Political Will, Not US Aid, Fosters Foreign Development

IN response to years of criticism of the United States foreign-aid program, Congress has significantly reduced the budget for development assistance. It is also considering a bill to abolish the US Agency for International Development (AID). In an era of budget-slashing, opponents of foreign aid argue that the $12.3 billion appropriated for fiscal year 1994 is largely wasted on developing countries. Aid proponents insist that foreign development assistance is both beneficial and a necessary cost of global leadership.

Have the hundreds of billions of dollars spent by the US in foreign aid over the past 40 years actually helped poor nations to develop economically and socially? In most cases, the answer is unfortunately no. With notable exceptions such as Botswana, aid recipients in Africa remain largely mired in poverty and political instability. Aid is also not the magic ingredient to open new export markets for US products. Studies show that the burgeoning Latin American markets are the result of new free-enterprise governments and aggressive American exporters instead of more than $30 billion given in development assistance.

Ironically, some of the fastest-growing economies in the world today are those such as China and Vietnam, which have been cut off from US aid for many years. In Eastern Europe, the most dynamic economies are those that have received relatively little assistance.

A prime example is the small former Yugoslav republic of Slovenia. Following independence in 1991, the Slovenian government requested US help in two areas: reforming the financial and banking sector and privatizing key industries. Slovenia received only $2.8 million from AID in 1994 to support these economic-restructuring activities. Today, it has the highest per capita gross domestic product of all former ''socialist'' republics in Eastern Europe (nearly twice that of the Czech Republic). Slovenia's GDP grew more than 5 percent last year and the country enjoyed a healthy current-account surplus of $2.6 billion. Earlier this year, London's respected Economist magazine rated Slovenia as having ''the brightest medium-term prospects among the countries of Eastern Europe and the former Soviet Union.''

This is in marked contrast to Russia, which received the bulk of US aid to the region in 1994. The $2 billion committed to Russia was described by the majority and minority leaders of the US House of Representatives as ''simply inadequate in its strategy, its intensity, and its implementation.'' AID has admitted that its Russian program ''lacks focus'' and acknowledges that most of the funds appropriated actually go to US consultants rather than to the Russian people: the most common complaint of AID's recipients everywhere.

The inevitable question is whether countries like Slovenia could have restructured their economies without any help. The answer is probably yes. Taiwan and South Africa have successfully weathered virtual economic embargoes, and South Korea is growing rapidly despite receiving little AID assistance compared with ''basket case'' economies such as Egypt, the Congo, and Russia. Development aid may have facilitated the process of economic and political pivot in certain countries like Slovenia, but the most important criterion is the will of the people and their governments.

Jamaica is a good case in point. During the Edward Seaga government, which held power through most of the 1980s, Jamaica got more than $1 billion in US aid. The program was riddled with corruption and made it easier for the government not to undertake painful economic reforms. US food aid actually put Jamaican farmers out of business because it subsidized imports of staples such as rice. As a result, farmers turned to the more lucrative cultivation of marijuana.

After the election of the erstwhile socialist Michael Manley in 1989, US assistance to Jamaica was significantly reduced. Ironically, Prime Minister Manley proved far more rigorous in restructuring Jamaica along free-market lines than his predecessor, privatizing more state-owned enterprises in two years than Mr. Seaga had during eight years in office.

US Sen. Mitch McConnell (R), chairman of the foreign aid appropriations subcommittee, advocates reducing the foreign-aid budget and using what is left to help countries that are committed to free-market policies and open trading systems. This policy would reward countries, such as Slovenia, that seek to rapidly wean themselves from foreign assistance by giving them priority in funding. Countries that remain mired in poverty despite years of aid would be penalized and motivated to seriously pursue economic and political reforms.

Foreign aid is a luxury that the US cannot afford if it does not contribute to our international-trade and strategic interests. The free-market principles we seek to export should be applied within AID: Assistance should be viewed as an investment, and US taxpayers should expect returns on that investment, rather than billions lost through waste, corruption, and political expediency.

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