Measuring the cost of aid volatility
By Homi Kharas
Executive Summary: Flows of official development assistance (ODA) to recipient countries have been highly volatile and this reduces their value. At macro level, empirical evidence suggests that volatile ODA can negatively impact growth through several channels. At the micro level, volatility can affect fiscal planning and the level and composition of investment. This working paper develops a simple financial metric that policy makers can use to estimate (and reduce) the cost of aid volatility. Unlike other estimates, our measure does not depend on parameter estimates from cross-country regressions, nor on country-specific model simulations.
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The Paradox of Foreign Aid
By Professor Arthur Mutambara
In this article Professor Arthur Mutambara stresses that despite the stated intention to assist the poor economies; ostensibly most foreign aid benefits the donor countries. The modus operandi has been that the rich West provides financial assistance or loans to poor nations to engage Western consultants or institutions to carry out unsustainable and useless projects on the continent.
While he admits that there has been abuse, incompetence, and corruption by recipients, these constitute a second order challenge. The problem is that aid and debt have become a control mechanism to ensure that oil, minerals and other natural resources were channelled to serve the interests of Western economies
Instead, aid should aim to build stronger domestic institutions and transfer skills to local leaders, managers and entrepreneurs. There has to be close alignment of aid with national priorities, working hand in glove with African institutions. This approach stresses the effectiveness of aid as transitory support, avoiding long-term dependence.
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La Efectividad de la Ayuda Externa en Bolivia
Autores: Lykke E. Andersen y JosÃ© Luis Evia
Entre 1997 y 2002, Bolivia recibiÃ³ mÃ¡s de $US 3.000 millones en ayuda externa oficial y mÃ¡s de $US 3.500 millones en InversiÃ³n Extranjera Directa (IED). El paÃs tambiÃ©n logrÃ³ la condonaciÃ³n de parte de su deuda externa con un valor neto presente de $US 1.300 millones e implementÃ³ una Estrategia Nacional de ReducciÃ³n de Pobreza. Sin embargo, durante el mismo perÃodo la tasa de crecimiento del PIB pasÃ³ de 4,7% entre 1993 y 1998, a 1,7% entre 1999 y 2002, la pobreza relativa y absoluta aumentÃ³, y el dÃ©ficit fiscal alcanzÃ³ elevados niveles (8,7% del PIB para el 2002).
Estas cifras sugieren que la ayuda externa, la inversiÃ³n extranjera y el alivio de deuda no tienen la capacidad de poder aumentar la tasa de crecimiento y disminuir la pobreza en Bolivia.
Usando un modelo de Equilibrio General Computable (CGE) el presente documento estudia el impacto de la ayuda externa tanto a nivel agregado como en su impacto distributivo. Asimismo, se simula un aumento transitorio de la ayuda externa y su impacto en el largo plazo.
Finalmente, el documento provee una serie de recomendaciones para obtener el mejor impacto posible de los recursos comprometidos por la ayuda externa.
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China in Africa: lending, policy space and governance
Author: Martine Dahle Huse and Stephen L. Muyakwa
This report aims to raise awareness on the issue of debt and new lenders in Africa, focusing particularly on China. It briefly introduce the role of China in Africa, highlighting some of the differences between China and the traditional lenders. The report looks at Chinaâ€™s lending modalities to African countries, its impact on governance and the issue of debt sustainability, presenting a case study on the relationship of Zambia and China.
The research found that Chinaâ€™s aid modalities are characterised by lack of conditionality but also lack of transparency and accountability. It also alerts about the potential negaÂ¬tive impact on debt sustainability and the possible contribution to debt crisis in countries where governance is week.
The report stress the urgent need to establish internationally recognised legal standards for responsible lending. Additionally, it set down recommendations with a particular focus on the Zambia case.
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Foreign Aid and the National Reform Agenda: The Case of Lebanon
Written by Mr Ziad Abdel Samad, Executive Director of the Arab NGO Network for Development
Lebanon witnessed a 15 year civil war (1975-1990) that caused massive physical destruction and huge human losses. During the post war reconstruction period (1990-2007), Lebanon became a highly indebted country, whereby debt currently constitutes almost 200% of the GDP.
Since September 2004 Lebanon is witnessing an ongoing deep structural and political crisis. In July 2006, Israel launched a war against Lebanon causing huge direct and indirect losses estimated to reach over 9 billion US dollars.
