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Product Details
| ISBN-13: | 9781906387310 |
|---|---|
| Publisher: | Fahamu |
| Publication date: | 11/01/2008 |
| Edition description: | 2nd Revised ed. |
| Pages: | 158 |
| Product dimensions: | 5.06(w) x 7.81(h) x 0.35(d) |
About the Author
Yash Tandon is a senior advisor and writer for the South Centre, Geneva, an intergovernmental think-tank of developing countries, and has been a policy maker, political activist, professor, and public intellectual. He has written more than 100 scholarly articles and has written and edited books on subjects ranging from African politics and international economics to human rights. Benjamin W. Mkapa is the former president of Tanzania.
Read an Excerpt
Ending Aid Dependence
By Yash Tandon
Fahamu
Copyright © 2008 Yash TandonAll rights reserved.
ISBN: 978-1-906387-32-7
CHAPTER 1
THE BIGGER PICTURE
Why should developing countries escape aid dependence?
Is aid what it says it is?
Aid is well recognised as a contributor to global financial flows, and yet it defies description. It sounds positive because in the public eye and the media it is associated with 'development', 'solidarity' and 'humanitarian' causes. But not all aid goes for these causes, and much that passes as developmental or humanitarian may indeed have little legitimate claim to be either.
The matter of 0.7 per cent
The 0.7 per cent pledge has become a promise to chain the aid dependent 'poor' nations to largesse from the rich in perpetuity. This percentage has become such an oft repeated mantra in the development discourse that it has acquired a mystical aura. Governments of the developed countries have pledged to put aside 0.7 per cent of their gross national income (GNI) for 'aid'. Proposed initially by the World Council of Churches in 1958 as 1.0 per cent of GNI, the principle was adopted by the UN in October 1970 and a target of 0.7 per cent was set. For the last 38 years, the 0.7 per cent pledge has ritually occupied at least a few sentences if not whole paragraphs in all major resolutions that are passed in the name of development or economic growth.
In the media and public discourse the 0.7 per cent has become the single most important yardstick for measuring developed countries' commitment to the development of developing countries. For example, the Scandinavian countries score well and are generally regarded as the friendliest developed countries. The biggest single defaulter is the US. In 2006 its official development assistance (ODA) was $22.7 billion, a fall of 20 per cent in real terms, according to the OECD.
However, the developed countries' actions suggest that, barring half a dozen of them, none of them have any serious intention of ever fulfilling their pledge. Nonetheless, even unfulfilled, the promise itself serves a useful political purpose in domestic and international public relations. For the South governments the non-fulfillment of the promise by the North gets them off the hook — they can blame their countries' lack of development on the lack of aid flows from countries of the North. It gives civil society (and the so-called non- government organisations, or NGOs) of both the North and the South something to moan about when the developed countries do not meet the 0.7 per cent target.
As for the governments of the countries in the North that do not keep to their promise, they have two courses open to them — either ignore the moaning and groaning and refuse to be named and shamed, or create phantom aid and make use of creative conceptual and accounting tricks to boost their ODA figures. In fact, they resort to both strategies. Debt relief and swaps, inflated transaction and administrative costs, overvalued technical assistance, politically motivated aid and military aid, domestic costs linked to refugees are all considered as parts of ODA.
So the 0.7 per cent is stuck. The developing countries and civil society will not abandon it lest the developed world is let off the hook, and the developed world (barring half a dozen countries) largely ignores it or resorts to conceptual and accounting tricks to boost it.
Ending aid dependence
Does all this sound too cynical? It is not supposed to. Our aim is to take stock of aid's importance and try and separate the chaff from the wheat. Our aim is to understand what aid is all about, to put it in a proper political and historical context. Above all, our aim, ultimately, is to do away with aid, to exit from it, even if it means letting the developed countries off the hook and obliging developing countries to take charge of their own development.
