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Jewish World Review March 20, 2002 / 7 Nisan, 5762

Amity Shlaes

Amity Shlaes
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Bush gives aid but seeks results | The problem with grant money is that it is like any other money: good for a lot of things. Hand development dollars to a dictator and he is as likely to use them to buy his niece two bedrooms overlooking the Seine as he is to train the teachers he promised his subjects. He may also use them to prop up his creepy, undemocratic regime. And it is hard to stop him, notwithstanding a thousand sit-downs and all the paper promises in the world.

This fungibility engenders another kind of waste: the waste of process. Hand development dollars to a multilateral agency and some of that money ends up subsidising not better roads in poor countries but new laptops and membership in the 100,000 Mile Club for international civil servants. No matter if the agency is true blue, cleanest of its kind: the waste still occurs, because it has a monopoly on its kind of business. Exactly how many children could be vaccinated, you have to wonder, for the price of the meeting of 54 heads of state, 300 of their cabinet members and countless tag-alongs at this week's poverty summit in balmy Monterrey?

Now along comes President George W.Bush with a proposal to give $5bn (£3.5bn) in aid to the developing world, a category of nation that, alas, is all too often led by dictators or near-despots, not to mention firebreathing fundamentalists.

America's giving mood is certainly understandable. The US wants to acknowledge that it knows you cannot bomb your way to global stability. But the challenge remains: how do you ensure that the aid does not end up in the same old pockets?

Here the White House plan has a number of promising aspects. The first is that the president has demanded accountability. He wants to monitor recipients in three areas. The first is good governance. To get money, governments have to prove they are rooting out corruption. The second is health and education. Erecting school buildings alone is insufficient; nations must show they really have taught boys and girls to read. The third is stronger free markets. Nations must prove they are honouring contracts and allowing private sector businesses to grow. All these help ensure that dollars keep their earmarks and achieve, more or less, what they are supposed to.

Even more valuable is the format the president is using to deliver aid. He would create Millennium Challenge Accounts, giving more money to countries that do better at delivering improvements - and less or none to those that waste and fail to reform. So this is a financial incentive for the dictator to democratise and go capitalist, as well as to deliver those roads, reading scores and measles vaccinations.

Another aspect of the Bush plan that offers hope is the president's decision to deliver aid through grants, not the traditional loans. This is valuable first because of the "process" problem: loans to desperately poor nations are often a fiction, since many nations are unable to pay back money lent at zero interest. Replacing loans with grants gets rid of the waste of the unending loan process. Or, as a plaintive respondent from a poor country put it on a World Bank questionnaire: "It becomes worse when the aid is a debt. The time the country is fighting to pay back the debt affects every citizen including the majority that did not benefit from the corrupt acts."

But the fungibility problem will not go away, as long as aid money still flows to heads of state. And, after all, it is quite possible for a leader to deliver on some scores (war against bribery) while failing horrendously on others (human rights). Look at Nigeria, where President Olusegun Obasanjo came to power on an anti-corruption platform that received kudos from international observers. Today the anti-corruption effort is stalling. And Nigeria plans to execute - by stoning to death - a mother, Sufiyatu Huseini, for the crime of adultery. Who is to say some of the new cash will not come into the hands of the stoners?

It is welcome news, therefore, that the Bush administration is considering a proposal put forward two years ago by the Meltzer commission, a group chartered by Congress and led by Professor Allan Meltzer of Carnegie Mellon university, to review international lending by the big multilateral organisations. When it comes to the poorest countries, the report concluded, it is better to bypass governments. In these cases, poverty grants should go direct to outside suppliers "upon independently verified delivery of service". In other words, a group such as Medecins sans Frontie`res may do contract work vaccinating in Africa.

Not only that; such a group would compete against others to deliver the service at the lowest cost. At issue here would be the conversion of International Development Association loans to the poorest nations to grants.

This sort of direct aid would fit in very well with the overall Bush campaign for aid accountability (not to mention his domestic programme of involving not-for-profits in social service). And it would give the campaign teeth. It is certainly better than the double-the-aid plan put forward recently by James Wolfensohn, head of the World Bank.

Neither the World Bank nor the International Monetary Fund complained about Mr Bush's presentation. But behind the scenes there has been plenty of griping about his direct approach. Officers of the Bretton Woods institutions generally tend to complain about what they call "additionality": a surfeit of offices all delivering the same services and, heaven forfend, bidding against one another for business. Here the answer should be: and why not? After all, since you cannot entirely overcome one economic law - fungibility - you may as well take advantage of another - competition.

JWR contributor Amity Shlaes is a columnist for Financial Times . Her latest book is The Greedy Hand: How Taxes Drive Americans Crazy and What to Do About It. Send your comments by clicking here.


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© 2001, Financial Times