DEVELOPMENT: British to Present Bold Aid Proposal to G8 Summit

By Sanjay Suri Reprint | | Print |

Sanjay Suri

LONDON, May 27 2003 (IPS) - British Prime Minister Tony Blair is due to present a bold new proposal at the G8 summit that aims to double aid to developing countries up to the year 2015.

The proposal aims to double aid without doubling the aid budgets of donor countries, by working the international bond market to raise money against aid pledged for the future.

The G8 meeting – June 1-3 in the French town of Evian – presents "an important opportunity to take this proposal to the other world leaders," a spokesman at the Treasury office told IPS.

The proposal for the International Finance Facility (IFF) has been discussed before but this will be the first serious pitch British leaders will make for it to leaders of the most developed countries.

Chancellor of the Exchequer Gordon Brown has proposed the IFF as a means of meeting the Millennium Development Goals that include schooling for every child, preventing infant and maternal mortality, more access to clean water, and halving of poverty. The target date for meeting those goals is 2015.

"We know what governments need to do," the Treasury says in a note to explain the IFF. "The United Nations has estimated that to achieve the Millennium Development Goals, aid will have to be increased from the current level of just over 50 billion dollars to 100 billion dollars each year until 2015."

At present rates of progress those goals will be missed by far, the note says. "The situation is unacceptable, all the more so because it is avoidable," the note says. "We have the means – and we have made the commitment – to do something about it."

The plan for the IFF is complex but workable, the Treasury official says. It aims to "use donors’ long-term commitments to borrow more money now for longer-term benefits."

The IFF is conceived not as charity but as an investment fund, with current aid and the promise of continuing aid as capital. The idea is that all governments use bonds to manage their finances, and the new proposal would do internationally what governments do at home.

The IFF would mean that governments in developing countries borrow money against pledges of future aid and pay it back gradually to finance development in the same way they finance domestic investments.

The funds that developing countries borrow are paid back gradually by donor governments over the lifetime of the Facility. This is done with safeguards for ensuring that the Facility does not add to the debt burden of the countries receiving the aid.

In effect, future commitments from donors would be used to secure international bonds, and money taken from the market against these for use now. This "securitisation process" is common in the international bond market, the Treasury official says.

This "frontloading" of aid into early availability is intended to create a critical mass of aid to meet the millennium goals. The overall life of the Facility would be about 30 years, but the bulk of disbursement would take place in the years up to 2015.

The British proposal says that "to work best, aid needs to go to the poorest countries and people, and on a long-term predictable basis, that allows them to plan their spending properly." The IFF can also "help to promote coordination between donors and increase the predictability and stability of aid."

The leading British aid agency ActionAid has received the proposal cautiously. "We welcome Gordon Brown’s efforts to double aid to developing countries," Paul Collins from ActionAid told IPS. "But we are examining the proposals in the Facility to see if they can have a practical life."

The proposal will not only have to be workable financially, it will need the support of the other countries, he says. ActionAid insists also that the Facility should not seek to substitute higher national budgets for development aid.

Brown has declared the two will go together. Britain, the Treasury note says, has made "substantial progress" towards reaching the target of spending 0.7 percent of national income on aid. Its present commitment is to raise aid to 0.4 per cent of national income over the next four years.

In 2001 donors spent on average only 0.22 per cent of their national income on development aid.

The Treasury note also points out that trade subsidies in the developed world total 350 billion dollars a year, seven times the total aid budget. This calls for "reforms by all the richest countries," the policy paper says.

It urges the European Union (EU) to tackle Europe’s "agricultural protectionism" – a move certain to be opposed strongly by France.

Trade reforms are needed if aid is to be effective, the paper says. "Aid is needed to help build the infrastructure, create an educated and healthy workforce, develop systems to deter corruption, and to create an environment where trade can be increased."

But well used and used early, aid now can also promote trade, the Treasury note says.