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DEVELOPMENT CHALLENGE
Over the past several years, the Latin America and Caribbean (LAC) region, encompassing Central and South America and the Caribbean, has faced increasing development challenges that threaten the national security and economy of the United States. Contracting economic growth rates, extensive poverty, unemployment, skewed income distribution, crime and lawlessness, a thriving narcotics industry and a deteriorating natural resource base continue to undermine the stability of the region. The risks of HIV/AIDS and drug resistant tuberculosis on our borders also threaten the population of the United States. Civil unrest due to poor economic conditions threatens countries in Central and South America while political instability in Colombia, Venezuela, and Haiti continues unabated. In the recent past, natural disasters have struck LAC with a vengeance with the Central America and the Caribbean sub-regions particularly hard hit.
According to the World Bank and the UN Economic Commission for Latin America and the
Caribbean (ECLAC) the region’s GDP has shrunk by approximately 0.8% in 2002, the worst
economic performance since 1983. Inflation has edged up after eight years of steady decline.
Mediocre economic performance has caused per capita income in LAC countries to decline
significantly since 1998 while poverty has increased. Roughly 44% of Latin Americans are now
poorer--up from 40% in 1999, while 20% suffer extreme poverty. Unemployment has risen to
more than 9%, higher than the 1980s level. These woes have brought discontent and political
turbulence, raising questions about the health of democracy in the region, investment priorities,
social sector policies, and the benefits of a decade of liberal reforms.
In 2002 Argentina defaulted on its public debt repayment. Political conflict over the policies of
President Chavez has seriously shaken Venezuela’s economy, while drug-financed violence and
drug trafficking continue to threaten Colombia’s economy. Widespread corruption and poverty in
Nicaragua is presenting the newly elected Bolanos administration with severe political challenges,
as well. Due to decades of poor governance and dysfunctional institutions, Haiti continues to
threaten regional stability on the island of Hispaniola serving an important launching pad for
illegal migration to the Dominican Republic, the Bahamas, and the United States.
In 2001 external debt servicing in LAC accounted for a greater share of LAC countries’ income
and GDP compared to 2000. Data is not yet available for 2002, but it appears that the continuing
hemispheric-wide economic downturn has reduced overall output, with Argentina, Uruguay and
Venezuela experiencing a decline of 10%. The newly elected Presidents of Brazil and Ecuador
are saddled with external debts equivalent to 60% and 80% of their countries’ GNP respectively.
For the entire LAC region, total debt service as a percentage of Gross National Income (GNI)
approximated 8% in 2000, with Central America carrying a slightly higher debt burden at 8.4% of
GNI and South America and the Caribbean at 8.1% and 7.6%. LAC’s economy overall is
expected to recover slightly in 2003. According to the regional forecast, the Argentine economy
has “hit bottom” and is expected to grow about 2% in 2003. However, outputs in the economies
of Uruguay, Venezuela and Paraguay will continue to contract. Chile, Mexico, Peru, and the
Dominican Republic are expected to top the growth league in 2003 with expansion of 3% or
more, assuming that the slowdown in the United States abates and strong growth resumes.
It is important not to portray the region in a single minded negative light. Positive forces are
aligning as the democratic leaders of the Hemisphere have unanimously agreed to work toward
the 2005 culmination of the Free Trade Area of the Americas (FTAA) agreement and Central
America’s leaders respond to President Bush’s proposal to explore a sub-regional free trade
agreement. It is encouraging that Mexico continues to reap the benefits of the North American
Free Trade Agreement (NAFTA) and is forging ahead with economic liberalization. Similarly,
Peru’s economy grew by 4.5%, and Chile signed bilateral trade agreements with the European
Union and the United States. President Bush has made the conclusion of the FTAA and Central
America Free Trade Agreement (CAFTA) agreements the highest priority for the region and
USAID’s role is pivotal in meeting this presidential mandate. Trade and investment are essential
to economic growth and poverty reduction. Without an increase in trade and investment, the
region’s substantial development gains will be put at risk, and hemispheric stability could be
threatened. The region’s close proximity and ties with the United States, its leaders’ commitment
to free trade, and the President’s trade initiatives underscore the importance of moving ahead at
this time.
