Foreign Aid and its unintended consequences.

Later this week, I will be speaking in Rome on the illogicality of foreign aid, and as if by intelligent design, my friend Todd Kruse, anchorman of the Uhuru Policy Group sent this powerful letter to me. Aside getting it on my blog, I will ensure media houses publish it as well. You can send your comments on this letter. Many thanks Todd.



Uhuru Policy Group – letter to US Congress

November 26, 2007

Dear Members of Congress,

Each year numerous non-governmental organizations pressure the world’s leaders and international financial institutions for debt forgiveness for some of the world’s poorest countries. Groups such as Oxfam, DATA (led by U2’s Bono), Jubilee USA and others like Jesse Jackson plead for relief on behalf of the world’s poorest citizens. Their efforts have succeeded in securing billions of dollars in loan forgiveness.

This campaign is a well intentioned effort meant to facilitate a rise from poverty for the world’s poor. While the ultimate goal is no doubt noble, the approach used to achieve these goals undermines the very efforts aimed at reducing poverty in the developing world.

Today, tools are available for countries that are interested in debt management, eliminating poverty and increasing wealth. Many nations, including the poorest countries in places like Africa have taken advantage of special programs like the Highly Indebted Poor Country (HIPC) Initiative supported by the International Monetary Fund and the World Bank’s International Development Association, making them eligible for debt forgiveness.

Unfortunately, without adopting economic and good governance reforms, the cycle of debt accumulation followed by debt forgiveness will continue leaving programs like HIPC irrelevant. To reverse the debt accumulation-debt forgiveness cycle to create wealth for the poor, we must first address the primary factors that are contributing to the impoverished state of these economies.

There is no better example than the Republic of the Congo, which was granted HIPC status in 2006 and received approximately $3 billion in debt forgiveness[1]. This begs the question -- how does a country with 5 percent annual GDP growth[2] and billions of dollars in oil revenue continually find itself pleading with its creditors for debt relief? Look no further than its president, Denis Sassou-Nguesso, who rose to power through a violent coup in 1997. President Sassou-Nguesso is notorious for extravagant spending on trips to the United States. In one egregious example, he spent nearly $300,000 at the Palace Hotel in New York City, significant portions of which were paid in cash.[3] Despite such lavish trips abroad, the Republic of the Congo spends millions of dollars each year on high-powered Washington lobbyists that pressure the U.S. Government for additional debt relief while the average citizen lives on less than $4 per day[4].

Recently, Senator Patrick Leahy added an amendment to HR 2764, the Foreign Operations and Related Programs Appropriations Act of 2008, which would restrict the issuance of visas to officials of foreign governments and their families involved in corruption in extractive industries, such as oil and diamond mining. The amendment targeted seven countries, including the Republic of the Congo.

In introducing this amendment, Senator Leahy has taken a critical step in assuring citizens in impoverished countries that the United States will not allow corrupt foreign officials or their families to operate with impunity. Support for this amendment would demonstrate action and resolve on the part of the United States in addressing these country governance issues. However, more must be done.

There must also be action in recipient countries to eliminate political corruption, increase transparency and facilitate economic growth. We must refrain from continuing to make financial commitments to leaders of nations who do not make a commitment to their own countries.

We must break the cycle of debt accumulation and debt relief in countries like the Republic of the Congo by eliminating political corruption, increasing transparency and promoting the importance of foreign direct investment. It is important that the U.S. Congress take a stand against corrupt foreign leaders who seek debt forgiveness while they line their pockets with state funds. The end result of today’s current foreign aid system is that millions of citizes in these debtor nations remain in abject poverty.

I strongly urge you to support the Foreign Operations and Related Programs Appropriations Act of 2008 and Senator Leahy’s amendment.


Sincerely,
Todd Kruse
Uhuru Policy Group co-founder
Minnesota

[1] http://www.goalusa.org/newsroom/sundaytimes0107.shtml
[1] https://www.cia.gov/library/publications/the-world-factbook/geos/cf.html