Dubious Aid.

Canada is falling way behind in its obligations to the South, along with many other rich countries. Meanwhile, aid programs have come under fire for not helping the poor as much as we might like to think

The United Nations once suggested (still does in fact) that the world's rich nations should set a target of development aid spending at 0.7% of Gross Domestic Product (GDP). Canada said, "Yea verily," we're on board with that target.

There was a spell in the 1970s, when we increased our aid spending year after year and it looked as though we might meet the challenge. After all, the UN commission that came up with the 0.7% target in 1969 was headed by our very own Lester Pearson, who had recently stepped down as Canada's prime minister.

But, the program was flawed. A lot of Canada's aid was what is called "tied." Tied aid meant that money given to, say Tanzania, had to be spent on goods and services from Canada. That's how a lot of dubious programs got going. Combine harvesters turned up in places where there were no mechanics to keep them running, or automated white-bread bakeries opened and put local and more nutritious brown-bread bakeries out of business. Also, aid money started to disappear into numbered bank accounts in Switzerland, or it was diverted into paying for laser-guided military whizbangs. Swindles, fumbles, and Canada's own debt problems combined to cut into our generosity.

Canada's aid now amounts to 0.24% of GDP. Once a leader in development aid to the South, Canada now is in eleventh place among donors in the Organization for Economic Cooperation and Development. While most major countries are giving less in aid, Canada gives less as a percentage of GDP than Denmark, Norway, Sweden, The Netherlands, France, Luxembourg, Belgium, Finland, Switzerland, and Germany.

In 1999, the Canadian Council on International Cooperation reported that Canadian aid had fallen by 29% over the previous six years (34% if adjusted for inflation). For the first time since the 1960s, in 1998, Canada fell into the bottom half of the industrialized countries in its level of foreign aid giving.

In September the same year, after visiting Indonesia and Thailand, a group of Canadian MPs and citizens were so shocked by the poverty they found they called for more emphasis on reducing poverty. They also urged a steady rise in the aid budget to a level of 0.35% of GNP over seven years.

The drop in global foreign aid in the 1990s has left millions of children without the most basic standards of health and education, according to the United Nations Children's Fund. UNICEF says the cuts have hit hardest in countries with the most pressing human needs, including those with high child death rates, high birth rates, and poor access to safe drinking water.

But, just increasing the numbers of dollars in aid won't necessarily help the poor.

In 1998, the World Bank published a book, Assessing Aid: What Works, What Doesn't, and Why. The book explains that aid reduces poverty only if it is spent on the right countries; it points out that a lot of aid from rich-country governments and multilateral agencies, such as the World Bank, is spent on the wrong countries. The authors, David Dollar and Lant Pritchett, found that more aid does not automatically mean more growth. If aid on its own doesn't promote growth, what does? According to the book, only in countries with good economic policies - low inflation, small budget deficits, openness to trade, strong rule of law, competent bureaucracy - does aid equal growth. It's actually been shown to slow growth in countries with poor policies. The authors say there are about 32 very poor countries (with poverty rates of more than 50%) with better-than-average policies, which would benefit more from extra aid. They include some of the poorest countries in the world, such as India, Ethiopia, and Uganda.

The authors go on to say that using aid more efficiently could improve life for millions more people: an increase in global aid of $10 billion, if spent according to 1998 allocations, would lift an extra seven million people out of poverty every year. If the aid went only to poor countries with good economic policies, 25 million people would be better off. Even with the budget as it stood in 1998, more efficient use of the aid would raise 80 million people a year from poverty at a cost of $450 a person, compared with the then-current 30 million a year at a cost of $1,200 per person.

Instead, aid sometimes keeps bad governments running, and doesn't encourage them to improve their policies. Part of the answer they say is to spread knowledge and technology for small-scale project aid rather than lots of cash, which ends up being wasted.

A study of 100 countries by the London School of Economics in 1997 confirmed that more aid does not necessarily promote economic growth: in some cases political leaders use aid money to build monuments and buy machine guns. The study used the Central African Republic under President Jean-Bedel Bokassa as an example. In 1977, he wasted $20 million on his own coronation, including the purchase of a crown which was made in London at a cost of $2 million.

That was the year the World Bank and International Monetary Fund pledged to tackle corruption both in developing countries and in their own ranks. In one survey, the World Bank found that of 3,600 companies in 69 countries more than 40% of respondents reported having to pay bribes to get things done. The World Bank lends about $20 billion a year to developing countries and said it intends to reduce lending to countries and sectors that are overly corrupt. As one World Bank report put it: "Corruption thrives when economic policies are poorly designed, education levels are low, civil society is underdeveloped, and the accountability of public institutions is weak." Both the Bank and the IMF used to brush aside corruption as a political issue that was beyond their mandate, but their research showed that bribery and graft slow development and punish the poor.

