The Good
Aid effectiveness has become a central notion in the lexicon of the aid industry,
in contrast to over two decades ago, when official donors would not hesitate
to provide major funding to governments like that of Mobutu in Zaire and Marcos
in the Philippines. Such extreme misgovernance in official aid by traditional
donors is rare today. For instance, even though multilateral financial institutions
have been silent about the governance debacle in Zimbabwe, at least they have
refrained in recent times from funding Mugabe’s government.
Further, for over a decade there has been increasing recognition that aid
flowing to governments implementing ineffective policies is wasteful,
consistent with empirical findings already available in the early 1990s. As
a result, over the past decades aid has become somewhat more sensitive to supporting
domestic policy reform efforts of recipient countries, even though narrow political
objectives of donors still play a dominant role in many aid decisions today.
The official donor aid community has also become committed to improve aid
effectiveness through better coordination mechanisms, as illustrated by the
important Aid Effectiveness High Level Forum (HLF) process initiated in Rome
in 2003, followed by the (unusually) substantive and concrete Paris Declaration
in the Second HLF in early 2005. At that time official donors agreed to meet
certain targets by 2011, and a serious monitoring mechanism was put in place.
Even though the HLF agenda has tended to focus narrowly on donor harmonization
and coordination, some governance issues have featured explicitly in the Paris
agenda, which included some commitments, notably on public finance management
and country procurement systems (the “supply side”). The problem
of corruption was also raised, and commitments were made on transparency and
“mutual accountability.”
The Third HLF in Accra, in September 2008, was much more inclusive than the
previous ones, significantly broadening CSO participation and giving them voice.
During the Accra HLF itself, CSOs were critical of the lack of transparency
on how official donor monies were being spent. They emphasized that the issue
was being papered over, and demanded that such items be explicitly included
in the final resolution (the “Accra Agenda for Action”). Ultimately,
not only the donor aid transparency item was inserted, but also civil society
engagement in tracking and monitoring projects, reduction of policy conditionality,
and the elimination of tied aid.
While not path-breaking, these last minute changes signaled an “official”
recognition of the role that CSOs can play. More generally, some actual progress
in untying aid, conditionality, and capacity development is already apparent
in practice in some places.
The Bad: the silent crisis in governance and anticorruption
While actual implementation of the Paris Declaration has proceeded on some
fronts, in many areas the pace of progress has been extremely slow, such as
on “mutual accountability.” There is high variation across donors
and partners in their commitment to this agenda. Further, partner countries
often see conditionality as being reshaped rather than reduced, and their own
coordination on capacity development is wanting. Moreover, since the Accra HLF
was held, there is scanty evidence of further concrete progress. (See chart
showing "Capture and Project
Performance Failure").
A commitment to transparency is certainly important for aid effectiveness,
but it will not suffice on its own. Governance and anticorruption are as important,
yet they were accorded little attention at the Accra HLF. The Paris Declaration
was in fact further ahead on these issues than the Accra HLF communiqué.
Possibly due to political sensitivities, a focus on transparency may be more
palatable than addressing broader governance and corruption challenges, and
talk of “transparency” may have helped secure some reluctant official
signatories on board (which would be more difficult if explicit commitments
were sought on media freedoms or addressing state capture and high level corruption).
More generally, the recent neglect in addressing difficult challenges in good
governance and anticorruption reflects the silent crisis plaguing the governance
and anticorruption movement. Contrary to the importance these issues had worldwide
almost a decade ago, they have currently become a very low priority in the aid
effectiveness agenda. The Accra HLF merely mirrors this development.
Fifteen years ago, governance, anticorruption and transparency in aid were
largely ignored, while since the mid-1990s, multilateral and bilateral official
donor agencies have paid attention to these issues. A multitude of projects
and programs to assist on governance are being implemented throughout the world.
Yet over the past few years, the priority accorded to governance in aid has
slackened. The strategies and programs that donors implement tend to ignore
those tougher governance and corruption problems that matter most for development.
In its silent crisis, the anticorruption movement has not been able to effectively
make the transition from the awareness-raising stage to the concrete action-oriented
stage, and from a supply-side, narrow public sector management focus to one
encompassing all demand-side issues and stakeholders. The political dimensions
of governance and corruption (including capture), which are key to improve aid
effectiveness, have often been ignored.
Instead, the debate remains focused on supply-side discussion on “capacity;”
on how donors can help “fix” technocratic issues through “harmonization”
and infusion of technical assistance, by decreeing “ownership” by
recipient (often governments), and by supporting yet another new institutional
setup in a recipient country (e.g. project implementation units, anticorruption
commissions).
At the time of the Accra HLF it should already have been abundantly clear
that aid effectiveness was not to improve materially by mere efforts to “harmonize,”
and by further pledges to pursue “ownership," or by discussing division
of labor among donors in providing “capacity building.” In reality,
aid effectiveness will be determined by more fundamental issues than those,
such as governance.
