The End of the Beginning

With President Bush at the table, the "spin masters" who put a victorious gloss on all his actions had little need to lower expectations concerning the outcome of the G8 meeting at Gleneagles - agreement by the G8 to debt relief is a major event. But we should not be fooled; much of the debt would not have been repaid in any case. More debt relief - encompassing more countries - is needed, but debt relief should be viewed as just a start. As Britain itself has pointed out, developing countries need more assistance and a fairer international trade regime.

Even after the increases in annual assistance promised by Bush in Scotland, the US will still be giving less than a quarter of its commitment of 0.7% of GDP. Of course, not all foreign-aid money is well spent. But the aim should be to improve the efficiency of government, to make sure we get the most value for what we spend. In this there have been marked improvements in recent years. For example, the World Bank has been allocating more of its money to countries with a proven track record in spending money well. It has been exploring new ways of "delivering" aid, sometimes using state and local governments where that appears more effective.

The IMF warns about "Dutch disease" problems, when an influx of foreign exchange drives up the local currency's exchange rate, making it difficult to create jobs in the export sector or to protect jobs against cheaper foreign imports. Countries need to rely on themselves and mobilise domestic resources (although the IMF's frequent insistence on tight monetary and fiscal policies often makes this more difficult). But there continues to be a huge need for imported goods - medicines to promote health, and technology to reduce the knowledge gap between developing countries and the rest of the world.

In any case, not much weight should be given to the IMF's statistical studies of the impact of foreign aid on growth. Different studies, with different countries, different techniques and different years, yield markedly different results. One set of studies, for instance, showed that aid does make a difference in countries with good governance and sound macroeconomic policies.

Historically, much foreign aid was provided not to promote development but to purchase friendship, especially during the cold war. When the west gave money to Mobutu it knew the funds were going to Swiss bank accounts rather than the people of Zaire (now the Democratic Republic of Congo). The money worked - keeping Zaire on the side of the west.

Of course, Mobutu's boundless corruption challenges us to be thoughtful about foreign aid. Some governments have demonstrated a better capacity than others for using funds well. In countries where governments are deficient there are often alternative ways of providing assistance, including NGOs.

Global support for "making poverty history" shows how the issue of third-world poverty has finally struck a responsive chord. Debt relief is a good beginning. But that is all it is.

· Joseph Stiglitz is professor of economics at Columbia University and a Nobel laureate.