A Down Payment in the War on Poverty

Bush's promise of a 50% foreign-aid hike is getting mostly praise at the development summit in Monterrey, Mexico, as a good first step

Just a week ago, it appeared that President George W. Bush was in for a frosty reception from poor nations and Western allies alike at the huge U.N.-backed Financing for Development conference that opened on Mar. 18, in Monterrey, Mexico. The reason: In recent months, Treasury Secretary Paul O'Neill and other top officials repeatedly threw cold water on calls by the U.N., World Bank, and European governments for a dramatic boost in foreign aid to fight global poverty.

Instead, Bush surprised everyone with a foreign-aid proposal that's more generous than anyone anticipated. The White House has said it will ramp up overseas development aid 50%, from $10 billion to $15 billion, over the next three years. Bush's offer seems to have defused many key critics, judging from the opening days of the conference.

The President's Mar. 14 foreign-aid speech to the Inter-American Development Bank in Washington had already hit most of the right buttons. Bush said the funds would focus on such areas as basic health care and education, the U.S. would collaborate with other donor nations to find ways to make assistance work more effectively, and hinted that more funds might come if it could be proven that aid produces concrete results.


  And he punctuated his proposals with some lofty rhetoric. "The growing divide between wealth and poverty, between opportunity and misery, is both a challenge to our compassion and a source of instability," Bush declared. "By offering hope where there is none, by relieving suffering and hunger where there is too much, we will make the world not only safer, but better."

The speech could well have been written for foreign-aid crusaders such as U.N. Secretary General Kofi Annan or World Bank President James Wolfensohn -- except for one detail: Critics still think the amount Bush is willing to pony up falls short. The World Bank estimates that rich nations need to hike aid by $40 billion to $60 billion annually to achieve the so-called Millennium goals, endorsed by the U.S. and 188 other nations. These include halving the number of people living on less than $1 a day by 2015, providing universal primary education, and halting the spread of infectious disease.

The new U.S. funding, which is on top of the some $10 billion it now spends on overseas development assistance, will go into what it calls a Millennium Challenge Account, devoted to achieving the U.N.'s antipoverty goals.


  While the sums disappointed some aid advocates, the basic message has been welcomed in Monterrey. Critics of American foreign policy have long lamented that the U.S. doles out aid mainly to reward political and military allies, not for social or humanitarian reasons. "Last Thursday, the U.S. woke up from 20 years of slumber," declared Harvard economist Jeffrey Sachs, a leading proponent of greater aid and a top adviser to the U.N. on poverty.

In an interview, U.N. Development Programme Administrator Mark Malloch Brown described the Bush policy as "a small step forward financially -- but a big step politically." Officials from several emerging markets also had praise. Said Vicente Vallenilla, Venezuela's deputy ambassador to the U.N.: "This is a concrete step in the right direction, and you can expect other developing nations to say the same."

The importance of the U.S. policy is that it promises a "grand bargain" with poor nations, Malloch Brown said. The U.S. is vowing to support poor nations that implement policies that promote domestic growth and reduce poverty. The help would include favorable trade terms and debt forgiveness. "This completely changes the nature of the conversation about development assistance," he said. "Implicit in that is if there is good performance, the money [from the U.S.] will be there."


  Not everyone is impressed with the U.S. gesture. Billionaire financier George Soros, who has been in the spotlight in the first days of the conference with his own proposals for helping poor nations, said the U.S. funding sums "remind me of a famous Russian recipe for goose-liver pate -- one goose liver, one horse" to pound the liver into pate (see BW Online, 3/15/02, "Soros: Bush Is Stiffing the World's Poor").

Whether Bush's offer is genuine or merely a deft diplomatic move to avoid embarrassment at the Monterrey conference, which will be attended by more than 50 heads of state, the broad outline of the new U.S. aid policy is largely in line with what the World Bank, U.N., and many development experts have been seeking. For years, Western governments and lending institutions have urged developing nations to reform their financial systems, government bureaucracies, economic management, and trade practices.

Developing nations, however, have complained that even when they implement reforms, they haven't been rewarded with more foreign investment or aid. Indeed, among the biggest recipients of U.S. aid in the past decades have been nations with abysmal records of addressing poverty, such as Pakistan and Egypt.


  The Bush Administration also has been trying to shift the international community's focus away from foreign aid as a cure for poverty and instead to more efficient use of resources already available to poor nations. In addition to some $50 billion in official aid, developing nations also have an estimated $1.7 trillion in domestic savings, $2 trillion in annual export earnings, and roughly $250 billion annually in foreign direct investment, according to Alan Larson, State Dept. Undersecretary for economics, business, and agriculture.

Some critics of U.S. policy argue that these kinds of numbers are misleading. For one, most foreign investment now goes to a small handful of emerging markets, such as Mexico and China, that are in strong position to export to the West and have huge domestic markets that are attractive to multinationals. Most other poor nations, especially those in Africa, are now virtually cut off from global flows of private capital -- especially since the series of financial crises that have hit emerging markets since the mid-1990s.

Also, economists such as Sachs maintain that many nations simply are too poor to even provide the most basic health care, let alone modernize their bureaucracies and capital markets to the degree required to meet the standards of international investors.


  In private, U.S. officials say they understand the argument. But a big reason they're hammering so hard on better use of existing funds isn't because the U.S. is cheap. It's because multilateral institutions and aid agencies have been slow to prove that they can use their funds efficiently and that their programs actually improve living standards in poor nations. "Sometimes the development community has been too focused on development assistance levels and has not been passionate about results," says one official.

That still leaves a major question: If developing nations and aid agencies do everything Washington wants to show they're well managed and that aid produces results, will the U.S. follow through with more resources? In public, the Bush Administration doesn't answer the question. But the U.S. official says: "If you can show we are achieving basic goals, like getting kids to school, the support will be there for doing more."

For aid advocates such as Sachs, it's up to the development community to hold Bush to this promise. "We've been challenged," Sachs told a panel on improving financing for Third World health care. "We have to prove to the President and the U.S. that, yes, aid works -- and you owe us the bucks. The opportunity to make a difference has never been higher. We have a chance to deliver, we have to start running like never before."

As far as the Bush Administration is concerned, and many foreign governments for that matter, the U.S. is off to a good start.

By Pete Engardio at the Monterrey conference in Mexico

Edited by Douglas Harbrecht