Billionaire philanthropist Bill Gates asked global finance leaders Thursday to prioritize international aid spending, arguing budget cuts would not only hurt the poor but undermine innovations in health and agriculture.

The Microsoft Corps cofounder, who has committed to give the majority of his wealth to charity, is the first private citizen to testify before the G-20, a group of Finance Ministers and Central Bank Governors that meets annually to discuss key issues facing the global economy. During a time when even the world's most well off countries are wrestling with budget cuts, French President Nicholas Sarkozy asked Gates to share ideas on how to finance international aid during this year's G-20 meeting in Cannes, France.

Many of the world's richest nations have pledged to increase funding for international aid in developing countries. But, so far, little progress has been made toward those goals. In the United States last year Congress sliced some $8 billion off foreign aid. This year, Washington is looking at chopping another $8.6 billion.

Gates argued international aid, which accounts for less than 1 percent of most donor countries' budgets, has had a "huge impact" and has the potential to not only reduce poverty now, but also propel poor countries down the path to self-sufficiency. "The world will not balance its books by cutting back on aid, but it will do irreparable damage to global stability, to the growth potential of the global economy, and to the livelihoods of the poorest people," Gates wrote in his report to G-20 leaders.

His ideas were met with enthusiasm from groups like Oxfam and the World Wildlife Foundation, which rallied in Cannes Thursday waving brightly colored signs, but many experts in international development aren't on his side. While the billionaire's report to the G-20 is filled with anecdotal evidence that the world is making big strides in the fight against poverty, other researchers argue an increasing percentage of aid is being funneled into the pockets of corrupt government officials.

Raising revenue for aid

Over the last 50 years, quality of life for those living the world's poorest countries has improved significantly, Gates argued. For many, Gross Domestic Product has risen and poverty rates have fallen. Advances in agriculture saved a billion lives. Thanks to advancements in vaccines, the death rate for children under the age of 5 has been reduced by 80 percent.

"Aid generosity has played an important role in these successes," Gates wrote.

In his report to the G-20, Gates suggested a three-pronged approach to funding international development. First, he said the G-20 should mobilize the domestic resources of developing countries by increasing government transparency. Second, the G-20 should use creative financing to make sure rich countries can continue to provide aid to developing countries. And third, the G-20 should provide incentives to encourage the private sector to get involved in the fight against poverty.

"By and far the largest supply of financing for development will continue to come from developing countries themselves," he wrote. "Developing countries' domestic resources are already much greater than the ODA (official development assistance) they receive, and domestic income is also growing much faster than ODA."

While many of the world's poorest countries are rich in natural resources, though, billions of dollars are now being wasted because of mismanagement and corruption, he wrote. For example, in Uganda, which has a national budget of $3 billion, oil reserves at peak production should generate an estimated $2 billion annually.

"Thus, oil revenue should have a huge impact on the government's ability to address the needs of millions of poor Ugandans," Gates wrote. "However, we have no insight into the country's oil leasing arrangements, and, as a result, Ugandan citizens have no means to protect their interests."

Gates suggested the G-20 countries impose "legally binding" transparency requirements that would require mining and oil companies listed on their stock exchanges to disclose payment to governments.

Rich countries must also shoulder some of the burden of caring for the world's poorest, Gates wrote.

"Especially in hard times, some people will say rich countries should cut their ODA," he wrote. "They should not. Not only because they have made promises, but also because important pieces of the development agenda won't be addressed without assistance."

According to estimates by ONE, a non partisan anti-poverty advocacy group based in Washington D.C., the budget cuts being discussed in Congress would — for example — stop nutrition services for 900,000 children, putting them at risk of stunting and starvation. Four hundred thousand fewer people would get access to improve water services. Two million fewer children would have access to vaccines to protect against diphtheria, tetanus and hepatitis B.

"We can't cut anymore," said Kimberly Hunter, ONE's U.S. press secretary. "These cuts will cost lives."

To raise revenue for foreign aid, Gates proposed — among other things — implementing taxes on financial transactions, aviation and shipping fuels and tobacco. He also suggested state-owned wealth funds be invested in building infrastructure in poor countries. A tax of just 10 basis points on equities and two basis points on bonds would yield $48 billion if the G-20 countries all got on board, according to his report. Investing just one percent of sovereign wealth fund assets into an infrastructure fund would add up to more than $100 billion over a decade.

Gates, who has focused much of his work with the Bill & Melinda Gates Foundation on developing technological solutions to world poverty problems, also pushed for using public capital to incentivise research and development of new products. As an example of the efficiency of this approach, he referenced the Orteig Prize, which boosted aviation research and motivated Lindbergh's flight across the Atlantic. The prize "led to private sector research and development spending far outweighing the value of the prize itself," he wrote.

Gates comments resonated with Liesbet Steer, director of the Development Progress Project at the Overseas Development Institute.

"The percentage we are spending on international development is really quite small compared to the total spending," she said. "We can't see the problems of the developing world separate from our problems in the current global economy. We are so interlocked we need to make sure the developing world can reach a certain level of welfare so it has a positive effect on our situation."

Funding a broken system

Critics argue, though, there's little point in coming up with creative funding proposals when the money will just be poured into a broken system.

"The bottom line is this: This kind of rhetoric is very nice, but the problem is the emphasis is on the input and not the output," said Paul Dragos Aligica, senior fellow at the Mercatus Center at George Mason University. "You could indefinitely increase the amount of money you're using, but as long as you're not focusing on improving the institutional process of dispersing aid, you won't be able to achieve results."

Over the last 50 years, he said, international aid money has been grossly misspent. Research from New York University shows many government aid organizations suffer from administrative bloat and lack transparency. More than 60 percent of aid dollars were spent in countries with corrupt governments, as defined by the International Country Risk Guide.

"In a lot of these countries, the money doesn't end up in the hands of the people it was intended to help," said Chris Coyne, F.A. Harper Professor of Economics at the Mercatus Center. "The problem is the governments. We're not talking about minor ethical violation. We are talking about brutal dictators who are willing to maim and kill people. They basically steal the money."

In this way, international aid can be counterproductive, he said.

"If you continue funding bad people, they stay in power," he said.

For this same reason, the Development Research Institute at New York University does not support Gates' ideas, said executive director David Rice. "We disagree wholeheartedly with raising more tax revenue," he said. "I think the foreign aid budget should be cut. To create more revenue for a program that doesn't work doesn't make a lot of sense."

Instead, Rice suggested putting the focus on "bottom-up approaches" that encourage entrepreneurship and business in developing countries.

"Bill Gates is obviously a great man," he said. "The answer to alleviating poverty is to create a mechanism for a lot of more Bill Gates to rise up from the bottom, to create jobs, and create wealth."

Any discussion of world poverty should start with addressing freedom and government corruption, he said. Investing in research and innovation to advance agriculture and health is only as good as the mechanisms a country has in place to disperse aid.

"Drought resistant rice is great, but how do you get it introduced into a society where people are not free?" he said. "The solution doesn't lie in innovation, but in the political system and leadership in these countries."

EMAIL: estuart@desnews.com