Jeremiah Norris
Wall Street Journal
April 14, 2009

As timely as Mary Anastasia O’Grady’s “Aid Keeps Latin America Poor” (Americas, April 6) is, its underlying message is also long overdue. She mentions the list of U.N.-sponsored institutions that have poured billions in aid to Latin America since 1959, all to no avail in the alleviation of poverty. The Alliance for Progress promoted by the Kennedy administration in 1961 can be added to the list. It was largely managed through the Inter-American Development Bank, expending $22.3 billion in 1960 dollars through 1969. It was infamously unsuccessful. Yet, its managers found that the fault could be set at the feet of corrupt governments and military dictatorships — which took the money and laughed all the way to an off-shore bank.

Though the Organization for Economic Cooperation and Development’s Development Assistance Committee calculated a rise of 10.2% in Official Development Assistance (ODA) to $119.8 billion in 2008, a significant percentage is phantom aid. DAC doesn’t issue public disclosures on the percentage that is debt forgiveness. In 2005, debt cancellation accounted for more than 20% of ODA from Austria, Germany, Italy, the U.K., France, Japan and Spain. Nearly 70% of Portugal’s ODA came from writing off bad loans to poor countries, often to its former colonies.

In debt forgiveness, not a single new dollar or euro leaves a developed country for a developing country.Most of the credits were insured by export credit guarantee agencies, which reimbursed the lenders years ago. But since the debt was not formally canceled until recently, that unpaid interest had accumulated, often to more than double the principal. When the World Bank forgives a bad loan, the debt is charged off to its capital members who must then reimburse the bank in an amount equal to what was forgiven. This is a double whammy for its largest member: the U. S. government. It paid for the bad loan, then pays again to forgive that loan.

Jeremiah Norris
Director
Center for Science in Public Policy
Hudson Institute
Washington