In development assistance, there is always a hand that gives and a hand that takes away. Policymakers now face the fact that up to 20% of foreign aid administered by NGOs and government agencies can end up in the hands of corrupt local leaders. However, conditional cash transfers may be the solution.

A recent report by the Inter-American Development Bank suggests that conditional cash transfers offer a way out of this dilemma. This form of foreign aid offers cash grants to citizens in exchange for compliance. This could mean enrolling their children in school, completing regular medical exams, or attending job skills training.

In Latin America, where youth unemployment hovers around 14%, this means lower risks of radicalization. Roughly 60% of the young adults in this region work in the informal sector, where there are markedly low wages, no benefits and job insecurity.

When this occurs, many of those who might have been productive citizens turn to more lucrative (and illegal) activities. And so the conditions for terrorism flourish.

Conditional cash transfers (CCTs) for the poor in Latin America have posted consistent gains over the past 15 years. They provide money for nearly 129 million individuals of working and post-working age. In addition, some of the countries suffering from the harshest degrees of poverty are taking advantage.

UNICEF reports from 2008 found that in Paraguay, CCTs increased household per capita income by 31% while reducing food expenditure by four percent.

Child school attendance also rose, as beneficiary families were able to save 20% more than without assistance. UNICEF also reports that families enjoyed seven percent greater access to credit. Finally, they invested 45% more in agricultural production.

These are significant results for a country tackling one of the most corrupt and poverty-stricken parts of the continent. Home to radical groups such as Hezbollah and al-Qaeda, the tri-border area—between Paraguay, Brazil and Argentina—is a perfect case for why the United States should ramp up its aid to Latin America.

The endemic poverty in this area allows one to bribe a local security agent for $35 ($15 for Paraguayan officers), buy an AK-47 for $375, or solicit women under 23 years of age for as little as $15.

In this sort of environment, traditional aid projects for nutrition or housing are less effective.

Researchers from Transparency International reveal that in areas like the tri-border, local leaders inflate the amount of requested aid, inviting speculation by gangs and smugglers.

Much of the aid is then misused: corrupt leaders sell food surpluses for personal profit, award housing contracts under threat. In addition, other goods (such as prescription drugs) enter the tri-border $1.5 billion black markets.

Conditional Cash Transfers offer immunity from these abuses by requiring greater accountability from both local leaders and the community. Because they are cash benefits, municipal officials are unable to divert goods as “losses” or favor particular groups.

Instead, they ensure that valuable U.S. aid reaches the hands of those who need it most—citizens doing their part to break the cycle of poverty.

– Alfredo Cumerma

Photo: Flickr