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Rethinking Foreign Aid

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Wednesday, November 27, 2002; Page A16

THE BUSH ADMINISTRATION is starting to flesh out its promise to expand the nation's paltry foreign assistance. Measured as a share of the economy, the aid budget has fallen from 0.24 percent of GDP in the mid-1980s to 0.1 percent today, making the United States the least generous of the 22 advanced economies. The Bush administration proposes to increase the aid budget from $10 billion to $15 billion annually. That would probably still leave the United States last on the list of donors (it could tie with Italy). Still, the extra $5 billion that the administration promises is a step in the right direction.

The same could be said for the manner in which the administration proposes to hand out the money. The government's traditional aid programs are distorted by foreign policy considerations: Money flows to U.S. allies rather than to countries that are committed to fighting poverty. The new $5 billion is supposed to be spent differently. It would be administered by a new institution, separate from the Agency for International Development. It would flow to a select group of countries, chosen according to their commitment to sound economics and honest government -- and therefore according to their ability to reduce poverty.

This new selectivity has its critics. Some worry that the aid would go to successful countries that don't need the help. But the administration promises to target countries whose per capita annual incomes are less than $1,445, and analysis by the Center for Global Development in Washington suggests that at least 20 countries below that level could pass the good-governance test. Other critics worry that misery in badly run countries would be neglected. This is a risk, but the hard fact is that aid in such settings may be wasted. With luck, backing countries with good policies may create an incentive for countries with bad policies to change their ways.

The real worry with the administration's thinking is that its break with past aid policies may not be radical enough. As well as being distorted by foreign policy considerations, traditional aid has been captured by U.S. domestic lobbies that deliver food, medical supplies or other aid under contract. The U.S. Agency for International Development's Web site has boasted, scandalously, that close to 80 percent of its contracts and grants goes directly to American firms. If the Bush administration is serious about wanting to make aid effective, it must free poor countries to spend aid dollars on the most efficient suppliers -- including suppliers who themselves come from poor countries. It must also avoid burdening aid recipients with onerous conditions and reporting requirements; the well-governed countries eligible to receive the new dollars are by definition capable of spending the aid responsibly.

© 2002 The Washington Post Company