The Bill & Melinda Gates Foundation has lost about 20 percent of its assets due to the world economic crisis, but its co-founder, Bill Gates, says he sees big opportunities in the near future to fight deadly diseases and pursue other charitable efforts.

To that end, he says, his Seattle organization will increase its grant making this year by $500-million, and he encouraged other donors to step up their giving as well.

In his first annual letter to the public, Mr. Gates outlined his foundation’s goals for 2009 and offered a candid assessment of where it has fallen short in its programs, which include global health, global development, and U.S. education. Mr. Gates says he will write similar letters every January, and his wife, Melinda, will appear in videos on the Gates Web site each fall to provide updates on how the wealthiest grant maker in America is performing.

The annual letter was inspired by the financier — and Gates foundation donor — Warren E. Buffett. Mr. Buffett is well-known for his frank messages to stockholders of his company, Berkshire Hathaway, and Mr. Gates plans to emulate his style, somewhat. “I won’t be quoting Mae West or trying to match his humor, but I will try to be equally candid,” he writes.

Mr. Gates’s 11-page letter did not announce any major changes at the foundation, but did provide a glimpse into the views of one of the world’s leading philanthropists — and gave a picture of the foundation’s financial health, which had not been previously disclosed.

The foundation, like almost every investor, has been hit hard by last fall’s steep decline in global financial markets. Its endowment fell roughly $7.5-billion in 2008, and now hovers around $30-billion.

Mr. Gates is bullish about the economy overall, saying that in five to 10 years the financial problems “will be behind us.” And that despite the losses, his foundation will increase its giving this year to $3.8-billion. He says that amount represents about 7 percent of the grant maker’s assets, more than the legally required 5 percent.

“Although spending at this level will reduce the assets more quickly, the goal of our foundation is to make investments whose payback to society is very high rather than to pay out the minimum to make the endowment last as long as possible,” he writes.

In a phone call with the news media, Mr. Gates did say that if the stock market performs as badly this year as in 2008, the foundation would not increase its philanthropic spending.

But for now, it will grow its grant making, and Mr. Gates said he hoped other foundations would follow his lead.

“I think each one should take a hard look at having a higher payout,” he said. “I’m not that big on foundations needing to last forever, but I do think the causes they are involved in take many decades. [A strategy] that’s very short-term or where you’re just trying to last in perpetuity get outside where I think the sweet spot of highest impact for foundations is.”

Mr. Gates, however, said he disagree with charity advocates who have argued that lawmakers should require foundations to give more during a recession, calling such a rule a “pretty blunt instrument.”

In his letter, he also encouraged other wealthy individuals to donate generously to charity during the sour economic times.

“I believe that the wealthy have a responsibility to invest in addressing inequity,” he writes. “This is especially true when the constraints on others are so great.”

In terms of set backs, Mr. Gates identified several, including his foundation’s failure to dramatically improve education by reducing the size of public high schools.

“Many of the small schools that we invested in did not improve students’ achievement in any significant way. These tended to be the schools that did not take radical steps to change the culture, such as allowing the principal to pick the team of teachers or change the curriculum,” he writes.

His foundation in November announced it was revamping its approach to education by starting a new postsecondary program that focuses primarily on community colleges. (Read The Chronicle’s article about the new effort.)

He writes America should aim to have 80 percent of its students graduate high school prepared to attend college — a goal that “will probably be more difficult to achieve than anything else the foundation works on, because change comes slowly and is hard to measure.”

For his international work, Mr. Gates defended his charitable fund from the frequent criticism that it is too focused on new drugs and other technological innovations as the key to improving the well-being of the world’s poor.

While he acknowledged “some validity” in this argument, he writes that “when we do fund research on technology, we emphasize that it must take into account the needs of the poorest.” For example, as part of its work to improve agricultural yields in Africa, the philanthropy makes sure that when it supports the development of new seeds, they are acceptable to the local people and geography.

He writes, “new seeds must be tailored for the climates in which they’ll be grown, and they have to produce the kind of foods that people like to eat in those areas. Technology is only useful if it helps people improve their lives, not as an end.”

The Microsoft co-founder also responded to concerns that his foundation is not doing enough to be open about its operations.

“Every foundation can be better at sharing its success stories and its failures,” he said in the phone call with reporters. But “at the end of the day, the goal it to save lives. The goal isn’t how we just use glass for all of our walls or some pure transparent goal.”

He did say the letter was his “best effort” to communicate with Americans and others. “I’m going to get a lot of people saying, Hey, you should be doing things differently, or hey, did you know about this great approach, or why aren’t you giving to this? And it will be very helpful to us.”

For a copy of Mr. Gates’s letter, visit the Gates foundation’s Web site at http://www.gatesfoundation.org.

— Ian Wilhelm