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Gains in Aid for Poor Nations Fuel Talk of 'Dutch Disease'

I’m Steve Ember with the VOA Special English Development Report.

Earlier this month, leaders at the Group of Eight meeting in Gleneagles, Scotland, agreed to increase their foreign aid. They promised to double aid for Africa by two thousand ten.

Last year, official development assistance worldwide came to a total of seventy-nine thousand million dollars. In five years, the amount should be around fifty thousand million dollars higher.

These numbers are all estimates from the Organization for Economic Cooperation and Development. Richard Manning of the O.E.C.D. says Africa is expected to receive an additional twenty-five thousand million dollars. That will bring the level of aid to the continent to around fifty thousand million dollars in two thousand ten.

But there is a danger when nations receive too much money, too fast. There is even a name for it: "Dutch disease." Finance and Development, a magazine of the International Monetary Fund, defined the term as "too much wealth managed unwisely."

Dutch disease was first observed in the Netherlands in the nineteen sixties. At that time, large amounts of natural gas were discovered under the North Sea. Profits from oil exports flowed into the Dutch economy. This is good, right?

Not necessarily. The foreign exchange value of the Dutch guilder unexpectedly became stronger. As a result, exports other than oil became less competitive. Manufacturing suffered.

The causes of Dutch disease are complex to explain. Simply put, it describes harmful effects when money enters an economy faster than the economy can swallow it. Economists say Dutch disease can also happen with increases in economic aid.

I.M.F. economists Raghu Rajan and Arvind Subramanian released two studies shortly before the Group of Eight conference. The economists say it is difficult to find a relationship, good or bad, between aid and economic growth.

They say that for aid to be more effective in the future, policymakers must deal more seriously with important questions. These involve how the aid is given as well as the competitiveness of the economy. Mister Subramanian says the findings support current efforts "at national and international levels to improve aid effectiveness."

This VOA Special English Development Report was written by Jill Moss. Our reports are on the Web at I’m Steve Ember.