Mapping the Development Policy Community: Aid and the Multilateral Institutions

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Mapping the Development Policy Community Aid
and the Multilateral Institutions

• October 29, 2007

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Aid An Overview

• Defining terms and trends
• The players multilateral, bilateral, private
  (NGOs)
• Aid as a political bargain
• Current controversies
• Criticisms of aid
• Debt relief

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What is Foreign Aid? (I)

• Public financial flows
• Official development financing (ODF) at market
  rates multilateral and bilateral, including
  export credits
• Official development assistance (ODA)
• Concessional or soft lending IDA and bilateral
• Cash grants (an increasing share of US financial
  transfers are grants, loans lt 1 percent)
• Debt relief rescheduling official debt (the
  Paris Club) and relief (HIPC I and II)

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What is Foreign Aid? (II)

• Also non-monetary assistance
• Technical assistance
• 14 billion of 52 billion in 2001
• Emergency relief through grants-in-kind
• World Food Program
• US food aid
• Other forms of in-kind support (equipment)
• Private aid Care, HOPE, Oxfam, etc.
• Military assistance and political/security
  objectives

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What is Foreign Aid? (III)

• Two definitional notes
• Gross (disbursements) vs. net (disbursements
  minus repayments, which can be negative) flows
• ODF and ODA can be either multilateral or
  bilateral

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The Good News ODA Appears to be Trending Up
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The Multilaterals

• Bretton Woods (1944)
• The UN and its specialized and functional
  agencies
• The World Bank Group
• The International Monetary Fund
• The regional development banks

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United Nations

• Organization (UNDP, UNICEF, WHO, FAO, UNHCR,
  UNESCO, WFP, UNIFEM)

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World Bank Group

• The World Bank Group
• The IBRD (1944),International Bank for
  Reconstruction and Development
• The IDA (1960) International Development
  Association
• ICSID (1966)
• MIGA (1988)
• IFC (1955)

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IMF

• Goals
• monitoring national, global, and regional
  economic and financial developments and advising
  member countries on their economic policies
  ("surveillance")
• lending members hard currencies to support policy
  programs designed to correct balance of payments
  problems (Lender of last Resort)
• offering technical assistance in its areas of
  expertise, as well as training for government and
  central bank officials.

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Regional Development Organizations

• The African Development Bank (1964)
• The Asian Development Bank (1966)
• The European Bank for Reconstruction and
  Development (1990)
• The Inter-American Development Bank Group (1960)

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The Bilateral System

• The US aid and grand strategy
• The Marshall Plan (1947)
• Aid in Asia Japan, Korea, Taiwan and Southeast
  Asia
• The Alliance for Progress
• European aid policies
• The Lome Convention
• Japan and others join the aid game

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The Aid Relationship as a Political Bargain I

• Donor objectives and incentives
• Strategic and political interests
• Economic interests
• Procurement and the problem of tied aid
• Economic interests in policy reform
• Changing development objectives
• The concept of conditionality project vs.
  program lending
• Monitoring aid effectiveness (The World Bank
  1998) and accountability

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The Aid Relationship as a Political Bargain II

• Recipient interests and objectives
• Strategic and political interests
• Economic interests and the problem of aid
  dependence
• What do I have to do to get the aid? Compliance
  and the other side of the conditionality bargain

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Current Controversies I the Critique of Aid from
the Left

• Limitations on the Washington consensus
• The return of the social agenda the Millenium
  Development Goals (2000)
• Extreme poverty and hunger primary education
  gender equality, child mortality maternal
  health HIV/AIDs, malaria and other diseases
  sustainability global partnership
• The rise of environmental concerns and
  sustainable development
• The new emphasis on governance, institutions,
  civil society and participation

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Current Controversies II The Critique of Aid
from the Right

• The widening of conditionality and fads in aid
  (Bill Easterly, The Elusive Quest for Growth)
• Perverse incentives of lenders maintaining the
  flows
• Perverse incentives of borrowers aid dependence
• Parallel government
• Loss of fiscal control
• Problems of accountability and the revenue base

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Current Controversies III Debt Relief

• Precursor in Paris Club reschedulings
• HIPC I (1996)
• Emphasized debt stock reduction and
  sustainability
• Included debt owed to multilaterals
• Enhanced HIPC Framework (HIPC II, 1999)
• Multilateral Debt Reduction Initiative (2005)
  canceling all debt to IMF, African Development
  Bank and International Development Association

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Debt Relief II

• Country must
• Face an unsustainable debt burden (debt
  sustainability analysis differential levels of
  relief across countries)
• Have developed a track record of good economic
  policy through Bank and Fund programs (lt three
  years)
• Have developed a Poverty Reduction Strategy Paper
  (PRSP) that involves wide participation and
  consultation
• The foregoing results in a decision to grant
  relief (the decision point), and some interim
  relief

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Debt Relief III

• After further demonstration of good policy and
  one year of implementing the PRSP, they are
  granted full relief (completion point), but full
  relief is not all debt
• On average, HIPC has reduced debt in 18 countries
  that are post-completion point by half
• and net transfers to HIPC countries doubled
  1999-2004, while aid to other countries increased
  by a third.
• But success in poverty reduction has been
  difficult to track, and focus on expenditures
  means more social spending, but not necessarily
  effective

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Aid (percentage of GDP)
Mediocre
Good policy
Poor policy
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Some Conclusions

• Strong pressures on aid
• Fiscal problems and lack of political support
• Overextended ODF negative net flows and time for
  relief?
• A move toward selectivity and grants?
• The contested nature of conditionality will not
  go away because of the constituent bases of
  lending