The G-7 and the Paris-based Organization for Economic Cooperation and Development also started looking for ways to outlaw the payment of bribes to overseas officials.

Development experts say there are plenty of ways to help the poor regions of the world: give them computer technology, via satellite, for example, and pass along information on health, education, and agriculture. Some say international companies could conduct hands-on projects in their factories that could help workers improve their lives. Many say national debt relief should be tied to requirements that the poor reap the benefit. Even the international aid agency Oxfam agrees that governments seeking debt forgiveness should be expected to show that the money saved will go into programs to reduce poverty. That's becoming a common message to poor countries. At a recent Africa-Europe summit in Cairo, African representatives focused on their need for debt relief. While they said they appreciated the help they had received from Europe, they said it wasn't enough. European representatives pointed out that what is also needed in Africa is democracy, good government based on the rule of law, and more attention to human rights.

SUGGESTED ACTIVITIES:

1. Even aid to refugees through international agencies has gone amiss. Since the Second World War, refugee aid was supposed to feed, shelter and provide legal protection to people fleeing conflicts, but it often has fuelled conflict. In some cases, it has encouraged militant groups to create huge refugee populations in order to get aid, little of which goes to the suffering refugees. In short, some militant groups rely on the compassion of donors to inadvertently support their cause. Donors intent on relieving starvation and disease among refugees end up feeding fighters instead. Invite someone from a human-rights group, such as Amnesty International or Doctors Without Borders, to talk to your class about these problems and how best to deal with them.

2. In an article in the Fraser Forum in February 1999, Dexter Samida, a research economist at The Eraser Institute, wrote an article pointing out that current research suggests that "foreign aid does little more than make politicians feel better." He concludes: "In the final analysis, the Canadian government should not increase the foreign aid budget, but rather concentrate on removing trade barriers and encourage the economic liberalization of developing countries. This would eventually lead to a higher standard of living for these nations - something no amount of aid could promise to do." Discuss this approach to foreign aid.

FACT FILE

Debt forgiveness accounted for 10% of aid budgets in 1996, compared to 1% in the 1980s.

Jubilee 2000 is a vast international coalition lobbying to have all debt cancelled in the world's most impoverished developing countries: it is sponsored by many churches and non-governmental organizations, including numerous famous individuals from pop stars to the Pope, the initiative links the year 2000 with the biblical concept of debt forgiveness.

Total indebtedness of the world's 41 poorest countries: $90 billion (U.S.)

The G-8 comprises the U.S., Canada, Germany, Japan, Britain, Italy, France, and Russia; that is, it's the G-7, plus Russia.

AID TO WHOM?

Stories of mismanagement and inappropriate use of aid are mind-boggling.

For example, a bridge was built in an isolated valley in Kenya with British aid. Diplomats from the North who promoted the project said it was to help Masai tribes-people get access to fertile land for small-scale farming. But, the Masai are nomadic herders. They don't grow any crops; never have, probably never will. The diplomats themselves wanted the bridge so they could reach marshland where they liked to go birding.

A Finnish government logging project was set up in Tanzania's Eastern Usambara Mountains, which houses a wealth of biological diversity. The aid plan promised to provide local employment in the mid-1980s. But, it had more to do with providing an excellent source of beautiful hardwood for the Finnish people. Over a five-year period, bulldozers wiped out thousands of rare species to remove the largest trees deep in the forest. The result has been ecological devastation, and the ultimate destruction of entire villages when heavy rains turned the logging roads into mudslides. The Finnish government ended up paying millions of dollars in compensation, and in 1989, the Tanzanian government banned all logging in the forest.

World Bank money has financed construction of a highway through Brazil's Amazon rainforests, destroying the forest and the indigenous tribes who live there. Settlers have tried to farm land with soil too poor to sustain agriculture for more than five years: then they move on to destroy new areas. The World Bank also has backed projects in Indonesia that displace millions of peasants, spark violence, and destroy millions of hectares of rainforest.

Scores of multinational aid projects throughout Africa do more harm than good. The World Bank's own audit calculated that in the 1980s more than 75% of its agricultural projects in sub-Saharan Africa failed. A UN Food and Agriculture Organization (FAO) fish-farming venture in Egypt collapsed because the FAO neglected to do a soil analysis on the dam sites.

But cutting back on bureaucratic bungling could cost a lot of jobs. By 1997 there were an estimated 80,000 to 100,000 highly-paid aid "experts" in Africa alone: according to one estimate their salaries and benefits swallow up about half of the money budgeted as aid to the country. And, much of the rest reportedly goes to finance the bureaucracies.

AID VERSUS INVESTMENT

Some people argue that what developing countries need is investment, not aid. They cite a surprising thing that happened when foreign aid started to dry up after the end of the Cold War between western democracies and eastern communist countries in 1989. Considerable amounts of aid money was diverted from the South into the emerging democracies of Central and Eastern Europe.

