New Deal: Development Assistance in a Global Economy

Article excerpt

JAMES GUSTAVE SPETH is Administrator of the United Nations Development Programme.

There is a disturbing paradox at the heart of international development cooperation. The paradox is that while the world's need for growing international development cooperation has increased and we have acquired the collective resources and technology to end mass poverty, support for such cooperation has waned. Indeed, the recent series of financial crises--having lead to fears of a global recession and increased poverty in many areas of the world--has exposed the need to resolve this paradox once and for all.

In the early 1990s, during what can with hindsight be called the "exuberant" phase of globalization, development cooperation was increasingly questioned. At a time when vast global capital flows, technology, and information were seen to be shaping the future, students of development noted that private sector-led growth, global economic integration, and foreign direct investment were replacing a declining Official Development Assistance (ODA) budget--the monetary means by which the United Nations and developed nations traditionally helped underdeveloped countries.

Over the past five years, ODA has decreased in real as well as nominal terms. In 1996, nominal ODA fell below its 1991 level (US$55.5 billion in 1996, compared to US$56.7 billion in 1991). The provisional level of ODA in 1997 shows a further decline to US$47.6 billion. ODA is now at its lowest level in real terms since statistics have been compiled, and has continued to decline as a percentage of GDP (0.22 percent in 1997). This decline in funding has been combined with questions about development cooperation as we know it. Extremists propose the abolition of international development cooperation altogether.

This exuberant phase of globalization is, by all indications, coming to an end. Increasingly, as President Clinton argued before the world's top financial officials gathered to discuss the current crisis in October 1998, we need a "New Deal" to "tame the cycles of boom and bust that today shake the global economy."

The reference to a New Deal is apposite, for the crises we are witnessing are not merely financial in nature. These crises are gravely affecting the development prospects of countries that had made considerable advances in the past ten years. Indonesia, Thailand, the Republic of Korea, and Malaysia have had admirable records in human development and poverty reduction, but there has been an enormous reversal of fortune during the current economic downturn which has most heavily affected the poor in these countries. Nations at the epicenter will see their economies shrink on the order of six to seven percent; Indonesia, the world's fourth most populous country, will likely see its economy shrink by 15 percent in a single year. The fledgling Indonesian middle class has fallen into poverty and the social consequences of this downward trend are of serious concern. If current trends continue, the World Bank estimates that the number of impoverished people in Indonesia, Thailand, Malaysia, and the Philippines will more than double--from some 40 million to more than 100 million. Another estimate is that half of Indonesia's 200 million people will fall below the poverty line.

This downturn will not be confined to the "Asian tigers" and other emerging market countries. It has already affected those countries not considered emerging markets, mainly in Africa. With falling international demand, the price of primary exports is declining. Africa's overall growth for 1998, once expected to exceed four percent, is now projected to be about one percent.

Poverty and the Economy

What is the link between poverty and recession? Recent analysis by the United Nations Development Programme (UNDP) shows a close correlation between recession and increasing poverty, even closer than the correlation between growth and decreasing poverty. …