Third High Level Forum on Aid Effectiveness
Summaries of the latest related events
The Role of IMF in Policy Making in Bangladesh
Source: Unnayan Onneshan
Unnayan Onneshan organized a round table discussion on “The Role of IMF in Policy Making in Bangladesh†at CIRDAP auditorium on 20th October, 2007. Md. Iqbal Ahmed presented a paper on the issue. Ahmed showed the effect of IMF policies with empirical data and ended with questioning its role. Mr Ahmed argued that when Bangladesh needed an investment friendly environment to generate employment and output to eradicate poverty, the IMF advised the government to tightly manage demand and offered policy advice which was contradictory, which has destabilised the economy with low investment, low capital formation, low output and low employment thus leading to staglation. At the same time the IMF's advice to cut public spending has further marginalised the poor.
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Debt and Conditionality: Multilateral Debt Relief Initiative and Opportunities for Expanding Policy Space
Source: Third World Network
THE Multilateral Debt Relief Initiative (MDRI) was introduced in September 2005 to operationalise the political outcome of deliberations at the G8 summit in Gleneagles in July 2005. The MDRI is to provide 100% cancellation of eligible debt stock owed by eligible countries to four multilateral financial institutions – the International Development Association (IDA), the concessional lending arm of the World Bank, the International Monetary Fund (IMF), the African Development Fund (ADF) and the Inter-American Development Bank (IDB)1 – and is separate from but linked operationally to the enhanced Heavily Indebted Poor Countries initiative (HIPC-I).
This debt reduction is additional to the debt relief granted under the HIPC-I and taken together, it is expected that an estimated 40 eligible countries have already been or will be relieved of a significant amount of debt stock in the near future. The World Bank and the IMF estimate that both the HIPC-I and the MDRI will clear a total of close to US$90 billion in debt owed by developing countries to bilateral and multilateral creditors (Eurodad, 2006; IDA and IMF, 2006: paras 27-32). Twenty-one countries have already had their eligible debt from the IDA and the IMF written off and nine other countries are expected to complete the process in the near future. A further 10 countries have met the eligibility criteria for HIPC and are potentially eligible for MDRI relief in the future.
A critical question arising from these recent developments in debt relief is whether – aside from relieving the debt overhang of indebted countries and therefore clearing fiscal space for more productive and redistributive expenditure – the cancellation of debt, particularly from the international financial institutions (IFIs), results in greater policy autonomy for the countries concerned.
A significant constraint on national policy space in developing countries in the past two decades has been the uncompromising debt burden shouldered by these countries and the policy prescriptions which accompany country attempts to: (a) reschedule debt owed to external creditors; and (b) mobilise additional external financial resources to meet their resource gaps. Indebted countries have had to implement stringent economic conditionalities – especially those set by the World Bank and the IMF – in their bid both to renegotiate debt and to secure resources necessary for generating economic growth and financing social expenditure.
However, the recent series of debt cancellations – under both the enhanced HIPC and the MDRI – may offer eligible countries opportunities for expanding domestic policy space, enabling countries greater freedom over their macroeconomic and development policies, including options which were prohibited under the restrictive conditionalities of the Bretton Woods institutions.
This paper examines the key aspects of the MDRI and considers the opportunities this framework and completion of the enhanced HIPC initiative create for indebted countries to expand their policy space. The paper concludes that the recent upfront and irrevocable cancellation of debt of the 21 post-‘completion point’ countries and the potential debt relief for the nine ‘decision point’ countries in the near future under the enhanced HIPC initiative and the MDRI will create opportunities for greater policy space in these countries. Specifically, the debt relief will facilitate the release of countries from the economic strictures of conditionality and debt which have crippled economies in developing countries due to the damaging effect of their economic policy prescriptions.
Cancellation of debt stock has not only enabled the freeing up of fiscal resources in a number of previously heavily indebted developing countries but has also afforded opportunities for expanded policy space for countries to develop national economic policies alternative to the Washington Consensus policy prescriptions which have accompanied financing from the Bretton Woods institutions.
It will also enable the diversification of external financing sources for these countries, enabling countries to seek resources with more favourable financing terms and the decoupling of financial resources with economic policy reforms. Countries should take advantage of this increased policy autonomy to develop more appropriate policies which will generate economic growth in favour of social and economic development.
After all, the objectives of debt relief are not only about increasing revenue flows to developing countries but also freeing countries from the economic and political coercion of debt, including redressing the asymmetrical relationship between debtor and creditor nations and debtor nations and international financial institutions. This recent debt cancellation may afford developing countries the opportunity to break out of the cycle of debt and conditionality and to engender genuine ‘country ownership’ of economic policies.
