The future of development aid

Development Policy25 Nov 2011Sri Mulyani Indrawati

Even skeptics admit it: effective aid works. In the last 25 years, the share of poor people in developing countries has been cut by half, and the last decade has witnessed impressive development successes in countries once thought beyond help.

Globally, the mortality rate for children under five has declined by a third, and sub-Saharan economies grew by up to 6% per year on average. With the exception of fragile and conflict-affected countries, today’s poor countries are very different from the poor countries of the past.

In the 1990’s, developing countries’ economies accounted for only one-fifth of global economic growth. Today, many of them are driving the global economy. Some estimate that by 2025, six major emerging-market economies – China, South Korea, Indonesia, Brazil, India, and Russia – will collectively account for more than half of all global growth.

There are also less well-known success stories. Consider Ethiopia, which, despite one of the worst global crises of our time, has been the fastest-growing non-resource-rich African country for seven consecutive years – averaging 11% annual GDP growth since 2003. And many poor countries have started to build effective institutions, control expenditure and manage their budgets, and provide more of the services that their citizens need.

While these results are impressive, much remains to be done. Paradoxically, it is exactly because there have been successes that we need to rethink development aid. Developed countries are fueling a prolonged crisis, and, with developing countries having generated two-thirds of global growth over the last five years, worldwide recovery will depend on how well they continue to perform. In this truly multi-polar world, the traditional aid relationship of donors and recipients – which often implies teachers and students – is simply obsolete.

So, when development professionals gather in Busan, Korea, at the end of November to discuss how aid can be made more effective, they should keep three key principles in mind.

First, the more countries develop, the more they are willing and able to take charge of their future – and the less desire they have to be told what is best for them.

I know that firsthand. When the 2004 tsunami hit Indonesia, I was a cabinet minister responsible for planning. The challenge appeared overwhelming. In Aceh alone, 230,000 people had died, and 500,000 had become homeless overnight. Damages were estimated at more than $4.5 billion, and the cost of reconstruction was put even higher.

After unparalleled global generosity brought a massive influx of aid, I chaired a relief-coordination meeting, packed with hundreds of experts representing dozens of organizations. Many had never worked in Indonesia, but nonetheless believed that they knew best how the aid effort should be handled. In a tense moment, I had to remind one of the speakers that nobody was in charge of our future but us, the Indonesian people. We knew that without local “ownership” and leadership, the aid effort could not succeed.

Today, Aceh is hailed as a reconstruction success. The outcome is by no means perfect, but, given the magnitude of the task at hand, it is impressive. Much has been rebuilt, often better than before. People are safer and have restarted their lives. The tsunami response was a positive lesson in effective aid, learned by all sides.

Second, as the development field grows more crowded, with the number of donors and partners increasing, we need to ensure that our efforts are coordinated, and that we harness the know-how and fresh insights that newcomers bring to the table. Today, emerging-market countries often come with money and expertise, as was evident following the Haitian earthquake, when much of the early emergency response came from Brazil and Colombia.

One of the best-known and most successful examples of these so-called South-South exchanges is the transplantation of Brazil’s Bolsa Familia program, through which poor families receive cash in exchange for keeping their children in school and getting medical checkups. The program is credited with Brazil’s impressive poverty reduction, and has been replicated in neighboring Peru, as well as in India and China.

A similar Mexican initiative was implemented in New York City, where early results show that poverty has been reduced, health outcomes have improved, and school attendance has increased – outcomes that local efforts had not achieved until adopting the tested models of southern neighbors.

South-South (and South-North) cooperation shows that effective aid requires more than money. Knowledge, experience, technical expertise, and coordination are equally important.

Finally, transparency and accountability are critical to long-term success. Indeed, a lack of transparency can turn even real progress into outright failure. For example, Indonesia’s Suharto, a benevolent dictator who favored small elites and fought poverty, but allowed corruption to flourish, eventually faced a population that was fed up with the lack of political reform. More recently, several leaders in the Middle East and North Africa who produced strong but non-inclusive growth met a similar fate.

Transparency is important both to developing countries and to donors. The World Bank is now publishing more information on its programs than ever before, and is sharing its development data for all to use, free of charge. We also monitor our performance and share the results in a public corporate scorecard.

As rich countries tighten their aid budgets and developing countries become more vulnerable to the effects of the ongoing crisis, the question is not whether aid works, but how it can work better. Learning from mistakes, working together, and making sure that countries are in charge of their own development are critical to successful aid programs. Anything less will prove the skeptics right.

Copyright: Project Syndicate