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The White House outlined a detailed proposal it calls the Millennium Challenge Account on Monday, to set up a competition among the world's poorest nations for portions of a new $5 billion foreign aid fund, reports the New York Times. This would represent a 50 percent increase in the amount of non-military foreign aid the US hands out each year.

The new foreign aid program would be a kind of merit scholarship for the best performers among developing countries, US officials said. It would not replace or reduce the current need-based aid that totals $10 billion per year, administered through USAID.

The administration's judgments about which nations will get the money and which will not, would depend on how they score on a range of performance tests. Countries will have to show they are reorganizing their societies according to Washington's standards and meet a series of criteria, based on those already set out by the World Bank and private entities such as the conservative Heritage Foundation, according to Agence France-Presse.

A total of 16 indicators will be taken into consideration: six of the indicators reflect governance and the fight against corruption; four relate to investment in social capital, such as education and health. The other six reflect what US administration officials call "economic freedom"-including nations' free trade inclinations.

The criteria make no mention of cutting marginal tax rates, but they clearly call for US-style governance of markets, free trade and deregulation. In that regard, how open a country's market is to imports-including American goods and services-will be an important factor, notes the New York Times.

US President George W Bush's senior aides have said in recent months that the new aid program is part of his effort to show another side of his foreign policy. Organizations aiding developing countries largely praised the effort, saying that if executed well, it could begin to solve the problem of wasted or misallocated foreign aid.

At first, the only countries allowed to compete for the new foreign aid fund will be those with per capita incomes below $1,445, the threshold the World Bank uses to define the world's poorest nations, thereby limiting the first grants primarily to nations in Africa and Latin America, along with India. If Congress grants the full $5 billion Bush has sought, by the third year the program will be open to nations with per capita incomes of up to $2,975, encompassing some 110 countries, such as the Philippines and some fast-growing Asian countries, that are able to attract significant sums of private investment.

"This would be an important tool in making aid more effective," said Mary E. McClymont, president of InterAction, an alliance of international relief and development organizations, "as long as we keep an eye on making sure there is sufficient funding for the nations that don't qualify, and for AIDS and famines and the needs of countries like Afghanistan."
Critics worry that emphasizing performance in only the better-run countries will ignore the plight of millions in countries that have little ability to turn themselves around, notes the Wall Street Journal.

Based on the criteria, countries likely to receive funding include Bolivia, Mongolia, Senegal, Tanzania, Ghana, El Salvador, Morocco, South Africa and Jamaica, said Steven Radelet, at the Center for Global Development.

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