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Latin America and the Caribbean
The Development Challenge: Latin America and the Caribbean (LAC) and the United States have a shared destiny by virtue of geography, history, culture, demography, and economics. As stated by Secretary Powell in September 2003, "there is no region on earth that is more important to the American people than the Western Hemisphere." The United States has a profound interest in the successful, sustainable development of our hemisphere. A prosperous LAC region provides expanded opportunities for increased trade, and a peaceful hemisphere is paramount for our national security. USAID is fulfilling its development and humanitarian mandate in LAC countries as it continues to respond to the U.S. National Security Strategy. This strategy, as stated by President Bush, links "the future of our Hemisphere to the strength of three commitments: democracy, security and market-based development."
On balance, LAC countries have experienced greater political stability over the last several decades. With the exception of Cuba, governments have shifted from mainly authoritarian rule to representative and constitutional democracy. Even where governments have fallen due to popular pressure (as in Argentina, Ecuador, and Bolivia), this has happened within constitutional constraints. More of the region's governments and the private sector realize that corruption and crime are antithetical to the effective rule of law, fair government, and sound economic growth. Official human rights abuses have diminished throughout the region, there is greater civil society oversight of public institutions, and elections are held under the management and supervision of professional electoral commissions. Governments seek support to stamp out corruption, strengthen civil society, improve local governance, build trade negotiating capacity, attract foreign investment, and increase productivity. Centralized economies are transforming into privatized competitive markets, with corresponding reductions in corruption. The World Bank estimates that weak judiciaries and corruption in LAC reduce annual growth by 15%; however, governments are taking steps to reduce this threat to developmental gains.
The lack of effective rule of law threatens business interests and puts citizens, including Americans, at risk. Narcotics wealth gives large trafficking organizations a practically unlimited capacity to corrupt. In economically weak countries such as Haiti and Jamaica, the drug trade's wealth makes it a great threat to democratic government. Terrorist organizations overtly seek to topple governments by force, while drug syndicates undermine them surreptitiously from within. This has led to Colombia's protracted conflict with narco-traffickers and the forced resignation of Bolivia's president. In recognition of this threat, the U.S. Government is committed to improving security overseas so that threats never arrive on our shores. This calls for targeted foreign assistance and complementary institutional reform programs in countries where organized crime exploits weak governance, especially in the justice sector.
The region's economic situation is improving and LAC countries are closer to trade liberalization and integration with their neighbors than they have ever been. The World Bank and the U.N. Commission for Latin America and the Caribbean estimate that the region's gross domestic product (GDP) grew by 1.5% in 2003 (slightly more than the population growth rate of 1.3% - 1.4%), compared with a 0.4% - 0.8% contraction in 2002. Those LAC countries that have adopted sound fiscal policies and oriented their economies toward greater foreign investment and rules-based trade proved more resilient to the recent global economic downturn than those that did not take such outward-looking, market-based steps. The region's GDP is expected to continue to expand by 3.5% in 2004, with growth predicted across the region.
External debt for the region as a whole has increased substantially since 1990, from $444 billion to $750 billion, and debt service consumes about one-fifth of the region's export earnings. The biggest increases occurred in Central and South America. Central America's total external debt increased by $2.7 billion, almost all of which is accounted for by Guatemala and Honduras. South America's external debt increased from $295 billion to $552 billion, and its debt service ratio increased from 28% of export earnings to an even more burdensome 37%. The debt-to-income ratios of Nicaragua, Honduras, Guyana, and Bolivia make them eligible for the World Bank/International Monetary Fund Heavily Indebted Poor Country (HIPC) program, which will relieve substantial portions of their external debt upon completion of policy reforms and successful implementation of a poverty reduction strategy.
On aggregate, the region's economic recovery rate is still not enough to reverse the effect of recent years of economic stagnation. Approximately 44% of the region's population lives under the poverty line of two dollars a day, and unemployment averages 10.7%, with underemployment significantly higher. Most of the region returned to an average inflation rate of 8.5% in 2003, down from 12% in 2002, though real wages fell. In response to improved monetary and fiscal policies, more competitive exchange rates, and stronger domestic economic policy performance, central banks reduced interest rates during the second half of 2003.
