A Better Way To Lend A Hand.

• Author: LERRICK, ADAM
• Position: Statistical Data Included

The World Bank should convert its lending program for the poorest countries to outright grants.

The sight of a starving child anywhere in the world causes discomfort at the dinner tables of the well fed that no amount of antacid can alleviate. In the electronic world of the global village, as Marshall McLuhan predicted in the 1950's, "the living room has become the voting booth." Television, which intimately connects with suffering and despair, has moved the debate on development aid away from the conference tables of finance ministries and multilateral institutions up to the pulpit, onto the streets, and into the public conscience.

Not to give to needy nations is no longer an option. To give more is on every list. How to give wisely, cost-effectively, and directly for the benefit of the poor is the elusive goal.

Some ninety countries comprise the world's poorest economies without access to private sector resources. Their collective 1.3 billion citizens subsist on a per capita income of less than $2,500, yet are accorded just 40 percent of World Bank attention and funds.

It was for these stepchildren of the system that the Meltzer Commission proposed a major change in the format of development aid. End traditional loans to impoverished nations that cannot repay. Instead, provide outright grants for the basic improvements in living standards and infrastructure that are the foundation for the climb from poverty to productivity.

Grants are not new, but these were redesigned to succeed. Project-centered on tasks that are easily quantified, such as vaccinations, literacy, water treatment, and electricity. Executed under competitive bid, with a strong reliance on the specialized skills of increasingly mobile private sector providers and charitable organizations. Costs shared by the donor and the beneficiary on a sliding scale according to need. Payment made only for performance, as measured by independent audit. No results: no funds expended.

Loud voices from high places rose in protest. U.S. Treasury Secretary Lawrence Summers wrote in the Financial Times: "This would dramatically reduce the total amount of resources that can be brought to bear in these (developing) economies and require an unworkable system for delivering such assistance." World Bank President James Wolfensohn, in a letter to Commission Chairman Allan Meltzer, deemed grants "unrealistic," and went on to write: "In a time of severely constrained foreign aid budgets, it is highly doubtful that donors would be able to provide and to sustain the needed level of funding." The formal Treasury response made it official: Grants "would limit the overall availability of financial assistance to the poorest" and "moving to an all grant system would have negative long-term financial implications for the...