To express their commitment to achieving the goals, rich countries and poor are agreeing to a new development compact.

Rich countries can increase aid—and reduce the indebtedness of the poorest countries.

They can open their markets to imports from developing countries.

And they can boost the flows of private capital so long as developing countries improve their investment climates.

Seven steps toward achieving the goals

A new development compact
Achieving the international development goals will not be easy. Developing countries will have to reshape their economies and, in many cases, reform their public sectors. They will have to expand their educational and health care systems. And they will have to devote additional resources to providing basic services such as safe water and sanitation. There is much that the wealthiest nations can and should do to help them.

The international development goals have been accepted by rich and poor nations alike. They represent a shared commitment to improving the life of all of the world's 6 billion inhabitants. This commitment can be expressed as compact, through which developing countries undertake strong, public actions to reduce poverty and work toward the goals and the rich countries provide aid and help to create an environment in which developing countries have the greatest chance of success.

What can the rich countries do?

Increase aid
They can increase the flow of financial resources to developing countries through official development assistance—ODA, or aid—and debt reduction. ODA is a tiny share of donor country budgets: on average the 22 member countries of the OECD Development Assistance Committee spend less than 1.2 percent of their central government budget on aid in 1999. That amounts to only $66 for each resident or less 20 cents a day.

Throughout much of the 1990s, the share of ODA in DAC member's gross national income (GNI) fell. Following the financial crisis of 1997, the share of ODA rose slightly to a level of 0.24 percent in 1999. And while a majority of DAC members increased their aid in 2000, overall ODA slipped back to 0.22 percent of GNI, the same as in 1997. ODA slipped despite the pledge by every DAC member, except the United States and Switzerland, to increase their aid flows toward a target of 0.7 percent of GNI. In 1999 only four countries met or exceeded this goal: Denmark, the Netherlands, Norway, and Sweden. The United Kingdom, whose aid levels increased in 2000, made a commitment to increase its ODA to 0.35% of GNI. For all DAC members the shortfall was equal to $108 billion in 1999, when total net ODA flows were $56 billion.

Much of the aid from rich countries does not go to the poorest countries in the world. So many DAC members have undertaken to provide 0.15 percent of their GNI to the 48 countries considered by the United Nations to be least developed. Throughout the 1990s aid to the least developed countries fell well short of this goal.

Open markets
Aid must be accompanied by coherent policies on trade, investment, shared technologies, the environment, and human capital. Trade is a fundamental concern. Over the last decade, trade barriers have begun to come down, and trade has expanded. Trade lowers costs and creates new markets for the products of developing countries. Increasingly developing countries are exporting manufactured goods to high income economies. At the same time, high income economies are exporting more manufactured goods to developing countries.

Trade in goods and services

Between 1990 and 1999, the trade grew fastest in the dynamic economies of East Asia. But trade grew substantially in Latin America and the transition economies of Europe and Central Asia. But the largest traders and the most important markets for developing countries are the high-income OECD countries.

The welfare costs of tariffs in 1995

What the high-income members of OECD contribute in aid, they take back in trade restrictions—and more. The loss to developing countries from high-income tariff barriers alone was estimated to be $43 billion in 1995. Additional losses from non-tariff barriers such as quotas, anti-dumping measures, protectionist product standards, and other restrictive devices at least double the losses. At the same time, the countries of the European Union spend over $300 billion on subsidies to agricultural production, creating additional barriers to developing country products.

Developing country tariff barriers also impose losses on high-income economies—almost $50 billion in 1995. But the cause even greater losses to other developing countries—$65.1 billion.

Boost private capital flows
Private capital flows have increased sharply over the past decade and now exceed the value of official development assistance to developing countries. But only a few developing countries attract substantial flows. For the rest, the challenge is to use the resources available to them to improve their investment climate and attract new inflows.

...but not all developing regions benefit equally

Private capital flows tend to go to countries with strong investment climates. Fifteen emerging market economies, mainly in East Asia, Latin America, and Europe, accounted for 83 percent of all net long-term private capital flows to developing countries in 1997. Most of these economies are middle income, so the increased capital flows in the past decade may have contributed to widening income differences across countries. Sub-Saharan Africa received only 5 percent of the total.

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