Zalm sounds alarm over aid plans

By Stewart Fleming

Date: 26/05/05

Gerrit Zalm, the Dutch finance minister, has voiced concern about the EU's failure to present a united front on how to increase aid for developing countries.

Speaking to European Voice on the fringes of the World Bank's annual conference on development economics in Amsterdam on Monday (23 May), Zalm described proposals to raise aid through a tax on air passengers as "more or less a dead horse".

Zalm's views were echoed by François Bourguignon, chief economist of the World Bank.

It would have been better if finance ministers had made the tax applicable across the whole EU, he said.

France, Germany and Belgium backed the scheme during talks at the informal Ecofin on 14 May but not all countries are ready to introduce it.

But, Bourguignon said: "I think the EU's political will to increase development assistance is there."

Zalm admitted that the EU's confusion over its approach to increasing development assistance risked weakening its 'soft power' foreign policy, with national governments putting forward competing schemes for debt relief.

Zalm also conceded that the confusion sent out a poor signal ahead of the Group of Eight (G8) summit in Gleneagles in July and the United Nations summit in September where aid will feature prominently.

In his speech to the World Bank meeting, Zalm called on developing countries to put much greater emphasis on making their economies attractive to private investors.

"Creating a good investment climate is an area where reform can still have an enormous pay-off, creating up to 2% [of gross domestic product] extra economic growth [per year] in developing countries," Zalm said.

Securing property rights and reducing red tape in particular involved low costs but high benefits.

"It would be a tragedy if this opportunity to close the gap to the Millennium Development Goals were not embraced by all of us," he said.

World Bank officials said privately that in emphasising institution-building, Zalm was pushing on an open door as far as the bank itself was concerned, since this was now a focus of its operations.

One bank official said that he expected that when its new President Paul Wolfowitz took over next week (1 June) he would make greater emphasis on private sector reform one of his priorities.

There would also be, he believed, a tighter focus on helping post-crisis countries, especially in Africa, avoid becoming failed states and havens for terrorists.

He said that while the outgoing president James Wolfensohn was "a visionary", he had "found it hard to say 'No' to new initiatives".

An EU official expressed the hope that Wolfowitz would make it a priority "to broker a deal" on the contentious issue of debt relief.

The US has been calling for a write-off of the developing countries' debts to the multilateral development banks.

The EU believes this course would condemn the banks to a protracted period of decline.

The EU official said that if the new World Bank president could bridge the gap between the EU and the US on this issue and not simply push the US position, this would send out a positive message of co-operation.

• Stewart Fleming is a freelance journalist based in Brussels.

Article reports on the World Bank's annual conference on development economics in Amsterdam on 23 May 2005. Speaking at the meeting, Dutch Finance Minister, Gerrit Zalm called on developing countries to put much greater emphasis on making their economies attractive to private investors.