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27 July 2011Foreign aid is a vital supplement for many developing countries, says Harold Mitchell in the Sydney Morning Herald..

There is a lot of fuzzy thinking about Australia's foreign aid. It is time to be much clearer about what aid can and can't achieve.

Hugh White, on this page last Tuesday

("Economic growth, not foreign aid, is overcoming long-term poverty in the world"), asked why Australia was increasing its aid program when poverty was actually being beaten by economic growth.

The recent Independent Review of Aid Effectiveness and the federal government's response have led to a sharpening of the objective of the aid program to "help poor people overcome poverty". Nevertheless, this is a complex problem, as we know even within the Australian context. Bob Hawke lived to regret his 1987 commitment that "by 1990 no Australian child shall live in poverty".

Countries as diverse as South Korea, Singapore and Botswana have grown out of poverty. In each case, aid played a role over many years. But there is no simple formula that countries can apply to grow their economies, and, importantly, the extent to which economic growth leads to poverty reduction varies dramatically.

Papua New Guinea has seen strong economic growth over the past five years, but it is not clear that it is being translated into lower levels of poverty.

Economic growth needs to be coupled with effective government institutions, a vibrant civil society and with a population that can take advantage of the opportunities that economic growth may provide.

Aid has played an important role in enabling poor people to take advantage of economic growth. About 80 per cent of children in developing countries now get basic vaccinations. About half these vaccinations are funded through aid programs. Millions of children are studying in schools funded by aid, with school books delivered by aid programs. These children often eat school lunches funded by aid, too. This aid often leverages greater efficiency and effectiveness in government resources through better tender processes and improving policies.

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