The financial crisis that began in Asia in 1997 has exacerbated a growing problem: poverty amid abundance. The World Bank estimates that if current recessionary trends continue, the number of poor people in East Asia will increase sharply in the next two years -- from 40 million to more than 100 million. The number of Indonesians living on less than $1 a day will jump from 13 million in 1997 to 34 million in 1999. This rapid growth of poverty poses grave dangers to the West and to the world.

Lest cynics in the West argue this has nothing to do with them, consider the following. Economic declines inevitably translate into political instability and social unrest. Sporadic rioting and looting have already broken out in East Asia, along with attacks on ethnic minorities. What began as a financial crisis has spread and is tearing at Asia's social and political fabric. This may herald severe consequences for stability in countries where growing prosperity had once delivered social cohesion. The world has become more polarized, both between and within countries. The risk of a huge global underclass undermining international stability is quite real.

SAVAGE INEQUALITIES

The recent downturn has affected not only the Asian tigers and other developing countries but also states that are too poor to be considered emerging markets. Africa's growth for 1998, once expected to exceed 4 percent, has in fact been closer to 2.2 percent. In Latin America, growth forecasts have been scaled down from 5.3 percent before the crisis to 2.6 percent for 1999.

Furthermore, even before the international financial crisis cut the global growth rate in half and plunged more than a third of the world's economies into recession, the data on poverty were painting an alarming picture. In the past 15 years, per capita income has declined in more than 100 countries and individual consumption has dropped by about one percent annually in more than 60. Meanwhile, some 150 million people -- equal to the combined populations of France, the United Kingdom, the Netherlands, and the Nordic countries -- were pushed into poverty when the Soviet Union collapsed.

Among the 4.4 billion people in developing countries around the world, three-fifths live in communities lacking basic sanitation; one-third go without safe drinking water; one-quarter lack adequate housing; one-fifth are undernourished; and 1.3 billion live on less than $1 a day. Nearly one-third of the people in the poorest countries, mostly in sub-Saharan Africa, can expect to die by age 40. Even developing countries with strong growth rates are struggling. Despite Uganda's having posted six percent annual growth for a decade, for example, two-thirds of its population still lives in absolute poverty, with per capita income only now returning to the 1970 level. Rapid growth has only started to counteract the ravages of two decades of armed conflict, economic mismanagement, high inflation, crippling corruption, external debt, and declining export prices.

WHERE CREDIT IS DUE

Too often, short-term military, political, and economic interests, rather than the goals of poverty eradication and human development, have shaped development assistance. A new framework for such aid must switch the focus of scarce funds to the most pressing needs of people, particularly the poor. The scope of development cooperation must broaden to include not only assistance but trade, debt management, private investment and capital flows, access to technology, and the strengthening of civil society as a whole. In particular, it must correct the chronic underinvestment in social programs by poor countries with unshoulderable debt burdens.

To make this possible, industrialized nations must first reduce developing countries' burden of external debt. This now totals more than $2.2 trillion, of which two-thirds is long-term public debt. African governments now transfer four times more money to international creditors than they spend on basic health care and education. The West can afford temporary suspension of payments from poor countries while they negotiate new terms. Special programs must address the challenges of pre-emerging markets, where banking and regulatory systems and governance capabilities are far less developed than in the Asian tigers, and where only 0.2 percent of global commercial credit goes to the poorest 20 percent of the world's people.

The current World Bank-IMF initiative to assist Heavily Indebted Poor Countries (HIPC) aims to relieve countries from unsustainable debt. Six nations have been selected for this initiative out of the 41 eligible. But the HIPC program fails to meet the poorest countries' needs in five critical areas: debt-sustainability ratios set the hurdles too high and exclude many needy countries from relief; the debt-reduction time frame is too long and is counterproductive; there is no flexibility for post-conflict countries; eligibility criteria are too narrow; and links between debt relief and active poverty reduction are inadequate. The international community, including both bilateral and multilateral creditors, should use alternative debt relief mechanisms such as debt-for-development swaps. In such a swap, debtor governments agree with their creditors to redirect funds allocated to paying back foreign debt to governance and social services. These arrangements, however, should supplement scarce official development assistance, not supplant it. International agencies such as the United Nations Development Program (UNDP) are supporting this approach by generating the international political will for debt relief, improving poor countries' debt-management capacity, and helping them shift their resources from debt to social development.

FREE TRADE AND FREE POLITICS

Poor-country access to rich-country markets is crucial both for long-term development and for pulling the hardest-hit emerging markets out of the current crisis. Wealthy countries should make it their joint responsibility to absorb developing countries' goods even if this risks temporarily skewing their trade balances. In the free market, as the United States has consistently told the developing world, exports automatically stabilize an economy.

