Sanjay Suri

LONDON, May 20 2005 (IPS) — Britain has declared that the development of Africa will be a priority at the G8 summit, but little agreement is in sight over the preferred aid route.

British officials say that support for the International Finance Facility (IFF) proposed by Chancellor of the Exchequer (finance minister) Gordon Brown is rising. But there is no sign that the United States will abandon or amend the aid programme under its Millennium Challenge Account to adopt the IFF.

The IFF seeks to frontload long-term donor commitments into providing the money in time for the Millennium Development Goals rather than later. Under the IFF money would be raised for the development of Africa from private investors through the sale of bonds on the capital markets. Binding aid commitments would provide security for the bonds.

In effect governments would be borrowing from their future lending or grants in development aid. The money raised would be used for Africa, and the governments would use their annual aid budgets in later years to repay the capital value of the bonds.

The interest payable on the bonds is envisaged around 5 percent a year over 30 years. The Treasury in London says investment in aid can more than recover this money. ”Significant front-loaded resources will enable comprehensive investments to be madeàwhich will be complementary and self- enforcing, and increase overall returns,” the Treasury said in a statement on the IFF.

The Treasury says the IFF could increase development aid from the maximum of 16 billion dollars a year committed by donor nations at the United Nations conference on financing for development in Monterrey in Mexico in 2002. Not least, it says the IFF is a way to ”lock” donors into promises made at the conference.

”Almost 70 countries have expressed their support, including Britain, France, Germany, Italy and Sweden,” Rob Ward from the Treasury told IPS. But he said ”there are also others that consider the IFF difficult to implement, although we are working with these countries on this point.”

The relatively low budget for official development aid (ODA) by Italy and Germany among the G8 members could, however, limit the effectiveness of the IFF. The countries not on board the IFF initiative include the United States, Canada and Japan among the G7 (the United States, Canada, Britain, Germany, Italy, France and Japan). Nobody expects Russia, whose relatively recent inclusion turns G7 into G8 to be a significant donor for development in Africa.

The United States has taken a politically different approach to aid. Its Millennium Challenge Account (MCA) is more grant-based, but tied to commitments from receiving nations towards ”good governance, rooting out corruption, upholding human rights, and adherence to the rule of law.”

The MCA stresses aid that promotes health and education, and economic policies that foster enterprise and entrepreneurship. That means among other things more open markets, while good governance means in effect support for the U.S.-led war on terror. The MCA is also less Africa- centric.

U.S. President George W. Bush announced in 2002 that the United States will increase its core assistance to developing countries by 50 percent over the next three years, resulting in a 5 billion dollar annual increase over 2002 levels by financial year 2006. The United States aid programme ties in closely with its political and economic interests, and there is no sign it is letting go of its plans ahead of the G8 summit.

The different approaches have added up to another transatlantic divide, though divisions remain also within Europe. There is no certainty just how much cash France and Germany would raise through government bonds to fund the IFF.

European Union trade commissioner Peter Mandelson has proposed a European initiative over the IFF in the face of the failure of attempts so far to win U.S. support. But only Britain and France have made a commitment so far to move towards setting up 0.7 percent of their gross national income for development aid. European support for the IFF may not therefore amount to anything near the needed cash.

Gordon Brown has been pressing home the moral argument. ”If present rates of progress were to continue in sub-Saharan Africa, we would not meet the goal of primary education for all by 2015 – we would meet it in 2150, 135 years late – which is why additional finance is required and why the world community must examine the provision of resources,” he told the House of Commons.

The official positions seem to be hardening around the present stand taken by different governments. The only debate that could bring a shift in positions is now expected at Gleneagles itself.