NCPA - National Center for Policy Analysis

New Approach to Foreign Aid Misguided

November 4, 2003

In an attempt to make foreign aid more effective, the Bush Administration has proposed a granting assistance to poor countries only if they have sound policies and institutions in place. The Administration has proposed raising bilateral American aid 50 percent by 2006. Such an approach would likely be as effective as failed assistance programs of the past, say experts.

Among the reasons:

  • Selective aid disbursed by the World Bank or under the president's proposed Millennium Challenge Account is conceptually flawed because countries with reasonably sound policies will experience economic growth without foreign aid.
  • Providing development assistance to such countries may improve the apparent performance of foreign aid, but it may also help to create dependence and delay further reform; problems that have long plagued official development assistance.
  • Politicization and the prevalence of conventional foreign aid from multiple sources will undercut the U.S. effort to create a "well designed" selectivity program.

Moreover, the World Bank research on which these changes are based suspect. The few attempts to reproduce the Bank's findings using its own data and methodology have contradicted the Bank's findings.

Source: Ian Vasquez, "The New Approach to Foreign Aid: Is the Enthusiasm Warranted?" Foreign Policy Briefing, September 17, 2003, Cato Institute.

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