The donor community convened in â€œParis III Conferenceâ€ during early 2007 and pledged more than 7.6 billion US dollars to support Lebanon. Paris III conference had three main objectives: (1) providing direct support for the post war reconstruction plan, (2) securing cash for the due debt services and (3) covering the budgetary deficit. A new reform program was promised by the government in return to these pledges; it includes significant economic and structural reform including privatization, tax increases, labour law reform, and reforms to the social security system. This program was the result of national public efforts supported by a World Bank team. The International Monetary Fund was delegated to monitor the implementation of the reform process and the multinational consultancy firm Booz Allen Hamilton was contracted to provide technical assistance to the public administration and oversee the coordination of efforts within the reform process.
In exchange, Lebanon pledged to increase growth rate by promoting foreign investment and enhancing competitiveness. This implies the integration of Lebanon in the global economic system and the promotion of trade liberalization. Unfortunately, all this process is perceived as a target in itself instead of being understood as a factor towards enhancing development, thus adopting it within the framework of a national developmental strategy.
In order to reduce the budgetary deficit, the government tends to increase public revenues by reforming the tax policy, mainly based on increasing the VAT. This is because Lebanon adopted a new tariff rate in the year 2000 which halved custom revenue. Unfortunately, these low tariff rates (mostly ranging between 5% and 10%) were adopted as well under Lebanonâ€™s obligations in its accession package to the World Trade Organization.
On the other hand, the government is working towards privatizing two major sectors in the near future: communications and power. The main objectives of this privatization are: (1) to secure cash flow to pay the due debt services, (2) to overcome the inefficiency of the public administration and (3) to enhance competitiveness.
Consequently, Lebanon is a clear model of the interlink between foreign aid and the reform agenda which is not necessarily the result of a dialogue reflecting national priorities but it is a strategy proposed according to the donorsâ€™ vision.
Listening Project Update August 2007
Here is the latest update from Dayna Brown, project leader, on the progress and and plans of the Listening Project.
Reports from Listening Exercises
The new CDA website is up now and most of the reports from the Listening Exercises (including some of the translations), as well as the primary project documents and report from the February Consultation are on there-just click here to read more or download them. We welcome any feedback on the usefulness of the reports and/or changes made in your work based on what the listening teams have heard so far in Aceh (Indonesia), Bosnia and Herzegovina, Ethiopia, Angola, Bolivia, Zimbabwe, Thailand, and the US Gulf CoastPlanning for future Listening Exercises
We are in the process of organizing several more listening exercises over the coming months, and exploring a few others. Since this is a very collaborative project, we welcome your suggestions on where we should go, organizations/people that could/should participate, as well as organizations/people we should listen to in each place. Please let us know if you or your organization is interested in participating in or helping out with any of these exercises.
Â· Kenya---Local Capacities for Peace International (LCPI) is helping us to organize a listening exercise there from September 27th--October 9th. A planning meeting will be taking place in the next two weeks in Nairobi--let me know if you want more information on when and where the meeting will be held or how to get involved.
Â· Sri Lanka--Consortium for Humanitarian Agencies (CHA) is hosting the listening exercise there starting September 24th. There will be a planning meeting at the CHA offices in Colombo on August 27th at 3pm, so if your organization is interested in getting involved, please let us know and plan to attend that meeting.
Senegal--one of the LP facilitators will be visiting Senegal to meet with potential collaborating agencies the week of September 10th, and we hope to schedule a listening exercise there in early December. If your organization is interested in meeting with him or in participating there, please let us know.
The Gambia--one of the LP facilitators will be visiting The Gambia to meet with potential collaborating agencies the week of September 10th, and we hope to schedule a listening exercise there later this year or early next year. If your organization is interested in meeting with him or in participating there, please let us know.
Cambodiaâ€”Oxfam America is hosting this listening exercise which will start November 1st, and they will be holding another planning meeting in Phnom Penh in the next few weeks to finalize the dates and regions to be visited. Let us know if you want to be involved.
Ecuador--Catholic Relief Services is hosting this listening exercise in the latter half of February 2008, and has held several organizational meetings in Quito, though we are open to additional participating agencies.
Afghanistanâ€”we have decided to postpone the listening exercise there which was tentatively planned for the fall, and will reevaluate the feasibility in the spring for summer 2008.
Others we are exploring for 2008 include:
East Timor/Timor Leste
Caucasus and/or Tajikistan
Mary Anderson met with a number of international aid and peacebuilding agencies and donors in Oslo and Geneva in mid-April, and Peter Woodrow met with a number of Australian aid agencies in Sydney in May, to share what we have been hearing and to encourage more European and Australian agencies' participation in the Listening Project. I met with a few representatives of UK-based International NGOs, the Humanitarian Accountability Project--International, People in Aid, and the Overseas Development Institute in London in July to discuss potential participation and collaboration with their initiatives to improve the quality and accountability of international assistance. We expect to have broader participation among international assistance agenceis in the upcoming Listening Exercises.
