Developing Countries Should Focus on Economic Growth First, Analysts Say
Millennium Challenge Accounts-President Bush's proposal to
condition U.S. foreign assistance on economic and other reforms by
recipient countries-could change the way the United States
distributes foreign aid.
The proposal grew from frustration at watching the $167 billion the
United States doled out between 1980 and 2000 fail to make matters
better and, in many cases, make them worse. Rather than continue
upon a path that reduced median per capita income from $1,076 to
$994 in the 156 countries that received U.S. aid during that
period, the president has proposed to reward countries that take it
upon themselves to make matters better.
President Bush has proposed to funnel $5 billion over three years
to countries that open their economies, promote good governance and
invest in health and education. A "sense of the Senate" resolution
supporting MCAs has passed, and analysts expect the House of
Representatives also to approve.
Where should countries interested in receiving MCA money start?
With their economies, says a new paper from The Heritage
"The economic reforms should be the first among equal priorities,"
says Heritage policy analyst Paolo Pasicolan, who co-authored the
paper with trade analyst Sara Fitzgerald. "A strong economy will
promote growth and prosperity that make other reforms affordable.
Plus, many of the changes needed to create an open economy coincide
with those of good governance. For example, an independent,
efficient judiciary means progress toward both an open economy and
Beyond that, Pasicolan and Fitzgerald say, countries that hope to
receive Millennium Challenge funds should remove government-imposed
barriers to the free flow of goods and services, reduce taxes and
government spending to the extent possible, and curb government
intervention in the economy.
If they accomplish these objectives and work to curb inflation,
promote free flow of foreign and domestic capital, remove
burdensome banking and finance regulations, reduce government price
controls, protect private property, and crack down on black market
activity, they will take steps toward stronger economies, better
governance and better health and education that will only be
augmented by the aid.