Minister Trevor Manuel, who is also chairing the World Bank's development committee this year, told reporters the United States' proposal to increase the amount of grants which do not have to be paid back, and reduce the amount of loans, will make developing countries less able to make their own independent decisions on economic policy.
"More ODA (official development assistance) is of course welcome, but not when the trade-off is harsh," Manuel said. Discussions on how to provide financial assistance to fight poverty worldwide have been between the United States and Europe, with developing countries having no say, he said.
The World Bank and the International Monetary Fund are holding their spring meetings this weekend, which finance ministers and central bank governors from 183 countries are attending. At the top of the Development Committee's agenda is how to reduce world poverty by half over the next 20 years. While the U.S. government is pressing for funding only the poorest of countries, developing nations are calling for a more level field in global trade instead.
"Integration of developing countries into the global economy is crucial," Manuel said. "We need more market access."
The South African finance minister pointed out that while industrialized nations provided $300 billion in agricultural subsidies last year alone, their contribution to development assistance was only a sixth of that. He argued that by reducing trade barriers and slashing subsidies, developing countries will have a greater chance of having viable industries, enhancing capital formation, boosting employment, and ultimately reducing poverty as a result.
"There's no point in pouring in money when that money can't stimulate the economy," Manuel said. "Even increasing ODA by three times won't help in that case."
The Bush administration, however, has proposed that donor countries reduce the amount of loans they provide, particularly to more economically mature countries such as Argentina, and instead provide loans to the world's poorest nations such as Bangladesh to support basic human needs such as healthcare and education.
U.S. Treasury Paul O'Neill has called for grants, which currently make up 2 percent of overall development assistance, to be increased to 21 percent, while the European Union is suggesting that the amount of grants be increased to 18 percent.
While such a move would reduce the debt burden of developing countries, recipient nations are wary that the allocation of grants which would be driven more by the needs and concerns of the industrialized nations, rather than those of developing countries. They are also concerned that increasing grants would only make poor countries even more dependent on financial assistance, and would not encourage economic growth from within the countries themselves.
One of the most effective ways to boost growth from within poor countries is to boost their exports of agricultural goods and commodities.
But Manuel said that the Bush administration in particular has been hindering developing nations' access to global markets by increasing subsidies and imposing tariffs, which put developing nations at a disadvantage. He pointed out that the United States decided last month to impose tariffs on steel, which has put a damper on hopes for a breakthrough in leveling the playing field for the world's poor.
Both the World Bank and the IMF, however, have been calling for a significant reduction in tarrifs and trade barriers as a means to alleviate poverty, which has been heartening for developing nations, Manuel said.
"The poor really have no voice (in ongoing discussions about grants and loans)...so the support of the World Bank and the IMF are appreciated," Manuel said, although he acknowledged that the financial institutions were not perfect.