Three interesting trends in the traditional aid discussion

Development Policy20 Sep 2010Frans Bieckmann

Some countries stage high-level side events to show their commitment to the MDGs or otherwise underline their own priorities. Today I went to one, organized by the German government and presided by German chancellor Angela Merkel herself. She moderated a forum with Ethiopian prime minister Meles Zenawi, World Bank president Robert Zoellick, Norwegian prime minister Jens Stoltenberg, and German minister of Economic Cooperation and Development Dirk Niebel.

It was not exciting and not a very innovative meeting. Much ritual talk: we made a lot of progress with the MDGs, but we need to do more. And very much within traditional development parameters. According to Merkel, Germany’s priorities will stay the same: more donor coordination is needed, good governance, private-public partnerships. The place was full of black suits and TV cameras; the main aim of such an event is to spread the word, to create and strengthen the political momentum. In this sense, one can say that Germany is showing leadership; other countries are, up to now, absent in the public sphere, at least their heads of state are (although tomorrow there will be an event headed by French president Nicolas Sarkozy) .

One interesting intervention – allowed by Merkel in a friendly manner – came from the British Secretary for Development Cooperation, Andrew Mitchell, who was sitting in the first row. He took the opportunity to highlight that the UK sticks to its promise to reach the 0.7% for its aid budget in 2013. So far business as usual, however remarkable it may be that a conservative government does what most progressive western governments never have done in the past decades: do what they promised and give 0.7% of their budget to aid.

There were three interesting moments during this event, characterizing three trends that may emerge during and after this summit.

The first one was the brief but intense – although always friendly – between Meles Zenawi and Robert Zoellick. Zenawi stressed one of the issues that has emerged recently in the sidelines of the aid debate: the need for more ‘policy space’. This is a nice word for the old criticism by developing countries and others that aid is conditioned; in particular the IMF and the World Bank impose criteria on how a country should behave in exchange for loans.

Zenawi remarked that Ethiopia is rated lowly by the Bretton Woods Institutions and thus has to pay higher interest for foreign loans. ‘This lower rating is because of some of the policy choices we have made, although they are not less effective.’ Sometimes such differences of opinion can be negotiated, he said, using the example of talks with Germany. Although the MDGs look at primary education, Ethiopia asked to spend part of its aid from Germany in technical education, ‘because without that, no country can industrialize’. Germany apparently agreed with this Ethiopian preference, but the World Bank is less reasonable, according to Zenawi.

Zoellick answered that it is not the World Bank, but the donor countries, because they together designed this rating system, the so-called Country Policy and Institutional Assessment (CPIA). He went on that some ‘governance’ issues raised concern in the case of Ethiopia. Zenawi replied that ‘the CPIA wants us to liberalize the financial sector. We don’t do that and are penalized for that’.

A second issue was raised by several speakers, who emphasized the need for ‘results-based financing’. Within the traditional effectiveness discussion – the term ‘traditional’ is not meant pejoratively; it is and will stay important to give aid, and to improve efficiency and effectiveness, and thus results – this is an interesting trend.

Stoltenberg explained how part of Norwegian aid in the health sector is given through results-based financing. The Norwegians pay a percentage ahead, but the rest of the money will only be provided when it is proven, by an independent audit, that the results have been achieved: so many children going to and staying in school, so many people immunized, and so on. Zoellick stated that the World Bank ‘is trying to develop a new results-based mechanism’. And German minister Niebel said that ‘results-based financing is a very good step, because it enables [the combining of] the need for more autonomy and policy space for receiving countries with the need for results and accountability’. (See also this contribution on the Broker site by Wieck Wildeboer).

Niebel also brought up a third issue, one that is mentioned more often these days. After stating that developing countries should design their own development plans, he added that they should also take more care for their own financing. They should set up a transparent tax system. In the words of Niebel: ‘How can it be justified that relatively rich countries receive large amounts of aid, while their elites have put millions of dollars in foreign banks?’.

This post will be simultaneously published on The Broker MDG blog: Goal Posts – What Next for the MDGs?