DEVELOPMENT: U.S. Touts Aid Increase to Mixed Reviews

By Emad Mekay Reprint | | Print |

Emad Mekay

WASHINGTON, Mar 14 2002 (IPS) - U.S. President George W. Bush unveiled Thursday a his administration’s plan to contribute five billion dollars over the next three budget years to developing countries, a move touted as the largest single aid increase in U.S. history.

“The United States will lead by example,” Bush said. “We will increase our development assistance by five billion dollars over the next three budget cycles. This new money is above and beyond existing aid in the current budget I submitted to the Congress.”

A White House statement said that these funds would go into a new Millennium Challenge Account to fund initiatives to help developing nations improve their economies and standards of living.

The announcement came after Bush and other administration officials insisted Washington would not increase foreign aid under pressure from European countries, civil society groups, and development institutions.

It also was made days before Bush is scheduled to leave for Monterrey, Mexico, to attend the U.N. International Conference on Financing for Development.

The United States has been under fire for penny-pinching on development aid. Washington’s level of donations has fallen progressively over the last 15 years to about 0.1 percent of gross domestic product (GDP), the lowest level of all industrialised countries.

The World Bank has said that financing the United Nation millennium development goals, which include halving world poverty by 2015, could cost up to 60 billion dollars a year in additional aid for the next 15 years. This is more than double the current levels of aid.

Bush said that the United States would dispense its aid on condition of “sound policies in developing countries.”

“Sound economic policies unleash the enterprise and creativity necessary for development,” Bush said. “So we will reward nations that have more open markets and sustainable budget policies, nations where people can start and operate a small business without running the gauntlets of bureaucracy and bribery.”

Bush’s remarks were unequivocal: assistance would be directly linked to private investment and the policy reforms needed to stimulate it.

“In such environments, aid attracts private investment by two to one, that is, every dollar of aid attracts two dollars of private capital,” the White House said in a statement. “In countries where poor public policy dominates, aid can actually harm the very citizens it was meant to help.”

Some activists assailed the announcement.

“Essentially, this money will go back to U.S. corporations,” said Sameer Dossani, programme coordinator with Globalisation Challenge Initiative. “It sounds like a new way to subsidise U.S. companies working in the developing world.” Much of the money, he predicted, would seep into infrastructure projects.

Dossani added that the U.S. administration’s emphasis on what it calls Output Based Aid (OBA) will end up shutting out local providers of goods and services since payments for a project supported by the World Bank or one of its regional counterparts would not be made until results had been produced on the ground, and in some cases not until project completion.

The initial cost of investment would therefore be unaffordable to all but a few large multinational companies, said Dossani. These firms, in turn, are less likely to be answerable to local citizens’ groups than would be their smaller, domestic counterparts.

Bush handed responsibility for coming up with the means of gauging progress on the ground to the treasury and state departments. According to the White House, the administration would expect progress in three main areas: good governance, health and education; and sound economic policies.

According to the administration, the U.S. Agency for International Development’s core “development assistance” account was expected to increase 22 percent overall from 2001 to 2003, with significant increases in key regions.

Aid to Africa will increase by 30 percent, to Asia and the Near East by 39 percent, and to Latin America and the Caribbean by 29 percent.

Bush reiterated proposals made in June, to convert into grants 50 percent of lending to poor countries by the World Bank’s soft loan arm, the International Development Association (IDA).

Bush has faced opposition to his plan from anti-poverty campaigners and some European countries. More than 20 African governments, including those of Benin and Tanzania, back the initiatives, he said Thursday.

The White House statement also said numerous civil society groups had given the administration their blessings. Among these were the AFL-CIO, the leading U.S. labour federation, Catholic Relief Services, Friends of the Earth, the Heritage Foundation, and Oxfam.

Bush said U.S. support for the World Bank will increase by almost 20 percent over the next three years but insisted the institution toe his administration’s line.

“We expect the World Bank to insist on reform and results, measured in improvements in people’s lives,” he said.

Bush’s current budget request to Congress includes an 18 percent increase for IDA over the next three years — equivalent to a pledge of 2.85 billion dollars — “if the World Bank demonstrates it can use the funds to achieve measurable results.”

Bush said all other development banks should adopt a similar growth agenda, “increasing their support for private sector enterprises and focusing more on education, as the Inter-American Development Bank has done.”

The President’s budget also includes an 18 percent increase to the African Development Bank’s fund to assist the poorest – the largest increase among the major donors.

World Bank President James Wolfensohn welcomed Bush’s announcement. “We applaud the president for his statement on the importance of increasing development assistance,” he said in a statement. “We look forward to working closely with the administration in pursuing our joint goal of fighting poverty and building long-term peace.”