Mideast critics skeptical of USAID policy

By Stephen J. Glain, Globe Staff, 4/10/2003

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ASHINGTON -- As the United States gears up to rebuild Iraq, it will do so largely under the distinctive logo of the United States Agency for International Development: Two hands clasped in friendship across a stars-and-stripes crest.

It is the calling card of the agency President Bush hopes will cement peace in the region, and it is already making its way to Iraq emblazoned on sacks of wheat that departed from Texas last week. ''This ship carries the unshakable commitment of the United States of America to liberation of Iraq, the freedom of its people, and the reconstruction of the country,'' said USAID deputy administrator Fred Schieck.

But along with food and rebuilding supplies, USAID carries a reputation for doing more to promote US corporate interests than Arab economic growth, according to some business people and former US diplomats in the countries where it has been most active, Egypt and Jordan. They say the agency's policy of compelling countries to buy US-made goods inhibits local businesses, and overlooks the need for long-term changes to create sustainable economic growth.

Some of these criticisms apply generally to USAID, but they are most keenly felt in Middle East countries, where most of USAID's activities are concentrated and where resentment of US influence is greatest. Many Arabs regard US foreign aid as bribe money for governments willing to make peace with Israel.

''US aid is like a sword with two ends,'' said Maher Mazen, a director at the Ministry of Irrigation in Egypt, which receives more US foreign aid than any country besides Israel. ''It's as if I give you money and then beat you with a stick.''

USAID declined to respond to repeated requests for comment about criticism of the agency. In press briefings, USAID administrator Andrew Natsios, who was previously chairman of the Massachusetts Turnpike Authority, expressed confidence the agency will be successful in Iraq. ''The amount of time, the amount of preparation, the amount of planning we've done, the amount of staff working on this has been substantial,'' he told reporters in late February. ''I think we're in good shape.''

The campaign to revive Iraq is intended to be a multibillion dollar enterprise along the lines of the Marshall Plan that followed World War II. Even so, business and political leaders who have worked with USAID worry that any US effort to rebuild Iraq solely with American companies will create more resentment.

''There must be a United Nation or UN-like pool of funds for redevelopment so it doesn't seem like an American occupation,'' said Ayman Zaineldine, a counselor at the Egyptian embassy in Washington. ''Nothing is worse than the image of USAID'' handing out the main contracts to US companies. So far, US companies are getting the main humanitarian-aid contracts and the big prime contractor deals, though USAID said that some subcontracting deals can go to non-US firms and charitable organizations.

Some independent aid workers chafe at what they say is the comingling of some USAID policy-making with Israeli interests. For instance, for four years beginning in 1996, according to Joseph Schechla, the Middle East coordinator for South Africa-based Habitat International Coalition, USAID withheld from the Palestinian Authority $17 million in assistance for a standardized program to modernize and reform the Palestinian judiciary. The agency eventually offered the program to Palestinian authorities, but only after Japan, Saudi Arabia, and Australia offered similar initiatives.

''They wanted to control it,'' Schechla said. ''The Israelis argued that an independent judiciary would lead to a sovereign Palestinian state and USAID did not want to contribute to that foundation.''

Despite the ill feelings, the agency gets high marks from investors and economists for meeting basic infrastructure needs. Only a few decades ago most Egyptians and Jordanians burned gas lanterns after dark and businessmen often flew to Cyprus to make phone calls. That's clearly changed for the better. But USAID hasn't taken the next step, helping businesses in host countries learn to grow on their own.

Arab states ''need institutions, not bricks-and-mortar projects,'' said Edward S. Walker Jr., president of the Washington-based Middle East Institute. ''There is a prejudice at USAID against anything that might sustain independent growth because Congress would complain it's costing American jobs.''

Walker, who was US ambassador to Egypt under the Clinton administration, said at the time he implored USAID to send Egyptian teachers to the United States for a firsthand look at American society. USAID demurred, he said, for fear of attacks from Congress that such a project would drain away funds that could have been spent on US goods.

''USAID,'' Walker said, ''is the most timid institution in the world.''

Established in 1961 under President Kennedy, USAID is now run by Natsios, a one-time state representative in Massachusetts. Until a US-led war on Iraq seemed likely, Natsios was occupied primarily with the repair of postwar Afghanistan. In Iraq he could well oversee a fiefdom of US foreign aid that could exceed that administered to Egypt, Jordan, and the Palestinian Authority, which absorb some 17 percent of USAID's $7.6 billion budget.

Early programs effectively offered the Egyptian government credits for the purchase of US grain, textiles, and tobacco. As the economy modernized, subsidies were expanded to include such goods as plant machinery and computers. That inhibited the Egyptian government from investing in its own industrial base. Rather than selling Arab states American power grids and farm products, economists say, USAID should help them develop capital markets and banks.

''The whole region is underbanked,'' said Gerald Rizk, a senior analyst at Nomura International PLC in London. ''It's estimated that only 6 million Egyptians out of 63 million have bank accounts.''

Some of Egypt's most viable industries are untouched by US programs. The coastal city of Damietta, about a three-hour drive east from Cairo, is known for furniture production and enjoys one of the highest standards of living in Egypt. One of the most successful companies in town is Domiat Egypt Co., which generated $3 million in sales and exports its product to Japan, the United States, and Scandinavia. It imports wood on its own, despite US programs that offer discounted loans for buying American lumber.

''The Americans have a program called Expolink,'' said Domiat president and founder Abdel Raouf Essa. ''But you have to go through a USAID approved bank, and sometimes they ask for high interest rates anyway.''

Stephen J. Glain can be reached at glain@globe.com.

This story ran on page C1 of the Boston Globe on 4/10/2003.
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