FROM THE OFFICE OF PUBLIC AFFAIRS

President George W. Bush has called for a new era in international development assistance-an era of accountability and efficacy, as well as generosity. The President has committed our nation to improving living standards worldwide, to giving people the tools and materials they need to build prosperity for their children. Like the President and our fellow Americans, I believe that too many are born into poverty today, without hope for escape. Too many have been left behind, without enough food, or medicine, or education, without even the prospect of progress. And for too long, the developed world has been content to make promises without expecting results. We have bragged about our efforts, without measuring our accomplishments. Now, at last, we will hold accountable rich and poor governments alike, to make a difference, not just a donation.

The President's new compact for global development recognizes that building lasting prosperity requires laying a solid foundation first. Without good government and sound economic policies, our work will sink into the mud of corruption and mismanagement. That is why the President's proposed Millennium Challenge Account encourages recipient governments to rule justly, invest in their people, and advance economic freedom. Countries that demonstrate a commitment to these principles will see the greatest benefit from the Challenge Account.

We know these fundamentals are crucial to achieving sustained economic growth. We know that increases in productivity-- the amount of value that each worker produces -- drive economic growth and per capita income. Economic growth creates better jobs, increased wages, and a higher standard of living for all. Thus, smart development dollars invest in activities that enhance productivity.

More specifically, we know that successful developing countries have several characteristics in common:

• They encourage private enterprise through market-oriented mechanisms.
• They fight corruption and ensure competent public administration and rule of law.
• They open their economies to trade and investment.
• They invest in human capital such as education and health care.
• And they observe and adopt best practices in business and government from around the world
• Here in Mexico, the PROGRESA program provides a good example of an investment in human capital -- that is, children's education -- that could pay great future dividends in productivity and growth.

Wealthy nations such as the United States have a responsibility to see that their contributions produce real improvements in the daily lives of people in the poorest countries. Over the last 50 years, bilateral and multilateral aid have delivered relief and disappointment. Relief as we provide food or vaccinations where there are none. But also(that's a little too harsh) disappointment because so many poor countries stay that way, and we too rarely ask why. In fact, the truth is that we don't know how successful aid has been, because we have not consistently measured its results. What we do know is that half the world's people still live on less than $2 a day.

These people are no different in their desire for dignity than those of us born in the developed world. We must do better, and we can do better, to help them achieve their dreams. That means raising expectations, setting standards, and measuring results. We have an obligation to plant our resources where they will yield growth, rather than squandering precious seeds in unfertile soil.

The good news is that we believe we can make a difference, if we work in partnership with the developing world and both sides take responsibility for results. We can make even barren soil fertile. Research has shown that when a country's policies are sound, external assistance can have a significant and positive impact

Let me suggest four priority areas for donor and recipient attention:

First, donors should expand grants, instead of loans, and recipients should invest the grants in human capital. People need health, knowledge, and skills if they are to become more productive. But it is unrealistic to imagine that investments in crucial social services such as education, health, clean water and sanitation will directly generate enough revenue to service new debt For investments of this kind, President Bush has proposed that the World Bank and the regional development banks follow the example of bilateral donors and dramatically increase the share of their funding provided as grants to the poorest and least creditworthy countries. Grants encourage these basic investments without burying developing nations in new debt they may not be able to service.

Second, donor investments should boost productivity in borrowers' economies and remove economic constraints to progress. Examples include improving infrastructure and the services needed to create vibrant rural economies, strengthening the regulatory systems necessary to support competitive manufacturing and small and medium enterprises, providing access to seed capital to start new businesses, and helping establish the institutions and expertise needed to benefit from trade and investment flows.

Third, donors should play a larger role in promoting investment climate reform, especially private investment. They should help channel technical assistance and project finance to viable private sector projects in developing nations.

Fourth, donors should step up efforts to promote good governance and to assist borrowers in managing and monitoring their public expenditures, improving service delivery, and ensuring accountability for public and donor resources.

In an era of profound global change, developing countries still face enormous challenges. The United States is committed to continuing to play a necessary and important role in helping the people in the poorest nations in the world to build self-sustaining economies that will generate ever increasing living standards and ever widening opportunities.