[Mb-civic] Between hype and hope

Fri Jul 15 10:23:24 PDT 2005

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            Articles by subject: Topics: Economics

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Between hype and hope
Jul 14th 2005
>From The Economist print edition

How generous were the aid promises made at Gleneagles? And how new?

THERE are few things a charity likes better than a big cheque. So one might
have expected that those behind the campaign to ³Make Poverty History² would
have welcomed the outcome of the G8 summit in Scotland this month. The
Gleneagles communiqué, issued on July 8th, bore a lot of promises to pay and
the signatures of eight heads of government. But several charities were
reluctant to take it at face value. The Catholic Agency for Overseas
Development said that the commitments did not justify the ³hope and hype²
surrounding the summit. ActionAid bemoaned the ³yawning gulf between
expectations raised and policy promises delivered.² At the summit's closing
press conference, Tony Blair, the host, appeared a little exasperated by the
grudging tone of some of the questions he had to field.

Some campaigners complain that the Gleneagles ³cheque² is postdated.
According to the OECD, the promises will add about $50 billion a year to the
$79 billion spent on aid by its 22 biggest donors in 2004. Of that $50
billion, Africa will get about $25 billion, roughly doubling what it
receives now. But poor countries must wait until 2010 before aid spending
reaches these levels. It is, say some campaigners, too little, too late.

Of course, campaigners never say it is too much, too soon. But even if a
doubling of aid overnight were feasible, would it be desirable? Mr Blair's
Commission for Africa, whose March report backed calls for more money, also
recognised the wisdom of an aid build-up that is ³measured in pace². The
commission hoped to double aid to Africa by 2008, but was prepared to settle
for a doubling by 2010. ³There is a limit to the number of roads, schools,
clinics and water points that can be built and serviced effectively in any
one year,² it pointed out.

There may even be dangers in premature generosity. In a working paper
published on the eve of the Gleneagles summit, Raghuram Rajan and Arvind
Subramanian, of the IMF, reawakened fears of so-called ³Dutch disease².
Under this affliction, a sudden windfall of foreign exchange bids up a
country's exchange rate and crowds out its export industries. One way to
inoculate a country is to spend aid dollars in ways that help reduce
exporters' costs‹building roads to the border, for example. But this takes
time. ³The world is impatient for the poor to develop,² they acknowledge,
but ³development, especially when mandated from the outside, may require
patience.²

Aid campaigners also complain that the G8 leaders' cheque is written against
funds that had already been pledged. Canada's promise to double aid by 2010
was made at the United Nations conference in Monterrey in 2002. In Brussels
in May, the European Union's 15 oldest members each agreed to spend at least
0.51% of their national income on aid by 2010, and the EU as a whole set a
collective target of 0.56% of their combined income. Taking those vows into
account, the OECD calculated that worldwide aid spending in 2010 would be in
the region of $125 billion, already $46 billion higher than last year. Only
Japan's promise at Gleneagles to spend another $10 billion spread over the
next five years caught the OECD's number-crunchers by surprise.

The wild card in all of this has always been America. Unlike other G8
members, it is inherently reluctant to commit fixed shares of its income to
aid five or ten years ahead. Rather, its menagerie of aid initiatives, plans
and funds must chirp, gobble and squawk each year for whatever crumbs
Congress deigns to toss their way.

At Gleneagles, for example, George Bush proposed to double American aid to
sub-Saharan Africa (from $3.4 billion in 2004) by 2010. Some of this money
will fall due after he leaves office in 2008, and some was already pledged
to his emergency plan for AIDS relief. The rest is implied by his
long-standing promise to spend $5 billion a year through the Millennium
Challenge Account (MCA), which backs projects devised by poor governments
that can demonstrate sound policies and honest administration. But in June
the House of Representatives agreed to cough up a mere $1.75 billion for the
MCA next year.

Promises, promises

It may be that the Brussels promises are more important than those made at
Gleneagles. But both are better seen as two events in a sequence dating back
to the Monterrey conference and stretching ahead to another big UN
conference in September. Taken together, these events have shown some real
ambition. The EU's targets, for example, mean that ³giving to foreigners²
will be the fastest-growing item of public spending in several member
states‹at a time when all of the European members of the G8 are nursing big
budget deficits. Indeed, some observers worry that even current aid-spending
levels will be hard to keep up. The $79 billion spent in 2004 was flattered
by the falling dollar (which is now rising) and the large sums America has
devoted to the reconstruction of Afghanistan and Iraq.

Recent numbers have also been inflated by what Richard Carey of the OECD
calls the ³debt relief bubble². More than a third of the rise in aid between
2001 and 2003 was due to debt relief, and the bubble will inflate further in
the next couple of years when donors add the full face-value of debts once
owed by Iraq. Of course, the forgiveness of debts that were being serviced
is a real cost to the donor. But cancelling debts that were not being
collected anyway is not a strenuous form of charity. When the bubble bursts,
donors may find giving harder than forgiving.

If nothing else, Gleneagles and the campaign leading up to it have helped to
build a vocal, pro-aid constituency of voters in rich countries. It will
take all their efforts to hold the G8 leaders to their promises so far, let
alone to extract more. But the danger is that the ³hype and hope² that
motivated those voters will be replaced by deflation and despair now that
some aid campaigners are branding Gleneagles a disappointment.