April 26, 2005 | Commentary on International Organizations

Big Improvements, Small Costs

Let's try to follow the logic here - although it won't be easy.

President Bush proposes we spend $3 billion next year on Millennium Challenge Accounts (MCAs), a new foreign assistance program designed to provide aid to countries that demonstrate commitment to economic freedom, curbing corruption, ruling justly and investing in education and health.

Some in Congress don't want to appropriate any more money for MCAs because, they say, the $2.5 billion appropriated for 2004 and 2005 has yet to be spent.

But there's a good reason for this. The MCA is an attempt not to repeat mistakes of the past. Between 1980 and 2003, the United States doled out $116 billion (in constant 2002 dollars) to 89 countries classified as low-income (annual per capita income of less than $765) or lower-middle-income (per capita income of $766 to $3,035). Of those 89 countries, 37 - including half of the countries in sub-Saharan Africa that received aid - got poorer.

That's right. Despite the "help" of foreign aid, their real annual compound growth in per capita GDP actually declined. Another 20 experienced marginal growth of 1 percent or less. Only 32 of the 89 experienced growth of more than 1 percent.

Clearly, foreign assistance is not enough to spur growth. In truth, it is policies, not aid, that do the most to spur economic development and growth. Countries that embrace good policies and encourage people to behave productively are likely to grow; those that don't are not likely to grow.

The MCA is a new approach to foreign assistance and development. Unlike past foreign-aid initiatives that doled out billions of dollars without preconditions or evidence of good policy, only to see them squandered by poorly run or corrupt governments, the United States requires countries to demonstrate commitment to good policy to receive MCA grants. In other words, the United States is asking countries that receive our assistance to take steps to make the kind of lasting progress that could cause them not to need assistance in the future. This method holds far more promise than traditional foreign-aid of bringing prosperity to other countries.

Under this approach, aid is not doled out on promises. All 17 countries eligible for MCA grants already have adopted free-market reforms, addressed corruption and hiked investment in their own people. Madagascar has completed the process and will be eligible to receive grants soon. Four others - Cape Verde, Georgia, Honduras and Nicaragua - are so close to meeting the requirements that they could start receiving grant money within months.

From Georgia to Ghana, from Benin to Lesotho, governments are putting their people first by adopting policies that can help build prosperity for all their citizens. It's important to recognize that they've been selected to receive MCA grants precisely because they have adopted these policies on their own. The U.S. did not force them to change, which is good. Decades of evidence and experience indicate that countries that make the commitment to these policies on their own are most likely to adhere to those policies.

Just as our foreign policy has begun to yield an outbreak of democracy in the Middle East and elsewhere, our foreign-aid policy has begun to yield results as well. Countries understand that if they adopt policies that have been proven over time to bring prosperity, they will be rewarded through the MCA.

Now is not the time to turn our backs on these countries and their efforts at economic reform. If all 17 countries eligible for MCA aid meet the guidelines, we'll be writing checks for the entire $2.5 billion already budgeted plus nearly all the money President Bush has requested. Considering the billions of dollars we squandered in the 20th century on foreign aid for governments not interested in economic reform, Congress should be eager to support a foreign aid program that helps countries that are helping themselves.

It's time to fully fund the MCA program so that when countries do get ready to walk the road to prosperity, we are ready to extend the helping hand that will get them over those inevitable early rough spots.

Brett D. Schaefer is the Jay Kingham fellow in international regulatory affairs in the Center for International Trade and Economics at The Heritage Foundation.

About the Author

Brett D. Schaefer Jay Kingham Senior Research Fellow in International Regulatory Affairs
The Margaret Thatcher Center for Freedom

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