1. Is Foreign Aid Working?

2.  Europe lay in ruins  Iron curtains and cold wars  Independence movements in the colonies  Decolonisation by the colonisers  Laissez-faire economics questioned  State power could be directed towards development  Intellectual confidence  All of above combined to bring about the rise of foreign aid from rich to poor countries

3.  A new governance framework was required to manage the world economy  Thought that conflicts between nations had been exacerbated by the collapse of international trade, economic isolationism leading to the 1930s depression and rise of ultra-nationalism  Note that UN membership rose from 51- 156 between 1945-1981

4.  Set up in 1944 to facilitate post-war international economic stability ◦ General Agreement on Tariffs and Trade (GATT) ◦ International Monetary Fund (IMF) ◦ World Bank (WB)  The WB and IMF = IFIs (international financial institutions)

5.  IMF ◦ Short-term loans to nations experiencing balance of payments problems ◦ Loans dependent on borrower taking measures to correct problems ◦ Voting structure proportionate to invested capital

6.  World Bank ◦ Initially funds for reconstruction of Europe ◦ After, for loans to poor countries for large-scale infrastructure ◦ Loans were ‘concessional’  USA was major subscriber to IMF and WB, its currency was the international medium of exchange

7.  Smaller but more powerful organisation than WB  Located in Washington DC adjacent to WB  WB can only lend to IMF-member countries and when they are not in dispute with IMF  Stabilisation of economies is IMF major role

8.  Comprised of: ◦ International Bank for Reconstruction and Development (IBRD) ◦ International Development Association (IDA) ◦ International Financial Corporation (IFC) ◦ Multilateral Investment Guarantee Agency (MIGA) ◦ International Centre for Settlement of Investment Disputes (ICSID)

9.  Dominant non-private lender to developing countries  Highly influential generator of ideas about development  Main provider of technical advice to developing countries  Informal ‘rating’ agency for bilateral donors (eg AusAID)

10.  Originally seen as a catalyst for development (leading agent of modernization theory)  But critics say that WB ◦ Leads poor countries into debt ◦ Has financed many projects which have brought poor developmental returns ◦ Is only concerned with capitalist development ◦ Has not (until recently) been concerned with corruption ◦ Only plays lip-service to sustainability and popular participation ◦ Should let market determine economic development

11.  Critics also say that the WB and IMF have exerted undue influence on poor countries policies through structural adjustment loans (SALs) or programs (SAPs)  SALs/SAPs carry conditions which generally involve ◦ Tighter fiscal control ◦ Liberal economic reforms ◦ Rolling back the state

12. ◦ Controlling inflation through wage controls ◦ Privatization of publicly owned enterprises ◦ Balancing state budgets through reducing government expenditure ◦ Eliminating or reducing government expenditure ◦ Eliminating or reducing state subsidies on basic goods ◦ Generation of foreign exchange through export- oriented industries ◦ Elimination of controls on foreign capital

13. ◦ Net transfer of money out of indebted countries increased since 1980s ◦ Debt burden shifted from private banks to IFIs ◦ Forced liberalization has entailed greater participation in world economy ◦ SAP implementation results in ‘cat and mouse games’ between IFIs and recipient countries ◦ SAPs have increased control of poor countries by IFIs ◦ Poor people bear considerable burden ◦ Inappropriate fiscal restraint where enormous problems need addressing

14.  Now claimed to be a ‘post Washington consensus’ which recognises need for state action as well as market forces  Declared prioritization of poverty ◦ IMF has Poverty Reduction and Growth Facility Loans (PRSCs) ◦ WB has Poverty Reduction Strategy Credits (PRSCs)  Both require Poverty Reduction Strategies (PRSs)  Is this a genuine shift or cynical maintenance of old policy?

15.  IFIs also signed up to the MDGs  Agreed September 2000 at largest ever assembly of world leaders  Addressed at resolving the world’s major problems – especially poverty  Goal-oriented with clear targets, eg ◦ reduce extreme poverty by half between 1990- 2015 ◦ reduce by 2/3rds the under 5 years mortality rate between 1990-2015

16.  Goal 8 – Develop a Global Partnership for Development ◦ Target 12: Develop further an open, rule-based predictable, nondiscriminatory trading and financial system (includes commitment to good governance, poverty reduction) ◦ Target 13: Address special needs of Least Developed Countries ◦ Target 14: Address the special needs of landlocked developing countries and small island developing states ◦ Target 15: Deal comprehensively with debt problem to make debt sustainable in the long term

17.  Aid from DAC countries is increasing ◦ 2003 = US$69 billion ◦ 2004 = US$80 billion ◦ 2005 = US$106 billion In real terms average annual growth of 5.6%  Decline in 2011due to GFC ◦ 2011= US$133.5 billion, a fall in real terms of 3% and only 0.31 of combined GNI  Grants from NGOs ◦ US$11 billion in 2004

18.  Aid from non-DAC countries increasing ◦ Estimated at $11 billion pa or more ◦ China now gives more each year than World Bank ◦ India announced plans to establish an aid agency in 2011 and $11 billion funding over next 7 years ◦ South Africa, Brazil and Arab states significant donors ◦ Much more explicitly ‘soft power’ to gain leverage in pursuit of strategic interests ◦ ‘No strings attached’ leads to questions about human rights, sustainability, relevance, environmental concerns ◦ Little evaluation, accountability and transparency mechanisms

19.  Much of the increment in ODA reflects global and regional security concerns with Iraq and Afghanistan accounting for over half of the 2001-2004 increase  Nearly half the increase in net ODA 2001- 2004 is in the form of debt relief and technical cooperation and a quarter for emergency assistance  Innovative forms of funding eg airline departure taxes

20.  Agreement of many donors and recipient countries for ‘aid harmonization and alignment’ to increase effectiveness of aid  Trying to improve aid ‘modalities’ (ie instruments through which donors deliver aid) to improve aid ‘quality’  Highly Indebted Poor Countries Initiative (HIPIC)  Multilateral Debt Relief Initiative (MDRI)

21.  Paris Declaration on Aid Effectiveness 2005 by OECD countries/donors ◦ Ownership of aid implementation by partners ◦ Donor alignment with country strategies ◦ Harmonization of donor development approaches and activities ◦ Managing for better results through national development strategies and performance frameworks ◦ Mutual accountability between partners and donors

22.  There has been a reported general improvement in donor-recipient relations  By 2010 target met on only one indicator (improvement on others)  Criticisms ◦ China, Brazil and Arab states not involved ◦ Indicators don’t measure ‘real outcomes for real people’ ◦ Data often fragmented ◦ Country context not appreciated enough in measurement eg fragile states

23.  Volume of aid is increasing  Still not enough to tackle the immense problems of developing countries  Only 5 donors have ODA/GNI ratios of 0.7 or above (DAC average only 0.33%)  Still concern about the amount of IFI influence on domestic policies of developing countries  WTO remains a major concern of developing countries  The effectiveness of aid remains a contentious issue  Pronounced international inequality still evident and the gap is widening for some countries