Although economic growth is still weak, governments increasingly understand the benefits of free trade and are willing to take steps to make it happen. The recent signing of the U.S.-Central American Free Trade Agreement (CAFTA) demonstrates the commitment by Guatemala, Honduras, Nicaragua, and El Salvador, and more recently Costa Rica, to implement policy, trade, and economic growth reforms. Two recent studies by the World Bank and the Carnegie Foundation concluded that many of Mexico's trade gains from the North American Free Trade Agreement (NAFTA) were due to reforms carried out in anticipation of the agreement. Lessons learned from Mexico and shared with the Central American countries indicate that more open trade leads to improved policies, export diversification, political reform, stable exchange rates, increased foreign direct investment, employment generation, greater public investments in the social sector, and a more open society. The United States is working with the Dominican Republic to have it become an active partner in CAFTA, and is working similarly with the smaller economies of the Caribbean toward achieving a Caribbean Single Market and Economy by 2005. Negotiations are proceeding for the docking of Peru and Colombia with the Andean Trade Preferences and Drug Eradication Act.
The progress with CAFTA bodes well for the success of the Free Trade Area of the Americas (FTAA), which will further strengthen and expand economic partnership in the Americas, a vast market of over 800 million people producing nearly $14 trillion in goods and services every year. For example, the political and economic liberalization encouraged by the United States and successfully adopted by El Salvador has made El Salvador a model for post-conflict developing countries. The United States is El Salvador's most important trading partner, receiving 67% of its exports and providing 50% of its imports. An estimated two million Salvadorans reside in the United States. By promoting prosperity in El Salvador through USAID programs and mechanisms such as CAFTA, the United States can help strengthen the Salvadoran economy, thereby reducing the flow of economic migrants to the United States, as well as the country's vulnerability to narcotics trans-shipment and trafficking in persons. The example of El Salvador can serve as inspiration for the other countries in the hemisphere.
Despite gains in human rights and democracy, and increased economic linkages across the region, threats to the development achievements of the last decade persist. Great inequities remain in access to and delivery of quality health care and education. These impediments weaken economic growth, labor productivity, and the ability to compete globally. Maternal and neonatal mortality rates remain unacceptably high, and resistance to accessible medicines is on the rise. The LAC region has the second highest HIV/AIDS rate in the world, with over two million people living with HIV, including the estimated 200,000 that contracted the deadly virus in 2003. Diseases such as dengue and malaria are posing an emerging threat as well. In education, nearly one-half of the children who enter primary school fail to make it to the fifth grade, and only about 30% graduate from secondary school. Access to education especially affects poor, rural, and indigenous children, particularly girls.
The success of U.S. development assistance must not be viewed in yearly snapshots as unpredictable political factors and global economic downturns can divert scarce resources and interrupt longer-term progress. Popular dissatisfaction with tepid economic growth, public sector inefficiencies, and failure by elected governments to perform effectively and responsibly have led to numerous setbacks including: political crisis and economic instability in Venezuela; rapidly escalating violence and abysmal poverty in Haiti; and growing civil unrest in the Dominican Republic. President Bush noted that "…when governments fail to meet the most basic needs of their people, these failed states can become havens for terror… No amount of resources transferred or infrastructure built can compensate for - or survive - bad governance." (March 2002). Thus, sustained efforts by the United States to work in partnership with our neighbors are essential to promote democratic and economic integrity in the Western Hemisphere.
The USAID Program: USAID's strategic priorities in the LAC region are to: 1) improve good governance and reduce corruption; 2) increase economic growth and free trade; and 3) reduce narcotics trafficking. These themes give paramount importance to the implementation of policies that address the key constraints to development, with the overarching goal of advancing the U.S. foreign policy agenda. In addition, USAID is addressing critical transnational issues such as HIV/AIDS and other infectious diseases, a deteriorating natural resource base, and trafficking in persons.
Furthermore, the LAC Bureau is responding to Presidential Initiatives, especially those that have implications for the Western Hemisphere, including: the U.S.-Central America Free Trade Agreement; Global Fund to Fight AIDS, Tuberculosis, and Malaria; Emergency Plan for AIDS Relief; Mother and Child HIV Prevention Initiative; Centers for Excellence in Teacher Training; Initiative for a New Cuba; Global Climate Change; and Initiative Against Illegal Logging.
