Make Countries Reform to Get U.S. Aid

For the first time since Sept. 11, the world’s leaders have gathered, in Monterrey, Mexico, at a United Nations summit to seek common means of relieving the poverty that afflicts billions of people worldwide. Left untreated or ignored, this poverty makes fertile ground for instability and the Osama bin Ladens of the world.

Although neglect can have devastating consequences for U.S. national interests, the Bush administration is right to tie increased aid to reform and results.

Leading the charge to revamp the U.S. approach to aid is Treasury Secretary Paul O’Neill. It is O’Neill’s unique way with words that tends to get the attention, while the substance of what he’s saying too often is lost.

Fortunately, his colorful language is backed by rare intellect, a record of success and several sober studies from the World Bank and Organization for Economic Cooperation and Development that have pointed to the positive impact of aid when used in a sound policy environment.

Although not specifically linked to O’Neill’s arguments, these studies make a strong case for requiring that certain conditions be met when granting assistance and targeting aid to governments whose policies are most conducive to maximizing results.

Such optimal conditions are not found in abundance among the world’s poorest nations. Does that excuse either the donors or recipients from setting standards? Aid is far too valuable both in dollar terms and as an incentive for change to waste it indiscriminately.

There is a long, sad history of aid dollars going into the wrong pockets. That is bad enough, but the effects are even worse. Unconditioned assistance too often rewards corruption and bad economics, and these lead to economic deterioration rather than growth.

As a former U.S. assistant secretary of State for Near Eastern affairs, I have some experience with the lost potential of much of our assistance. Programs administered by the U.S. Agency for International Development, or USAID, could be an extremely valuable weapon in our war against disease and hunger and the instability they breed.

Yet earmarking of appropriations by Congress has led to an entitlement attitude in some nations, which reduces the administration’s leverage even when it is committed to reform. In Egypt, for example, we had an aid program that was increasingly conditioned on reform. But the pressure to disburse funds and the fear of building up a pipeline of unspent aid, which Congress deplores, meant we were constantly pressed to ease our conditions, making them so easy that there was no risk of their not being met.

While the United States has been increasingly wedded to the concept of conditionality in its assistance programs, that theology has not fully penetrated the USAID bureaucracy. It is even less regarded in the European Union, where reform conditions are seldom tied to aid.

The concepts that O’Neill is promoting are not comforting to aid professionals in and out of government who seek “feel-good” programs. But “tough love” may well be a better prescription for the poor of the world than assistance that only prolongs bad governance.

In the absence of results, aid should be withheld, stored up in a pipeline to provide greater incentive for change. Donors must play an active role in pushing for conditions that maximize the value of every aid dollar and also lay the groundwork for increased foreign investment. The latter is the key to sustained economic growth.

Many international business leaders and investors are attending the conference in Monterrey. They too are interested in aid acting as a more forceful catalyst for political and economic change in developing nations.

When such changes occur, countries stop attracting the world’s terrorist operations and start attracting foreign capital instead.

The question remains whether world leaders can agree on a mechanism for linking aid with economic reform--or even on the urgent need to take such action.

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Edward S. Walker, president of the Middle East Institute in Washington, D.C., was assistant secretary of State for Near Eastern affairs from 1999 to 2001.