Global aid flows, now running at a fraction over $50 billion a year, has been falling in real terms for a long time. So long as the U.S. has refused to boost aid, so long have other major industrial nations found excuses to refrain from significant new commitments. Now, the U.S. is proposing increases in aid, so pressing all other major donor nations to be more forthcoming. This, finally, is some good news in what has been a long and sad saga of declining global aid financing against a backcloth of rising global poverty.

This new U.S. commitment opens the door to many non-governmental organizations, who have long been battling to just get heard by Republican politicians. To the surprise of many NGOs, the Administration is increasingly ready to listen and confer with civil society over effective aid approaches.

The scale of the change needs to be placed in historical perspective. Twenty years ago the Reagan Administration viewed foreign aid as socialist give-away programs. It argued, with the encouragement of Margaret Thatcher in the U.K., that aid is counter-productive and makes countries depend on foreign welfare instead of pulling themselves up by their own efforts. Reagan's first budget director, David Stockman, sought dramatic cuts in U.S. funding for the International Development Association (IDA) - the soft-loan window of the World Bank group and the largest multilateral aid fund, which had been created by Eisenhower. Now, the Bush Administration is pushing for real increases in the 13th replenishment of IDA's funds (after stagnation in the last two replenishments).

The Administration's approach was first crafted by Secretary of State Colin Powell. At first this looked like a lonely crusade. He visited Africa in early 2001 and left no doubt thereafter that Africa would become the prime focus of strengthened U.S. aid efforts. In due course this has indeed happened, but Powell had a tough time winning internal Administration support.

However, after September 11 an increasing number of officials were willing to listen to arguments for foreign aid. They understood that reducing poverty in sub-Saharan Africa would make no difference at all to highly educated Arabs bent upon suicide missions to promote anti-U.S. terrorism. However, they did perceive that some goodwill across the Third World is important for the U.S. as it seeks to secure the global anti-terrorism coalition and that, in this context, boosting aid is a relatively inexpensive option.

All the same, the hard-nosed U.S. Treasury Secretary, Paul O'Neil, still had to be brought on board. Gradually he fell into line and President Bush went off to Monterrey in mid-March to announce that it will increase U.S. aid by more than $10 billion over the next three years. O'Neill and his Treasury Undersecretary for International Affairs, John Taylor, then had to start building support for the new policy and their chance came in late May when Bono encouraged them to join him (and a host of U.S. television crews and reporters) to visit Ghana, South Africa and Uganda to see some of Africa's development challenges.

Apart from Powell's convictions and White House anti-terrorist geo-political calculations, the Administration's support for enhanced aid rests on a some vital understandings which Wolfensohn, Annan, Mbeki and a few others have all played key roles in shaping.

Annan's contribution has been to quietly impress upon President Bush that there is leadership in Africa that is willing to take charge and promote development, not just wait for hand-outs from the rich countries. He gave assurances that the United Nations and other key multilateral institutions will spare no effort to strengthen this leadership. Mbeki, together with Nigerian President Olusagan Obasanjo, have emerged as the leaders of this new African self-reliance and shaped the "New Partnership for Africa's Development (NEPAD)," which is a continent-wide program to determine Africa's development strategies and demonstrate leadership in implementing the strategies.

Then, Wolfensohn has played a critical role in working with leaders from the Africa to secure agreement on the fundamental actions that they need to take to secure, in return, a new commitment to development by the U.S. and others. These leaders have agreed to place particular priority on: strengthening governance capacity and transparency; boosting the rule of law, not just for domestic purposes but also to enhance foreign investor confidence; and placing far greater priority on financial services transparency in every corner of business, from large corporations to micro-credits. They are committed to work to open their markets, to encourage inward flows of investment and recognize that partnerships with multinational corporations in a globalization framework can be positive.

In return, the leaders of the developing world have been given assurances of more aid and, far more importantly, a commitment by U.S. and European leaders to place greater emphasis on exploring ways in which access to the world's richest markets can be increased for the products made in many of the world's poorest countries.

The new deal, in effect, seeks to make progress on aid, trade and investment at one and the same time.

It also has other crucial components. To start with there is a direct challenge from the White House to the World Bank and other multilateral agencies to demonstrate that they have the capacity to be more effective. This is a challenge that Wolfensohn accepts and he has moved swiftly to bring together his counterparts from many other agencies to confer on how meaningful progress can be made.

The World Bank is about to move ahead with rigorous evaluations of programs and projects in the education and healthcare fields - the two areas widely seen as being in the most acute crises (HIV/Aids has become a central focal point for urgent action on a multilateral basis in the healthcare area, while, as Wolfensohn notes, in the last decade spending on education per capita in Africa has gone from $35 a year to just $18 a year).

Another crucial component has its home in the U.S. Treasury. Here, eagle-eyed economists under John Taylor's wing are determined to ensure that the U.S. Administration has a pragmatic approach to aid spending. It views this as essential to convince the Congress that, over and above World Bank pledges and ones from African leaders, boosts in real terms in U.S. aid appropriations will improve the lives of people.

Focus on boosting productivity

What is emerging is a set of arguments that flies in the face of old Republican anti-aid rhetoric and is based upon the following considerations that Taylor highlighted in a speech on his return from Africa:

The additions to U.S. aid on grant or near-grant terms will be largely directed to two major vehicles:

1. funding for the Millenium Challenge account to increase to $5 billion a year by 2006 -- a 50% rise over and above existing U.S. development assistance;
2. contributions to IDA to increase by 18%.
   

• The Congress has not yet agreed to more U.S. aid funding.
• The richer nations have not indicated any areas where they will reduce trade barriers to the products of poorer countries.
• Question marks hang over the skills of the aid agencies to improve their effectiveness.
• And, there remains too little hard evidence that leaders of African nations are ready to move beyond rhetoric and demonstrate that they will accept full responsibility for their own social and economic development - i.e. major efforts to strengthen transparent governance, boost education, healthcare and the productive capacities of their nations.