist with, I go to Central and South
America, on your tax money, excuse me, about four or five times
a year trying to figure out better ways to do things. In
reality, you need somebody that has practically approached and
knows the problem there to be able to do anything about it.
What I do with the problem, somebody calls me up on the
telephone after Mitch and says--this is a funny story, quickly,
and I will shut up. It is a friend that we had worked with in
Guatemala who helped us build hospitals there. They had gone
over--he was with an NGO in Honduras, and he calls up and says,
the clothes, the drugs, that is really nice, but we really need
something a little bit more permanent than that, what can you
do? I said, I don't know, what do you want me to do? He said,
how about corrugated galvanized steel for roofing for the
houses? They all got wiped out. I said, I don't know, I will
check. My son-in-law is in construction. He said, sure, I can
get you some.
So I called him back, and I said, yes, we can get you some,
how much would you like? He said, How about a hundred tons?
Now, that kind of blew my mind.
Mr. Ballenger. But when you get Rotary International and
you have a steel gathering here, and just because of the
location, we had U.S. Steel and AK Steel, Bethlehem Steel and
another steel company, and each of them pledges 20 tons, so we
got 100 tons. I think somewhere along the line it was about
2,000 houses that we helped build.
Then our friends in Nicaragua said, Mitch hit us, too, what
are you doing?
Mr. Ballenger. So we had to do the same thing for them.
When you see Habitat for Humanity--I don't know anyplace in
the world that doesn't see a Christian ethic at work when we
are all trying our best to give people a home. I don't know how
you all feel about that, but that to my way of thinking is the
ultimate in democracy. If everybody had a house worth living
in, we would have a good base to begin with.
I will shut up. I would say thank you for this, and I
greatly appreciate your participation in the program.
Ms. Saborio. Thank you.
Mr. Bradford. Thank you.
Mr. Ballenger. With that, the hearing is adjourned.
[Whereupon, at 4:05 p.m., the Subcommittee was adjourned.]
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A P P E N D I X
June 28, 2000
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