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We're a reluctant combatant in the war against world poverty

April 22, 2003

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As Australia heads towards the bottom of the aid donors' list, where, asks Tim Colebatch, is Peter Costello?

Some wars take longer than others. James Wolfensohn's war is one of the long ones. It is not a war you can watch on CNN, but it is probably the most important war of all.

Under his leadership, new, far more accurate weapons are being deployed; the action is hotting up. Wolfensohn, an Australian expatriate financier, has been leading the war against global poverty since Bill Clinton headhunted him in 1995 to become president of the World Bank, the world's main source of development aid.

Since 2000, Wolfensohn has persuaded most nations, including Australia, to adopt specific, wide-ranging targets - the millenium development goals - to halve the extent of severe poverty in the world by 2015.

In the past fortnight, while the world's eyes have been on Iraq, Wolfensohn and his team have been briefing ministers in Washington on progress in what he terms "the other war". The news from the front is mixed. Some ministers warned that the fight was being lost through lack of resources where they were needed. But most of the news was good.

First, global poverty at long last is declining. The new update of the bank's World Development Indicators estimates that in the 1990s, the number of people living in extreme poverty - an income of no more than $US1 ($A1.60) a day, indexed for inflation since 1990 - has ebbed from 1292 million to 1169 million, despite rapid population growth.

The bank noted, however, that the fall was concentrated in China and India. Poverty rose - in some cases dramatically - in much of the world, above all in Africa and the former Soviet Union, where real incomes have been halved.

Surveys show that in much of Africa, most people live on less than $US1 a day. Even in India, a success story, by 1997, 44 per cent of people earned less than $US1 a day and 86 per cent earned less than $US2.

But the second bit of good news is that more developing countries, especially in Africa, are enjoying real growth. Despite civil wars, AIDS, corruption and misgovernment, average per capita incomes in Africa since the mid-1990s have risen by about 1 per cent a year, reversing a 20-year slide.

While some countries are still getting poorer - above all, Zimbabwe and the Democratic Republic of Congo - reforms in countries such as Uganda, Sudan and Ethiopia have sparked years of strong growth. There is huge potential for other countries to join them, if domestic reforms and lower debt burdens were matched by aid flows.

The third reason for optimism is a revolution in our knowledge of why countries develop. Only in the past decade or so have economists and global institutions fully grasped the economic importance of social development through education, health care, and the development of a culture conducive to business development and good, corruption-free government.

The bank's own priorities have changed radically to reflect this - it used to be in the construction business, it is now in the knowledge business. It still funds infrastructure projects, but increasingly its emphasis is to ensure that every child receives a good basic education, that safe water and health care are available to all, that childbirth is not fatal to mother or child, and that gender equity becomes a reality. Experience shows that these rights not only flow from economic growth, but in a virtuous circle, they generate it.

Wolfensohn told ministers the key tasks for developing countries were to develop sound macro-economic policies, a good climate for local business to grow, and a corruption-free, effective public sector to direct resources to the poor.

The two key tasks for developed countries, he said, were to open their markets to developing country exports, and deliver "more and better-targeted development assistance".

The bank's chief economist, Nick Stern, estimated that to achieve the millennium goals, foreign aid needed to double, raising an extra $US50 billion a year.

Most Western countries have responded positively. President George Bush has pledged a 50 per cent real increase in US aid by 2006, and begun delivering it. Tony Blair has pledged to lift Britain's foreign aid to 0.4 per cent of its income by 2006. European nations on average have committed to a 41 per cent real growth in aid, to 0.43 per cent of their income by 2006.

Australia, by contrast, has hung back. Foreign aid has been whittled back by successive governments to just 0.25 per cent of our income, roughly half its share in the 1960s when Australia was only half as rich as now. The OECD projects that by 2006, Australia, once a world leader in aid, will be almost at the bottom of the aid donors' list.

Peter Costello is not likely to make big changes this year. But his government is in a position to make a long-term commitment. It could pledge Australia to play its part in halving world poverty by gradually doubling aid to 0.5 per cent of our income over the next decade.

It would be a wonderful message to the world's poor that we will be there for them.

Tim Colebatch is economics editor of The Age. Email:



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