Academic journal article Journal of International Affairs

Aid, Debt Relief and New Sources of Finance for Meeting the Millennium Development Goals

Academic journal article Journal of International Affairs

Aid, Debt Relief and New Sources of Finance for Meeting the Millennium Development Goals

Article excerpt

The Millennium Development Goals (MDGs) now provide a clear set of objectives for mobilizing the international development community, notably in the area of development finance. The recent Millennium Project report recommends that high-income countries should increase official development assistance from 0.25 percent of donor GNP in 2003 to 0.44 percent in 2006 and 0.54 percent in 2015. (1) This would amount to doubling official world aid from its current level, to approximately $120 billion per year. The call for increased aid as well as more debt relief and the creation of new sources of development finance has increased since the UN Financing for Development Summit in Monterrey and the subsequent report of the panel chaired by then President Ernesto Zedillo of Mexico on development finance. The February 2005 meeting of G7 finance ministers pledged more aid and more debt relief, and similar statements can be expected from world leaders in the run-up to the UN Millennium summit in September 2005. If action were measured in words rather than dollars, then the problems of development finance would have been solved long ago.

The urgency of mobilizing increased external resources cannot be overemphasized. The current projections for the MDGs are stark: The principal MDG target--reducing the proportion of people living in extreme poverty to half the 1990 level by 2015--will not, on current trends, be achieved in Sub-Saharan Africa (SSA). Even seemingly optimistic forecasts suggest the MDG income poverty target will not be achieved in SSA until 2147--132 years late. SSA of course faces deep development problems, but the picture is only somewhat better elsewhere; primary education enrolment rates remain low in South Asia and HIV/MDS is rapidly spreading in the Asia-Pacific region. Poor-country governments cannot mobilize enough domestic resources to meet these challenges alone; generous external assistance is imperative.

Yet despite the evidence that aid broadly works, our review of trends in aid shows that aid has fallen for much of the recent period, with serious consequences for growth and poverty reduction in the developing world. We will highlight aid flows to Sub-Saharan Africa given the plight of that region and its importance to the overall achievement of the MDGs. We will also examine recent proposals to mobilize additional finance for development, focusing on those that have emerged from a recent study by UNU-WIDER for the UN General Assembly.

THE EFFECTIVENESS OF AID AND DEBT RELIEF

Aid's contribution to meeting the MDGs is premised on two fundamental assumptions, namely that aid raises economic growth (thereby reducing poverty when the growth process is pro-poor) and that aid relaxes the budgetary constraints impeding development spending (including pro-poor services and infrastructure). (2) These assumptions also underpin arguments that aid can promote human security; growth fosters peaceful livelihoods and increased development spending may redress grievances, reducing the need to resort to violence as a livelihood or to express frustration with the status quo.

However, aid's role in development is constantly questioned, no more so than in the present debate on aid effectiveness, and it would be fair to say that criticism is especially strong in the United States, where some highly influential people have concluded that aid is a complete failure in achieving development, and indeed downright harmful. Typical of such a stance is a recent editorial in The Wall Street Journal, which states, "For the record, we don't put much faith in foreign aid as a development tool. There is no evidence that the two are connected." (3) By extension, critics also dismiss debt relief as well as proposals to create new sources of development finance.

It is certainly the case that there are aid projects and programs that were either ill-conceived or had unexpected and adverse development (and poverty) effects. …

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