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Bush Plan Ties Foreign Aid to
Free Market and Civic Rule

By David E. Sanger

NY Times, November 25, 2002

The White House outlined a detailed proposal today to set up a competition among the world's poorest nations for portions of a new $5 billion foreign aid fund. To win, countries must demonstrate that they are curbing corruption, spending more on education and following free market economic principles. Under the plan, a new federal corporation will be set up to administer the aid, and decisions will be made by a Cabinet-level panel that will dole out the money much the way colleges assign scholarships. The proposal has yet to be submitted to Congress, but it has a good chance of passing.

"Think of it as a bonus pool," one of Mr. Bush's senior advisers said today, briefing reporters. The administration's judgments about which nations will get the money and which will not, he said, would depend on scores on a range of performance tests. The countries would be rated on everything from their encouragement of civil liberties and their spending on education and health, to their control of inflation and their use of budget targets and tax policy.

Mr. Bush first announced the plan, called the Millennium Challenge Account, in March, and said that over the next three years it would amount to $5 billion, a 50 percent increase in the amount of nonmilitary foreign aid the United States hands out each year. The fund, the administration says, would be in addition to money the Agency for International Development gives to poor nations, and in addition to other forms of aid.

Throughout Africa and Latin America, and in some poorer corners of Asia, nations have been waiting to hear what kind of conditions will be attached to the money. From today's description, the standards will be relatively tough. The unspoken message of the fund is that countries seeking the cash must show that they are reorganizing their societies according to Washington's standards.

Mr. Bush's senior aides have said in recent months that the new aid program is part of his effort to show another side of his foreign policy. "If you are talking all the time about hunting down terrorists one by one, you also need a positive message," one of his top advisers said last month. "And that means you have to be the first to put up new money, to show you are serious about it."

Organizations aiding developing countries largely praised the effort today, saying that if executed well, it could begin to solve the problem of billions of dollars of wasted or misallocated foreign aid. "It's a very big change, and it makes sense," said Steven C. Radelet, a senior fellow at the Center for Global Development, who served in the Treasury Department under President Bill Clinton and stayed through the first year of the Bush administration.

Experts said that they thought countries like Senegal, Ghana, Bolivia and Honduras might qualify early on, and that a second round might include India and Jordan.

Mr. Bush described his goals for the plan in March, when he said, "I'm not interested in funding corruption, period." He made it clear that he viewed his new fund as offering a chance to change the way foreign aid has been handed out for several decades.

At first, the only countries allowed to compete for the new foreign aid fund will be those with per capita incomes below $1,445, the threshold the World Bank uses to define the world's poorest nations. That restriction will limit the first grants to nations primarily in Africa and Latin America, along with India. If Congress grants the full $5 billion Mr. Bush has sought, by the third year the program will be open to nations with per capita incomes of up to $2,975. That category includes the Philippines and some fast-growing Asian countries, among them Thailand, that are able to attract significant sums of private investment.

The administration's concept is simple: Countries with a demonstrated commitment to the rule of law and predictable and sound fiscal policy have the best chance of attracting private investors. The foreign aid grants would essentially amount to seed money, and Mr. Bush's aides said today that it might be given to nongovernmental organizations in some countries, rather than just to the central government.

"This would be an important tool in making aid more effective," said Mary E. McClymont, president of InterAction, an alliance of international relief and development organizations. "It's a big change, and it can work — as long as we keep an eye on making sure there is sufficient funding for the nations that don't qualify, and for AIDS and famines and the needs of countries like Afghanistan."

Mr. Bush has described the new fund as additional foreign aid money; he says his administration plans to hold essentially level the amount it budgets for other forms of foreign aid, including humanitarian assistance. But in private, administration officials concede that there may be some movement in Congress to cut other forms of foreign assistance.

During the Clinton administration many conservative Republicans tried to cut foreign aid, saying much was wasted, and curtail American contributions to the World Bank and the International Monetary Fund. Mr. Bush, though, has gone in the other direction and his administration's National Security Strategy published in September described the Millennium Challenge Account as a key element in maintaining American influence in the world. That strategy calls for, among other things, countries to cut taxes — part of an administration effort to get the rest of the world to follow Mr. Bush's own philosophy.

The criteria announced today made no mention of cutting marginal tax rates, but they clearly call for American-style governance of markets, free trade and deregulation. In that regard, how open a country's market is to imports — including American goods and services — will be an important factor.

The new fund will be part of the administration's budget request for fiscal year 2004, and the announcement of the standards today was clearly part of a lobbying effort — much of it aimed at Mr. Bush's own party — to make clear that the president is pursuing a new approach.

Administration officials said they did not intend merely to give countries a score. To qualify for a piece of the $5 billion pie, applicant nations have to do well in each of three different categories, and to demonstrate that they have cracked down on corruption.

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