In other words, despite its positive connotations, aid is not such a good thing after all. The moment you add the word 'dependence' to aid, it loses its lustre. It becomes a millstone round the necks of those that are aid dependent. The 0.7 per cent pledge becomes a promise that ties the aid dependent poor nations to largesse from the rich.
A question of accountability
Some questions need to be asked of the governments of the South that depend on aid. How does an aid dependent African (or any other) government fulfil its pledge to its own people to be democratically accountable if 25 per cent (or in some cases 50 per cent) of its national budget is financed out of donor aid? What kind of 'development' is it encouraging if 75 per cent (in some cases 100 per cent) of the development-kind-of-aid comes from outside the country? When a country claims poverty as a reason for seeking aid from outside, is the country really poor? In the name of aid or capital from the rich countries, does it not undervalue the worth of its own people's intelligence and ingenuity, the labour of its workers and farmers, its young people, the value of its natural resources?
Is the aid-dependent government accountable to its people or to the donors who finance the government? Can citizens be assured that their interests will be safeguarded by their own national governments and not become subservient to controls exerted by donors on their national governments? Can citizens of aid-dependent countries ever escape the stigma where the value of their industriousness and entrepreneurship will always be overshadowed by the value and importance given to aid?
The national project
These and some other questions need to be asked, and a way found to exit aid dependence, placing developing countries on the road to national and regional self-reliance in what this book later describes as 'the national project'. Escaping from aid dependence is an exercise in political economy; it involves trusting a country's own people to bring about development through proper use and management of its own natural resources, the labour of its workers, farmers and entrepreneurs, and its peoples' ingenuity. Development is not (should not be) a matter left to aid, and certainly not something left to the donors. They, it is important to understand, have no obligation to transfer resources into the South without getting something in return when, even in the richest country of all — the US — their own poor need these resources. Indeed, governments in the South should feel embarrassed taking aid from countries like the US where there are long lines of people at soup kitchens for the poor, and where the poor do not have proper access to medical care and where household debt relative to personal disposable income is over 100 per cent. Governments in Africa should not ask for aid from a country like China or India where the poor may well be poorer than the poor in Africa. There are other kinds of more honest relationships that can be encouraged between them, based on trade, investments, technology and tourism, for example, without calling these aid.
This monograph seeks to provide some reflections on how the 'donors' and the 'recipients' might liberate themselves from this aid dependence. Aid exit is good for all. It should be at the top of the political agenda of all countries.
OECD's definition of development aid
The OECD's Development Assistance Committee (DAC) has a complex definition of ODA. On its website it has a guide called 'Is it ODA?' to help donors 'to decide whether a particular expenditure qualifies as ODA', but in the final analysis only the 'DAC may determine such eligibility'. The DAC Statistical Reporting Directives are designed to help statistical correspondents to complete the DAC questionnaire, supplemented by a Handbook for Reporting Debt Reorganisation on the DAC Questionnaire. These provide definitions and detailed descriptions of the concepts and categories used in the DAC statistics.
The decisive criteria for determining ODA eligibility
According to the DAC:
Official development assistance is defined as those flows to countries on the DAC List and to multilateral institutions for flows to ODA recipients which are:
i. Provided by official agencies, including state and local governments, or by their executive agencies; and
ii. Each transaction which:
a) is administered with the promotion of the economic development and welfare of developing countries as its main objective; and
b) is concessional in character and conveys a grant element of at least 25 per cent (calculated at a rate of discount of 10 per cent).
On how the 25 per cent concessional aspect of loans was arrived at, the directive explains:
From the earliest discussions of the concept of ODA, Members agreed that it should represent some effort in favour of developing countries by the official sector. Loans at market terms were excluded. When, in the early 1970s, interest rates began rising sharply, it was further specified that loans could only be reported as ODA if they had a grant element of at least 25 per cent, calculated against a notional reference rate of 10 per cent per annum.
These elements remain today. In recent years, long-term interest rates in most OECD Member countries have fallen well below 10 per cent, so the 25 per cent grant element level has become easier to attain. But to qualify as ODA, loans must still be concessional in character, i.e. below market interest rates.
