Fixing Foreign Aid

Fixing Foreign Aid
Monday, May 24, 2004; Page A22

Washington Post
May 24 2004

IN MARCH 2002, President Bush announced an expansion and renovation
of U.S. foreign assistance. He proposed the Millennium Challenge
Account, which would ultimately channel to poor countries $5 billion
a year, a sum that would reflect a 50 percent expansion in existing
aid programs. The new money would be spent in a new way: It would go
to a short list of countries with sound policies, rather than being
spread around dozens of places where corruption or political disorder
undermines progress. Two years on, Mr. Bush’s idea is not attracting
the funding that he talked of. But his initiative has created an
improved model for U.S. foreign assistance.

The new model works by measuring the quality of poor countries’
policies in three areas. The first concerns governance: Do citizens
have civil and political rights? How bad is corruption? Is the
government effective? The second category is investment in people,
particularly in immunization, other health programs and primary
schooling. The third is the quality of economic policy, measured
partly by indicators like the inflation rate but also by the number
of days it takes to start a business and “regulatory quality.” The
Challenge Corp., the government entity formed to administer the new
aid program, has measured 77 poor countries against these benchmarks.
The top 16 have been invited to apply for grants.

Nobody pretends that these measurements are perfect; quantifying the
“rule of law” is tricky. But the indicators are nonetheless the best
available: They have been taken from respected outside institutions,
such as the World Bank and Freedom House. Some might wonder, for
example, why Armenia, a country with poor political and civil rights,
was chosen, but Armenia’s strong scores in economic management,
rule of law and “government effectiveness” suggest that aid dollars
will be well spent there. Why did Uganda and Vietnam, two development
stars of the 1990s, fail to make the grade? Because their political
scores were even worse than Armenia’s.

The question now is how the aid will be spent in the selected
countries. High-performing poor countries tend to be the darlings
of donors, so finding worthwhile projects may be a challenge. One
solution may be to stay away from health and education, which attract
the most outside backing, and go for power, water and roads. But
infrastructure projects require engineering studies, environmental
assessments, social-impact evaluation — in short, they take time
to get off the ground. Another solution may be to pour money into
government budgets, so that the quality of government personnel and
spending is strengthened, but this approach may not appeal to Congress,
which likes backing discrete projects.

Supporters of the Millennium Challenge Account worry that it is
underfunded. When he laid out his plan two years ago, Mr. Bush said
he wanted $1.6 billion in the current year, double that in 2005 and
then $5 billion a year thereafter. Instead, Congress appropriated $1
billion for the current year, and the administration has requested
only $2.5 billion for next year; the eventual $5 billion target seems
distant. But the chief danger to Mr. Bush’s project is that, in an
effort to wring money from Congress, his administration will make
unrealistic promises about how quickly aid can be disbursed and how
measurable the results will be. That will only breed cynicism when
the promises go unfulfilled. Fighting poverty takes patience.