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Policy Coherence: Aid, Trade and Investment
Source: North South Institute
In principle aid is used to assist low-income countries evolve an appropriate mix of policies and institutions to support their development goals. The efficiency and effectiveness of this process could be enhanced by increased coherence within and across the aid, trade, and investment policies which feature prominently in the donor-recipient relationship. Policy coherence exists when the gap between policy intent and outcome is minimized by using mutually supportive approaches in related policy areas in pursuit of a common goal. Policy coherence is naturally more complicated where national policy is significantly influenced by policy-making at the supranational level. In this case policy coherence requires harmonization through international cooperation around jointly determined and voluntarily accepted common norms and approaches.
Central to the aid relationship is a common understanding of development as societal transformation for the purpose of enhancing the abilities of all members of the society to shape their own lives. In this context, the goals of development combine income growth with poverty eradication and human development, while the “drivers†of development include macroeconomic stability, openness, good governance, quality infrastructure and strong institutions. Among these, openness and institutions are the most contentious and constitute the main sources of policy incoherence. In both cases, no general consensus has emerged regarding the best approaches, the adjustment processes and time paths for generating sustainable growth through policy and institutional reforms.
The aid relationship presumes an understanding that both sides share a common interest in achieving certain development objectives. It is characterized, however, by policy coherence issues arising from ineffective partnership and collaboration which in turn reflect donor prescription of policy and institutional reforms considered unacceptable by recipients, and unwillingness by donors to accept experimentation in these reform areas. Similarly, standard donor prescription that trade openness enhances growth and poverty reduction often clashes with recipient-country perspectives that are more nuanced because in low-income countries supply response capacity is typically limited, the adjustment process is slow and, hence, the expected efficiency gains are limited and/or delayed while up-front costs of liberalization are real and can be substantive. Finally, with regard to investment policy where donors have tended to push aid recipients towards full liberalization, the latter seem to prefer a two-track approach which promotes export-oriented foreign direct investment (FDI) through liberalization and attracts market-seeking FDI through protection.
In addition to policy coherence within each of aid, trade, and investment policy area, coherence across the three policy areas is also critical for enhancing the positive impact of development assistance. For instance, aid disbursement conditioned upon trade liberalization will lack policy coherence where the aid recipient’s economy has limited supply-response capacity or is patently unable to defray the short-run costs. Similarly, the donor provision of aid to particular low-income countries may be more or less offset when the donors simultaneously erect trade barriers against their exports. There are many examples of this conflict. For instance, distortions to agriculture in several donor countries lead to significant reduction in the real income of many aid-recipient countries.
Across the aid, trade, and investment policy areas, there is a fundamental difference in the perspectives of aid donors and recipients. The former generally expect that aid disbursement should go hand-in-hand with the liberalization of the trade and investment regimes of the aid recipients; while the latter contend that building their supply response capacity should have priority and, hence, that trade and investment policies must be coordinated and strategically linked and involve gradual, selective and differentiated liberalization.
Enhancing policy coherence and, thus, effectiveness of aid requires an appropriate mechanism for reconciling and accommodating these differences. This should encourage the aid-recipient country to articulate a consistent development program with coherent policies for dealing with identified constraints and indicating how and where external assistance is required. It should then permit donors to evaluate the program’s coherence and feasibility and, in the process, coordinate donors’ activities with the program as a basis for establishing a constructive and mutually beneficial partnership.
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Challenge of the Current Aid Architecture: Addressing the Development Needs of Africa
Source: AFRODAD
"African countries like many other developing countries need external resources primarily to supplement their meagre domestic resources from their economies. The assistance countries receive redress the financial gap that arises from their development needs and act as catalyst and play a complimentary role in the implementation of the national development programs as well as stretegies. The articles concludes by saying that aid architecture must address political interests of both donors and recipient as well. Aid would only work with good public institutions and if policies are nationally-owned. Other important factors include the need to address weak public finance management systems, respect public systems by donors, and the development of Partnership principles are mutually agreed. Lastly engagement with non-state actors and parliaments must be meaningful if Africa is to make head way in improving aid architecture in the continent."
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National Consultative Workshop on Civil Society and Aid Effectiveness
Source: CSPR
A lot of issues concerning aid effectiveness were discussed by representatives from civil society, government, and the cooperating partners. This dialogue formed a crucial platform to foster coordinated efforts from the three quarters of development stakeholders to ensure that aid becomes more effective. It is also important to note that the workshop signified the recognised valuable role played by civil society in managing and accounting for the aid.
