The "Buy American"
Aid Package
by Conn Hallinan | December 10, 2002

The recent White House proposal to aid impoverished countries if they drop trade barriers and open their markets is likely to substantially accelerate the misery index in Latin America and Africa, the main targets of the $5 billion plan. Entitled the Challenge Millennium Account, these funds will be doled out to countries like Senegal, Ghana, Bolivia, and Honduras, if they institute "the rule of law" as well as "sound fiscal policies." This latter includes free trade for American goods and services.
But 15 years of free trade and open markets have inflicted ruinous damage on poor countries in Latin America and Africa. When added to the recently passed U.S. agriculture bill, which increases U.S. export subsidies, this plan to tie aid to U.S. political and economic rules will likely make an already bad situation worse.
Look at the record.
Some 15 years of free markets in Latin America have produced an anemic growth rate of 1.5%, far less than the 4% required to alleviate poverty. The wreckage caused by neoliberalism is strewn across the continent: Argentina recently defaulted on its international debt; Brazil is wrestling with a currency crisis brought on by debt; Uruguay’s economy is teetering; Chile has an unemployment rate frozen at 10%; Bolivia, Peru, and Ecuador are mired in economic crisis and sundered by social unrest.
In Latin America and elsewhere, America’s misguided economic policies–privatization of government-owned companies and services, abolishment of controls on financial flows, and rapid trade liberalization, including reduced protection for local farmers–are being blamed for rising economic and social problems. Yet these are the very same policies that poor countries are now being challenged to enforce if they want U.S. "millennium aid."
Pressured by Washington, countries have been lowering their trade barriers and as a result are drowning in a flood of cheap, subsidized U.S. goods. Cheap Nebraskan corn, for instance, has largely replaced native Peruvian corn. It is not cheaper because Peruvian farmers work less hard but rather because U.S. taxpayer subsidies keep U.S. corn export prices 20% below world levels. This is hardly the "level playing field" that U.S. trade negotiators demand for U.S. exports.
The situation is much the same in Mexico, where subsidized U.S. corn now claims 25% of the market. On January 1, when duties on wheat, rice, barley, potatoes, dairy products, poultry, pork, and beef are eliminated under the North American Free Trade Agreement, Mexican agriculture is likely to be overwhelmed.
The agriculture bill grants $57 billion in direct subsidies to U.S. farmers (most to huge agri-giants), which wins Midwestern votes but encourages overproduction and makes American crops cheaper than any in the world. U.S. wheat sells for 46% less than its production cost. Poor countries buy U.S. foodstuffs because they are cheaper than their own. But this puts tens of millions of small farmers in Latin America and Africa out of business while running up huge foreign debts.
Since agriculture makes up 17% of the total economic activity in 48 sub-Saharan nations-50% in some–there is little these countries can export to pay off that debt, and there is no way they can match the economic power of American subsidies. "This farm bill, I think it is fair to say, will put millions of small farmers out of business in Africa," Mark Ritchie, president of the Institute of Agriculture and Trade Policy in Minneapolis told the New York Times . "They will have to move to the cities and become part of the unemployed labor pools."
The cycle of rising debt, chronic unemployment, and massive dislocations of rural populations is a time bomb, one that has already detonated in countries like Peru, where sewage system repairs were deferred in order to service a huge foreign debt. With displaced farmers pouring into cities, water and sewage systems are collapsing, reintroducing cholera to millions of Latin Americans.
The UN World Food Program says that 17% of children under five in Guatemala suffer from severe malnutrition and that chronic hunger has increased by one third throughout Central America.
The White House touts the new plan as a "bonus" over and above the regular U.S. aid program, which certainly needs a boost. The U.S. aid program has been steadily dropping–leaving the rate of U.S. per capita development assistance among the lowest of Western nations. But administration officials told the New York Times that the proposal might spark cuts in other forms of foreign assistance. Given that the administration is facing its own major debt problems and a possible war with Iraq, U.S. economic aid spending, already at a record 50-year low, will likely see new cuts.
Clearly, the U.S. aid program needs reforming if it is to help reverse the alarming increases in the indices of world poverty and hunger. But the Challenge Millennium Account is more of the same failed approach to development aid. It will force desperately poor nations to compete for an aid pittance–$5 billion is the cost of 3 ½ B-2 Stealth bombers–and will obligate them to further institute policies that are already impoverishing them.
Conn Hallinan is provost at the University of California at Santa Cruz and a foreign policy analyst for Foreign Policy In Focus (online at ). He can be reached at < >.

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Published by Foreign Policy In Focus at the Interhemispheric Resource Center (IRC). ©2002. All
rights reserved.
Recommended citation:
Conn Hallinan, "The "Buy American" Aid Package," Foreign Policy In Focus (Silver City, NM: Interhemispheric Resource Center, December 10, 2002).
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