For years already, and certainly by the time of the 2008 Accra HLF, the evidence
was available that not only economic policies matter for aid effectiveness,
but at least as important are good governance and corruption control.
Empirical analysis indicates that governance, capture and corruption significantly
affect the likelihood of a success in an aid project. More fundamentally, good
governance and anticorruption are essential to ensure that aid supports domestically-led
governance reforms and that it results in country-wide development and poverty
alleviation.
The Ugly: facing up to the new world reality
The low priority and tepid current approach to the governance and corruption
challenge is not the only indicator that part of the “aid effectiveness”
field appears to be behind the curve. Absent from Accra’s HLF were the
path-breaking IT innovations, in spite of the fact that they offer great promise
to improve governance and aid effectiveness. Similarly, the traditional aid
industry may not yet have grasped the seismic shift that has taken place as
a result of private donor aid, trade, sovereign funds and new official donors
such as China. Also absent from the Accra HLF were the innovative market- and
private-driven solutions to development challenges.
Now facing the magnitude and implications of the global financial crisis,
the fact that the aid industry is in need of a revamp has become even more clear
than it was in 2008. The previous points made for reforming aid and taking governance
and anticorruption seriously would not only stand nowadays, but would need to
be accorded even greater importance. In light of the implications of the crisis,
the particular priorities within governance may need to be altered in order
to move forward.
This is because the world reality has fundamentally changed. About one-half
of the financial industry in many rich countries has been wiped out, exposing
major governance and corruption deficiencies in the U.S. and other powerful
countries, and threatening the global economy, which is mired in a recession.
Donor aid flows to developing countries are being compromised. The U.S. is attempting
to quickly disburse trillions of dollars in financial bailouts and stimulus
packages, with key OECD and middle income countries following suit—including
China. Many transition and developing countries are preparing stimulus packages
and, in some cases, financial bailouts as well. (See
Hobo-Dyer World Map Projection showing the new world reality).
With this, the role of government is dramatically changing: government will
provide major infrastructure investments, select financial institutions to provide
public funds, own major financial (and other) assets; patch up social (and housing)
safety nets, and also revamp and expand its regulatory role over the financial
sector. Each one of these carries governance and corruption risks, which will
need to be addressed, over and above the long-standing governance challenges
which were pending from before.
Selected implications
Some circumspection and humility among traditional donors is in order. The
governance failures leading to the financial crisis were a rude reminder that
these challenges are not the exclusive domain of developing countries. Issues
of capture, legal corruption and vested interests unduly influencing the rules
of the game will need to be addressed in many countries, high- and low-income.
Also, there is now a case for the rich world to benefit from some positive lessons
already learned in developing countries. For instance, while much is made of
the possible lessons from Sweden, there are also important insights that can
be derived from the financial crisis of Chile in 1982. Chile also offers important
lessons on methods to carry out infrastructure investments with more probity
and public-private partnerships.
At the same time, given the current world economic situation, it will also
be important that the donor community honor funding pledges and ensure better
management of aid delivery, including untying aid and selecting types of funding
and programs that maximize development effectiveness (and not necessarily always
focused on central government). In addition, reformist leaders and civil society
in recipient countries must show the resolve to implement governance reforms,
which is paramount for development impact. In fact, developing country stakeholders
(including government officials) are sending donors a message of aid selectivity
and effectiveness, one which is yet to be heeded. These stakeholders are of
the view that their own quality of governance should be a determinant of whether
a donor like the World Bank provides funds to the country or not, and if yes,
to which institution (as seen in Figure
1, from a recent poll commissioned by the World Bank).
The reforms that Liberia’s President Ellen Johnson Sirleaf has been
spearheading provide a good example, deserving significant support. During the
Accra HLF, she called on donors to honor their funding pledges and go about
it more efficiently. She has had the courage to address the challenge of corruption
faced by a recipient country, and provides an illustration of the feasibility
and importance of leadership from the top on this important issue. At the same
time, a bottom-up approach would consist in listening to stakeholders. In another
survey, we asked thousands of citizens in developing countries what they considered
top priority for aid effectiveness. They invariably said that they supported
improved governance and anti-corruption ahead of other options, including providing
funding to their central governments.
The new world reality forces us to think again, and signals the end of the
“business as usual” era. The official aid industry was already behind
the curve prior to the crisis. Now the catching up that is required is vaster,
necessitating a rethinking of aid strategies and the approach to aid effectiveness.There
is a need for concrete attention to governance and political corruption, to
the IT revolution, free media, innovations in public-private partnerships (e.g.
advance market commitments in health, transparent concessions in infrastructure,
provision of governance and anticorruption guarantees, EITI, etc.). It is also
paramount to take in the reality of the new role in aid of non-traditional official
donors as well as that of private donors. And with the new post-crisis role
for governments, many of them will require specialized initiatives on governance,
transparency and integrity.
Daniel Kaufmann is Senior Fellow at the Brookings Institution, and previously
served as Director of Governance at the World Bank Institute. His blog is at
www.thekaufmannpost.net.
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