Continuing to view progress across the LAC region through an optimistic lens, the countries of the
region have proclaimed their commitment to good governance through the Inter-American
Democratic Charter and the Inter-American Convention Against Corruption of the Organization of
American States (OAS). Nicaragua is striving to curb government corruption and other countries,
such as Mexico, have also made important commitments to reduce official corruption. Elections
conducted in Jamaica, Brazil, Colombia, Bolivia, and Ecuador were all judged to be free and fair.
While support for democracy remains solid in LAC, popular disillusionment is growing with those
governments that cannot reduce poverty, corruption, crime, and violence. USAID must increase
support for democracy in the LAC region. Good governance and an enabling environment that
includes the rule of law are pre-conditions for the expansion of trade and economic growth.
Although giant strides have been made (with the exception of Cuba every country in the
Hemisphere has a democratic, constitutionally-installed government), many of these democracies
remain fragile, and must make a concerted effort to reinforce the institutional building blocks of
democracy. As more LAC countries face economic difficulties such as those experienced by
Argentina, they have tended to shun free market reforms. This trend is unfortunate since a major
cause of these problems has been the countries’ own failure to eliminate inefficient systems that
in turn hinder free market reforms.
An independent, efficient, and transparent judiciary is not only fundamental for a functioning
democracy but also a prerequisite for increased external investment. USAID continues to support
a broad range of institution-building efforts to strengthen judicial systems, the rule of law, and
local governments; and to demonstrate that responsible regimes can deliver benefits to their
citizens. Increased crime and violence is consistently ranked as citizens’ primary concern next to
unemployment. The rise of violence in Jamaica has become so paralyzing to the tourist driven
economy that the private sector and civil society are joining to help combat this at the community
level. Continued violence and drug trafficking in Colombia and organized crime syndicates
operating in other LAC countries continue to pose a serious threat to regional stability and the
fight against corruption.
In health, there has been significant progress in raising vaccination coverage, reducing or
eliminating major childhood illnesses such as measles, and improving access to primary
education. Also, because of USAID assistance, affected countries are more willing to discuss the
HIV/AIDS problem. Thus, the social stigma attached to the disease is rapidly dissipating and
prevention campaigns hold greater promise for lowering the incidence of the disease. At the
same time, the Caribbean has the second highest rate of HIV/AIDS in the world, after sub-
Saharan Africa. While steady progress is being made in lowering maternal mortality, and in
applying proven cost-effective protocols for combating malaria, tuberculosis and other infectious
diseases, rates remain unacceptably high and new strains of the causative organisms are
increasingly resistant to treatment. Because diseases do not respect geographic boundaries, and
due to the high numbers of legal as well as illegal immigrants traveling to the United States,
USAID assistance to the LAC countries at the policy, institutional, and technical levels is
considered critical to the health and security of the United States.
In education, the quality and relevance of primary and secondary schooling remain major
problems. The proportion of students who complete secondary school is low, and those who do
finish, lack adequate skills to compete in the workplace, creating a drag on the region’s
economies and its global competitiveness. USAID education and training programs aim to
improve the poor state of public education systems where the majority of youth attend weak and
under-funded public schools and fail to acquire basic skills in mathematics, language, and
science.
In the environment, quality of life is directly linked to the quality of the air we breathe and the
water that flows in our rivers and streams. Widespread degradation leads to increased
vulnerability to disasters and health problems, and conflicts over natural resources. This
degradation is evident in the deterioration of many coastal reefs and the loss of productivity of
many watersheds. The vast repository of flora and fauna that characterizes the LAC region must
be well managed; otherwise potentially valuable organisms that may hold the secret for treating
and curing important diseases may become lost forever.
The USAID Program: USAID understands that sustained development
depends on market based economies, sound monetary and fiscal policies, and
freer trade. We are convinced that
overall, our efforts in LAC are resulting in improving the enabling environment
for positive and peaceful changes. But, we are mindful of the critical need
to continue these efforts and build on
our experiences in order to encourage further economic development in its many
forms and processes. U.S. foreign policy priorities in the Western Hemisphere
include strengthening
democratic processes, promoting equitable trade-led economic growth, reducing
poverty and fostering cooperation on issues such as drug trafficking and crime,
and environmental protection.