Developing countries must strengthen their capacities to negotiate international agreements on trade and finance, comply with these agreements, and compete at the international level. Wealthy countries must create a time-bound facility that provides integration assistance to emerging and pre-emerging markets before those countries join global financial markets. This assistance should be used to strengthen regulatory frameworks and supervisory institutions. But aid should be clearly limited in time to ensure that countries do not become dependent on it and can generate future growth on their own. The UNDP has 50 years of technical cooperation experience and manages more than $2 billion annually in 130 countries; together with the Bretton Woods institutions and the Bank for International Settlements, it can help smooth the integration of the have-nots into the global economy.

International negotiations about development cooperation must include more players. They must support not just the economy but society and must be country- not donor-driven. The United States in particular and the international community in general have strongly promoted democratic practices throughout the world. Now, international conferences must devote space to women, developing countries, civil organizations, and businesses. Both development and rescue programs will benefit from broader participation.

GLOBAL PUBLIC GOODS

The United States and other wealthy countries should have the foresight to increase development assistance. Lessons have been learned, often from sad experience, about how to do so effectively. Developing countries are littered with the remains of projects that failed for social or environmental reasons. Glaring examples include metropolitan hospitals that drained funds from village clinics and elite universities that starved primary schools of critical resources.

The clear lesson of the past five decades is that economic growth, though essential, is by no means sufficient to eliminate severe poverty or bring about lasting development. True development requires profound institutional changes that empower poor people to contribute to and benefit from the economy, thus sharing in its profit. It entails investing in the human, social, environmental, and physical assets of the poor, expanding their access to productive resources, social services, and basic infrastructure. It demands changes that promote the advancement and empowerment of women and other marginalized groups. And it should be built on good governance and strengthened national capacities in the public, private, and nongovernmental organization sectors.

But right at this confluence of greater need and greater opportunity, resources are declining, not increasing. Development assistance has declined for five years running and is now at a historic low. If this trend is not reversed, it could cost dearly later -- not just in missed economic opportunity, but in emergency relief, peacekeeping forces, the spread of disease, environmental deterioration, illegal immigration, refugees, and terrorism. The West should sharply increase its total assistance now in order to help Asia without neglecting Africa; it would be in its own best interests to do so.

Development assistance is not an alternative to private investment but an essential building block for a vibrant private sector and successful financial markets. It is not a handout but rather a solid investment in peace and a more equitable and habitable world. Encouraging girls' education, for example, is one of the best ways to secure the world's future. It yields personal gains for the girls and their families, produces more-educated and better mothers, and reaps benefits for society as a whole. More-qualified women workers earn better incomes, participate more effectively in the economy, and bring positive externalities such as enhanced health, reduced fertility rates, and slower population growth. Another good example of productive development assistance is supporting forestry development. Local communities benefit, certainly, but so do the rest of us, since forests are key to managing pollution and preventing global climate change. This thinking is reflected in the Global Environment Facility, a $2 billion fund that helps countries translate international concerns into a national fight against ozone depletion, global warming, loss of biodiversity, and pollution of international waters.

UNCLE SAM OR UNCLE SCROOGE?

The United States has been particularly stingy with its aid budget. In 1960, four percent of the U.S. budget went to development and international affairs. Today these areas are allocated less than one percent. Forty U.S. embassies, consulates, and branch offices have closed in the last six years. The United States now accounts for just 13 percent of the industrial world's development assistance.

But declining engagement does not square with U.S. global interests. Since 1987, more than two-thirds of American export growth has been in emerging markets, generating roughly two million new domestic jobs. Two-fifths of U.S. trade goes to the developing world. With four out of five people living in developing countries, market growth for U.S. industries will continue to shift toward the developing world.

Beyond this positive interest in the economic health of the developing world, Americans have an obvious stake in avoiding humanitarian emergencies, national and regional conflicts, environmental deterioration, terrorism, illicit drugs, the spread of diseases, illegal migration, and other human and natural disasters. Many of these threats stem from poverty, inequity, joblessness, and social disintegration. Although no one would attribute such problems solely to underdevelopment, it is clearly part of the disease. And sustainable development must be part of any cure. In Rwanda, for example, vocational training and employment programs have helped stabilize the delicate political situation. In El Salvador and Guatemala, programs that assist the poor and needy are important aspects of the peace accords.

The United States cannot accomplish any of its admirable international goals -- fomenting peace and stability, human rights and democratization, the expansion of trade and markets, environmental protection, population stabilization, an end to hunger and extreme deprivation -- without equitable, sustainable development. A new framework for development cooperation must be forged and backed up with real political and financial commitment.

In an interdependent world, international cooperation must be an integral part of public policy. Our common well-being will increasingly depend on factors, from the environment to the economy, that have already been globalized. The West in general and the United States in particular must increase their investment in less-developed countries. The costs of neglecting the rapidly growing international class divide will be immense, reaped in environmental harm, humanitarian disaster, and economic growth. The West must have the foresight to act now.

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