Foreign aid keeps Latin America poor

Latin America remains poor and backward not despite multilateral "assistance" but, in a large part, because of it, says Wall Street Journal columnist Mary Anastasia O'Grady. The Inter-American Development Bank (IDB) has been going at the problem of poverty in Latin America since 1959, but it hasn't acted alone. In the post-war period the World Bank, the International Monetary Fund and untold bilateral agencies have blanketed the region with aid. Worldwide, foreign aid has boomed.

According to the Organization for Economic Co-operation and Development (OECD):

In 2008, total net official development assistance (ODA) from members of the OECD's Development Assistance Committee (DAC) rose by 10.2 per cent in real terms to $119.8 billion.

This is the highest dollar figure ever recorded.

Does it follow that poverty persists because the amounts have been just too measly to do the job, asks O'Grady?

A 2006 paper titled "Foreign Aid, Income Inequality and Poverty," from the research department of the IDB itself, looked at the period 1971-2002 and found "some weak evidence that foreign aid is conducive to the improvement of the distribution of income [sic]. When the quality of institutions is taken into account, however, this result is not robust. This finding is consistent with recent empirical research on aid ineffectiveness in achieving economic growth or promoting democratic institutions."

In a recent book titled "Lessons From the Poor" about successful entrepreneurs in the developing world, researcher Alvaro Vargas Llosa echoes these insights. "The decisive element" in bringing a society out of poverty is "the development of the entrepreneurial reserves that exist in its men and women," Vargas Llosa writes. "The institutions that grant more freedom to their citizens and more security to their citizens' possessions are those that best facilitate the accumulation of wealth."

It is obvious that economic liberty and property rights are the key drivers of development, and that there is no correlation between the volume of foreign aid a country receives and its respect for these values, says the Journal.

Source: Mary Anastasia O'Grady, Aid Keeps Latin America Poor; For real progress, they need the means to accumulate wealth, Wall Street Journal, April 6, 2009.

For text: http://online.wsj.com/article/SB123897316163590919.html

For more on International Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=26

FMF Policy Bulletin/ 14 April 2009