In other words, the burden of a 25 per cent concessional loan is much less than it was when it was first set.
As the directive says: 'This is often the decisive criterion for determining ODA eligibility. In the final analysis it is a matter of intention [emphasis added]'. But in order to reduce the scope for subjective interpretations and promote comparable reporting, members have agreed to include, for example, the following within the ODA definition:
• Assistance to refugees
• Costs of secondary and tertiary education provided to developing country nationals in the donor country
• Administrative costs of ODA programmes
• Programmes to raise development awareness in donor countries
• Official equity investments in a developing country (reported as ODA because of their development intention).
On the other hand, the following are excluded from being counted as ODA, for example:
• Military aid
• Enforcement aspects of peacekeeping
• Paramilitary functions of police work
• Military use of nuclear energy.
Annex 2 of the Statistical Reporting Directives lists those contributions from international agencies which are reportable as ODA. The directives also list the main international non-governmental organisations' (INGOs) contributions that are reportable as ODA. These are increasingly numerous. Where members have contributed to INGOs not on the list, they are asked to assess their ODA character in the light of the INGOs' aims, programmes and membership. If they believe the contribution should be counted as ODA, they are asked to inform the secretariat so that members can consider the INGO in the annual review.
The directive defines 'flows' as:
transfers of resources, either in cash or in the form of commodities or services. ... Repayments of the principal of ODA loans count as negative flows, and are deducted to arrive at net ODA, so that by the time a loan is repaid, the net flow over the period of the loan is zero. Interest is recorded, but is not counted in the net flow statistics. Where official equity investments in a developing country are reported as ODA because of their development intention, proceeds from their later sale are recorded as negative flows, regardless of whether the purchaser is in a developed or a developing country.
However:
Capital investment in the donor country is not regarded as a flow and is therefore not eligible to be reported as ODA. This applies even to the construction and equipment of training and research facilities related to development issues. The running costs of such facilities may, however, be counted as ODA.
This, then, is the summary of DAC's definition of development aid. It has become ingrained as part of the received orthodoxy on aid, part of the prevailing wisdom, the norm. It has become an axiomatic definition on aid. Barring a few independent thinkers and NGOs, the DAC definitions and methodology have not been subjected to serious and critical analysis, particularly by the recipient countries.
Conceptual, statistical and operational flaws
The most difficult problem in critiquing the OECD-DAC definition of what constitutes ODA is that it is now conventionalised as the standard definition of ODA. It has acquired, as it were, a prescriptive legitimacy. Based on this, statistics on 'development aid' are collected by the DAC and quoted world-wide by the mushrooming aid industry literati — including intergovernmental organisations (for example, the World Bank, the IMF, the Economic Commission for Africa, the African Union); national governments (including recipient countries); and otherwise independent experts, scholars, researchers and writers. Every use of those statistics gives (spurious) legitimacy to both the veracity of the statistics and distorts the very notion of development.
Leaving aside the definition of development, to which we shall come later, giving a precise definition to the elusive concept of aid must indeed be very difficult. How much more difficult must it be for donors and for the DAC to give these definitions operational function and numeric values. Let us pose a few questions.
Why should military aid be a priori excluded from ODA? The reason for it is supposed to be axiomatic, perhaps commonsensical. But is it really that simple? (See '3 Yellow Aid — military and political aid', later in this chapter for a discussion on this.)
The administrative costs of ODA programmes are part of ODA, including presumably, costs incurred in the donor countries themselves. What precisely are these 'administrative costs', and how are they calculated and who benefits from them?
Programmes to raise development awareness in donor countries are part of ODA. These are monies spent within the donor countries. Why should the recipient developing countries pay for them? And in any case, on whose definition of development is such awareness created? Among whom?