Democracy and Good Governance. Justice sector modernization remains the largest focus of USAID governance programs in the LAC region. In addition, governance programs promote accountability and transparency in government institutions; increase the capacity of local governments to manage resources and provide services; and strengthen civil society organizations to advocate for citizens' rights.
Without a reliable and fair justice system, investor confidence and a stable trade environment are jeopardized. Likewise, impunity for crime and corruption undercuts social and economic growth. USAID efforts to advance criminal justice reform, strengthen judicial independence, expand access to justice, and improve administration of justice, are underway in 12 LAC countries. New criminal procedure codes and other criminal justice system reforms, developed and enacted over the last decade with USAID support in Nicaragua, Honduras, Guatemala, El Salvador, Bolivia, Colombia, and the Dominican Republic, are introducing profound changes. USAID is helping Peru to increase judicial accountability by introducing reforms to make judicial selection more transparent and improve oversight of the courts. In Colombia and Guatemala, USAID's assistance has expanded access to alternative dispute resolution and other legal services to millions of poor citizens through a network of community-based centers. New efforts in justice reform will examine crime prevention and commercial codes.
USAID anticorruption programs in 15 countries emphasize citizen oversight and building capacities to attack weak governance, entrenched political institutions, and poor public sector management. USAID provides assistance to citizens groups and nongovernmental organizations to devise anticorruption plans and monitor government officials and agencies. USAID supports local initiatives to establish special commissions and investigative units to expose and prosecute cases of corruption by public officials. In Nicaragua, USAID assistance to improve the capacity of the Attorney General's Office to tackle high-profile corruption cases is beginning to bear fruit. The United States is the only country helping the Dominican Republic with the bank fraud cases under investigation and in the courts.
With direct election of local mayors and devolution of authority to municipalities, USAID is helping citizens and elected leaders devise community development plans that respond to local needs and generate growth. In 14 countries USAID helps mayors establish transparent accounting and fiscal management procedures to create a framework for greater revenue generation for roads, schools, health centers, and job creation. In turn, citizens monitor the use of public funds and devise "social audits" in countries such as the Dominican Republic and Bolivia to track spending in accordance with local development plans and hold officials accountable.
Economic Growth. USAID is assisting LAC countries to enact legal, policy, and regulatory reforms that promote trade liberalization, hemispheric market integration, competitiveness, and investment, which are essential for economic growth and poverty reduction. Increased support is envisioned to respond to increasing demands for assistance. In FY 2003, USAID provided technical assistance and training in support of CAFTA negotiations to Central American government officials, and assisted Bolivia, Peru, Guyana, and Suriname to prepare national trade capacity building strategies. USAID also assisted governments in Central America and the Caribbean as well as Brazil to raise the public level of understanding about the benefits of free trade under CAFTA and FTAA.
USAID played a major role in helping the U.S. Government shape and launch the FTAA Hemispheric Cooperation Program. Negotiation of the FTAA will continue to be a priority. USAID's trade capacity building (TCB) programs will focus on helping LAC countries to implement the three major components of their national TCB strategies-preparing for trade negotiations; implementing obligations under the WTO, FTAA, and bilateral free trade agreements; and transitioning to free trade, the latter emphasizing small business development and rural diversification. USAID will work with the region's smaller economies to help them join the global trading system by meeting their WTO-related obligations, developing specialty markets, and providing assistance for business development. USAID will assist governments to comply with the rules of trade, such as sanitary/phytosanitary measures, customs reform, and intellectual property rights. In the Caribbean, a sub-region with small island economies that lack diverse sources of income, USAID is conducting outreach programs that describe the benefits of free trade, providing assistance for small business development, and assisting eight Caribbean Community (CARICOM) countries to prepare national trade capacity building strategies. USAID has also developed a regional program to help Andean Community countries address rules of trade and competitiveness issues, including customs reforms, sanitary/phytosanitary measures, and competition policy. USAID has begun an aggressive program in Peru to improve the regulatory and institutional framework to facilitate trade and investment and help Peru's private sector take advantage of the Andean Trade Preferences and Drug Eradication Act, and prepare for accession to the FTAA.
