Hold Firm on Foreign Aid
The House shortchanged developing countries when it cut $200 million in funding
ON June 17, the House of Representatives passed the foreign aid appropriations bill. But it seriously shortchanged developing countries by cutting over $200 million in funding for the International Development Association (IDA). As the "soft loan" window of the World Bank, IDA is the largest source of low-cost development lending to the world's poorest countries. The United States' negotiated share of this three-year IDA replenishment is just under $4 billion, or 20 percent of the total contribution from
34 donor countries.
At a time of budget tightening, spending cuts in foreign as well as domestic programs are unavoidable. However, the steepness of recent foreign-aid cuts partially reflects congressional efforts to meet President Clinton's new commitment of $1.8 billion in aid for Russia. This approach runs the risk of robbing Peter to pay Paul and contradicts the principle at the core of the administration's deficit reduction package: The poor should not bear the burden of adjustment.
The IDA funding request comes before Congress at a time of new and urgent needs for foreign assistance to support the historic transformation in Eastern Europe and the former Soviet Union, encourage the worldwide movement toward democracy, and reverse accelerating trends in global environmental degradation.
These needs must compete for attention and funds with long-neglected domestic problems, including efforts to rein in the budget deficit and national debt.
The issue raises two questions: Why continue to aid the world's poor when the cold war is over and we are faced with raising taxes and cutting spending? And, if we do so, why channel a portion of those funds through IDA?
We have won the cold war, but we have not secured the peace. Nor does making peace resolve many other international problems that, if left unattended, threaten our well-being and the future well-being of our children and grandchildren. These problems - illicit drugs and terrorism, disease, the proliferation of weapons of mass destruction in regions of insecurity, the press of population growth on the earth's natural resources - will not be resolved in a world marked by massive poverty, social and economi c inequities, and ethnic conflict.
While the crisis caused by such unresolved problems will entail substantial costs, the peaceful economic development of poor countries can work to our benefit in very tangible ways. Indeed, in recent years, US exports to developing countries have increased 62 percent as compared to a 31 percent rise in US exports to industrialized countries. These growing markets for US goods are found in former borrowing countries, some of which are IDA "graduates." Some are now aid donors themselves.
Though its visibility is low, IDA is an effective instrument for providing assistance to low-income countries. Compared to other development assistance programs, IDA has three major strengths. First, it is an effective way of leveraging the resources of other donors, especially important now that the US provides less aid overall. At present, every $1 we contribute to IDA leverages another $4 from other donors.
Second, unlike US bilateral aid, much of which goes to higher-income countries for political purposes, IDA's lending is directed entirely to poor countries with average annual per-capita incomes below $765. Within poor countries, IDA targets about one-third of its lending to poor segments of the population and to social sectors such as health and education. In comparison, only about one-half of total bilateral aid from all countries goes to those same low-income countries, and less than 10 percent of tha t is directed toward anti-poverty sectors.
Finally, as an integral part of the World Bank, IDA has the resources and technical expertise to encourage needed economic policy reforms in recipient countries.
Though IDA funding is not an easy decision for Congress, it offers an important opportunity to make substantial progress on issues of importance to us as well as developing countries - poverty reduction, environmental protection, and economic reform.
Due in large part to US urging and increased international consensus on the importance of these issues, IDA has taken action in recent years to strengthen its lending policies and procedures in each of these areas. For example, IDA now evaluates projects at an early stage for their potential environmental and social impact and works with borrowers to incorporate these considerations into broader development strategies.
Furthermore, members of the World Bank staff are now focusing on recommendations from a candid internal evaluation that suggest ways of improving the operational effectiveness of IDA and other parts of the Bank - which is, by any measure, today's most important international development agency.
The potential exists to translate IDA's strengthened and important policy goals of poverty reduction, environmental protection, and economic policy reform into substantial progress on the ground. To ensure this outcome, the US and other donors should fully fund IDA. The House-Senate budget conferees should restore to the IDA appropriation the $200 million cut by the House.