To address the myriad challenges in the LAC region, the United States is strongly
committed to helping build an entire hemisphere that lives in liberty and trades
in freedom. The overarching
goals of the FY 2004 assistance program are increasing trade and investment and
supporting fragile democratic institutions. Initiatives that build trade capacity,
address systemic corruption,
and broaden education for competitiveness will position the nations of the region
to make extraordinary progress. In FY 2004, USAID will augment ongoing support
for programs that are
unique for advancing sub-regional development. At the same time, USAID will maintain
and in some instances increase country-specific support levels for programs
and initiatives that support
economic growth, and further promote partnerships under the Global Development
Alliance.
The regional proximity of LAC and close social and cultural ties with the
United States, the commitment of regional leaders to enter into the FTAA by
2005, and President Bush’s offer to
explore a free trade agreement with Central America are key factors pointing
to the substantial potential for increased trade and investment. In a global
economy, trade and investment are the
twin engines of economic growth and play an essential role in reducing poverty.
Increased trade and investment in Latin America and the Caribbean, where economic
growth rates were anemic
in the 1990s and continue to lag, is particularly vital. USAID activities will
continue to build trade negotiating capacity, promote competitiveness, develop
markets, and provide assistance for
business development. Programs will assist with complying with the “rules of
trade” such as sanitary/phytosanitary measures, customs reform, and Intellectual Property Rights.
Support for legal, policy, and regulatory reforms will improve the climate for
trade and investment. Recognizing that remittances constitute a potentially large source of development
finance, USAID will continue to support and implement mechanisms for remittance
transfer with lower transfer costs. Innovative development finance will continue, including the use of remittances.
Assistance will expand in the area of commercial/contract law, and property rights.
LAC will continue to build on its successful efforts with promoting rural economic
diversification and competitiveness, including non-traditional agricultural exports and access to
specialty coffee markets. Business development and marketing services will help
small and medium farmers and rural enterprises improve competitiveness and tap new markets.
USAID assistance has catalyzed progress on many environmental fronts. Assistance to Mexico
has resulted in greater institutional capacity for managing forest fires which have threatened large
areas along the border with the United States in the past. In Bolivia and Brazil, USAID support
has led to the sustainable management of millions of acres of tropical forests for manufacturing
environmentally certified hardwood products and as a source of renewable energy. This has led
to increased private investment in the sector and created many jobs. Environmental audits
supported by USAID have led many LAC countries to adopt policies and procedures to maintain
the integrity of their coastal resources and thus retain their competitiveness as prime tourist
destinations. Despite successes in introducing new technologies for clean production in industry
and improved management practices, the environment in LAC suffers from accelerating rates of
degradation. USAID will continue to assist countries to manage climatic and environmental risks
and protect the gains from trade-led growth. Programs will include disaster management and
mitigation, watershed management, coral reef protection, and forest fire prevention and control.
In South America, USAID has added a trade emphasis to the Andean Regional Initiative (ARI).
USAID initiated trade capacity building activities in FY 2002 and is expanding the program for
trade in the sub-region in FY 2003. USAID succeeded in establishing trade linkages between
small agricultural producers and buyers. Product quality and availability has improved, new
economic opportunities were identified for exploiting sub-regional competitive advantages, and
greater financial intermediation has been achieved. During 2002, USAID’s support for rural
income generation helped 17,000 Colombian families reject involvement in the illegal production
of coca and poppy and produce licit marketable crops, from passion fruit to hearts of palm. To
further consolidate microfinance lending, and improve supervision and regulation of institutions,
USAID supported regional workshops that gathered bank supervisors from all over South
America to share their respective policies and regulatory frameworks. Such efforts build on
previous USAID programs to increase access of small business people to financial markets. The
results have been impressive. In Ecuador, USAID support to the Superintendency of Banks
resulted in a new microfinance regulatory framework, and after six months of support, the number
of small businesses served by Ecuadorian financial institutions increased by 25%. Together,
these efforts directly support the broader U.S. foreign policy goals of enhancing political stability,
addressing widespread poverty, consolidating gains in democratic institution-building, trade
expansion and employment creation, and improved natural resources management.
In Central America and Mexico, USAID will continue the Opportunity Alliance (formerly the
Partnership for Prosperity), emphasizing trade-led rural competitiveness through diversification
and penetrating agricultural niche markets. The alliance was initiated in FY 2002, in response to
the protracted drought, collapse of coffee prices and retrenchment of seasonal agricultural
workers. The sub-region must overcome an economic downturn and the after effects of major
natural disasters, and address environmental risks. An estimated 52% of the population, more
than 14 million people, is poor and chronically food-insecure in Guatemala, Nicaragua, El
Salvador, and Honduras. USAID activities in FY 2003 and FY 2004 will continue to support
democratic governance, trade and employment creation, agricultural production, sound
environmental management, and training.
