Revolutionising the Approach of Aid

The question whether aid has really contributed to the overall development of recipient countries (mainly 49 low income LDCs) is still unclear. There is no strong evidence that development aid has made significant contribution in uplifting a country’s economic and human development status. Cape Verde is the only country who has graduated from the LDC status. The very poor number also supports this fact. The UN-OHRLLS’sBasic Facts About LDCs 2010 shows that more than half the population of these countries lives on less than $1.25 (PPP) per day. Annual GDP growth rate witnessed a record high 8.4 % in 2007 but went down to 7 % in 2008 while projection for 2009 indicates to a poor 4%. The fact sheet also shows that only 9 donors reached the target of 0.15 % of GNI in ODA to LDCs. So where is the effectiveness of aid? A number of researches
The global monetary watchdog International Monetary Fund (IMF) failed to foresee the financial tsunami the wave of which adversely affected economies of most countries of the world. Allegations are there that when economists cautioned about this possible financial outbreak in 2006, some of them were even criticised as “Dr Doom”. The doom day came under the disguise of doom years and the monetary watchdog failed to prevent that outbreak.  It only limited its role by making some cautionary notes and slashing down the growth figures it projected before the tsunami began.
In April 2009 Human Rights watch alleged that security force of Transitional Federal Government (TFG) of Somalia was widely involved in serious human rights abuse including indiscriminate killing of civilians and detention to receive ransom. Surprisingly the TGF received direct financial support in the form of salary from donors. The UN monitoring group on Somalia observed that such form of support clearly violated the longstanding UN arms embargo on Somalia. This happened due to the fact that donors followed a policy of ‘see no evil, hear no evil’

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.

Again international donor agencies have adopted quite similar policies in making development interventions. Development needs of Yemen may not be similar with development needs of Bangladesh. But without determining the local needs, the donors are prescribing the “one size fits all” formula and as a result development projects fails. Though donor project documents by and large describes project interventions as success. Lack of harmony among donor supported programmes is another major obstacle toward realizing the stated objective of development programmes. If we take a bird’s eye view, we will find a number of reform agenda circling around a particular issue and no wonder that some of them are conflicting to each other. These projects, in general, make interventions in traditional forms namely capacity development and like to have budget spent by 100% at the end of year no matter what the outcome is. Such money burning approach of donors deviate the project from attaining the original objective. Interestingly LDCs like Bangladesh have long been striving for coordination among donors. Bangladesh Development Forum is such an example which was first kicked off in March 2002 in Paris. The forum met again in May 2003 and in May 2004. At that time, the forum mainly discussed the Poverty Reduction Strategy Paper which was later dumped by the present government. Since then, the forum went to 5 years hibernation. And it was in early 2010, the forum met again with a new agenda on the table – vision 2021. It is too early to comment on vision 2021.

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.



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