Donor nations rethink development aid policy

By Pierre Simonitsch

GENEVA (DPA): For development aid policy, 0.7 is a mystical number. Decades ago the so-called community of nations agreed that the rich nations would transfer 0.7 percent of their gross domestic product (GDP) to the poor ones as development aid.

Now, the extent of official development aid is once more on the agenda at the Geneva Summit because only very few industrial nations have kept their promise.

The United Nations Social Summit held in Copenhagen five years ago reconfirmed the 0.7 percent target. In the meanwhile, however, public sector development aid has plunged to a low of 0.24 percent of the national income of the wealthy nations. Denmark, the Netherlands, Norway and Sweden all adhere to the 0.7 percent commitment while Germany manages only 0.28 percent.

Prominent spokesmen for the Third World attribute this plunge in development aid to the end of the East-West confrontation. During the Cold War, the Western industrial nations and the Communist bloc rivaled each other as suitors for the favor of the poor states.

Nobody wants to pay any longer now that this competition has ceased to exist. Most of the states that have succeeded the Soviet Union and several eastern European countries have slid into poverty themselves. No further state-sponsored aid can be expected from them for Africa, Asia or Latin America.

The liberalization of world trade and the globalized economy are additional reasons for development aid having plummeted to a record low. The New Economy is staking on the free play of market forces in which private investment takes over the role of support from the state.

However, this calculation was off target. Private players invested their money only in those countries where they were able to generate fat yields. Those are mainly the industrial threshold states in Asia and South America which offer cheap, willing labor as well as tax advantages. The 48 poorest countries in the world, most of them African, got nothing.

Besides, speculative capital caused severe harm by wandering from one country to the other for the purpose of rapid profit growth, and even benefited from the fall thus effected in the exchange rate of those countries' currencies.

The United Nations estimates that the flow of short-term investments of flight capital reached a volume of US$2,000 billion, a sum corresponding almost exactly to the total debt of all developing nations. In comparison, official development aid amounts to $56 billion a year.

The least developed countries most urgently need long-term loans that are oriented towards durable and environmental- friendly projects. However, those countries themselves have to create the conditions under which these investments are able to flourish. These include a stable political environment, democratization, effective administration and the restriction of corruption.

A malicious but not entirely unjustified saying holds that "development aid is money that the poor in wealthy nations give to the wealthy in poor nations". Previous development strategies have turned out to be failures. The question is what both the donor nations and the debtor states have learnt from the mistakes.

A high-level international conference on the financing of development is planned for June 2001. The current UN Special General Assembly is providing a platform for several preliminary decisions to be taken. Non-governmental organizations are calling on the industrial nations to accept a binding timetable to bring their level of development aid up to the mystical 0.7 percent of GDP by the year 2005.