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The Global War on Poverty: An American Foreign Aid Revolution

By Barry Metzger, Senior Partner, Coudert Brothers, LLP

The 1990s were marked by growing domestic and international criticism of American foreign aid to the developing world. While the largest donor at approximately $10 billion per annum, the United States contributed the smallest proportion of its national wealth to such assistance (approximately 0.1% of America’s Gross National Product). It has also been chronically delinquent in Congressional funding of commitments to the soft loan windows at the multinational development banks which aid the poorest nations. In the buoyant optimism of America’s boom economy through most of the decade, America’s wealth stood in dramatic contrast to poverty and human suffering in the developing world. The unrestrained devastation of the AIDS pandemic in parts of Africa painted most starkly that contrast between the wealth and poverty of nations.

With the inauguration of the George W. Bush in 2001, there seemed little objective reason for optimism about the emergence of enhanced development assistance as a major theme of the Bush Administration’s foreign policy. Senior members of the Administration, most notably Treasury Secretary Paul O’Neill, were openly critical of what they termed to be a long history of ineffective foreign aid. Criticism of United Nations organizations and the World Bank were common. The Administration’s discomfort with multilateral approaches to international issues seemed unlikely to yield strong support for programs to achieve the United Nations-sponsored Millennium Development Goals or to implement the World Bank’s Comprehensive Development Framework in its developing member countries.

Yet within the past year the Bush Administration has undertaken two bold initiatives that promise dramatically to increase America’s foreign aid for development and which embody a new paradigm for America's development assistance.

In March of last year, immediately prior to the United Nations-sponsored International Conference on Financing for Development in Monterey, Mexico, President Bush made an American commitment to a 50% increase in its development assistance over the next three years – to $15 billion a year. The incremental funds would be channeled through a Millennium Challenge Account to those developing countries which, in President Bush's words:

"…root out corruption, respect human rights, and adhere to the rule of law… invest in better health care, better schools and broader immunization… [and] have more open markets and sustainable budget policies…"

The eligibility of countries for funds from the Millennium Challenge Account is to be determined through a remarkably "metric" approach. To determine eligibility, a country must score above the medium on sixteen indicators or indexes that measure the extent to which a country "governs justly, invests in its people, and encourages economic freedom." The indicators include the: Freedom House indexes of Civil Liberties and Political Rights, Rule of Law index created by the World Bank Institute, a country's credit rating, various measures of public expenditures on primary education and healthcare, Heritage Foundation's Trade Policy index, IMF's statistics on a country's inflation rate and its government's budget deficit.

The Millennium Challenge Account is to be administered by a small, new government corporation, the Millennium Challenge Corporation. Countries determined by their "metric" scores and by the Corporation's board of directors to be eligible, are to submit proposals for assistance to the Corporation. If approved, the programs funded will be administered directly by such governments or by such governments in cooperation with non-governmental organizations, with a minimum of prudential oversight by the Corporation. None of such assistance is to be channeled through the traditional screening and administrative processes of the United States Agency for International Development (USAID) or made available through increased American contributions to multilateral organizations such as the United Nations Development Programme or the World Bank.

A similarly bold initiative was recently promised by President Bush in his 2003 State of the Union Message, in which he announced a $15 billion American commitment -- including $10 billion of new funds -- to fight AIDS in Africa and the Caribbean over a five year period. The Emergency Plan for AIDS Relief is intended to prevent seven million new AIDS infections, to treat at least two million people with life-extending drugs, and to provide humane care for millions of people suffering from AIDS and for children orphaned by AIDS. The Emergency Plan will be based on a "network model" being employed in countries such as Uganda. This involves a layered network of central medical centers that support satellite centers and mobile units, with varying levels of medical expertise as treatment moves from urban to rural communities. It will build directly on clinics, sites and programs established through USAID, the U.S. Department of Health and Human Services, non-governmental organizations, faith-based groups, and the host governments. Only a small portion of the funds will be channeled through the multilateral Global Fund to Fight HIV, Tuberculosis and Malaria recently established as a Swiss foundation. This is so despite the fact that the Secretary of the U.S. Department of Health and Human Services is being appointed chairperson of the Global Fund and that the Global Fund takes a comparable approach to that of the Emergency Plan (in supporting proposals from both governments and from partnerships between governments and non-governmental organizations and in operating outside of traditional development assistance delivery channels).

