Aid effectiveness and volume after Monterrey: does the emperor have clothes?

4 February 2004 13:00 - 14:00 GMT+00
Public event

Speakers:

Barbara Stocking, Director - Oxfam UK

Geoffrey Lamb, Vice President - World Bank
Chair:

Baroness Whitaker, ODI Council

Description

This meeting looked at the terms of debate on aid, arguing that any discussion on the future of aid should not be too aid-centric, and that action was also needed for trade and other flows.

1. Geoffrey Lamb began the meeting by underlining the fact that any discussion on the future of aid should not be too aid-centric. Trade and other flows were also important, and there was a need for action in those areas too. He reminded the audience of the stakes that were already in the ground: Monterrey, post-Monterrey undertakings, and the MDGs (Millennium Development Goals). His talk would centre on themes arising from these issues. 

2. In terms of aid volumes, there was a set of estimates supposing that an incremental increase of US$50 billion was necessary to meet the MDGs. These estimates had been reached in the UK Treasury and the World Bank, among others. Post-Monterrey, this worked out as an increase by key donor countries of around US$16 billion per annum, building up to US$50 billion by 2006. In the period up to the Dubai conference in September 2003, the World Bank had looked at the MDG requirements in terms of sectoral needs, and at some well-performing developing countries to see what they could absorb in terms of sectoral targets and the MDGs. The Bank had concluded that these countries could absorb at least US$30 billion over a three year period; therefore, there was a need for an extra US$30-50 billion with $16 billion pledged. The latest data available were for 2002: development assistance had risen from US$52 billion to around US$58 billion, which worked out at around 7% after exchange rate adjustments. But a closer look at this US$58 billion revealed that around US$5 billion was in debt relief, which meant the writing off of the capital value of uncollectible loans, thus not a net resources transfer. US$3 billion went on the administrative costs of the aid system in the donor countries (in the World Bank or the UN etc.). In terms of the increments, US$1 billion had gone to Pakistan and Afghanistan, while there were severe pressures on countries and institutions arising from the situation in Iraq. While it was encouraging to see an increase of aid in 2002, leaving aside the question of whether it was sustainable, once non-resource transfers had been netted out, the situation was less promising and was short of the trajectories needed. In the volumetric sense, it was off track.

3. Therefore, tools like the IFF (International Finance Facility), and advocacy in the political arena, had to be supported. The prospects are resources-constrained; therefore there is a need for urgent thinking, and new ideas and instruments. Mr Lamb saw that there were three areas of tension in the aid business:

  

·         The focus of the MDGs was important and energising for aid and the proponents of development. However, despite good intentions, they pulled towards sectoral interventions, cranking up primary education and health spending, for example. This could give a distorted idea of country-by-country needs. Country-led approaches would be more strategic. The MDG focus encouraged schemes with a focus on different areas, which was led to little capacity to generate additionality.

·         In most aid entities, there was a tension in terms of measurable results. There was a tendency to push to projectising so that what was done with the money could be noted. This was harder to do on budget support, so donors were concentrating on targeted interventions. This could stress what was countable rather than important. Transaction costs and the issues of simplification/harmonisation were a problem. Aligning different elements of the development community was necessary, to lower the costs of multiple studies and to add coherence. There were tensions between what donors want to do, and there were pressures from the MDGs and on the gathering of results.

4. He concluded that the existence of a volume-constrained environment, with multiple objectives, had to be acknowledged. There was also a tendency for donors to concentrate on poor countries rather than necessarily on countries with many poor people. It was necessary to focus on what needed to be done: the movement of aid agency practice and development assistance rhetoric towards grants-only was not necessarily for the best. Instead, we should think about grants in countries which cannot carry debt, and about aid uses and prices for poor people as well as poor countries.

5. Barbara Stocking said that she would be dealing with a more grassroots and public perspective. She asked whether the public supported more aid flows, and what we were trying to do. The basic goal was to get people and communities out of poverty, which was obvious but the way to do it was still not clear. Lessons had been learned from mistakes, but an overall solution had not been found. Humility was important, as there was still no right answer.

6. In terms of aid volumes, the MDGs did describe experiences of poor people, in terms of lack of education or healthcare etc. The money to fund the Goals was important. Although it seemed a great deal of money, US$97 billion had been spent on Iraq, which should give some idea of how it was possible to achieve it. She asked why it was not possible to achieve increased aid flows. The public must believe that there is a successful way to achieve development; there had to be debate about aid effectiveness in academic circles and also on the streets. It was important to make clear how much aid was actually flowing. In the US, for example, public opinion was that 5-6% of the budget was going towards aid, whereas the truth was that 0.2% was the figure.

 

7. Oxfam could offer some proof of effectiveness. In Uganda budget reform had taken place, attracting more aid from DFID leading to a rise of children in primary education from 3.6 to 6.9 million. On the level of accountability, budgetary scrutinisation had occurred at the local and country level. Again at a local level, Oxfam had worked with pastoralists in Peru, with DFID, in order to give them a voice and the right to be heard. This project had gone well, although DFID was moving away from middle-income countries so Peru would lose the scheme.