For the Caribbean, USAID has added a trade component to its Third Border Initiative (TBI) efforts
to strengthen trade capacity, and competitiveness of Caribbean countries. It will build on modest
trade activities underway for several years in the sub-region, characterized by small island
economies lacking income diversification. When launched in 2002, TBI aimed to strengthen
political, economic and security ties with the Caribbean. The majority of interventions and bulk of
funding thus far have supported USAID’s HIV/AIDS program. With additional funding in FY 2004,
TBI will provide trade negotiation-related support and training to assist governments, civil society,
and the productive sectors to better understand and prepare for global and regional trade. Also,
the program will support competitiveness and diversification efforts using approaches that
respond to market forces in order for small producers to establish business links and market
arrangements.
For Cuba, in accordance with the President’s Initiative for a New Cuba announced in his
landmark speech of May 20, 2002, USAID will expand its assistance to bring Cuba into the
Hemisphere’s community of democracies and generate rapid and peaceful change within Cuba.
The additional support will enable American nongovernmental groups to facilitate meaningful
humanitarian assistance and democratic outreach to the Cuban people, build Cuba’s independent
civil institutions, and establish scholarships in the US for Cuban born students and professionals.
The underlying dynamics of democratic progress are still holding in Latin America. Hemispheric
commitment remains high, with the creation of the OAS Democracy Charter and agreement to an
ambitious democratic reform agenda at each Summit of the Hemisphere’s leaders. So far,
democratic systems have persisted even in the face of severe economic crisis and very weak
governance–indeed, even in situations with virtually no effective governance. The political crises
of Colombia, Venezuela, Argentina, Ecuador, Nicaragua, and Peru–all very different–have not yet
caused permanent ruptures in democratic practices. They nonetheless demonstrate the fragility
of institutions, and the need to strengthen the building blocks of democracy if the progress of the
past two decades is not to be undone. USAID support under the Democracy, Conflict, and
Humanitarian Assistance pillar will reinforce linkages between good governance and the rule of
law, with economic growth and trade. Markets and trade are the most powerful tools for
stimulating economic development and investment flows. USAID will emphasize administration
of justice, commercial and contracts law, property rights, and related legal and regulatory reform.
Anti-corruption strategies will emphasize prevention as part of attacking weak governance, the
justice system, political institutions, and public sector management and transparency. Higher
levels of corruption are associated with lower growth and lower levels of per capita income.
Since corruption increases the cost of doing business, failure to act will seriously threaten the
benefits likely to accrue through the FTAA. Corruption also diverts resources away from service
provision and limits economic opportunity for the poor. Thus it is also a major contributor to the
failure of expectations and popular dissatisfaction that, as in the recent case of Argentina, can put
democratic governments at risk. Strengthening local governments is also fundamental to USAID
support.
In the area of conflict, USAID will continue to emphasize programs that de-escalate violence in
Colombia and promote a basis for lasting peace; prevent spillover threats by drug-induced
violence along its northern border with Panama and its southern border with Ecuador; cement
border agreements such as those between Peru and Ecuador; mitigate border and bi-national
tensions such as those between Haiti and the Dominican Republic; bring to a completion efforts
to support the peace processes in Central America; and address problems with personal security
and criminality, often linked with political actors. Important community policing efforts will
continue in El Salvador and Jamaica, and possibly Colombia, Guyana, and Peru.
In education, USAID will continue to provide support for improving the environment for education
reform, enhance the skills of teachers and administrators, and improve the relevance and skills of
the workforce. USAID will also continue support to the newly launched sub-regional programs
under the Centers of Excellence for Teacher Training (CETT) initiative announced by Presidential
Bush in April 2001. Established in Peru, Honduras, and Jamaica, the three sub-regional training
facilities will improve the cadre of teachers in 23 LAC countries and advance education policy
reform in key countries. Advancements at the secondary level and in faculty and workforce
training will improve the quality of instruction, increase worker productivity, and help youths
prepare for entering the workforce. In addition to the CETT Presidential Initiative USAID will
dedicate resources to continuing specific successful primary education programs, education
sector policy reform efforts, literacy programs for disadvantaged youths, and work force
development. In particular, USAID’s Training, Internships, Exchanges, and Scholarships (TIES)
program in Mexico will promote an enhanced capacity of Mexican scholars and institutions to
respond to the objectives and strategies of NAFTA and the Partnership for Prosperity, which
defines the emerging U.S.-Mexico Common Development Agenda.
