Ensuring foreign aid's safe trip not easy task

April 07, 2002|By Jay Hancock

THE SOUTHERN African Republic of Malawi is as good a place as any to demonstrate the imperatives and risks of foreign aid.

A little smaller than Pennsylvania in land and population, Malawi has no natural resources to speak of and is locked inside the continent by Mozambique, Zambia and Tanzania.

Malawians live on less than a dollar per day, typically, growing tobacco, sugar cane, tea and other crops. They can look forward to an average life span of 37 years. One in 10 babies does not reach its first birthday. One in seven Malawians is infected with the virus that causes AIDS.

Drought threatens this month's harvest, and the government said recently that 70 percent of the population is close to starving.

So it is no wonder that the rich governments of the world feel compelled to give Malawi $400 million a year for medical aid, contraception, agricultural training, education grants, government development and other measures. About $30 million comes from the United States.

It is also no wonder that donors become frustrated when their investment produces little apparent reduction in Malawian wretchedness and ends up in the wrong pockets.

In January, Denmark, one of Malawi's major contributors, closed a big aid center in the capital, Lilongwe, as part of a suspension of all assistance. The shutdown came after an audit raised evidence that Malawian officials were misusing Danish funds and caused a defensive Malawian government to expel Danish Ambassador Orla Bakdal.

The flap with Denmark followed a similar problem with British aid. Britain gives some $100 million a year to Malawi, its former colony, and some $2.5 million of the 2000 contribution was allegedly used to purchase 39 Mercedes-Benz sedans for Malawian government ministers.

Under pressure from London, Lilongwe agreed to sell the cars, but according to local reports it still hasn't done so. Malawian officials deny accusations of corruption, but Western diplomats say it is widespread. Two years ago, the country's own legislative audit agency issued a report saying government officials skimmed millions from school construction contracts.

The theft of foreign aid funds, ignored or downplayed for years by rich-world diplomats, often does double damage to developing nations.

The intended recipients lose once when they fail to obtain badly needed succor. They lose again when the stolen money ends up on the country's balance sheet, as it often does, as a loan that must be repaid to the World Bank or the International Monetary Fund.

Nobody knows how much of the developing world's government debt problem is attributable to dictators' personal bank accounts in places such as the Cayman Islands, but it is a sizable proportion.

The embezzlement issue is only one of several confronting President Bush and the rest of the rich world on foreign aid. The kettle of fish at last month's United Nations conference on foreign assistance was so slippery and complex that it allowed delegates to adjourn without making much in the way of specific commitments, which is the outcome some no doubt wanted.

Should the bulk of the aid go to health, or education, or infrastructure such as dams and electricity plants? Does forgiving past debts encourage profligacy with new loans? Does the gain in control that comes with directing aid through Western-run charities outweigh the loss generated in resentment from local authorities?

How should Washington factor foreign aid into its war on terrorism? Does developing-nation assistance need to be drastically increased or just doled out more efficiently? Are grants better than loans?

Several studies have shown little correlation between foreign aid and economic growth, which is the only way to permanently eradicate poverty. But at least one piece of research suggests that aid can promote democracy, rule of law and other conditions that set the stage for growth, as demonstrated in Uganda and Mozambique.

In any event, misery in Africa and other developing parts of the world creates a moral command for the West to do something.

Bush, at the U.N. conference in Monterrey, Mexico, promised an increase in U.S. foreign aid of 15 percent by 2004, but even his own government is skeptical of even this extremely modest addition. Treasury Secretary Paul H. O'Neill would like to overhaul the World Bank before significantly increasing foreign assistance.

The first priority in Third World development, as always, should be to create favorable conditions for private investment. Businesses produce jobs and economic assets, and they are much better than multilateral aid agencies at deploying and keeping track of their money.

The World Bank and IMF are doing a better job of aiming and safeguarding their financial contributions, but they need to keep improving. The continuing chaos in Argentina is largely a product of the IMF's enabling of fiscal irresponsibility. Washington should at least double its nonmilitary foreign aid, which has been stuck around $10 billion annually for some time, and it, too, should tend the store with both hands.

"What we want to be sure [about] is that the aid is only given to countries that put in place good policies so that the aid is used effectively," U.S. Treasury Undersecretary John Taylor commented recently.

That's easy to say.

On Wednesday, in a column that referred to American consumers' lavish spending habits and high living standards, I used an infelicitous set of words to contrast the expansive spaces of American dwellings with those in China. For some, it reinforced a pejorative stereotype of Asians and Asian-Americans. That was not my intent. Sorry.

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