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Stock taking paper on aid management
Source: Daima Associates
This report is one of three planned outputs of phase 1 of a 2 phase project commissioned by the Capacity Building Working Group, one of the three groups conducting the technical work under the SPA 7 programme. The project aims to improve the quality and quantity of aid in support of nationally owned capacity development approaches. Phase one of the project is the stocktake phase, which is the subject of this report and the second phase will draw from the findings and conclusions of the first phase. This report categorises aid recipient countries according to the level of aid management systems and effectiveness. Criteria that were considered when grouping countries included: aid policy documentation/clear aid strategy; aid management systems and procedures; Development Partner actions and expected requirements; aid harmonisation and alignment to country systems; the capacity in aid management; and capacity constraints identified and documented. The grouping exercise resulted in four categories. Group one included coutries that were rated highlu such as Botswana, Tanzania, Ghana, Uganda and Vietnam; Group two included coutnries that are doing fairl well but could still do better such as Burkino Fas, Cape Verde, Rwanda, Zambia, Ethiopia and Mozambique; group three included countries trying to improve but in fragile situations, thus with still many capacity gaps such as Cameroon; and group four included countries with critical situations largely due to recent internal conflict such as Burundi, Sierra Leone and Haiti. The report also considers to what extent the Paris Declaration has been implemented, if, and to what extent coutnries have developed explicit aid policies, how effective are aid management systems and procedures, emerging lessons in aid management with implicaitons for capacity development, expectations from the Development Partners, Development partner support to Capacity development, best practices. Finally the report provides a comparison of Capacity Development for Aid management.
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‘Mediating’ the Paris Declaration on Aid Effectiveness
By Fackson Banda, SAB-UNESCO Chair of Media and Democracy, Rhodes University, South Africa
The role of the media in public finance management in aid-dependent countries is increasingly becoming an agenda item during meetings about development assistance. A recent workshop called by the OECD Global Forum on Development brought the issue into sharp relief. At the core of the discussion was the Paris Declaration on Aid Effectiveness, adopted in 2005.
The OECD meeting did not discuss the media as a central theme. And yet the workshop theme of ‘ownership in practice’ suggests strong citizen engagement in the development process. Perhaps, the ‘silence’ on mediation typical of most official documents accounts for the uncertainty usually exhibited about the place of the media in the matrix of development financing.
Indeed, the Paris Declaration does not acknowledge the role of the media. But it spells out many commitments which only active media engagement can help actualise. For example, it urges aid-reliant countries to elaborate ‘national development strategies through broad consultative processes’. It reiterates this by enjoining upon such nations to ‘encourage broad participation of a range of actors…’ It urges both donor and partner countries to curb ‘corruption and lack of transparency, which erode public support’.
These commitments are central to media engagement in creating a dialogic environment in which civil society can hold national leadership accountable for the utilisation of development assistance. And yet the declaration only assumes this. Its emphasis on broad consultative processes is much more than one-to-one consultation. It implies civic engagement on a large scale. While foregrounding the ends of consultation, ownership and participation, the declaration omits the means through which such processes can be realised broadly.
It is important, therefore, that any exposition of the Paris Declaration explicitly analyses the role of mediation in strengthening citizen participation in development financing.
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OECD/DAC Informal Experts Workshop: Ownership in Practice
Ahead of next year's High-Level Forum on Aid Effectiveness in Accra (Ghana), this Informal Experts' Workshop examined two dimensions of ownership:
"Democratic ownership", which implies a closer look at the in-country relationships between governments, civil society organisations, parliament, the media and think tanks.
"National leadership", which revolves around donor-recipient relationships, asking whether poor-country administrations have the necessary capacity and donor support to track and manage a complex set of development finance flows.
Workshop discussions were based on the following papers prepared by experts from developing countries through the Development Finance Network (DEFINE):
Bolivia: Conditionality and Ownership
Carribeean: Ownership
Indonesia: Democratic Ownership
Latin America: Democracy and Development
Mali: Paris Declaration and Ownership
Mozambique: CSOs and General Budget Support
Nigeria: Conditionality and Ownership
Uganda: Parliament
Vietnam: Ownership and Aid Effectiveness
Zambia: Eurodad Ownership and Donors
Zambia: Media and Development
Zambia: Paris Declaration and Ownership
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World Bank officials shy away from participation
Source: Focus on the Global South
The four day Independent Peoples Tribunal (IPT) on the World Bank in India concluded on September 25th hearing numerous depositions indicting the Bank's policy and project interventions in India. While the World Bank India office did engage with the IPT and claimed they would make a deposition to respond to some of the evidence against the Bank,they failed to show up despite provision of adequate space and time by the organisers.
In its preliminary findings, the IPT observed the Bank had an undue and disturbingly negative influence in shaping India's national policies disproportionate to its contribution, financial or otherwise. While India is the world's largest single cumulative recipient of World Bank assistance, with lending totaling about $60 billion (Rs. 2,40,000 crores) since 1944, current annual borrowing amounts to less than 1% of the country's GDP ( In 2005, India's annual borrowing from the World Bank for new projects was 0.45% of GDP)
The loans however has been used as leverage to bring about important policy changes and impose conditionalities in areas such as governance reform, health, education, electricity, water and environment- many of these with obvious political and social consequences. The loans also legitimize substantial additional funding from a diversity of bilateral and multilateral donors such as the Asian Development Bank and Department for International Development (DFID-UK). The Bank's loans have caused extensive social and environmental harm from mass displacement in the Narmada valley to loss of livelihoods of traditional fishworkers in places such as Barwani.
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