Numerous USAID programs support development of regulatory frameworks and innovative approaches to widen and deepen financial intermediation in the small and microenterprise sector. As a result, marginalized business people have greater access to borrowing capital, increasing the number of self-employed entrepreneurs, especially women, and their profitability. USAID's demonstrated successes in microfinance (Haiti, Jamaica, Ecuador, and Peru) have made other prominent donors eager to replicate its approaches. USAID is also supporting cutting-edge efforts to increase the developmental impact of remittances, which were estimated at $32 billion in 2003 - more than all other development assistance combined. In response to the coffee crisis, consequent to the devastating drought in 2001 and the decline in coffee prices, USAID helped Central American coffee farmers apply best practices to increase sales to the high-value, niche coffee market through expanded partnerships with U.S. and European coffee traders and roasters. This project is resulting in increased rural competitiveness, incomes, and employment, all crucial to poverty reduction.
USAID has been involved in implementing the President's Initiative Against Illegal Logging, which seeks to address the negative impacts of the illegal timber trade on economic, social, and political stability. In Peru, illegal loggers have developed a symbiotic relationship with resurgent terrorist groups in remote forested areas. In response, the USAID environmental program in Peru is targeting resources to combat illegal logging and support improved management of Peru's forest resources. In Brazil's Amazon Basin, a largely unexplored biodiversity treasure, USAID is helping to develop management systems that maintain a balance between development and protection of natural resources. Other USAID programs have contributed to the conservation of millions of hectares of land and passage of key laws such as the Special Law for the Galapagos. USAID's sustained support helped develop sustainable timber harvest, and reduced significantly the rate of deforestation in several South American protected reserves.
Investing in People. USAID has made significant progress in raising vaccination coverage and reducing or eliminating major childhood illnesses such as measles. Also, because of USAID assistance, affected countries are more willing to openly discuss HIV/AIDS, which is particularly relevant since the Caribbean has the second highest rate of HIV/AIDS in the world. Haiti and Guyana, the two Presidential priority countries in LAC, have expanded their fight against HIV/AIDS by initiating national programs to prevent mother to child transmission of HIV/AIDS. While progress is being made to lower maternal mortality and apply proven, cost-effective protocols for combating malaria, tuberculosis, and other infectious diseases, rates remain unacceptably high. Because diseases do not respect geographic boundaries and due to the high numbers of legal and undocumented immigrants to the United States, USAID's health-related assistance to LAC countries is critical to the security and health of the United States.
The quality and relevance of primary and secondary schooling in LAC countries continue to cause concern, as the majority of students attend weak and under-funded schools and fail to acquire basic skills in mathematics, language, and science. Fewer than 30% of students in the region complete secondary school, and many of those who do finish lack the skills to compete in the workplace, let alone in an increasingly competitive global economy. USAID education and training programs are improving education systems by developing innovative pilots and more effective service delivery models, many of which are being expanded by host governments and multilateral development banks. USAID will continue to improve the skills of teachers and administrators through the Centers of Excellence for Teacher Training, an initiative announced by President Bush in April 2001. Three sub-regional training networks established in Peru, Honduras, and Jamaica are training up to 15,000 teachers who will serve 600,000 students. USAID has been a leader in education policy reform through efforts such as the Partnership for Educational Revitalization in the Americas. In addition, USAID is supporting advancements in workforce training and helping youths prepare to enter the workforce; for example, USAID's Training, Internships, Exchanges, and Scholarships program in Mexico is enhancing the capacity of Mexican scholars and institutions to respond to the emerging U.S./Mexico Common Development Agenda.
Alternative Development. The scourge of narcotics threatens the social and economic fabric of the Andean countries and poses a threat to the United States. Despite bold efforts by Colombia, Bolivia, and Peru to combat narco-trafficking, the lack of a state presence in some areas has allowed illegal narcotics production and armed terrorist organizations to continue to flourish. Drug-related spillover criminal activity makes Ecuador's northern border with Colombia vulnerable; and intensive eradication efforts by one country may increase pressure by the narco-trafficking industry in another. Alternative development programs emphasize licit crop production and rural competitiveness, improved social, physical, and productive infrastructure, access to fair justice, and increased state presence in coca-growing regions. USAID is working in partnership with the Andean region's leadership, who are actively pursuing policies to fight narco-terrorism and expand the reach of government and rule of law.
