Tuesday, June 2, 2009

Private-public partnerships: Can an additional $75 billion in aid be raised?

A fashion heiress and a Nobel Prize-winning economist make seem like an unlikely duo when it comes to addressing global aid funding, but Renu Mehta and James Mirrlees are ready with a plan based on a renewed partnership between the private and public sector. Renu Mehta is the daughter of an Indian textile magnate, and her socialite status has allowed her to gain the support of billionaires, supermodels and pop stars in initiating her global aid plan. Mehta's partner, James Mirrlees, is a Scottish economist who won the Nobel Prize for Economics in 1996 for his fundamental contribution to the economic theory of incentives under asymmetric information. Together, these two plan to launch the Mehta-Mirrlees plan at a meeting of the 8 industrialized nations in Italy this July.

Each year, governments are committed to donate 0.7% of their gross national income to help meet the 8 Millennium Development Goals. However, in 2007 only Denmark, Luxembourg, the Netherlands, Norway and Sweden were able to meet this commitment. Other countries' contributions were significantly behind. Collectively, all members of the United Nations were only able to deliver 0.3% of their gross national incomes (approximately $103.7 billion). The Mehta-Mirrlees plan aims to bolster U.N. donations by calling on the 8 industrialized nations to match private donations with state aid. That would mean, that for every $100 pledged by the private sector, the government of the donor country would agree to add a matching $100 from existing state budgets. Speaking of her and Mirrlees intentions, Mehta states that the best way to address meeting MDG targets " is [to] come up with a new model, find a new way to meet these targets, on the one hand. On the other hand, we need to make sure that the money is deployed to the maximum effectiveness."

Despite the global economic crisis, if the plan is put into action, Mirrlees and Mehta estimate that it could raise more than $75 billion in funding, as the plan provides a greater incentive for donors as they know that their donation will be matched. Funds generated would be dealt with by a newly created private-public organization that would oversee how donations were spent and ensure spending met the private sector's performance expectations.

While the Mehta-Mirrlees plan has drawn support from the U.N. Secretary General Ban Ki-moon, many others are skeptical about giving too much power and influence to the wealthy private sector. Richard Murphy, director of Tax Research LLP speaks on the issue of ethics, stating that, "Just because you're rich and you give to charity doesn't mean you necessarily make better decisions." If we allow private donations, these individuals are going to want a voice in how their money is spent, and their views may often conflict with what is best for a countries personal foreign policy. For example, if a private company that specializes in antiretroviral drugs dictates that their donations must only be spend on HIV/AIDS programmes, the other 7 Millennium Goals will fall behind due to agendas dictated by wealthy donors. Another problem that skeptics of the plan point out is the problem with offshore banking. When governments match donations, the funds would be generated from assets held in offshore tax havens, and due to the recent crackdown on such accounts, many are skeptical of whether aid agencies would be willing to even accept this money. Instead, if officials forced the shifting of funds in offshore accounts into taxed accounts back home, $250 billion could be raised annually, which is more than five times the money needed by governments to meet the United Nations' Millennium Development Goals.

While their innovation is applauded by many, the Mehta-Mirrlees plan still has a few problems that need to be smoothed out before being presented at the G8 Summit this July. If accepted, this plan could be a huge contribution to the Millennium Development Goals, and would hopefully put the world back on track for achieving all target goals by 2015.

To read the original AP article, "Fashion heiress, economist push foreign aid plan," please visit: http://www.google.com/hostednews/ap/article/ALeqM5gFBOWimtt_06Cdt6tT_bD8f_wHRwD98CAQ8O0

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