Click here to go CDA's website
'Making aid accountable and effective: The challenge for the Third High Level Forum on aid effectiveness, Accra Ghana 2008
The report sets out a Ten Point Plan for achieving the necessary reform of aid at Accra. It calls on donors and southern governments to make the following vital changes to improve aid so it can effectively play its role in helping to make poverty history:
1. Organise real and substantive consultation processes for Accra
2. Respect real ownership of the development process, support participation, and end economic policy conditionality
3. Develop open, transparent mechanisms that allow citizens to hold their governments and donors to account for the use of aid
4. Introduce agreed, transparent, binding contracts to govern aid relationships
5. Move the aid reform process to a more representative institution than the OECD
6. Improve international accountability through a UN aid commissioner and ombudsman
7. Ensure donors adhere to the highest standards of openness and transparency
8. Ensure technical assistance is truly demand-driven
9. Allocate aid in a fair and transparent way, according to need, and improve aid predictability
10. End the scandal of tied aid
Click here to read the full report
Mozambique: Donors Imposed Policies On Mozambique, Chissano Admits
Speaking on 11 and 12 June 2007 at the British University city of Oxford at a conference on â€œNew Directions in Development Assistanceâ€™, Mozambiqueâ€™s former president, Joaquim Chissano, admitted that the foreign aid granted to Mozambique when he was in power â€œcame with the imposition of prescriptions and the questioning of the predominant development paradigmâ€. Freed from the constraints of office, Chissano could now give his real opinion of the aid industry - and it is largely in line with what critics of the IMF, the World Bank and bilateral donors have been saying for many years.
Click here to read the full article
The Poverty Reduction and Growth Facility (PRGF): a blind alley
Source: Social Watch
This article proposes to analyse if the Poverty Reduction and Growth Facility (PRGF) has represented a change in focus and in policy, in comparison with the Structural Adjustment Programme (SAP) and the Enhanced Structural Adjustment Facility (ESAF) which preceded it. eoliberalism, which as been the political and conceptual support for the structural reforms promoted during the last two decades in Bolivia and in the majority of the other countries in the region, has understood poverty and actions to reduce it as a separate field of action from that of the direction of economic policies with respect to income distribution. Under this logic, macroeconomic and social policies should be based on the dominance of market forces so as to achieve not only efficiency in resource allocation, but also to achieve economic growth, seen as the only path to sustainability.
Although the emphases of social policy have varied, throughout the process the idea of â€˜trickle-downâ€™, which supposes that the social conditions of the population will improve as a quasi-â€œnaturalâ€ result of economic growth, has prevailed. Taking into consideration the poor results of the ESAF with reference to poverty reduction, the World Bank and, later, the IMF, have developed in recent years the proposals of Growth and Poverty Reduction Services and Poverty Reduction Strategies.
The first part of this article demonstrates that these proposals continue to analyse poverty within the framework of the neoliberal modelâ€™s own logic - thus confusing the structural causes of social phenomena with their uperficial expressions - and, in consequence, will have results which are little difference from those of the ESAF. The second part proves that the proposal of the International Monetary Fund and the World Bank, concerning the participation of civil society in the formulation of policies (including ose in the macroeconomic field), is largely talk with little practical impact.
Click here to read the full report
Ghana: Social Watch Report Calls for the Separation of Multilateral And Bilateral Aid
Source: Reality of Aid
The 2006 Social Watch report has suggested the separation of bilateral and multilateral arrangement for development as a first step towards reforms for financial independence for poor countries.
The 262 page report prepared annually by a coalition of international Non-Governmental Organizations which was first launched in Singapore in September and relaunched recently in Ghana said "it is up to sovereign nations to enter into bilateral agreements on debt financing but these should be kept outside the multilateral system."
The report dubbed Impossible Architecture also suggested that consideration should be given to pooling and allocating aid through a development fund placed under the United Nations and run by a competent secretariat without day-to day interference from its contributors.
This according to the report means ceding the International Development Association IDA from the World Bank and the Poverty Reduction and Growth Facility (PGRF) from the International Monetary Fund (IMF). Though the amount involved is quite small, the report says the impact on the governance of these institutions could be important.
Already the European Union has announced its intention to create a trust fund to disburse European aid to Africa without depending on the World Bank. Their argument is that European money should be spent according to European policies and since their influence in the World Bank is not that much, they would like to disburse their own funds.
Click here to read the full report.