To help small farmers permanently abandon illicit crop production, USAID's alternative development programs increase licit income opportunities for small producers of opium poppy and coca. In 2003, USAID supported cultivation of over 135,000 hectares of licit crops in Bolivia, including pineapple, bananas, specialty coffee, and black pepper, among others. In Peru, the newly established voluntary coca eradication program resulted in the elimination of 5,445 hectares of coca, with 459 communities and more than 19,000 families participating. In Colombia, USAID completed 406 social infrastructure projects, including construction of roads, bridges, schools, and water treatment facilities, in 13 municipalities to provide short-term employment and access to markets necessary to sustain a licit economy. Since some coca growing areas are not suitable for sustainable agriculture due to agronomic or security reasons, USAID works with the private sector to increase licit income opportunities, making coca production less attractive. Expanded democracy and good governance activities are another important component of USAID's approach to combating illegal drugs. A socially destabilizing effect of the narcotics trade is the large number of internally displaced persons (IDPs) in the Andean region. Colombia has one of the largest IDP populations in the world (about 2.5 million). USAID has provided relief to about 1.1 million IDPs and demobilized child soldiers, and targeted special assistance at female heads of households.
Alliances: Private investments in Latin America, including contributions from civil society and faith-based organizations, far exceed official development assistance levels. Linking USG investments with private investments will assure a greater impact for both, as was articulated by President Bush at the Monterrey Conference last year. The Global Development Alliance (GDA) and the Development Credit Authority (DCA) are exciting business models where USAID has given U.S. resources much greater impact by partnering with businesses, municipalities, universities, and philanthropic groups. Key alliances in LAC include working with coffee companies and small producers to address the crisis in this sector; cutting-edge work on remittances, and a new alliance for the chocolate industry. Using DCA authority to provide guarantees to microfinance institutions, commercial banks, rural savings and loans, and municipalities, USAID leveraged more than $30 million in private capital in 2002.
Enhancing Management Efficiency and Effectiveness: By responding to initiatives in the President's Management Agenda, including Strategic Management of Human Capital, USAID is maximizing the impact of foreign assistance. In FY 2003, using OMB's Program Assessment Rating Tool, the LAC Bureau scored 65% and 63% respectively on the Development Assistance and Child Survival and Health accounts. The LAC Bureau has begun to develop indicators to track performance at the regional level. Administrator Andrew Natsios recently approved staffing levels to better allocate staff in overseas missions and ensure best use of personnel. Four more mission management assessments were completed in 2003, resulting in measures to improve efficiency by consolidating financial management and other support services in four LAC missions to serve 16 country programs. Similarly, the assistance programs in Central America and Mexico were consolidated into one regional strategic framework, thereby enhancing coordination, sharing best practices, and creating synergies in program implementation. In addition, a new regional hub is being established which will operationally consolidate provision of support services, thereby further streamlining implementation. To improve alignment of USAID programs with U.S. foreign policy objectives, an incentive-based Performance Fund, to be initiated in FY 2005, will reward good performance by host countries and serve as an incentive to LAC missions and host countries to focus on national-level impact.
Other Donors: Official development assistance to LAC totals just over $5.0 billion (all figures compiled by the OECD are for 2001, as 2002 data are not yet available). Multilateral donors play a very significant role across the entire region, accounting for $1.3 billion in assistance; bilateral donors provided $3.7 billion. The largest multilateral donor is the European Commission ($507 million), followed by the International Development Association ($257 million), United Nations agencies ($237 million), and the Inter-American Development Bank ($234 million). The United States and Japan have been the top two bilateral donors for the last 10 years; Japan was the top donor for the six years up to 2001. U.S. assistance in 2001 was just over $1.0 billion, followed by Japan ($719 million), Spain ($631 million), and Germany ($295 million). The United Kingdom, Netherlands, and Germany are very active donors as well.
FY 2005 Program: USAID employed a strategic and performance based budgeting tool to estimate its FY 2005 program resources needs. Factors considered were country need and commitment, administration priorities, management decisions, foreign policy considerations, and relative sector focus. FY 2005 resources requested for the LAC region total $804,906,000. Of this amount, $241,700,000 is Development Assistance (DA), $130,350,000 is Child Survival and Health (CSH), $92,000,000 is Economic Support Funds (ESF), $228,500,000 is Andean Counterdrug Initiative (ACI), and $112,356,000 is P.L. 480 Title II.
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