FINANCE: Activists Split Over U.S. Aid Proposals

By Emad Mekay Reprint | | Print |

Emad Mekay

WASHINGTON, Jan 31 2002 (IPS) - Activists here are divided over a U.S. proposal to decrease lending to developing countries in favour of grant aid, because the plan would demand greater adherence to Western-style free market economic reforms.

Some groups have thrown their weight behind the proposal while others have condemned it as wrongheaded. Yet others have given it conditional support, saying they still do not know enough about it.

The administration of President George W. Bush has said it will ask Congress to approve an aid increase of 54 million dollars, to 850 million, in its new budget due out next month.

The White House also wants to attach aid to on-the-ground progress by the receiving nations in implementing economic restructuring and trade and financial liberalisation.

The proposal also calls for a 50 percent change to grants from loans run by the International Development Association (IDA), the World Bank’s soft loan window.

“This is a fine idea,” said Soren Ambrose, an activist with the Washington-based 50 Years Is Enough. “As long as it means less of a debt burden on developing countries, nobody can object to assistance versus more build up of debt.”

But Louise Hildgich, an activist with Action Aid International in Belgium, decried the the proposal as “completely wrongheaded.”

Hildgich shrugged off the proposed 54-million-dollar U.S. aid boost. “This is too little,” she said. “I just heard that (Microsoft Corp. founder) Bill Gates alone has sold two billion dollars of Microsoft shares.”

“If all countries were to live up to calls by the World Bank to raise aid portion of GDP (gross domestic product) to 0.7 percent, we’d wake up tomorrow with some 109 billion dollars,” she added. “This is something that we can work with.”

U.S. Treasury Secretary Paul H. O’Neill has said aid was mostly wasted in the past because of corruption and mismanagement in developing countries.

The U.S. Treasury argues that aid’s usefulness should be measured in terms of the productivity of people in poor countries, contrary to the view held by some development agencies, developing countries, donors and activists, that poor nations need aid first and foremost.

U.S. aid contributions stand at only 0.1 percent of GDP and Britain’s, at 0.22 percent. Washington is the lowest-ranked donor among the Group of Seven economic powers.

Although Ambrose welcomed the U.S. proposal, he warned that civil society groups have been kept in the dark about its details. “There’s no way for us to find out what the big boys are talking about behind closed doors,” he said, adding that there is concern among activists because “we heard that it’s going to be part of a larger plan to push for a greater role for the private sector, pushing them into basic services.”

If this is true, he added, then developing countries may become too tempted with the idea of grants and that they will never have to pay back to “sign on the dotted lines” and accept more conditionalties and a bigger role for multinational companies and the private sector.

Groups such as Ambrose’s fault free-market policies and multinational corporations for some of the ailments of developing economies.

Kathy Selvaggio of Catholic Relief Services (CRS), one of many development groups that have given their backing to the proposal, countered that the plan could weaken conditionality as much as reinforce it.

“I don’t see why it would be damaging. I can understand why there’s a lot of suspicion of the U.S.,” she said. “But when we see a good proposal, we should support it.”

“We generally think it’s a good proposal assuming it’s not a back door to undermine IDA and that the U.S. can alley fears about depletion of finances,” she added.

CAFOD, a church-based British group, said in a statement sent to IPS that it supports the proposal so long as it yields a substantial increase in development assistance.

CRS, CAFOD and other groups say that investments in human development projects like health and education take a long time to produce increased revenues for poor nations. Swapping loans with grants could give poor nations time without having to worry about repaying loans, leaving them free to borrow for more financially productive sectors.

“In principle, it’s a sensible idea,” said Oliver Buston, spokesperson for non-governmental organisation Oxfam International. “But the real issue remains the importance of increased financing to development in poor countries. At the same time, we don’t want to see an increase of conditionalities attached to those grants or a reduction of revenues for IDA.”