The New York Times

                  March 18, 2002, Monday, Late Edition - Final

SECTION: Section A; Page 3; Column 1; Foreign Desk

LENGTH: 1562 words

HEADLINE: World Leaders Rethinking Strategy on Aid to Poor




   To fight global poverty, the United States and its allies have founded dozens
of aid agencies, built thousands of dams, roads and schools and spent roughly $1
trillion since World War II.

   But nearly half of the people in the world still live on less than $2 a day,
and a fifth survive on $1 or less. Most people in Latin America, the Middle East
and Central Asia are poorer than at the cold war's close, despite the fast
economic integration of the 1990's. Africans live no longer and have no higher
incomes than they did 40 years ago.

    Now, world leaders say they plan to do something about the lack of success.
President Bush and the leaders of 57 other nations will gather here this week to
discuss how to help developing countries speed their economic growth.

   Mr. Bush promised on Thursday to increase America's foreign aid budget by 15
percent a year or $5 billion over three years, the first real expansion in more
than a decade.

   Yet Bush administration officials, European leaders and poverty experts are
deeply divided about what went wrong and what to do now. They do not agree about
why so many countries remain poor, whether aid has helped or hindered progress
or whether to increase aid or change the way it is used.

   The debate may delay a solution for the "pre-eminent moral and humanitarian
challenge of our age," in the words of a United Nations panel led by Ernesto
Zedillo, the former president of Mexico, and including Robert E. Rubin, the
former treasury secretary.

   Britain and the World Bank want rich countries to double their foreign aid
and begin what Gordon Brown, Britain's finance minister, calls a new Marshall
Plan to fight poverty.

   Kofi Annan, the United Nations secretary general, persuaded the
industrialized countries to promise to cut poverty in half by 2015, a goal he
says will require $50 billion a year or more, including tens of billions from
the United States.

   Proponents of more aid have linked poverty to terrorism and contended that
the security of rich nations depends on helping the poor.

   "We will not create a safer world with bombs or brigades alone," said the
World Bank president, James D. Wolfensohn.

   Mr. Bush has also linked poverty and terrorism, saying that "failed states
can become havens for terror." But he has taken a very different approach to

   While backing huge increases in the military budget, his administration
proposes devoting far smaller amounts to combat poverty and AIDS.

   He promises to support more foreign aid eventually, but not until 2004, and
then only if recipients meet many conditions. Treasury Secretary Paul H. O'Neill
wants to revamp the World Bank and to measure the effectiveness of aid before
spending more money.

   "How do we create a situation so that people become engines of economic
progress and not just objects of our pity?" Mr. O'Neill said. He contends that
the money of American "plumbers and carpenters" is being squandered on aid, with
"precious little to show for it."

   Tensions have flared between the United States and Europe on the issue. Mr. O
'Neill has held up money for the World Bank's main antipoverty fund until Europe
agrees with his proposal to have the bank distribute more aid in the form of
grants instead of loans. Mr. O'Neill sees that as a necessary step to make aid
more effective. Europeans say they worry that it would eventually cripple the
bank's finances.

   Even so, some officials say they are optimistic that the threat of terrorism
from undeveloped parts of the world has set the stage for the most significant
effort to address world poverty since the Bretton Woods conference in 1944, when
industrialized nations first committed major resources to help increase world
economic growth and the World Bank and the International Monetary Fund were

   "The rich countries have now clearly accepted that there is no worldwide
trickle-down and you have to go out there and channel more resources to the
poorer countries," said Jorge Castaneda, Mexico's foreign minister. "This is a
very different attitude toward the development process."

   Those taking part in the Monterrey conference have already agreed to create
"a new partnership between developed and developing countries." The agreement
commits poor nations to create and maintain strong legal systems, open markets,
full rights for women and workers, low inflation and effective banking
regulations -- policies that the rich nations see as crucial for poorer ones to
attract private investment and stoke economic growth.

