When it comes to helping developing countries, aid gets the headlines, but private investment often pays the bills. So a move to commit more assistance for economic development in poorer countries at this weekend's G20 finance ministers' meeting in South Korea is a welcome step.
The grouping committed to "substantial capital increases" for the World Bank and three regional development banks that cover the Americas, Africa and a swath of countries from central Europe to central Asia. With the relative absence of homegrown private capital, these institutions are often best positioned to help businesses expand. Western countries are members of, and contributors to, these banks, even if they do not benefit from their financing.
The world's poor countries still need direct aid to meet their basic needs - health; education; clean drinking water. The trade versus aid debate is a familiar one: The truth is that the world's least developed countries continue to require both.
The measure of a Western country's commitment to the world's poorest, however, has been traditionally measured solely by the aid it provides, rather than the trade it helps initiate. Although this year's budget flat-lined aid contribution for future years, Canada had increased its aid pledges, and has met its modest 2005 G8 commitment to increase aid to Africa.
It is a good time to make the development banks bigger. Unlike direct aid, economic development assistance, even if it is in the form of grants or loans that charge below-market interest, is less likely to come with ties or accountability measures that might deter other investment. And the era of World Bank mega-projects implemented without local support has given way to more flexible investments by development banks, involving more consultation with local businesses.
As the world's poor countries start to meet the basic human needs of their citizens, they will need help getting up the next rung of economic development, and that means enhancing exports.
Political support around a set of solutions is crucial in the larger battle. The G20 has emerged quickly as a forum for international financial co-operation; its embrace of a more wide-ranging agenda, securing pledges to allow development banks to make more loans and grants, makes it an even more relevant institution, and one that makes a meaningful impact in the lives of the world's poor.Report Typo/Error
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