And the Paris Club, an informal coterie of lender countries from across the globe, pledged $3.64bn in aid to the countries afflicted by the Indian Ocean tsunami, he said. Debt relief was also offered but not all afflicted countries wanted it for fear of what it may do to their credit rating in capital markets.


This is an interesting scenario in terms of world aid. Mr Larson pointed out the importance of disbursements given to the disadvantaged countries and how they could be used to help to create jobs, rebuild housing and restart people’s lives. “Our view is to undertake a true partnership with developing countries by mobilising resources to achieve measurable economic development results,” Mr Larson said. He referred to the following statistics: net Official Development Assistance (ODA) monies given to developing countries by the US have nearly doubled from $10bn in 2000 to $19bn in 2004, according to the Organisation for Economic Co-operation and Development (OECD), Development Co-operation Directorate (DAC) and US AID.


“The US takes the position that it is important to take a comprehensive view of what resources are available,” he said. “But by drawing attention to other sources of funding, nations can take a larger approach to the macro potential.”

FDI flows

One excellent source of funding was FDI, said Mr Larson. In 2004, ODA remittances to developing nations totalled $77bn, $18bn of which was from the US; remittances totalled $93bn, of which $28bn was from the US. But monies received by FDI totalled $193bn, $27bn of which was from US sources, he said. “This figure represents flows associated with productive activities such as investment in factories, service companies, oil wells, etc,” he said in his briefing. “In 2004, FDI flows to developing countries increased more than 50%.”

He referred to the Doha Agreement in which the US was taking a role in pointing out how trade could give a “developing country” a “developed nation” status. For example, according to the IMF department of trade, while global ODA into developing economies was $77bn in 2003, export earnings from these countries amounted to $2653bn, $604m of which went to the US.

“But people have a tendency of thinking of those living in developing countries as victims with no control of their fate,” Mr Larson said. “At best, foreign development assistance should accelerate the economic growth that results from sound policies and good governance.”

FDI had increased South Korea’s GDP per capita of $257 in 1970 to $11,000 in 2003, for example, said Mr Larson. “Meanwhile, in Ghana, the GDP went from $257 per capita in 1970 to $354 per capita in 2003.”

Development money

To address this issue, the Bush administration has established the Millennium Challenge Account (MCA), an official development assistance programme that is separate and distinct from existing aid flows. Under this plan, aid is distributed only to developing countries that “govern justly, invest in their people and encourage economic freedom”.

For the MCA to be an effective catalyst for development, however, it must primarily encourage economic freedom. The administration describes economic freedom as being “the most reliable and consistent determinant of the economic growth that can alleviate poverty – by directing economic aid only to developing countries that have made demonstrable progress in adopting policies that promote economic freedom”.

“The most important thing that happened in Korea was that an environment was created where Koreans used their own domestic savings and channelled it into investment to create tremendous wealth over one generation,” Mr Larson said in the briefing. “In Ghana, significant reforms have now been introduced to make it eligible for MCA.”

Mr Larson said that the US government had made a firm commitment to countries like Ghana in Africa through the MCA. “The government believes Africa is capable of following the same path of alleviating poverty as other nations,” he said. In Botswana, for example, GDP per capita increased from $139 in 1970 to $4000 in 2003.

“As we continue to deepen our commitments to help the victims of the tsunami disaster, we also want to ensure that we will do it in a way for lasting economic development and growth,” Mr Larson said. “The tsunami crisis represents an incredible responsibility, yet it could also represent a challenge to deepen the effort to raise economies all over the world.”