Cash alone 'won't heal Africa'
2005-07-01 07:29
Washington - As the world prepares to rock in aid of Africa, the IMF warned Thursday that cash help by itself will not transform poor nations' fortunes and may in fact set them back.
In a study issued just ahead of this weekend's Live 8 rock concert and next week's Group of Eight summit, two senior officials at the International Monetary Fund argued that aid can stunt economic growth rather than foster it.
"We should emphasise that the findings of our paper are not that aid is bad for overall growth," wrote IMF chief economist Raghuram Rajan and Arvind Subramanian, head of macroeconomic studies at the Fund.
But they said that evidence exists for such an effect if aid is too much for a recipient country to handle or is mis-spent.
This "should further reinforce the message that despite the political momentum in favour of massive aid inflows in the near term, we should not lose sight of issues like how much aid can be handled to begin with, how the aid should be delivered, and when".
Saturday's worldwide Live 8 concerts are designed to pressure the G8 leaders to strike a deal on debt, aid and trade for Africa at their summit in Scotland on July 6-8.
But other officials have joined the IMF in warning that in pushing for a massive increase in aid, Live 8 and campaigners may be misguided.
"While headline writers and advocacy campaigns and rock concerts tend to focus on numerical targets for assistance, there is, unfortunately, not sufficient attention paid to the conditions in which development assistance is delivered," US Treasury Secretary John Snow said on Tuesday.
The United States is pressing for aid to be better directed, so that it encourages democratic and pro-market reforms.
In its own pre-G8 study issued on Tuesday, the World Bank said a focus on pro-growth policies and the involvement of the world's poor themselves were the most powerful way to transform developing nations' fortunes.
Activists have long dismissed an economic theory called "Dutch Disease" that says aid money can be counter-productive to a country's growth prospects.
But the IMF authors said their research had shown that the condition can materialise, in as far as aid pushes wages up and thus dents a country's export competitiveness.
The IMF officials said their findings did not mean that future aid cannot be beneficial.
"But they do suggest that for aid to be effective in the future, the aid apparatus - in terms of how aid should be delivered, to whom, in what form, and under what conditions - will have to be rethought."
The study gave education as an example where throwing money at the problem is not enough.
"It may well be that resources are not everything. While schools may require textbooks or classrooms, what they may also need is for teachers to show up regularly," it argued.