Aid Scam

Aid Scam

Foreign Policy in Focus

9-13-2005

By Conn Hallinan

The recent White House proposal to aid impoverished countries if they drop trade barriers and open their markets will substantially accelerate the misery index in Latin America and Africa, the main targets of the $5 billion plan.

Entitled the Millennium Challenge Account, the Administration says it will be doled out to countries like Senegal, Ghana, Bolivia and Honduras if they institute “sound fiscal policies,” including 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. Added to the recently passed U.S. Agriculture Bill, such a course will make an already bad situation worse.

Look at the record.

Some 15 years of free markets in Latin America has produced an anemic growth rate of 1.5 percent, far less than the 4 percent required to alleviate poverty. The wreckage caused by neo-liberalism 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’s unemployment rate is frozen at 10 percent; Bolivia, Peru and Ecuador are deep in economic crisis and sundered by social unrest.

These countries lowered their trade barriers and then were inondated with a flood of cheap, subsidized U.S. goods. Low cost Nebraskan corn, for instance, has largely replaced native Peruvian corn. It is not cheaper because Peruvian farmers don’t work hard, it is cheaper because U.S. taxpayer subsidies keep it 20 percent below world prices.

The situation is much the same in Mexico, where U.S. subsidized corn now claims 25 percent of the market. On Jan. 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 suffer serious harm.

The Agriculture Bill grants $57 billion in direct subsidies to U.S. farmers, most to huge agri-giants. These subsidies encourage overproduction, and makes American crops cheaper than any in the world. U.S. wheat sells for 46 percent less than it costs to produce. 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 percent of the total economic activity in 48 Sub-Saharan nations—50 percent 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 Riche, president of the Institute of Agriculture 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 that has already detonated in countries like Peru, where sewage system repairs were deferred in order to service a huge foreign debt. As farmers displaced by free trade poured into cities, the system collapsed, reintroducing cholera to millions of Latin Americans.

In Guatemala, the UN World Food Program says that 17 percent of children under five suffer from severe malnutrition, and chronic hunger has increased by a third throughout Central America.

While the White House totes the new plan as a “bonus,” over and above regular U.S. aid program, the latter are modest to begin with and, in any case, at a 50-year low. It is likely those programs will shrink even further. 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, plus a possible war with Iraq, it is not at all unlikely that aid spending will be slashed.

Which means that desperately poor nations will compete for an aid pittance—$5 billion is the cost of 3 1/2 B-2 Stealth bombers—only if they agree to institute policies that are already impoverishing them.

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