OECD aid to poorest siphoned off to emerging middle classes

To him who has will more be given, and from him who has not, even what he has will be taken away.

That could have been the text for the world's poor last year, when official aid from the richest to the poorest countries fell sharply, but private investment flows from the industrialised nations to mainly middle-income countries set a record.

The US aid budget fell particularly steeply from just under $10bn (pounds 6.5bn) to $7.3bn, taking it from being the biggest to the fourth-largest donor, according to new figures from the Organisation for Economic Co-operation and Development. The three leading donors, Japan, France and Germany, accounted for more than half of 1995's $59bn official assistance to developing countries.

Government aid dropped to its lowest since 1987 in real terms, and to its lowest for a quarter of a century as a share of GNP. It amounted to 0.27 per cent of GNP, compared with the target of 0.7 per cent set by the United Nations in 1970.

The main reason for the decline was the efforts of OECD governments to cut their budget deficits.

At the same time private investment by OECD countries in the developing world set a record of $170bn, almost twice as high as the flow two years earlier. The share of total capital flows from the first world to the third made up by private funds was the highest since the debt crisis of the early 1980s.

Net direct investment made up some $60bn of the total private capital flow, $13bn higher than the previous year and an all-time high. "Industrial development, increasingly skilled workforces and the attraction of joint venture schemes are drawing capital into Asia and Latin America," the OECD report commented.

About 20 developing countries attract most of the private sector investment. The OECD is holding a meeting of experts in Paris today to consider what this increasing flow of investment and capital means for its member countries.

Bank lending also continued to rise in 1995, most of it short-term lending to Thailand and Korea. Bank lending to Latin America also recovered quickly from the Mexican crisis at the start of the year.

Loans to developing countries have risen swiftly, from only $9bn in 1993 to $75bn last year. All but $5bn of the 1995 total was short-term.

Baroness Chalker, Minister for Overseas Development, welcomed the increase in private investment in developing countries. "These private flows are a vote of confidence in the economic future of the developing world," she said.

However, aid charities said private money did not flow to the very poor. An Oxfam spokesman said: "The extremely poor countries are reliant on official assistance and it is disturbing that aid is on a downward spiral."

Action Aid criticised the British government for diverting part of its aid budget to eastern Europe, a relatively well-off part of the world. But the ODA said it was valid to use a small proportion of the budget for the purpose of stability in the region. Britain's aid spending was almost unchanged in cash terms, at $3.2bn. This was a 6 per cent fall in real terms. The UK's relative contribution, at 0.29 per cent of GNP, was a whisker above the OECD average.

France was the most generous of the G7 countries, spending $8.4bn or 0.55 per cent of GNP. Japan's total spending was higher, at $14.5bn, but it amounted to only 0.28 per cent of its GNP. The Scandinavian countries and the Netherlands were most generous relative to the size of their economies.

Total OECD aid spending of $59bn was $150m lower than in 1994, equivalent to a 9.3 per cent fall in real terms.