8. The public also needed to be persuaded that aid was not wasted on people who did not deserve it. Michael Buerk's work in Ethiopia had shown this. People needed to see that money was not wasted, that there was a reason to keep on doing it and that good money was not thrown after bad. In Ethiopia, there was no lack of initiative, nor a lack of thought as to future investment (although Ethiopia was hampered by the land tenure issue). It was necessary to let people know that there were successes occurring. This would be hard, but with the UK presidency of the G8 and the EU in 2005, and with the MDGs, there was a good opportunity to do it. This was a chance to mobilise the public about what was necessary and why. If the UK commitment was increased to 0.7% then the objectives would have more support from other countries. To launch the IFF, the UK would need to put its money where its mouth was.

9. Since Monterrey, things had been good, in terms of the fact that the 20% decline in aid in the 1990s had been turned around. However, there had not been enough of an increase. There were concerns about Monterrey in terms of targeting of aid, tying of aid, coherence of aid and conditionality of aid.

10. In targeting of aid, only 26% of money was going to the poorest, and this figure could decrease further. On untying aid, the UK was doing well, but others, like Spain and Italy, were not so good. Again, the money and contracts going to Iraq were a big problem here. In terms of coherence, there was a need to have more coordination of aid on a country level and in the donor countries, to stop competition. This followed the issue of PRSPs: Oxfam believed that the PRSPs were good in theory, but in practice, there was still not enough participation. Finally, on conditionality, Monterrey had indeed broken from the historical conditionality problems. There had to be some accountability, but there were still conditions for aid put on people. The IMF macroeconomic conditions held back countries in development. The IMF was very conservative; setting the tone for what aid would flow. This put constraints on countries. In Ethiopia, for example, there had to be some amount of market intervention to stabilise grain prices to deal with the need to store grain over droughts. Governments had to be free to take risks to achieve what they needed for development.

11. There was a need for more money and for the need to change trade rules. The argument about absorptive capacity could be worked through, so that more money could be put into countries. If countries had problems with absorptive capacity, then money could be delivered in terms of technical support for institutions. Regarding failing states, Monterrey was based on good governance. However, there had to be other ways to get aid through to the poorest of the poor. They should not be abandoned just because they lived in failing states.

Main discussion points

·         What could be done about nurses or teachers being taken from developing countries to work in developed countries? Also, there was a reverse flow of resources from South to North. What could be done about the fact that even in low-income countries more was going out than was going in? Absorptive capacity was seen to be a problem. There was a great deal of talk in aid about the management of aid and not the management of the countries themselves. Developing countries needed trained staff and infrastructure in terms of local authorities. The debate needed to be moved on from volume to implementation. And it had to be made easier for people to go back to their own countries and to be able to send money back home.

·         The British public was well-informed on how much money went to aid, and 40% thought it was about right, so the Chancellor would be reluctant to change this because of political consequences. Is there not a need to look at both the political problems, local and donor-country, arising from meeting higher aid objectives? It was admitted that the World Bank needed to be more proactive on this, because it did avoid looking at political constraints. Local aid agencies and developing countries were encouraging the Bank to look at this.

·         A tension seen was between the PRSP and general budgetary support, which raised more conditionality. The range of PRSPs and the leverage from budgetary support made it difficult to maintain even the old levels of conditionality. Moreover, what was the conflict between direct budgetary support and the goals that the public would prefer to actually see achieved? Barbara Stocking said that it was important to be aware of this conflict, but that there was little that could be done about the fact that the public would prefer to see concrete results than budgetary support. Meanwhile, budgetary support should make improvements rather than rearranging the system. Geoffrey Lamb said that PRSPs, for all their faults, gave a platform, with some collective action and discipline.

·         Making changes to allow the highly complex aid system to grow was difficult. The addition of the Millennium Challenge Account (MCA), for example, gave a new opportunity to change the architecture. What would be good changes arising from any reorganisation of the aid architecture? The complexity of the aid system was seen as being a factor of institutional life (no institution had closed in fifty years). But good changes that could arise from a reorganisation would be long-term predictability of flows, conditioned by performance, more leverage, and more on remittances and labour flows. In the past few years there had been an unwelcome trend towards bilateral and unilateral aid. It was important to have a push back towards multilateralism. This did not necessarily mean a need for more money for the Bretton Woods institutions - these do need a change of governance. However, multilateral collective action was better than the alphabet soup of bilateral and unilateral aid.

·         Were the global funds worth it? Global funds could work with other mechanisms but only if they were complementary. There was some good being mobilised from them. They did get the public attention and did sometimes fertilise a particular channel. They did dissipate skills, though, making for more complexity. DFID was right to support a domestically grown development process.

·         A problem with the MDGs was seen to be that they were static goals. It was important to change the MDGs to processes, so that they were not levels which were difficult to achieve, but paths to development.

Roo Griffiths

5 February 2004 

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