Revolutionising the Approach of Aid

In the mid 1990’s when the soviet communist bloc finally collapsed, IMF, in a bid to rescue the socialist economy of the former Soviet Union took the driver’s seat and did nothing but priviatising the soviet industrial sector. IMF and its major shareholders saw it as a major success which later awarded the presidency to Yeltsin and Russia’s industrial assets to the capitalist backed oligarchs. This resulted in the emergence of a mafia syndicate which controlled everything. Corruption scheme nearly cut national output by half causing hunger and despair. Thanks to Yeltsin’s successors who managed to get rid of that economic catastrophe. These are just few examples of how monetary aid has made little or no contribution to attain the desired objective.

Aid has never been utilised to address key economic challenges – both donors and governments of aid recipient countries have avoided this path. Now what could be an alternative to traditional form of aid that has made little contribution in uplifting a country’s human development and socio-economic status? The answer lies with trade facilitation. Aid recipient countries including Bangladesh have long been demanding for effective preferential treatment. If aid is really meant to do good, it should focus on aid for trade i.e. developing trade related skills and infrastructure through which LDCs can reap benefit from the WTO and global trade agreements. Starting from London summit, the G-20 leaders in different summit have reaffirmed their commitment to Gleneagles Commitments and the Millennium Development Goals and agreed on the issue of preferential treatment that it is an effective tool for poverty reduction and economic growth. It is worth mentioning that the United Nations through the MDGs has urged all its members, developed countries in particular to address special needs of LDCs by adopting DFQF market access for LDCs for all exportable. The Gleneagles Commitments emphasised the need for easing the Rules of Origin so that they can be followed in a more flexible way. The US has long been following an unbending policy to allow 97 per cent of products from LDCs. Surprisingly the rest 3 per cent products include clothing and agricultural products which LDCs can produce competitively. Other G-20 countries namely Japan and South Korea also have product exclusion. Although the European Union offers 100 per cent duty- and quote-free access under its Everything but Arms initiative, the Rules of Origin provisions have hindered the LDCs from taking advantage of such an opportunity. Developed countries should shun the idea of providing meaningless project aid rather support trade facilitation.

Bangladesh is presently negotiation a U$D 1billion flexible credit line deal with the IMF. It has been advocated that the FCL is out fitted with fewer strings compared to IMF’s other traditional credit facilities. Details of this deal are still unknown. Various quarters have demanded public disclosure of the deal before it is signed. Countries premier civil society think tank Centre for Policy Dialogue (CPD) earlier in its independent review of Bangladesh’s Development cautioned that the proposed credit facility “might limit the growth-supportive policy space for the government” and demanded its public disclosure.  IMF’s role in Bangladesh is not praiseworthy. So before concluding any such agreement government should make it public and obtain expert opinion.

Donors need to come up with honest and sincere approach – their approaches should properly address issues like trade, domestic revenue mobilization etc. Poor countries need aid but without strings – first and foremost donors must shun their traditional philosophy of rejecting public sectors and encouraging private sector. World Bank and IMF lead Structural Adjustment Policy (SAP) is the best example of such kind. SAP failed to reduce the fiscal imbalance of poor and developing countries. If aid agencies, donors and international financial institutions want to remain relevant in the changing global financial system, they need to redefine their role as development partners. Countries like China, India, and Brazil have emerged as a major player in the global economy and even making investments in many countries. There are a number of countries that has already say “NO” to aid. With an aim to find alternative to the international financial institutions, particularly the International Monetary Fund, fast growing economies of Brazil, Russia, India and China have formed BRIC, aimed at finding alternative instruments or modify the existing ones. There is, therefore, a solid risk that donors and IFIs will lose their relevance if they fail to revolutionise their existing aid approach.