Even as more money is found to rescue yet another banking giant, additional resources are scarce for the developing world. Yet without strong action by world leaders at the Financing for Development conference in Doha, Qatar, which begins on November 29, this subject will likely be another victim of the financial crisis, with grave repercussions for global poverty and the achievement of the Millennium Development Goals.
Ideally, rich countries will recommit to increasing their aid budgets in Doha and not waste too much energy on the smokescreens of “innovative financing” mechanisms, which just substitute budget funded aid, or lack political feasibility. Instead, rich countries should focus on taking immediate concrete action in two areas that don’t require additional taxpayer money: aid quality and trade.
The Organization for Economic Cooperation and Development (OECD) says that less than half of all bilateral aid can be used by recipients to address their needs. Donors should raise the effectiveness of their aid first, by reducing the amount of “aid” that is actually spent in donor countries, and by coordinating their programs more effectively. Recipients shouldn’t have to deal with dozens of donors, each with their own demands and procedures, imposing huge transaction costs on weak developing country institutions. Though the United States is among the least generous donors in relative terms, because of the size of its economy it is the largest. Still, its aid makes up only one-fifth of total assistance. If the U.S. government were to announce that it will align U.S. policy with the Millennium Development Goals and the internationally agreed framework for aid effectiveness, it would greatly improve the global impact of aid.
The second area is trade, which according to the Monterrey Consensus “in many cases is the single most important external source of development financing.” However, the results of the so-called “Development Round” of World Trade Organization (WTO) talks (which coincidentally was launched in Doha), at the time it stalled, didn’t justify the promised “development” label. Because of today’s crisis, global trade might contract for the first time in decades. Demand for poor countries’ exports is declining, while trade credit dries up, devastating poor producers’ livelihoods. But the “Doha Development Agenda” is apparently not on the agenda this time in Doha.
The recent commitments made at the G-20 and APEC summits supporting a one-year moratorium on protectionist measures and to revive the WTO negotiations are good, but not enough. Action is needed now. First, as rich countries review their public spending for things to cut, they should start by eliminating their wasteful agricultural policies that only help rich farmers in rich countries at the expense of poor people everywhere. Second, they must eliminate all remaining limitations to market access for the poorest and most vulnerable economies. These countries make up less than 1% of the world economy, but are home to hundreds of millions of the world’s poor. Rich countries have pledged to provide total free market access time and time again, but have maintained restrictions which make a mockery of their commitments. With the African Growth and Opportunity Act, the United States has made a serious effort at encouraging economic growth through trade. Expanding this act to all the poorest countries and a progressive U.S. trade agenda that is aligned with its development objectives would allow the United States to lead by example.
Since Monterrey many developing countries, including those in Africa, have made great strides, partly because of increased aid and debt relief, but primarily by putting their own homes in order. The world was, until recently, on track to achieve at least the first Millennium Goal of halving the number of extreme poor, and was coming close in several others. It’s good news that the recent G-20 and APEC meetings reaffirmed the Monterrey principles and the importance of the Millennium Development Goals.
However, without meaningful action now, the present crisis might wipe out that hard-fought progress. The crisis will dampen investment and reduce poor countries’ access to credit and demand for their exports. And yes, some rich countries have already indicated the crisis will have consequences for their aid budgets. The result would be much slower, if any, growth. Africa might be robbed of its one chance in a generation to make real progress. And the Millennium Development Goals would end up on the boulevard of broken dreams.
On the issues of aid and trade, the world doesn’t need more international conferences, full of speeches and pledges. Governments just need to live up to commitments they already made — over and over again.