Indeed, even when development experts and consultants come, for example, to Africa from the donor countries to advise African governments on development and have their costs counted as ODA to be paid back to the donor countries, are these consultants serving recipient or donor country interests? Did developing countries express an interest in receiving such paid advice? Furthermore, where do the experts pay their tax and value added on their services?
The 25 per cent concessionary aid is of questionable value, when interest rates are falling. And yet it is regarded as the touchstone of ODA loans. What then happens to the remaining 75 per cent of the loan? This eventually has to be paid back, of course. What is the effect of this on the debt burden of the recipient countries that have been lured to accept the whole loan because of its concessional content? What is revealed about the concessional loans by the donors may seem alluring but what is hidden may be damaging to the recipient countries in the long run.
Much of the aid is tied to procurement from the donors. According to the UN, tying of aid to purchasing of goods and services increases costs by 25 to 60 per cent. In other words, the real value of their ODA must be reduced by a quarter or more. This wipes out any concessionary 25 per cent content of the loans. How legitimate is it to still classify it as aid?
Some of the ODA takes the form of making communities in the donor countries aware of their development obligations. But why is this considered as part of ODA? Furthermore, when donors allocate such funds to awareness-raising activities in their own countries, is there a mechanism by which the recipients are consulted about the usefulness of this exercise?
Also vast amounts of money are injected into institutions such as the World Bank, the United Nations Conference on Trade and Development (UNCTAD) and the World Trade Organisation (WTO) by donor governments and their development agencies to argue the case for foreign direct investments (FDIs), and trade and financial liberalisation, and to persuade the developing countries to open up their doors to FDIs for their own good through expensive seminars and workshops. In reality, FDIs bring profits to the rich corporations, and their local agents in the recipient countries. One-sided and biased calculations of presumed benefits in terms of employment, technology transfer, transfer of know-how, etc are seldom set against costs incurred. Existing empirical evidence generates serious doubt about how much good they do to the poor in developing countries. So the developing countries are paying twice for this privilege — first for the seminars and workshops, and second when donor-based corporations take profits out of the FDI-receiving countries.
The official equity investments (OEIs) by developed country donor agencies in a developing country are reported as ODA 'because of their development intention'. The first question is: Has anybody done research into what these OEIs are and whose interest they really serve? Secondly, does equity (whether private or official) acquire a developmental character simply by the intention of the investors?
The DAC statistics capture only the inflows of funds from the North to the South, based on fairly complex measures and computations, which are little understood and have largely remained unchanged over time. However, a similar conceptual or computational model does not exist to calculate outflows from the developing to the developed countries. By some reckoning these amounts are far more than the inflows. There is, in other words, a reverse flow from the South to the North. Who, then, is aiding whom?
The DAC is its own collective judge and jury. The DAC peer reviews each member country's policies and performance about once every four years, based on statistics provided by individual donor countries, and on the simple equation that ODA flows = growth = development. As long as the donor countries follow the definition of ODA, they are deemed to have satisfied the description of development aid. There is no outside independent body with operational capacity or proper conceptual tools to vouch for the accuracy of the figures or collective self-evaluations done by this club of donors.
(Continues...)
Excerpted from Ending Aid Dependence by Yash Tandon. Copyright © 2008 Yash Tandon. Excerpted by permission of Fahamu.
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Table of Contents
Contents
Title Page,Copyright Page,
Foreword,
Acknowledgments,
Dedication,
Abbreviations,
CHAPTER 1 - THE BIGGER PICTURE,
CHAPTER 2 - CASE HISTORIES,
CHAPTER 3 - AN EXIT STRATEGY,
CHAPTER 4 - THE INTERNATIONAL AID ARCHITECTURE,
CHAPTER 5 - SUMMARY AND CONCLUSIONS,
About the author,
Ending Aid Dependence,
What People are Saying About This
The message of this book needs to be seriously considered and debated by all those that are interested in the development of the countries of the South. If this means the rethinking of old concepts and methods of work, then let it be so. (Benjamin W. Mkapa, former President of Tanzania (1995-2005))