Hard-nosed foreign aid
There are powerful reasons growing out of philosophic precepts and national self-interest why the new Republican administration should support foreign aid. Some of these reasons point to an augmented and more directed bilateral program and others to an increase in the use of multilateral agencies like the World Bank and the regional development banks. Some aid would have to be concessional because countries are unable to afford anything else, but much of it could be on market terms.
Aid is an instrument of national security, an important consideration for a security-conscious administration. It was so used in the Marshall Plan and the Alliance for Progress, in South Korea and Taiwan. Security of a nation requires that its people have economic hope. High income is not possible for most people in countries with per capita incomes averaging between one-tenth and one-twentieth of ours, but the dream of a better life must be present. Leaders must be seen to be offering opportunities or they will not endure. The change in leadership in Poland, Jamaica, El Salvador, and even the small Caribbean islands of St. Kitts-Nevis and Dominica are recent examples of this.
The Caribbean, because of the unsetting presence of Cuba and proximity to the United States, is seen by key figures of the administration as a region of paramount national security for the United States. There is no conceivable way to achieve this security absent financial help from us. Mexico and Venezuela recognized this reality by instituting a large aid program there.
Problems are not solved merely by throwing money at them, but problems can be created by withholding money and hope. The new administration will need money for the Caribbean, and it will need flexibility in the use of funds. It should not have to wait a year, as have previous administrations, while Congress debates before help is given to meet emergencies. Such delay might help another , less friendly government come to power in the interim.
The enormity of the financial need in the Caribbean requires that the burden of providing help should be shared. Most countries in the region are among the hardest hit in the world from the oil price increases of the last decade, particularly in relation to the size of their economies. They join a list of other hard-hit countries, like Brazil, and many in Central America and elsewhere , which must finance the deficits in their balance of payments brought on by the increased cost of oil imports. This year, less-developed countries will spend $ 230 billion to $250 billion on oil imports. The combined deficit in the current account of their balance of payments will be more than $60 billion.
Concessional aid cannot fill all gaps of this magnitude, but filled they must be if turmoil is not to erupt. For Brazil and other newly industrializing countries, gap filling is being accomplished primarily by the private banking system, and private banks will have to take the lead in the future as well. The banks have asked for help. The multilateral institutions -- the World Bank, the regional development banks in Latin America, Asia, and Africa, the International Monetary Fund -- will have to augment their lending to help recycle funds generated from surpluses by oil exporters to the oil-deficit countries where they are needed.
It makes eminent sense to use all the financial intermediaries we can. In time, this financing comes homes, not just in interest and amortization, but also in increased US exports and private investment.
It is not always understood that US assistance to the World Bank (or regional development banks) for lending to less-developed countries need not involved a US budgetary outlay. What the US and other donors do is provide a guarantee of last resort which permits the bank to borrow from the market. The bank in turn lends to borrowers (the less-developed countries) at an interest rate related to its own borrowing cost. The official lending institutions are thus intermediaries between lenders and borrowers. They fulfill the same kind of function as any bank. The guarantee of last resort never has been called on in the history of all these institutions.
Many countries are too poor to be creditworthy to the commercial banks, and it would be shortsighted for the US to compound their problems by denying official aid as well. We can give this aid bilaterally or we can share the burden with other donors by working through the multilateral institutions. The amounts are relatively low in relation to our national product. (They are now less than one-quarter of one percent of our GNP.) This is the role for concessional aid.
Call it a grubstake. Call it national security. It is the only economic instrument the US really has in many countries.
This aid need not be given indiscriminately to all comers. If countries will not help themselves, there is no place for US aid other than to lease allies for short periods to say nice things about the US or to vote with us on mostly meaningless resolutions in the United Nations. When countries are prepared to help themselves, it would be folly to withhold our assistance. Jamaica is a current example of this outlook. If its economic policy succeeds, it will help the people of that country and it will be valuable as well for the people of our country.
This would be a hard-nosed aid program. Help those who help themselves. Direct aid to where it is most important for us, which signifies a growth in bilateral aid, but without giving up the burden-sharing implicit in multilateral concessional aid. Help the private banks recycle oil surpluses by providing capital to official international institutions so that they, like the private banks, can act as intermediaries. Those who oppose such a program are taking risks with US nationa l security.