Does the U.S. Give Enough?

It sees the need to increase aid, but only on its own terms

In late March, President Bush and the leaders of Russia, Brazil, France, and dozens of other nations will convene at a Mexican ranch to discuss one of the world's most wrenching problems. Terrorism? Narcotics? No, the subject is global poverty.

It may sound like an odd topic for a U.S. Administration that has made clear it has little interest in sharply increasing foreign aid. But in the wake of September 11, blamed by many on Third World misery and anger, eradicating poverty is suddenly a security issue. It also is becoming a major new test of whether the U.S. will play ball with its allies in tackling big global problems.

The occasion is the International Conference on Financing for Development in Monterrey, Mexico, starting Mar. 18. The confab aims to get governments and bodies such as the U.N., World Bank, and International Monetary Fund to better coordinate poverty-reduction efforts. In January, 189 nations endorsed a broad strategy to cut in half by 2015 the number of people living on $1 a day or less. Under the plan, rich countries would grant more generous trade terms and financial help. Poor nations would adopt political and economic reforms to boost private investment. "There is a real consensus on the view that trade, finance, and development are all intertwined," says U.N. Deputy Secretary-General Louise Frachette.

But there is a wide gap over how much money the West should ante up. The World Bank figures rich countries must hike aid by $40 billion to $60 billion annually--twice current levels--to achieve the goals (table). Britain, which calls for a "Marshall Plan for the developing world," and Scandinavian countries agree.

The Bush Administration has a more pinched vision. Its 2003 budget calls for a 9% increase, to $8.5 billion, in development and humanitarian aid. That's still less than 0.1% of gross national product, the lowest level among industrialized nations. Treasury Secretary Paul H. O'Neill has repeatedly criticized past aid as wasteful. So he says he wants to monitor poverty programs more closely and then gradually increase funds. "We need a process in place to make sure the assistance makes a difference," explains John B. Taylor, Treasury undersecretary for international affairs.

A model for the U.S. approach is its plan for the International Development Assn., the World Bank agency that annually lends up to $7 billion interest-free to poor nations. The U.S. plans to boost its IDA contribution by 18%, to $850 million, this year. Funding would rise in the following two years only if the U.S. sees results. Washington also wants half of World Bank assistance to be in the form of outright grants, rather than loans. That would reduce debt burdens and "put more resources into the poorest countries," Taylor says.

European officials and aid agencies are dubious. The IMF and World Bank, they note, already have a program to forgive some $30 billion in debt for the poorest nations, with the savings going to health and education. What's more, IDA depends on loan repayments to fund new projects. So if it gives grants, the bank will need big fund increases in a decade, when today's loans are supposed to come due. O'Neill has said the U.S. would replenish IDA coffers if there are shortfalls. But critics argue there's no way to guarantee donor nations will honor such promises a decade from now. "It seems dangerous to let spending rip now and worry about the consequences later," says a European aid official.

The real fear is that if the U.S. crimps on aid, so will France, Germany, and Japan, which all have budget constraints. That could reduce Monterrey to "a lot of happy talk in a nice location," says one international agency official.

Few deny aid must be better managed. But multilateral agencies say more funds are vital now, and new studies show well-run programs improve living standards. "I think we have a very, very good case to make," says World Bank Vice-President Mats Karlsson. Some Republicans also back more resources. "Foreign aid has to be thought of as part and parcel of our national security budget," says Representative Jim Kolbe (R-Ariz.), chairman of the House panel overseeing aid programs.

Taylor is optimistic an aid compromise can be struck. Besides, he notes, the fact that Bush and O'Neill are going to Monterrey "indicates we think development is important." But Bush should be prepared for a blunt message from U.S. allies: Show us the money.

By Pete Engardio in New York

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