Foreign Aid Seen as Lever to Curb Armaments in Developing Nations

ROBERT McNAMARA, former president of the World Bank, proposes a different way to limit military spending by developing countries: Don't give them any financial assistance if their military expenditures are above an "optimal level." That idea has caught on because of the crisis in the Middle East.

Iraq, many development experts note, spent vast sums on arms rather than on economic development. The war prompted considerable talk, but not much hope, that arms exporting nations might voluntarily or by international agreement reduce their shipments of military equipment to developing countries.

At the spring meeting here this week of the policymaking committees of the International Monetary Fund (IMF) and the World Bank, Rudolf Hommes, Colombia's finance minister, said that military spending by developing countries competed for savings, while problems of health, education, and poverty "were not resolved."

Mr. Hommes, chairman this year of the Group of 24 developing countries, which presents the views of the world's poorer nations to these two multilateral institutions, said at a meeting of the G-24 Sunday that the general response to Mr. McNamara's suggestion was "favorable." He noted the idea would need to go through the usual screening process and be brought up at a later meeting. However, the World Bank is already looking at the McNamara plan, partly because it is being taken seriously in Japan and Br i


"When appraising reform programs in the future, fund and bank staff should put still more emphasis on the need to avoid excessive spending on arms," British Chancellor of the Exchequer Norman Lamont said here Tuesday.

Japanese Prime Minister Toshiki Kaifu told the House of Representatives in Tokyo Feb. 26: "The government intends to review and reformulate our overseas development assistance policy toward countries with large military expenditures and also toward those engaged in military assistance to other developing countries."

Several days earlier, the Institute for Policy Research, the in-house think tank of Japan's governing Liberal Democratic Party, had urged in a report that "due attention must be paid to ensuring that aid funds will not be diverted to military use." The report further said Japan "must make more active use of economic assistance as a principal instrument of foreign policy."

Since Japan's foreign aid of about $9 billion a year now exceeds that of the United States, any change in policy over aid and arms spending would be quickly felt in many poorer countries, particularly those in Africa and the Far East. Most countries consider military spending a key element of their national sovereignty. Many leaders - especially those in regimes controlled by the military - will not like being put under pressure to trim their arms expenditures.

Lawrence Summers, chief economist at the World Bank, says McNamara's suggestion "has to be looked at very seriously." But he asks whether it could be made to work. Perhaps, he says, the bank and other lenders could insist that developing countries spend a given fraction of their national income on social expenditures and human capital; that is, food, clothing, shelter, and education if they are to be granted loans.

"Focus on what they must do and not on what they should not do," he says.

When the IMF or the World Bank require a nation to carry out measures or reforms before granting a loan, this is called conditionality. Traditionally, conditionality involves changes in national policies aimed at improving productivity, cutting budget deficits, shrinking balance-of-payments deficits, or adopting other economic reforms.

Especially with the end of the cold war, conditionality is being stretched to include political issues. The European Bank for Reconstruction and Development is specifically instructed to promote democracy in East European nations. The World Bank and IMF sometimes consider human rights in deciding whether to make a loan, but are not supposed to consider whether a nation's government is a dictatorship, a full democracy, or something in between.

McNamara, in a paper delivered at a World Bank conference here last week, called for "the linking of financial assistance, through 'conditionality,' to movement toward 'optimal levels' of military expenditures." Those optimal levels should take account of any external threat to a nation, he said.

He likes an earlier formula suggested by a group of former presidents and prime ministers of Germany, Nigeria, Peru, Canada, and Korea, and chaired by former German Chancellor Helmut Schmidt. Their report urged that special consideration for aid be given to countries spending less than 2 percent of their total national output in the security sector. "I am conscious that application of such conditionality will be difficult and contentious," he says. "Nevertheless, it is ... an essential part of the solut i

on to the waste represented by excessive military spending in poor countries."

Military expenditures by all developing countries amounted to about $170 billion in 1988, or about 4.3 percent of gross national product. This sum is only slightly less than total spending for health and education in these countries, McNamara notes.

Tying aid to reduced military spending, he maintains, can lead to less risk of war among third world nations. In the past 45 years, some 125 wars and conflicts in the third world have led to 40 million deaths.

McNamara sees the end of the cold war as providing "dramatic opportunities" to reduce military spending.

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