Improving health is an excellent development investment, especially in the LAC region, where
there are functioning institutions with which to work, and where assistance benefits from
economies of scale due to linguistic and cultural cohesion. Under the Global Health pillar, special
attention will continue to focus on the prevention of HIV/AIDS and other infectious diseases. Due
to the increasing pace of migration and travel between the United States and LAC countries,
infectious disease issues, including HIV/AIDS, are of special concern to USAID. To combat
HIV/AIDS, major funding will be allocated to the LAC countries at greatest risk, Honduras,
Dominican Republic, Haiti, and Brazil,. Funding is also included for Mexico, Guyana, Jamaica,
Bolivia, and the two regional programs in Central America and the Caribbean. Programs will
continue to combat infectious diseases, most notably tuberculosis in Mexico, the Malaria Amazon
Basin Initiative, and anti-microbial resistance. Support will also be provided to maternal health,
child survival, and reproductive health activities through increased access to selected services;
increased efficiency and equity of basic health services, especially at decentralized levels; and
reforms related to decentralization, strengthening of health care, and setting quality standards.
Support for critical food security interventions will target geographic areas of greatest malnutrition
and poverty, particularly in Central America.
USAID has succeeded in establishing public-private alliances, demonstrating the powerful effect
of leveraging private sector resources. USAID will expand its existing alliances in LAC including
the specialty coffee programs and coral reef conservation programs in Central America, the
Certified Forests and International Markets Alliance, and remittance activities. USAID will also
continue to explore a wider circle of partners who are willing to cooperate in risk sharing.
Program and Management Challenges: USAID seeks to place the highest importance on
management efficiency. In the LAC region, USAID has embarked on a series of mission
management assessments which are attempting to examine mission portfolio management and
structure so as to identify best practices and efficiency, and thus maximize program impact in a
constantly shifting mix of development challenges. These assessments take a multi-disciplinary
approach in reviewing a variety of factors, including strategic focus, organization structure,
portfolio management, and staffing size and mix. These assessments provide a more complete
picture for basing decisions on appropriate staff size and OE levels. The urgency of finding more
efficient ways to deliver foreign assistance is due both to the multiple pressures on the Agency’s
OE budget and the need to staff up in priority areas, such as HIV/AIDS, trade, and expanding
programs like Mexico and Colombia. To date, these assessments have identified economies of
scale that can be achieved through managing selected programs or functions at the sub-regional
(rather than the bilateral) level. In specific missions, the findings have informed senior USAID
management decisions on how best to reduce vulnerabilities, increase efficiencies, and set
program implementation mechanisms to best utilize available OE and staffing resources.
Other Donors: In the Andean countries where combating illegal drug production is a top priority,
the United States is the largest bilateral donor with $611 million followed by Japan, at $246
million. However, in the two non-Andean countries assisted by USAID, Brazil and Paraguay,
Japan is the largest donor at $263 million followed by Germany at $51 million. In Central America
including Mexico, the United States was the largest donor at $459 million followed by Spain at
$493 million. In the Caribbean the United States is the largest donor at $109 million followed by
the EU at $80 million. All figures are for 2001. USAID continues to collaborate with other
prominent donors including the Inter-American Development Bank (IDB), the World Bank (WB),
the Pan American Health Organization (PAHO), and the Organization of American States (OAS).
FY 2004 Program: USAID FY 2004 resources requested for the LAC region total $839,768,000.
Of this amount, $244,862,000 is Development Assistance (DA), $148,572,000 is Child Survival
and Health (CSH), $86,000,000 is Economic Support Funds (ESF), $259,400,000 is Andean
Counterdrug Initiative (ACI), and $100,934,000 is P.L. 480 Title II.
For a printable version of this section, from the Congressional Budget Justification FY 2004, please click here. (Note: This file is in pdf format.)
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