The dramatic increase in development assistance embodied in the Millennium Challenge Account and the Emergency Plan reflects a new domestic political consensus or, maybe more accurately, a new political coalition in the United States supporting development assistance. These new initiatives have not had their origin in the traditional support for expanded development assistance from within the liberal community or from U.S. businesses that are internationally active. These new initiatives reflect powerful support from the conservative community and, in particular, from the Christian right. Such support is largely based on the religious and moral case for assisting the poor and on the view that such righteous assistance also serves the U. S. national interest. This new consensus or coalition was first seen in the Jubilee 2000 Campaign for debt relief. Foreign aid activists such as the rock star Bono and health activists such as Professor Jeffrey Sachs have played an important role, probably more so than professional politicians. Yet the role of professional politicians should not be underestimated, since the Republican majorities in Congress ultimately will reinforce Presidential leadership and should ensure Congressional endorsement of these initiatives.

The Millennium Challenge Account and the Emergency Plan are far more than mere money; they also represent a dramatic departure from traditional development assistance. Their approach is more unilateralist than multilateral, with a very sharp focus on development effectiveness. Millennium Challenge Account funds are not to go automatically to allies of strategic importance to the United States, but only to those countries with "passing grades" on governance, economic freedom, and investments in education and healthcare. There is a dramatic turning away from development assistance viewed as a country's "entitlement" as a poor nation. Instead, these initiatives are intended to provide assistance only for those countries that demonstrate a willingness to help themselves. In the case of the Millennium Challenge Account this will be achieved through open markets, open political dialogue and human capital investments -- and in the case of the Emergency Plan through credible and accountable project proposals.

The unilateralism of these initiatives is, to an extent, a reflection of the Bush Administration's discomfort with multilateral institutions and multilateral solutions. It is also, however, a reflection of more broadly based domestic and international criticism of the failings of traditional foreign aid and development assistance agencies. Such criticism has targeted the United Nations, the World Bank as well as USAID and its sister, bilateral donor institutions in other countries. Such criticism takes these institutions to particular task for the slowness of their own movement from an "entitlement" perspective to more performance-based grounds for the award of their largess. Too many projects at these institutions are viewed as having been unsuccessful, and the weight of their own bureaucracies is viewed as placing too heavy a burden on program administration. The Global Fund -- a non-American initiative -- evidences a comparable preference to that of the Millennium Challenge Account in its desire to work outside of the traditional foreign aid agencies (both multilateral and bilateral). Troubling and ironic is the Emergency Plan's preference to work largely outside the framework which the Global Fund has itself established outside the traditional multilateral and bilateral healthcare bureaucracies.

The path ahead is uncertain. Congressional approval of the Millennium Challenge Account and the Emergency Plan seems assured. Yet budget appropriations could be scaled back in light of America’s worsening budget deficit, the persistent weakness in its domestic economy and the costs of America's defense. Geopolitical factors could also skew development assistance priorities in favor of allies rather than those countries that can demonstrate their ability to use such money best as development capital.

Another uncertainty, particularly in relation to the Millennium Challenge Account, is the nature of the proposals which eligible countries will submit for funding. Since great weight is to be placed upon responding to the priorities of emerging democracies with market economies, it may be that the funded proposals have less of a focus on poverty reduction, environmental protection and the other priorities that currently animate America’s and multilateral development programs. Such countries may well place greater weight on programs for purely economic development.

Most likely, both the Millennium Challenge Account and the Emergency Plan will be implemented largely as they have been proposed. They can be expected to have a significant influence in reshaping the paradigm for development assistance. That influence will not be limited to America’s development assistance programs, but can be expected over time to spread to the program design and priorities of other bilateral donors and of the multilateral development banks.

Editor: Dr. Scott B. MacDonald, Sr. Consultant

Deputy Editors: Dr. Jonathan Lemco, Director and Sr. Consultant and Robert Windorf, Senior Consultant

Associate Editor: Darin Feldman

Publisher: Keith W. Rabin, President

Web Design: Michael Feldman, Sr. Consultant

Contributing Writers to this Edition: Scott B. MacDonald, Keith W. Rabin,
Jonathan Lemco, Jean-Marc F. Blanchard, Barry Metzger, Russell Smith,
Ilissa A. Kabak, Andrew Novo, Jonathan Hopfner, C. H. Kwan, Dominic Scriven and Andrew Thorson

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