World Bank Should Shift to Grants, Economists Say
Although the World Bank has "orchestrated" opposition to President Bush's proposal that a larger proportion of aid to developing nations be given in the form of grants instead of loans, the bank's previous record on financial assistance "call[s] for a major change in the way aid is delivered and administered," Adam Lerrick and Allan Meltzer write in a Wall Street Journal op-ed. Lerrick and Meltzer serve as director and chair, respectively, of the Gailliot Center for Public Policy at Carnegie Mellon University and are both advisers to the Joint Economic Committee of Congress. They write that the bank's lending practices have led to 42 "needy countries" having $175 billion in debt, with "nothing to show for it but a 25% decline in their standard of living since 1980" (Lerrick/Meltzer, Wall Street Journal, 7/26). Last week, Bush proposed that the World Bank provide up to 50% of its assistance to developing countries through grants, thus allowing the countries to "alleviate the debt that burdens" their economies (Kaiser Daily HIV/AIDS Report, 7/18). A number of lawmakers, AIDS groups and African groups have called on international lending institutions such as the World Bank and the International Monetary Fund to forgive the debts of developing nations, stating that debt reduction would help the countries allocate more funding toward HIV/AIDS and other health initiatives (Kaiser Daily HIV/AIDS Report, 4/26). The World Bank has said that providing assistance through grants will "deplete its resources, together with its ability to help the poor, unless the grants are accompanied by an immense infusion of new funding." However, Lerrick and Meltzer state that this argument is "faulty" because grants "can provide the same amount of aid, make every dollar more effective, provide a permanent exit from debt for the poorest countries, protect donor contributions from risk of loss -- all without diminishing the funding pool or asking for more money from the taxpayers of the industrialized world." They add, "Unlike the current trend toward lending sums for indeterminable government plans, grants would be project-linked, monitored for results and paid only for performance. ... No results, no funds expended." They write that as the World Bank's International Development Agency shifts from loans to grants, "the volume of development programs and the flow of financial resources to poor countries would match what would have been delivered by loans. Failures to repay old loans would reduce resources, but not more so than under lending." Lerrick and Meltzer conclude, "Finance ministers and legislators should insist on the use of grants when making new contributions. The increased effectiveness of aid might then encourage them to give more, and with good conscience" (Lerrick/Meltzer, Wall Street Journal, 7/26).This is part of the KHN Morning Briefing, a summary of health policy coverage from major news organizations. Sign up for an email subscription.