   Industrialized countries, in return, pledge to reduce barriers to imports
from poor countries, notably farm products and textiles, while writing off more
debt and increasing aid.

   "Monterrey lays out a big global bargain," said Mark Malloch Brown,
administrator of the United Nations Development Program. "If it succeeds it will
put development at the heart of global politics."

   Alan P. Larson, under secretary of state for economic affairs, said the
agreement rightly emphasized the "national responsibility" of poor countries to
mobilize their own savings and fix government policies to attract private
investment. Domestic savings and international business investment are more
important than foreign aid, he said.

   The United States and its allies have been doling out aid to help poor
nations develop faster since the end of World War II, when President Truman
authorized big peacetime aid transfers, beginning with the Marshall Plan for

   But American aid spending has stagnated at about $10 billion since the end of
the cold war. As a percentage of the American economy, it has fallen from nearly
3 percent in 1946 to 0.1 perent today.

   In Congress, aid is often criticized as "American taxpayer dollars sent to
subsidize the corruption and mismanagement of foreign countries," in the words
of the House Republican whip, Tom DeLay of Texas. But since Sept. 11, some
leading Republicans have started to support more aid.

   Senator Chuck Hagel, Republican of Nebraska, a senior member of the Foreign
Relations Committee, praised Mr. Bush for taking the first steps on increasing
aid. But he criticized "some in this administration" for assessing aid "based on
some Harvard Business School idea of return on dollars."

   "We are not going to get our arms around this terrorist threat," Mr. Hagel
said, "if we get all bogged down in the swamp of what didn't work in the past."

   President Truman said more than 50 years ago that it was intolerable that
"more than half the people of the world are living in conditions approaching
misery." But that remains relatively unchanged, with World Bank statistics
showing that 2.5 billion people survive on $2 a day or less.

   The Bush administration is not alone in worrying that aid itself is not the

   Numerous studies have found no real correlation between aid levels and the
economic performance of developing countries. China and India, among the most
successful, have received little assistance relative to their economic output.
African nations have gotten the most aid, but most performed dismally.

   William Easterly, a longtime World Bank economist who left the institution
last year after sharply criticizing its record of helping poor nations, says
foreign aid has produced a gigantic, ever-expanding bureaucracy. "Foreign aid
works for everyone except for those whom it was intended to help," Mr. Easterly

   Mr. O'Neill echoes that criticism, and adds one. He has attacked the business
model of the World Bank because it distributes aid mostly in the form of
long-term, low-interest loans. Though some countries have grown out of poverty
and repaid loans on schedule, others struggle to make payments, which can scare
away private investors and force donors to grant debt relief. The bank's lending
practices end up driving poor countries "into a ditch," Mr. O'Neill said.

   But the World Bank says, and Mr. Bush agrees, that success stories in
countries like Uganda and Mozambique, Vietnam and Poland, show that aid can help
drive economic growth when developing countries have policies in place like open
trade, low inflation and controlled government spending.

   The bank says it has long since overhauled the way it grants aid, to favor
nations that have good policies. It contends that most criticisms of its
performance are outdated.

   Jeffrey Sachs, director of the Center for International Development at
Harvard University, also defends many types of aid as urgent and effective. He
says the real culprits in mismanaging aid are national aid programs, which still
account for about two-thirds of all assistance, not the World Bank.

   European governments subsidize former colonies. The United States favors
important allies, like Israel and Egypt. Japan has tied aid to its own exports.
Those goals often conflict with the desire to promote long-term growth in the
poorest countries, Mr. Sachs says.

   There is also a growing consensus that rich countries have been stingy in the
face of major disease epidemics. Mr. Sachs helped draft a World Health
Organization study that concluded that spending $27 billion more each year to
fight infectious diseases -- like AIDS, tuberculosis and malaria -- could save
eight million lives a year in the developing world.

   "America's long slumber" on aid, he said, is "absolutely shocking."