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Newsday (USA)The Economist (UK), February 12, 2005 EDITORIAL: Show us the money; Aid, debt and development Credible policies
and hard cash, not accounting trickery, are
needed in the fight against poverty
IF SAYING the right thing were all that mattered, this year of "making poverty history" could already be declared a triumph. The corporate bosses, political leaders and assorted celebrity do-gooders gathered last month in Davos talked of little else but their ideas to help the poor. Yet what really matters is not words but action. This year, policymakers will have opportunities a-plenty to do the right things at several high-level meetings—the G8 summit in July, a special assembly of the United Nations in September to discuss progress towards the Millennium Development Goals (which include halving the proportion of the world's population in extreme poverty by 2015) and the World Trade Organisation gathering in December. For an early clue to whether these meetings will deliver the goods, all eyes were on last weekend's gathering of the G7 finance ministers (see page 75). An upbeat communiqué was duly issued, pledging more aid, more debt relief for poor countries and freer trade. Yet behind the headline pledges was a tangle of disagreements over how much more aid and debt relief to provide, how to pay for it and how to deliver it. True, the meeting was primarily intended to set a bold agenda, which it did. Even so, these disagreements will not be easily resolved. Consider, for instance, the promise in the communiqué to provide "as much as 100% relief" on the debts of the world's poorest countries to the IMF, the World Bank and other multilateral lenders. The words "as much as" cover a multitude of views on debt relief, from those such as Britain's and America's—keen on 100% relief in the right circumstances—to that of Japan, which questions the usefulness of any debt relief. On balance, it is to be hoped that Japan will come to agree with Britain and America on this issue, as debt relief, when it works well, can be the best form of financial assistance. It puts more money in the hands of the recipient country, so it can take charge of its own development. Yet for that very reason, debt relief can also be a perversely efficient way of rewarding the worst sorts of poor-country governments, which may use their improved cash flow only to develop the president's Swiss bank account. Thus, debt relief should be given only when the government receiving it is likely to put it to good use. That has been the aim of the heavily-indebted poor country (HIPC) initiative, which may now be extended—though HIPC relief has a mixed record in practice, in part because the need for donors to be tough has often been trumped by their wish to appear generous. When a government cannot be relied upon to use debt relief well, aid focused on specific goals is a better use of foreign money. Britain's promise to buy vaccines against HIV/AIDS and malaria for distribution in poor countries, which it hopes will provide the financial carrot necessary to get drug firms to develop them, is a potentially excellent use of an aid budget. Arguably the most worrying dispute among rich countries is over how to pay for the war on poverty. As well as the familiar techniques of unfunded pledges and redirecting existing aid flows, gimmicks have been proposed, such as a "Tobin tax" on international financial transactions (unworkable) and a tax on aviation fuel or air tickets (which could work, and can be justified on environmental grounds, but has no link to poverty). More ominously, some G7 finance ministers seem tempted by various "off-balance-sheet" financing schemes, the sort of trickery notoriously associated with Enron. The IMF, say, might pay for the cancellation of debts by revaluing or selling its gold reserves—this could conveniently avoid counting the cancelled debt as public spending. Another off-balance-sheet manoeuvre is the International Financing Facility (IFF) championed by Gordon Brown, Britain's chancellor of the exchequer. This would let governments borrow against their own future aid budgets without counting such borrowing in their public accounts. The IFF's borrowing would be treated as only a contingent liability of the governments concerned (a technicality that should make IFF debt more expensive than straightforward government debt). Is such trickery ever desirable, even to help the poor? And is it even necessary? Surely the public response in rich countries after the Asian tsunami demonstrated that, when people believe their money will be well spent on relieving misery, they are ready to be extremely generous. This year, politicians should instead use their creativity to come up with credible policies for reducing poverty confident that, if they do so, their voters will not need to be deceived into paying the bill. << The Economist -- 2/12/05 >> Home About Us Newsletters News Archives Donate
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