Bangladesh, for example, had received billions of dollars in foreign aid during the Cold War. Then, from 1990 to 1994, development assistance went from $19 per person to $15, and some predicted there would be disastrous results. Instead, private investment poured into the country, exports soared, and the economy grew more than it had in years. Ditto for Costa Rica which lost about two-thirds of its aid income, which at $76 per person was among the highest in the world. The small Central American country's economy took off, reaching a growth rate of 5.1% for the first half of the 1990s (Canada's was 1.8% at the time). Export trade and investment abound.

There are many more examples of countries where aid cuts resulted in greatly improved economies through investment. Where aid donors apparently had failed to pressure countries into reforming their economies permanently, investment dollars demanded it: developing countries learned that economic reform attracts a lot more investors. By 1997, some poor countries in East Asia and Latin America, had attracted private investments that were reported to be three times the level of public funding. And, the result for many poor countries has been economic expansion.

Trade may be better than aid to promote human development in many poor countries. But, there still are many poor nations so desperate that they have little chance of attracting much investment, or trade. Other crises brought on by war, famine, and floods consume billions of dollars in aid. To the poorest of the poor, the percentage of aid budgets earmarked for education, health, and agriculture programs all continued to drop in the late 1990s. The proportion of aid going to the poorest countries fell from 62% in 1990 to 51% in 1995. By 1997, loans to sub-Saharan Africa for education and health, where about 40% of the people are poor, were down 43% and 65% respectively. These are not places that attract private capital.

PAYING THE BILLS

Despite the enormous gulf in standards of living between rich and poor countries, there is still a net transfer of wealth from the South to the North. That's because of the weight of debt the South is carrying and the cost of servicing that debt. Mozambique has a foreign debt equal to 376% of its GDP, Guyana 246% of GDP, Jamaica 94%, Bangladesh 51%: the list goes on. Perhaps, one of the most constructive things the North can do is write off the South's debts. It would certainly help sub-Saharan Africa where governments spend four times as much on debt repayment as on health care and education; or India which spends 33.6% of government revenue on debt servicing and 11.9% on social services, or Madagascar where the comparable figures are 59.9% and 34.6%.

For decades, developing countries around the world borrowed money from governments and international development organizations to try and build a future for themselves. Many made gains in human and economic development. Life expectancy, infant and maternal mortality, and literacy improved significantly in some of the poorest countries. Others are hopelessly in debt.

Most of the debt is owed to institutions such as the International Monetary Fund and the World Bank. Critics blame the World Bank and the IMF for making world poverty worse by preaching the capitalist theory of "trickle-down economics," whereby what's good for multinational corporations and their shareholders is seen as good for everyone. Opponents argue that this idea simply does not work, except to make the rich richer. Projects backed by World Bank loans to poverty-stricken countries have boosted multinationals, but in many poor countries they have also led to environmental disaster, and mass migration to urban centres, where people land dead-end, sweatshop jobs.

The 1999 United Nations Human Development Report concludes that more debt forgiveness to poor countries is essential to solving their debt crises. The report also says it's important to inform the general public of the degree of poverty caused by Third World debt and the urgent need for action.

In March 1999, Canada's Prime Minister Jean Chretien announced a plan for Third World debt relief that ties forgiveness of outstanding loans to the human-rights records of recipient countries. Britain, Germany, and the United States also have proposals for debt relief, which are comparable to the Canadian position that no relief should be given to countries that might then boost military spending. Canada's plan, which is aimed at the poorest of the poor countries, mostly in Africa, also stipulates that the money saved on interest payments must go to schools, health care, and other areas of social infrastructure.

Three months later, in June 1999, at the Cologne Summit in Germany, seven of the world's major industrial nations along with Russia (the G-8) proposed to write off $90 billion in Third World debts, mostly in Africa.

Critics of the G-8 Summit said the move was nothing but a cheap publicity stunt that would do little to solve the problem. After all, they say, the world's poorest countries owe more than $400 billion to the North. Sub-Saharan Africa alone owes $224 billion and hands over more in debt repayments a year than it receives in aid: it paid about $13 billion to service its debt in 1999, while the United Nations estimated that $9 billion, invested in basic health care, nutrition, and sanitation, could save the lives of 21 million African children. Skeptics also go back to 1996 when the World Bank and the International Monetary Fund announced a debt-relief initiative. The program was so restrictive in its demand for radical economic reform in recipient countries that, in three years, only three countries - Bolivia, Uganda, and Guyana - qualified to receive any relief under the scheme.

Websites

Canadian International Development Agency - http:// w3.acdi-cida.gc.ca/index-e.htm

Canadian Council on International Cooperation - http:// fly.web.net/ccic/

International Development Research Centre - http:// www.idrc.ca/

Bill and Melinda Gates Foundation - http:// www.gatesfoundation.org/

Jubilee 2000 Project - http:// www.jubilee2000.org/