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Fashion heiress, economist push foreign aid plan
2009-05-24
LONDON - An unlikely duo of a fashion heiress and a Nobel Prize-winning economist is pushing a controversial plan to boost aid to the developing world by giving wealthy donors a greater say in how the money is distributed. Backed by the head of the United Nations and a bevy of billionaires, supermodels and pop stars, socialite Renu Mehta and economist James Mirrlees say a private-public partnership on foreign aid is the only way to eradicate extreme poverty and hunger, since governments are falling short of U.N. targets. But the notion sits uneasily with critics already unhappy about the juxtaposition of champagne-fueled fundraisers and the poverty of those they are supposed to benefit. Critics argue it would set a dangerous precedent for the super-rich to determine foreign aid policies. On its face, the Mehta-Mirrlees plan is simple. They are calling on the Group of Eight industrialized nations, which are meeting in Italy in July, to agree to match private donations with state aid. For every $100 pledged by the private sector, a government would add a matching $100 from existing aid budgets. The plan seeks to address the fact that governments are falling behind in their commitments to the United Nations to donate 0.7 percent of gross national incomes to meet eight goals, including halving extreme poverty by 2015 from its 1990 level. In 2007, only five countries -- Denmark, Luxembourg, the Netherlands, Norway and Sweden -- met the commitment. Collectively, all U.N. members delivered $103.7 billion, just 0.3 percent of gross national income and far short of the goal of $155 billion. "The U.N. Development Goals are widely recognized as the most comprehensive template to address these issues, but the program is in jeopardy because governments are not meeting their commitments," said Mehta, who launched her Fortune Forum charity in 2006 at a glitzy London dinner with former U.S. President Bill Clinton as the keynote speaker. Mehta, the daughter of an Indian textile magnate, added: "What we need to do is come up with a new model, find a new way to meet these targets, on the one hand. On the other hand, we need to make sure that the money is deployed to the maximum effectiveness." Mirrlees and Mehta estimate their plan could raise $75 billion, even in the current economic climate, arguing that people will donate if they know their contributions will be doubled. "We see a number of countries cutting back on government assistance ... that inevitably makes things more urgent" since developing countries are suffering further from the falloff in global trade, Mirrlees said. The World Bank has warned that millions more people will fall into poverty and as many as 400,000 more babies will die each year because of the economic crunch. U.N. Secretary-General Ban Ki-Moon has welcomed the pair's attempt to find a new aid financing mechanism, saying cooperation between public and private sectors can make a difference. Mehta and Mirrlees propose that private contributions, along with matching public funds, should be channeled through a new organization of both government and private sector representatives. That body would monitor how money is spent "so as to meet the private sector's performance expectations," which they argue would attract further donations from the private sector. But it is that element of private involvement that has many critics worried. "There are so many potential problems and issues with this. The biggest problem is a question of ethics," said Richard Murphy, director of Tax Research LLP. "Just because you're rich and you give to charity doesn't mean you necessarily make better decisions. Also, what if a company that specializes in retroviral drugs says its money must go to HIV funding, to AIDS funding?" Another sore point is the plan's proposal for governments to match donations from assets held in offshore tax havens. Murphy questioned whether many people would welcome an aid fund accepting money from tax haven accounts, considering U.S. President Barack Obama, British Prime Minister Gordon Brown and leaders of the other Group of 20 nations just pledged to clamp down on the offshore vehicles. Murphy said if officials instead forced the shifting of funds in offshore accounts into taxed accounts back home, some $250 billion could be raised annually -- five times the money needed by governments to meet the United Nations' Millennium Development Goals. Without any firm agreement on the plan, there is no estimate of how much it might cost to administrate the proposed aid fund. Nor is it clear what the impact might be for private foundations. Mehta and Mirrlees have already had to revamp their proposal after earlier criticisms that the original plan included a 50 percent tax break for the wealthy. For example, a private donation of $100 would have attracted $50 in tax relief, funded from the government's existing aid budget. That idea was received coolly at Britain's Treasury, which said this is not the time for tax breaks. Mehta said discussions are being held with the Treasury on the revised plan. The pair have also taken the incomplete project to Italian officials ahead of the G-8's July 8-10 meeting, where they would like to present the proposal.
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