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The Plight of the PoorThe United States Must IncreaseDevelopment Aid

James Gustave Speth

The financial crisis that began inAsia in1997 has exacerbated a growing problem:poverty amid abundance. The WorldBank estimates that if current recessionarytrends continue, the number of poorpeople inEast Asia will increase sharplyin the next two years?from 40 millionto more than 100 million. The number ofIndonesians living on less than $1 a daywill jump from 13million in 1997 to 34million in 1999.This rapid growth ofpoverty poses grave dangers to theWestand to the world.

Lest cynics in theWest argue this hasnothing to do with them, consider thefollowing. Economic declines inevitablytranslate into political instability and socialunrest. Sporadic rioting and looting havealready broken out in East Asia, alongwith attacks on ethnic minorities. Whatbegan as a financial crisis has spread andis tearing atAsia's social and political fabric.This may herald severe consequences forstability in countries where growingprosperity had once delivered social cohesion. The world has become more polarized,both between and within countries. The

risk of a huge global underclass undermining international stability is quite real.SAVAGE INEQUALITIES

The recent downturn has affected not onlytheAsian tigers and other developingcountries but also states that are too poorto be considered emerging markets. Africa'sgrowth for 1998, once expected to exceed4 percent, has in fact been closer to 2.2percent. In Latin America, growth forecastshave been scaled down from 5.3 percentbefore the crisis to 2.6 percent for 1999.

Furthermore, even before the international financial crisis cut the globalgrowth rate in half and plunged morethan a third of the world's economiesinto recession, the data on poverty were

painting an alarming picture. In thepast 15 years, per capita income hasdeclined inmore than 100 countries andindividual consumption has dropped

by about one percent annually inmore than60.Meanwhile, some 150million people?equal to the combined populations of

France, the United Kingdom, the Netherlands, and the Nordic countries?were

James Gustave Speth is Administrator of the United NationsDevelopment Program.

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James Gustave Spethpushed into poverty when the SovietUnion collapsed.

Among the 4.4 billion people in developing countries around the world,three-fifths live in communities lackingbasic sanitation; one-third go without safedrinking water; one-quarter lack adequatehousing; one-fifth are undernourished;and 1.3 billion live on less than $1 a day.

Nearly one-third of the people in thepoorest countries, mostly in sub-Saharan

Africa, can expect to die by age 40. Evendeveloping countries with strong growthrates are struggling. Despite Uganda'shaving posted six percent annual growthfor a decade, for example, two-thirds ofits population still lives in absolute poverty,with per capita income only now returningto the 1970 level. Rapid growth has onlystarted to counteract the ravages of twodecades of armed conflict, economic

mismanagement, high inflation, cripplingcorruption, external debt, and decliningexport prices.

WHERE CREDIT IS DUEToo often, short-term military, political,and economic interests, rather than thegoals of poverty eradication and humandevelopment, have shaped developmentassistance. A new framework for suchaid must switch the focus of scarce fundsto the most pressing needs of people,particularly the poor. The scope ofdevelopment cooperation must broadento include not only assistance but trade,debt management, private investmentand capital flows, access to technology, andthe strengthening of civil society as a

whole. In particular, itmust correctthe chronic underinvestment in socialprograms by poor countries withunshoulderable debt burdens.

To make this possible, industrializednations must first reduce developingcountries' burden of external debt. Thisnow totals more than $2.2 trillion, of

which two-thirds is long-term public debt.African governments now transfer fourtimes more money to international creditors than they spend on basic healthcare and education. The West can affordtemporary suspension of payments frompoor countries while they negotiate newterms. Special programs must addressthe challenges of pre-emerging markets,where banking and regulatory systemsand governance capabilities are far lessdeveloped than in the Asian tigers, andwhere only 0.2 percent of global commercialcredit goes to the poorest 20 percent ofthe world's people.The current World Bank-IMF initiativeto assist

HeavilyIndebted Poor Countries

(hipc) aims to relieve countries fromunsustainable debt. Six nations have beenselected for this initiative out of the 41eligible. But the hipc program fails tomeet the poorest countries' needs in fivecritical areas: debt-sustainability ratiosset the hurdles too high and exclude

many needy countries from relief; thedebt-reduction time frame is too long andis counterproductive; there is no flexibilityfor post-conflict countries; eligibilitycriteria are too narrow; and links between

debt relief and active poverty reduction areinadequate. The international community,including both bilateral andmultilateralcreditors, should use alternative debt relief

mechanisms such as debt-for-developmentswaps. In such a swap, debtor governmentsagree with their creditors to redirectfunds allocated to paying back foreigndebt to governance and social services.

These arrangements, however, should

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Supplement scarce official developmentassistance, not supplant it. Internationalagencies such as the United Nations Development Program (undp) are supportingthis approach by generating the internationalpoliticalwill fordebt relief, improvingpoorcountries' debt-management capacity, andhelping them shift their resources fromdebt to social development.FREE TRADE AND FREE POLITICSPoor-country access to rich-countrymarkets is crucial both for long-termdevelopment and for pulling the hardest-hitemerging markets out of the current crisis.

Wealthy countries should make it theirjoint responsibility to absorb developingcountries' goods even if this risks temporarily skewing their trade balances.In the free market, as the UnitedStates has consistendy told the 4????Ldeveloping world, exports auto- l28H|matically stabilize an economy. ^HRlDeveloping countriesmust ^"Slstrengthen their capacities to nego- ^^tiate international agreements on tradeand finance, comply with these agreements,and compete at the international level.

