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In the 1990s, more than one billion people worldwide were affected by natural
disasters, with direct economic losses totaling US$ 630 billion. Since then,
the cost of disasters has grown as their social and economic impacts have increased,
driven by the growing concentration of assets and people in highly disaster-prone
areas.
War and civil conflict are also uprooting the social and economic foundations,
on which prospects for sustainable development, poverty reduction and the achievement
of the Millenium Development Goals are based. As a result of war, Afghanistan
and Iraq, among others, have suffered severe degradation of their physical infrastructure,
public services and general indicators of human development. In response to
these post-crisis situations, the international donor community has decided
to pool its financial support for crisis regions in Multi-Donor Trust Funds
(MDTFs). MDTFs often have significant comparative advantages over other forms
of emergency assistance, making them an attractive and effective channel.
The World Bank’s mandate in responding to post-crisis situations
In post-conflict situations, governance is often weak, both with respect to
political will and capacity to deliver. For the World Bank Group, administering
an MDTF is in line with its focus on strengthening the institutions and processes
of governance, and promoting economic growth. Most post-crisis MDTFs are used
in fragile states, defined as low-income countries, eligible for credits from
the International Development Association (IDA), the World Bank Group’s
concessional window offering low-interest long-term finance. Such countries
typically have weak state policies and institutions, and face a high risk of
conflict and instability.
Bank studies and other research have found that strengthening governance and
promoting growth can be effective in reducing the risk of renewed conflict.
The Bank’s involvement in MDTFs (usually as administrator), can also reopen
the door to countries that have not been eligible for Bank support (such as
Sudan), helping them to address arrears, and thus assisting them in becoming
IDA–eligible once again.
In post-crisis situations, the Bank—in contrast to the United Nations
agencies—works primarily on two aspects of the conflict spectrum: reconstruction
and development.
MDTF governance
While World Bank-administered MDTFs vary in their governance structures and
membership, all MDTFs have certain features in common: A MDTF usually has a
deliberative body which sets policy (policy forum), a funding decision-making
body composed of donor representatives and sometimes national authorities (Steering/Management
Committee), and, if project funding is involved, a project review body as well
as a secretariat that services the other three bodies. MDTF donors participate
in the decision-making structures of most Bank MDTFs. Some MDTFs also give observer
status to non-contributing donors and civil society organizations, but this
status is usually restricted to the general policy forum.
As a general rule, contributing donors and national authorities have formal
decision-making power. Donors also influence the selection of the MDTF administrator.
The administrator, who is selected by key stakeholders, usually the government
or conflict parties in consultation with the donors. If the Bank is appointed
as administrator, donors are involved in the full decision-making cycle of Bank-administered
trust funds.
Having a common administrator ensures harmonization of procedures for the
application of MDTF funds (planning, budgeting, accounting, auditing). In several
cases, a spill-over effect can be observed, in which the emerging public sector
of the respective post-conflict country has been adopting the administrator’s
procedures, knowing that they will be internationally accepted.
MDTFs offer benefits
For donors, the MDTF may be a funding channel for countries or situations
in which they would not otherwise have become engaged. Sometimes, an MDTF is
a complementary vehicle to activities that are funded bilaterally. Donors participate
in Multi Donor Trust Funds for the following reasons:
- Platform for policy dialogue: Even if donors have access
to national authorities based on their bilateral activities, MDTFs provide
an information collecting and sharing mechanism, a forum for donor discussion
and coordination, as well as a platform on which to enter into dialogue with
national authorities. On a larger scale, MDTF governance structures also allow
to engage in dialogue with representatives from civil society, or other parts
of the public administration.
- Strategic alignment: As members of the MDTF Steering Committee,
donors not only meet to exchange information, but also to endorse a common
aid strategy. At the same time, a common strategic approach towards the post-crisis
situation by donors also supports the alignment of the MDTF with national
priorities of the recipient country.
- Cost and risk reduction: Through their pooling of resources
and the application of a set of common procedures under one administrator,
MDTFs reduce information, coordination and administrative costs. They enable
joint, coordinated support to fragile and failing states, and reduce fiduciary
and political risk exposure when interaction involves possibly corrupt parties
to a post-conflict process.
- Access to information: MDTFs organize meetings, such as
debriefings and missions, which provide information which would not otherwise
have been available to donors and which guide them on internal priority setting
for their bilaterally-managed funds. Likewise, the MDTF secretariats prepare
background documents, manage data and provide analyses which are useful to
donors.
- Flexibility in funding: MDTF financing has been primarily
to the public sector, either in the form of budget support, on-budget project
funding, or off-budget project funding (typically implemented by non-public
entities). Some financing has also been channeled outside the public sector,
directly to UN agencies, or through them or government bodies to NGOs. As
a resource channeling mechanism, MDTFs provide the flexibility of being able
to change funding channels, even after an MDTF has started its operation.
- Predictability of funding: Another important argument
for MDTFs is that they contribute to predictability of funding and thus the
Mutual Accountability principle of the Paris Aid Effectiveness agenda.
- Visibility and spill-over effects: MDTFs in a post-crisis
setting are highly visible bodies in a typically weak governance environment.
Hence, they often influence and impact their environment beyond their given
mandate and beyond their original membership. The Multi Donor Trust Fund for
Aceh and Nias (MDF), established in 2005, serves as an example. Under the
roof of the MDF, 15 donors support Indonesia’s earthquake and tsunami-related
recovery programs. Looking at the role of the Steering Committee from an aid
effectiveness perspective, the Committee, which owes its existence to the
creation of Multi Donor Trust Fund, not only makes the financial decisions
and steers the discussion among donors, government and civil society toward
common and mutually trust funded activities, but it is also well-positioned
to respond to emerging recovery needs which are not being met by other sources
of finance (government, bilateral donors, multilateral institutions, NGOs,
and the private sector). It also serves as a platform for dialogue and a potential
forum to discuss future cooperation, beyond the life of the trust fund.
- Transparency: While the formal Steering Committee is not
open to other actors, efforts have been made to include larger donors in the
Advisory Committees of MDTFs as observers, even if they were not channeling
resources through the MTDF itself. Apart from the attempt to include other
actors and stakeholders in the informal discussions, the information generated
by the MDTF is usually easily accessible to the public through websites. Agendas
and minutes from meetings, project and quarterly progress reports, and detailed
financial data provide a degree of accountability and transparency that no
other bilateral actor in those countries can match. Moreover, accountability
and transparency in turn increase the credibility of the respective aid interventions.
Conclusion
In a post-crisis environment, risk, uncertainty and information costs are
high. Thus, the delivery of basic services tends to be costly. MDTFs can enhance
aid effectiveness by reducing transaction costs and by mitigating and managing
the high risk levels inherent to post-crisis situations. Though much smaller
than national and bilateral relief contributions, MDTFs have served as important
instruments for resource mobilization, policy dialogue, and risk and information
management. As post-crisis funding mechanisms, they represent “best practice,”
in line with the Paris Agenda for Aid Effectiveness, and largely also the DAC
Principles for Engaging in Fragile States.
Leonie Guder works in the Partnership and Trust Fund Policy unit of the
World Bank.
References
SCANTEAM, 2007: Review of Post-Crisis Multi-Donor Trust Funds, Final Report,
commissioned by the World Bank, Norwegian Ministry of Foreign Affairs and the
Norwegian Agency for Development Cooperation (Norad) in cooperation with Canadian
International Development Agency (CIDA), Netherlands Ministry of Foreign Affairs
and UK Department for International Development (DFID).
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