- The Washington Times - Saturday, December 1, 2001

The directors of the International Monetary Fund (IMF) and World Bank wrapped up a meeting last weekend with a call for more funds for their respective behemoth institutions. Before considering more handouts, it's time the United States began seriously reconsidering how it awards the lion's share of its aid and started directing taxpayer money where it is best spent.

Grass-roots, micro-lending institutions are most effective in getting funds to individuals and away from governments, where U.S. aid is often "taxed" through graft. This reorientation of U.S. aid won't occur overnight, and surely foreign governments, especially corrupt administrations that have been able to perpetuate their power by receiving foreign aid, will protest. But as the United States increasingly aids smaller, non-governmental organizations rather than the bureaucratic giants, the world will have little choice but to accept America's new approach to international giving.

In doing so, it is crucial that Americans also realign their philosophy towards global poverty reduction. In wake of the September 11 tragedy, this goal has never looked so attractive. But unfortunately, U.S. aid alone can't trounce the bad government policies that perpetuate poverty around the world. Micro-lending, however, which provides small amounts of credit to the poor to launch very small businesses, helps not only to transform lives, but gradually empowers populations. And an empowered population is better able to hold its government accountable.

Naturally, a micro-loan that allows a poor farmer to buy a tractor, or an urban laborer to buy three sewing machines and hire two workers doesn't sound as awe inspiring as a big-ticket pipeline or highway project. But these types of grass-roots initiatives often have the most profound, if incremental, impact. "When you work with that type of aid infrastructure, the poor are more directly affected and poverty is more likely to be alleviated," said Ian Vazquez, director of the Project on Global Economic Liberty at the Cato Institute.

The irksome problem for the IMF and World Bank is that they can't justify their expansive budgets with these kinds of low-cost projects. And after these institutions' lack of transparency and effectiveness initially came to light, the debate on foreign aid began increasingly shifting towards the small organizations that focus on grass-roots and micro-credit projects, said Kay Treakle, managing director of the Bank Information Center, which monitors the impact of multilateral lending. "That kind of got derailed when the Inter-American Development Bank and World Bank and all these institutions said: 'Oh wait! We can be more accountable. We can be more transparent.' "

The international banks have sought to highlight their micro-enterprise projects as one of their main pursuits, when, in fact, these initiatives are a tiny portion of their overall expenditure. They "often trot out micro-lending as one of the main things they do in order to justify funding for other projects," said Mr. Vazquez.

Grameen Bank, a micro-lender in Bangladesh, is often held out as a promising model for this type of initiative. And Oxfam International, an international network of organizations that are based in the United Kingdom, is actively involved in grass-roots development. In Latin America, the Foundation for International Community Assistance, or Finca, has also been active in micro-lending. The administration should increasingly direct funding to these types of organizations.

Treasury Secretary Paul O'Neill correctly stated last week: "It's time for us to become determined and purposeful about making a difference in living conditions by increasing real economic development and not just more giving." Certainly, global prosperity is in the national interest, now more than ever. And this must start by giving person to person.

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