News Release

September 17, 2003

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New Approach to Foreign Aid Misguided
Massive increases to U.S. and World Bank aid unjustified

WASHINGTON -- President Bush is pushing a new foreign aid initiative that will grant assistance to poor countries only if they have sound policies and institutions, but such an approach would likely be as ineffective as failed assistance programs of the past, a just-released Cato Institute report argues.

In "The New Approach to Foreign Aid: Is the Enthusiasm Warranted?" Ian Vásquez, director of Cato's Project on Global Economic Liberty, explains that empirical claims that the new, selective approach to foreign aid is effective are based entirely on World Bank research of dubious quality that has been difficult or impossible to reproduce by outside researchers.

Selective aid as disbursed by the World Bank or under the president's proposed Millennium Challenge Account is also conceptually flawed because "countries with reasonably sound policies will experience economic growth without foreign aid," Vásquez writes. "Providing development assistance to such countries may improve the apparent performance of foreign aid, but it may also help to create dependence and delay further reform," problems that have long plagued official development assistance.

Finally, "Politicization and the prevalence of conventional foreign aid from multiple sources will undercut the U.S. effort to create a `well designed' selectivity program," Vásquez writes, adding that calls to double foreign aid flows worldwide or to raise U.S. aid by 50 percent are unjustified. "Any increases in foreign aid in the name of selectivity will surely add yet another chapter to the disappointing history of foreign aid."