Global Policy Forum

By Larry Elliott

Cautionary voices were heard two winters ago when the Jubilee 2000 campaign ended with more than 20 countries granted debt relief by the west. This was not the final shot in the war against poverty, merely the first of a prolonged series of attritional battles. How right that caution was.

"The food security situation in southern and eastern Africa has continued to deteriorate since the summer," the World Bank said last week. "Donors' response to date has met only half of the mid-year appeal for aid by UN agencies. Since then, the needs have doubled, and we urge donors to increase the assistance provided to deal with this enormous humanitarian crisis."

The bank says that for many countries famine and HIV/Aids are intertwined. There are fewer people of working age and those affected by HIV/Aids are less productive, yet demand for food has risen and the population is more vulnerable to shorter rations. While the west is preparing for a Christmas binge, in southern Africa, food stocks built up by the population at risk in the six most affected countries (Lesotho, Malawi, Mozambique, Swaziland, Zambia, and Zimbabwe) during the April-June harvest period are now largely depleted.

"The world food programme is projecting that up to 14.4 million people are likely to be affected early in 2003, compared with its previous projection of 13 million. In addition, a major food crisis is unfolding in the Horn of Africa, where it is expected that over 15 million people in Ethiopia and Eritrea will be at risk next year," the bank said.

But it is not just those countries affected by famine that are suffering. Uganda, the country hailed as the shining example of how a combination of good governance and generous help from the west could lead to faster expansion admitted last week that its debts were once again unsustainble. Falling global commodity prices have meant that the revenues from Uganda's main export, coffee, are not sufficient to keep pace with its debt repayments.

This, it has to remembered, was the country that was first in the queue for both tranches of debt relief, but now finds that the dark underbelly of globalisation means there is no hiding place from the impact of weaker growth in the west. What's more, the weakest people in the poorest countries are worst affected. On current trends there is not the remotest chance of meeting the UN millennium development goals of halving poverty, putting every child in primary schooling and cutting infant mortality by two-thirds by 2015.

Shunning

So much, so familiar. We all know the extent of the challenge. Something like a quarter of the countries in the world lack the capital needed to make the transition to the growth rates needed to bring down poverty. Hefty trade barriers, adverse terms of trade, heavy indebtedness, bad governance and poor policy advice mean they lack the means to generate their own resources for development; the shunning of the poorest nations by private investors and the drying up of official aid flows means the capital is not arriving from abroad either.

All of which brings us to Gordon Brown's plan for a new international financing facility to double annual aid flows to poor countries from $50bn a year to $100bn a year. The chancellor originally floated this idea in New York just over a year ago, and the reaction was one of world-weary cynicism.

Aid from the west to developing countries has been falling for a decade; if the rich countries are too mean even to fund fully an appeal for famine relief, what chance is there of coming up with an extra $50bn in aid every year?

It was something of a surprise then, to find Brown trumpeting the idea again in last month's pre-Budget report. Even more of a surprise to find that the Treasury has been working up a fully fledged scheme for raising the cash. To the disappointment of those who have been campaigning for a so-called Tobin tax, the Treasury has decided against a small levy on foreign exchange transactions.

In part, this is because Brown is wary of those who believe that doubling aid flows can be a "free lunch", but more importantly it is because building the unanimous political consensus necessary for a Tobin tax to be effective would take time, even assuming it could be achieved at all.

As the Treasury said in a note to MPs this week outlining its thinking: "Unless we act in the very short term to raise the funds needed, we will not meet these [millennium development] goals by 2015.

What Brown envisages is that western governments will agree to issue 15-year bonds guaranteed against future aid flows in the years after 2015. In essence, the plan would involve front-end loading aid, with the money raised used to kick-start more rapid development. Goldman Sachs, the investment bank, has prepared a technical feasibility paper for the government, which says the bonds would get a triple-A rating on bond markets provided countries were prepared to tie their sovereign debt ratings to the scheme.

That would be important in keeping the interest payments on the bonds as low as possible, but would mean that any nation which defaulted on its bonds for developing countries would see its credit rating for its entire portfolio of borrowing affected.

Strong relationship

The Treasury plan is to sell the international financing facility as part of a package that would include using the aid budget more effectively and opening up new markets to developing countries through the Doha round of trade liberalisation talks. A more effective use of aid does not only mean rooting out corruption in recipient countries, it means that donor nations ensure the money goes where it is really needed and drop their insistence that the money benefits their own multinationals.

Clare Short has already untied British aid, and it is evident that the Treasury paper owes a great deal to the strong relationship between the international development secretary and the chancellor. It recognises that investing money now will save money later; it accepts that investing in education alone might not be enough, if lack of a decent water supply means children spending hours out of school to trudge to the nearest well; but, most important of all, it argues that a guaranteed long-term stream of funds is crucial if countries are to build up their social infrastructure.

One of the most destabilising aspects of the system is that aid flows can vary wildly from one year to the next, sometimes by as much as 20% to 30%.

Development campaigners seem keen on the idea. Brown has invited in the directors of the five leading UK agencies in the hope that they will give the same push to the initiative on aid as they did to the campaign for debt relief. So far, the response has been positive. "It recognises the urgency of the problem, the need to raise $50bn now", said Duncan Green, policy adviser for Cafod. "It grapples with the political reality of raising aid budgets and it puts governments on the spot to deliver on their promises."

The aid agencies have a few quibbles about the plan. It is unclear, for example, what will happen to aid budgets after 2015. In theory, the money will go not to poor countries but to pay back those holding the bonds. Brown hopes that by then, the injection of cash will have propelled some of the poorest countries in Africa and Asia on to a higher growth path, so that they can be weaned off dependency on foreign assistance.

Aid agencies believe that it will be political impossible for western governments to start slashing aid budgets if the need still exists, and are backing the scheme because it would mean money - big money - now.

Brown, and Short, deserve their support. The government is already lobbying other members of the G8 for support, but mobilising public opinion will be crucial if the rest of the west is to be persuaded, just as it was with the Jubilee 2000 campaign. And, ultimately, there are only two questions which need to be asked. Is the situation serious enough to demand urgent action? The answer is "Yes". And is there another game in town? The answer is "No".

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