DEVELOPMENT: U.S., World Bank Assailed on Aid Statements

By Emad Mekay Reprint | | Print |

Emad Mekay

WASHINGTON, Nov 22 2001 (IPS) - Aid activists are taking to task the United States government for what they say is its wrongheaded and miserly approach to the world’s poor.

Since last weekend’s meetings of the World Bank and International Monetary Fund (IMF) in Ottawa, the U.S. administration has been under fire for tying policy and economic-performance strings to its aid purse – the smallest, in percentage terms, among the Group of Seven industrial powers.

At issue are statements by U.S. Treasury Secretary Paul O’Neill, who alone appeared to rebuff calls for increased aid, by saying too much has been spent over the past half century with too little progress to show for it.

“It’s time for us to become determined and purposeful about making a difference in the living conditions that people have by creating real economic development and not just more giving,” O’Neill said in Ottawa.

Since then, several anti-poverty groups, European officials and editorial writers in U.S. newspapers have criticised Washington for turning its back on the world’s poor. The Ottawa meetings ended with renewed calls for an increase in aid levels from the current average of 0.22 percent of gross domestic product (GDP) in the industrialised world to the United Nations target of 0.7 percent, rendering O’Neill’s statements even more incongruous.

The Ottawa episode appeared to pit O’Neill and the United States against the rest of the international financial community as embodied by the World Bank and James Wolfensohn, its president.

A number of public commentators have highlighted the contrast between Wolfensohn and O’Neill. The former led the appeal for more aid and pledged his institution would do its bit to help, especially in light of the devastation being wreaked upon poor countries by global recession and the economic aftershocks of Sep. 11 terrorist attacks on the United States.

The latter, however, appeared decidedly cool to the idea and chided the Bank and others for wasting their money even as his country continued to lag behind all other major industrial nations by earmarking only 0.1 percent of GDP to aid.

O’Neill said the U.S. administration believes aid has been largely drained of its benefits by corruption and mismanagement in developing countries. Aid’s usefulness, he said, should be measured in terms of the productivity of people in poor countries. The sentiment was contrary to views expressed by development agencies, developing countries’ governments, some European officials, and anti-poverty campaigners.

“This is a very narrow definition of aid effectiveness,” said Oliver Buston of the group Oxfam America. “However, even by this criterion there is a strong case for increasing aid. No single step could be more important in increasing productivity than giving every child a free basic education.”

Oxfam, which welcomed the World Bank’s calls for a raise in aid, also argued that where governments are committed to better education and poverty eradication, an increase in aid for education or health care could have dramatic results. This, it argued, was the case in Uganda, where poverty fell by two-fifths during the 1990s.

“We call on the U.S. government to increase its aid budget and to provide its fair share of the additional 12 billion dollars needed to give every child in the world a basic education and free them from a cycle of illiteracy and poverty,” the non-governmental organisation said in a statement.

The World Bank and IMF have predicted that developing countries will be hit hardest by global economic slowdown and the Sep. 11 attacks, which have exacerbated it. In particular, these nations stand to lose lifeline income from tourism and commodity exports.

According to a Bank assessment of aid effectiveness, “well- directed aid, combined with strong reform efforts” can greatly reduce poverty and mitigate crises, whether induced by terrorism or trade shocks.

Critics of the Bank, however, faulted the lender for attaching its own strings to pleas for more aid. There is no fundamental difference between the position of the Bank and that of the U.S. government, they added: both advocate structural adjustment programmes intended mainly to stabilise and restructure the economies of borrowing countries in market- and investor-friendly ways.

“It’s a mistake to contrast the position of the Bank and of Washington,” said Steve Hellinger, president of Development GAP, a Washington-based research and advocacy group. “They both form the Washington Consensus and are very strong proponents of economic restructuring programmes.”

The trouble with these programmes is that they have not halted economic, social, and environmental decline in borrowing countries and, in some cases, have made these problems worse, said Hellinger, who has worked alongside and against the Bank in reviewing structural adjustment efforts worldwide.

According to Hellinger, to the extent there is a difference between the two, it is this: The Bank wants more aid to use as a carrot to induce compliance with its policy requirements whereas Washington sees aid as a stick.

The U.S. administration has proposed that up to half the Bank’s outlay in the poorest nations be converted from loans to grants. Some groups have welcomed this as a potential step toward reducing the burden of new debt. Others have argued that the reform misses the point, which is to starve the Bank of all funds and allow the United Nations system to reassert itself as the prime multilateral development forum.

Yet others have noted that the ostensibly gracious proposal also could be used as a hefty stick. “Clearly, the question of what grants will be given for who is crucial,” said Oxfam’s Buston.