From Elaine Monaghan in Washington
The Times Online, London
November 27, 2002

IN A radical shake-up of America's foreign aid policy, President Bush is to make developing countries compete for a huge slab of extra funding. Countries that apply for the President's "Millennium Challenge Account" and a share of an extra $5 billion (Ј3.22 billion) of aid each year will have to promise to embrace civil rights and open markets, crush corruption and write business plans to get a slice of the pie.

America gives more foreign aid than any other nation in absolute terms, but when measured as a share of the economy, America is ranked last out of the 22 leading industrialised nations. Now Mr Bush seeks to increase US foreign aid by 50 per cent to a total of $15 billion from 2006.

Existing aid is managed by government officials at the US Agency for International Development. The new account will be led by the Secretary of State, but run by a chief executive picked by the President and approved by the Senate.

Eligible countries will have to write proposals for spending the money and embrace good governance, health and education and pro-business policies. "Countries that live by these standards will receive more aid from America," Mr Bush said in a speech in March.

Experts say that he will ask for about $1 billion and build up to $5 billion if Congress likes the idea. Countries that would benefit include Ghana, Bolivia, Tanzania and Sri Lanka, according to Steven Radelet, a former Treasury Department official in the Clinton and Bush administrations who works at a Washington think-tank.

He said that the Administration needed to put forward a strategy for countries that did not qualify, such as Ukraine, which had failed to tackle corruption, or countries "falling apart at the seams", such as Zimbabwe.

Mr Radelet said that he expected the Administration would keep its promise not cut into existing funds. There was, however, a risk that Congress could resort to reducing the funds available for ineligible countries if times were tough.