Johannesburg — PAUL Wolfowitz's astonishing appointment as head of the World Bank could turn out to be a disaster. This might happen if he were to export US "big-government conservatism" by lavishing taxpayers' money on lots of new and dubious aid programmes. But I hope he will move in the opposite direction - towards markets, limited government and economic freedom. That calls for slimmed-down international institutions with a small range of realistic goals.

This is a banner year for global initiatives on trade, aid and development, especially with Africa in mind. The boldest is the United Nations (UN) report on the millennium development goals, co-ordinated by Jeffrey Sachs. But not far behind are British Prime Minister Tony Blair's agenda for the Group of Eight and the Africa Commission report.

These initiatives relate to the bank's core activities. Wolfowitz will soon have to weigh into the debate. His contribution should be to bring sense to it, pointing out its strengths, but also where it is in danger of going off the rails.

To start with the credits: there are welcome proposals on trade (developed-country liberalisation of agricultural markets), debt relief (provided it is conditional on governments spending the extra resources appropriately), and on aid (to make it transparent, predictable, and conditional on good governance).

Now for the debits. The central idea in all the new initiatives is that aid needs to be increased massively. This new conventional wisdom needs to be countered - swiftly and decisively.

Aid has been an almost unmitigated disaster. Its politics and psychology are utterly corrupting. It has weaned large, arbitrary and corrupt governments while crowding out markets and individual economic freedom. So a large and sudden increase in aid now is a bad idea. It will simply overwhelm the supply capacities of weak and dysfunctional governments.

This is not an argument for getting rid of aid altogether. Rather it would be better to take the existing volume of aid and thoroughly restructure it so that it works better to meet a smaller set of limited, realistic goals.

Aid should be redirected from middle-income countries that have good access to capital markets to low-income and especially least-developed countries that lack that access. Then it should go to better-governed countries, but gradually according to clear, well-monitored criteria. There is a case for more aid for programmes with clear, precise goals and appropriate mechanisms, for example to combat HIV/AIDS and tropical diseases, and meet World Trade Organisation targets. Aid should be in grants rather than loans. It should use price-based market mechanisms. And it should bypass governments and deal with private organisations as much as possible.

Underlying these initiatives, especially on aid, is a world view David Henderson, former chief economist of the Organisation for Economic Co-operation and Development, calls global salvationism or deliverance from above. It afflicts those who call for stronger global governance. Global solutions are to be provided by concerted co-operation involving governments, international organisations, big business, trades unions and nongovernmental organisations. The UN system is front and centre in this scheme.

The notion that a global market economy can be planned from above in this way is profoundly misguided. It is top-down bureaucratic thinking, a sort of soft international central planning for the post-Soviet age. To adapt a Bushism, it misoverestimates the importance and effectiveness of international institutions, and misunderestimates their failings, such as self-serving bureaucracy and misguided meddling. Rather, successful development, like good trade policy, emerges from below - from national policies and institutions that support markets, and from people and enterprises that take advantage of economic freedom and market incentives.

Thus national governance is the key: international institutions can at best help at the margin. As for the bank, it should emphasise information-sharing, the exchange of ideas, policy surveillance and technical assistance. But its power of the purse through project lending should be kept within strict limits.

Seen in this light, Wolfowitz at the bank could turn out to be US President George Bush's inspired choice, following on the heels of John Bolton's nomination as US ambassador to the UN. They might be just the right outsiders to fashion a viable, realistic multilateralism - one that recognises an international order in which nation states remain the primary instances of government, and which depends on vigorous US leadership and constructive engagement between the US and other powers.

The objective should be to preserve the global pax and promote a liberal international economic order. That is the key to development, not least in Africa.

Sally is senior lecturer in international relations at the London School of Economics.