Wealthy countries must create a timebound facility that provides integrationassistance to emerging and pre-emergingmarkets before those countries joinglobal financial markets. This assistanceshould be used to strengthen regulatoryframeworks and supervisory institutions.But aid should be clearly limited in timeto ensure that countries do not becomedependent on it and can generate futuregrowth on their own. The undp has 50years of technical cooperation experienceand manages more than $2 billion annuallyin 130 countries; together with the BrettonWoods institutions and the Bank for

International Settlements, it can helpsmooth the integration of the have-notsinto the global economy.International negotiations aboutdevelopment cooperation must includemore players. They must support notjust the economy but society and must becountry- not donor-driven. The UnitedStates in particular and the internationalcommunity in general have strongly promoted democratic practices throughout theworld. Now, international conferences must

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Percentage of PopulationEarning Less than $1 a Day

GuineaBissauZambia

MadagascarUgandaNigerSenegal

GuatemalaIndia

KenyaNepalLesothoHondurasEthiopiaRwanda

85726962545353505049474646

NicaraguaZimbabweBotswana

MauritaniaNigeriaEcuadorPhilippinesGuineaPanamaBrazilSouth AfricaChina

4441333131

30292626242422

source: oecd, Development CooperationReport 1998 (1999).

devote space towomen, developing countries, civil organizations, and businesses.Both development and rescue programswill benefit from broader participation.GLOBAL PUBLIC GOODS

The United States and other wealthycountries should have the foresight toincrease development assistance. Lessonshave been learned, often from sad experience, about how to do so effectively.Developing countries are littered withthe remains of projects that failed forsocial or environmental reasons. Glaringexamples include metropolitan hospitalsthat drained funds from village clinicsand elite universities that starved primaryschools of critical resources.

The clear lesson of the past five decadesis that economic growth, though essential,is by no means sufficient to eliminatesevere poverty or bring about lasting

development. True development requires

profound institutional changes that empower poor people to contribute to andbenefit from the economy, thus sharingin its profit. It entails investing in thehuman, social, environmental, and physicalassets of the poor, expanding their accessto productive resources, social services,and basic infrastructure. It demandschanges that promote the advancementand empowerment of women and other

marginalized groups. And it should bebuilt on good governance and strengthenednational capacities in the public, private,and nongovernmental organization sectors.But right at this

j^ confluence of^^^^^^^^^^^? greater need andgreater opportunity,resources are declining, not increasing.

Development assistance has declined forfive years running and is now at a historiclow. If this trend is not reversed, it couldcost dearly later?not just inmissedeconomic opportunity, but in emergencyrelief, peacekeeping forces, the spread ofdisease, environmental deterioration,illegal immigration, refugees, and terrorism.The West should sharply increase itstotal assistance now in order to helpAsia without neglecting Africa; itwouldbe in its own best interests to do so.

Development assistance is not analternative to private investment but anessential building block for a vibrantprivate sector and successful financialmarkets. It is not a handout but rather asolid investment in peace and a more equitable and habitable world. Encouraginggirls' education, for example, is one of thebest ways to secure the world's future. Ityields personal gains for the girls and theirfamilies, produces more-educated andbetter mothers, and reaps benefits for

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ThePlight ofthePoorsociety as awhole. More-qualified womenworkers earn better incomes, participate

more effectively in the economy, and bringpositive externalities such as enhancedhealth, reduced fertility rates, and slowerpopulation growth. Another good exampleof productive development assistance issupporting forestry development. Localcommunities benefit, certainly, but so dothe rest of us, since forests are key to

managing pollution and preventing globalclimate change.This thinking is reflectedin the Global Environment Facility, a$2 billion fund thathelps countries translate international concerns into a nationalfight against ozone depletion, global

warming, loss of biodiversity, and pollutionof international waters.UNCLE SAM OR UNCLE SCROOGE?

The United States has been particularlystingy with its aid budget. In i960,four percent of the U.S. budget wentto development and international affairs.Today these areas are allocated less thanone percent. Forty U.S. embassies, con

sulates, and branch offices have closedin the last sixyears. The United Statesnow accounts for just 13 percent of the industrial world's development assistance.But declining engagement does not

square with U.S. global interests. Since1987, more than two-thirds of Americanexport growth has been in emerging

markets, generating roughly two millionnew domestic jobs. Two-fifths of U.S.trade goes to the developing world.With four out of five people living indeveloping countries, market growthfor U.S. industries will continue to shifttoward the developing world.

Beyond this positive interest in theeconomic health of the developing world,

Americans have an obvious stake in avoidinghumanitarian emergencies, national andregional conflicts, environmental deterioration, terrorism, illicit drugs, the spread ofdiseases, illegal migration, and other humanand natural disasters. Many of these threatsstem from poverty, inequity, joblessness,and social disintegration. Although noone would attribute such problems solelyto underdevelopment, it is clearly part ofthe disease. And sustainable developmentmust be part of any cure. In Rwanda, forexample, vocational training and employment programs have helped stabilize thedelicate political situation. In El Salvadorand Guatemala, programs that assist thepoor and needy are important aspects ofthe peace accords.

The United States cannot accomplishany of its admirable international goals?fomenting peace

andstability,

humanrights and democratization, the expansionof trade and markets, environmental protection, population stabilization, an end to

hunger and extreme deprivation?withoutequitable, sustainable development. Anew framework for development cooperationmust be forged and backed upwithreal political and financial commitment.In an interdependent world, international cooperation must be an integral partof public policy. Our common well-beingwill increasingly depend on factors, fromthe environment to the economy, thathave alreadybeen globalized. TheWest ingeneral and the United States in particularmust increase their investment in lessdeveloped countries. The costs of neglectingthe rapidly growing international classdivide will be immense, reaped in environmental harm, humanitarian disaster,and economic growth. The West musthave the foresight to act now.?

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