While foreign aid money is not spent wisely

June 5, 2012 4:52 AM

While foreign aid money is not spent wisely

The "spin doctors" who took the practice to pass in a victorious gloss on all the actions of President Bush had little need to reduce their expectations regarding the outcome of the Summit of the G8 in Scotland. Any agreement would be seen as a major achievement. The profits and losses of the multilateral debt of the poorest countries of the world, under the direction of Britain, is nonetheless particularly welcome.

The agreement concluded by the G8 is an important event, but do not be fooled by the apparent magnanimity of the gesture: much of the debt would, in any event, not been repaid. His relief (covering more countries and more debt, including bilateral debt) should be intensified. But this gesture should be considered as a start. As Britain itself has pointed out, developing countries need of more aid and a more equitable international trade regime.

It is surprising, in this context, that the IMF is trying to cool the international mobilization New studies, it warns, suggest that the aid does not generally lead to faster growth.

This statement has been greeted with relief by the Bush Administration, who claims to have given as much as possible its "budget process." The richest country in the world, which awarded its richest citizens several tax cuts worth hundreds of billions of dollars, now says that he cannot afford to spend more on aid.

Even after the increase in annual assistance promised by Bush at the meeting of the United Nations in Monterrey, the Mexico, in 2002, the United States are still less than a quarter of their commitment to reach 0.7 of GNP. And this is that the IMF provides this guarantee: you can not keep your commitments, because the money probably would have made a big difference.

While foreign aid money is not spent wisely. But it is similarly to what is spent, for example, in national defence. Even if the Americans have not cheated by suppliers of the Ministry of defence as Halliburton, it is clear that the money invested in Iraq has not provided the promised peace and security in the Middle East. No one argues for as much as the United States should reduce their defence spending.

Of course, should improve the efficiency of the devices to be sure that the money is spent are objective. But significant improvements have been made in recent years. The World Bank, for example, allocated more funds to the countries which had wisely spending money they received. It also explored new ways of "delivering" the help.

The creation of the so-called "Social Fund", whereby communities design projects and are in competition for grants, helped the beneficiaries of the aid to appropriate development projects. In a village, a bridge was built to connect two neighborhoods separated during the rainy season. A simple project that dramatically changes the life of a community. Children who live on one side of the river can now go to school on the other side during the rainy season. Similarly, plans for micro-credit schemes across the developing world helped to inject money into poor countries to develop local companies with impressive repayment rates.

The IMF is concerned about the problems posed by the "Dutch disease": the influx of foreign currency increases the local currency exchange rate and makes it difficult to create jobs in the exporting sectors or the protection of existing jobs from cheaper foreign imports. On this point, the IMF is partly right. Countries must rely on themselves and mobilize domestic resources, although emphasis attends IMF monetary and fiscal policy stringent often makes this difficult goal. But the need for imported goods (drugs to promote health, technology to reduce the knowledge gap between developing countries and the rest of the world, and machinery to increase productivity) is always huge.

Anyway, in my opinion, should not give great importance to the statistical studies that IMF carries out on the impact of foreign aid on the growth, in part because their results seem not very reliable. Different studies with sets of slightly different data, different countries, different techniques and different years, yield markedly different results. A series of previous studies, for example, showed that the assistance provided in countries with good governance and sound macroeconomic policy creates a real difference.

Furthermore one should not forget that, historically, the allocation of aid did not always was made to promote development, but to gain the friendship of the recipient countries, especially during the cold war. When the West gave financial assistance to Mobutu, he knew that the funds were going to Swiss bank accounts rather than to the people of Zaire (now Congo). Money has fulfilled its role to promote development, but to keep Zaire from the West.

Of course, Mobutu boundless corruption encourages us to reflect on how foreign aid is spent and the quality of the person responsible for "delivering" assistance. Some Governments were more wise than others to use the funds. In countries where Governments are inefficient, there are often alternative ways of providing assistance, including through NGOs.

Global support for "making poverty history" shows that the problem of poverty of the third world has finally struck a chord. The debt relief is a good beginning. But no more.