Soros: Bush Is Stiffing the World's Poor

The billionaire financier argues that the President's new plan to boost foreign aid is absolutely inadequate

George Soros certainly isn't impressed with President Bush's offer of financial help for the world's poor. On Mar. 14, Bush announced that the U.S. would boost aid by $5 billion over the next three fiscal years, starting in fiscal 2004. Big deal, says the billionaire financier.

Considering that the new funds probably won't start flowing until 2004, Soros calculates that the package essentially amounts to $1 billion annually over the next five years. He estimates that he donates $500 million of his own fortune to economic and health programs in the developing world. "For the U.S. government to [be increasing its spending by] only double what I am spending is absolutely inadequate," Soros said on Mar. 14 in a meeting with journalists at his Manhattan offices.

By being tight with foreign aid now, Soros argued, the U.S. again is tarnishing its credibility as a leader willing to work with other nations on important international issues. What's more, the Bush Administration threatens to turn next week's Financing for Development conference in Monterrey, Mexico, into a diplomatic bust.


  The huge conference, to be attended by Bush and 50 other heads of state, is aimed at galvanizing global support for a coordinated campaign to dramatically improve living standards for the some 1 billion people living on less than $1 a day. The U.N. and the World Bank hope Monterrey will catalyze rich nations to heed its call to boost foreign aid by $40 billion to $60 billion annually. Britain is calling for a "Marshall Plan for the developing world."

The meager Bush Administration response, Soros charged, shows "the U.S. is the main obstacle to more aid and international cooperation" on fighting poverty. Soros noted that even though the Administration is asking for a moderate increase in developmental assistance, the sum still will be around 0.1% of gross domestic product. Most European nations spend three times that percentage. To build support for devoting greater resources to the problem, "the U.S. is absolutely critical," Soros said. "Unless the U.S. does more, nothing much will happen."

Certainly, not everyone has been as harsh as Soros. World Bank chief James Wolfensohn was present when Bush announced the aid increase at the Inter-American Development Bank in Washington, D.C. Rock star Bono, a leading antipoverty crusader, also was on hand. Bush said the $5 billion aid hike will go directly to programs for at severe poverty, which he said is "leaving a dark shadow across a world that is increasingly illuminated by opportunity." The new funds will be directed to programs for educating poor women, fighting AIDS, instructing young professionals to use computers, and helping Africans sell their goods abroad.


 And even most development experts would agree with Bush's assertion that "money that is not accompanied by legal and economic reform is oftentimes wasted.... In these situations, more aid money can actually be counterproductive, because it subsidizes bad policies, delays reforms, and crowds out private investment." (The full text of Bush's speech is available on the White House Web site.)

The Administration's position, expressed repeatedly in recent speeches by Treasury Secretary Paul O'Neill, is that foreign aid over the past five decades has been largely wasted on badly run governments and economies. Rather than throw billions more at the problem, the aid now spent should be managed more carefully to assure that the funds really reduce poverty and increase education and health standards.

Once aid programs have proved to yield results, he says, then resources can be increased. Also, Administration officials say, the most important thing is to get developing nations to enact the right domestic policies in order to boost private investment -- the real driver of economic growth.


  Soros said he agrees that aid must produce results. For starters, most aid in Africa should go to the dozen or so countries, such as Mozambique, Senegal, and Uganda, that have democratic governments and have begun implementing sound, progrowth economic policies. He also said there's already ample proof that well-run programs, when combined with proper incentives, can spur tremendous progress for little money.

The World Bank also insists that recent studies show that the effectiveness of development programs has been increasing. While Soros admitted that many of the millions he has donated in corrupt, ill-managed nations are frittered away, a number of projects funded by his Open Society Institute -- the main vehicle for his philanthropic efforts -- have yielded impressive returns on investment. He cites programs in Russia and other former Soviet states to halt the spread of AIDS, improve government planning in small towns, and set up Internet centers at provincial universities as achieving major results with modest funds.

Soros also has been pushing his own, rather involved proposal for how foreign aid could be better managed. He says the key is to build incentives into the process to encourage recipient nations to compete for funds, and to make sure programs are properly implemented. He suggests that nations donate to a new pool administered by the International Monetary Fund. The IMF would have about $18 billion to work with, and each donor would have "special drawing rights" to use the money for Third World antipoverty programs.


  Because donor nations now tend to use projects to pursue their own interests, rather than addressing the real needs of poor countries, they could not use the funds any way they chose. Instead, they would select from a "menu" of development projects that had been screened by a panel of politically independent outside experts. The specific projects would be proposed by countries or nongovernment organizations, so essentially they would be competing for a limited pool of funds.

After a donor decided on a project to fund, the project would be rigorously monitored -- and new funds would depend on how well it performed. "The programs that are well conceived and fulfill targets will get reinforced," Soros explained. "And the ones that fail, fail."

The IMF and G-8 nations actually have been discussing similar special drawing-rights proposals for more than a decade. Only one nation has refused to endorse it -- the U.S. "O'Neill has said it is too complicated for him," Soros said. "He has effectively put the kibosh on it."


  But Soros said his idea meets the Administration's desire to tie aid to performance. "We really aren't that far apart," he said. In fact, Soros said he recently met O'Neill to personally sell him on the scheme. "I said, O.K., let's make it simple. Just start with $3 billion. Work with other nations to decide which countries qualify for the money. Then, you can increase the total to $18 billion and really have an impact." Soros said O'Neill still isn't convinced.

The flaw in the new Bush program is that the amount of aid doesn't substantially escalate in the future, even if analysis shows that the projects work splendidly. More important, Soros said, the Administration has spurned efforts to coordinate antipoverty programs with other nations. "What is lacking is a willingness to operate with others," he said. "They want to go it alone."

As a result, Soros said, he fears the new U.S. aid will be used just as it has been for decades -- as a reward to Third World regimes for geopolitical purposes. "That is the reason foreign aid has such a bad reputation," he said. "I am afraid it will be of the same character as the aid during the Cold War."


  Where the U.S. is willing to spend lavishly is on military efforts. And when it comes to trying to win "hearts and minds" after September 11, the main thrust has been in communications efforts to sway public opinion. "We are spending a lot on propaganda," Soros said. "But that in itself won't work. We need to spend more on substance, and then the image will take care of itself."

To convince the world that the U.S. is "putting its money where its mouth is," Soros said, Bush will have to come up with much more foreign aid than he is now offering.

By Pete Engardio in New York

Edited by Douglas Harbrecht

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