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| Chapter 5: Transformation in the 1990s |
Documento(s) 6 de 11
Resource flows in the 1980s and 1990s: the ODA squeeze
Questioning development cooperation and the role of multilateral institutions
New demands for development cooperation
Rising to the challenge? Responses and initiatives
Concluding remarks
By the mid-1990s, the context for the development-cooperation experiment had been radically transformed. A multiplicity of changes and trends that had begun to assert themselves since the early 1980s, each with its own speed and intensity, crystallized with the emergence of a fractured global order. These changes and trends have altered beyond recognition the landscape that prevailed at the time when the development-cooperation experiment began, and they have important implications for the resource flows, motivations, and institutional arrangements of development assistance. As a consequence, the effectiveness and appropriateness of established approaches to development cooperation, largely centred on the flow of official aid through bilateral and multilateral channels, came under serious question during the 1990s. A new mix of enduring and emerging motivations for engaging in development cooperation, not only for rich nations, but also for private corporations and civil-society associations, will require fundamental changes in the way the enterprise of development cooperation is organized and managed. As befits the context of the paradoxical fractured global order, it is by no means certain that the multiplicity of objectives that ODA is supposed to achieve can all be accomplished simultaneously, as they may often work at cross purposes. This chapter looks at the transformations development cooperation is now undergoing and the responses that these changes are eliciting from bilateral agencies, multilateral institutions, and other actors involved in development assistance. After examining the recent evolution of resource flows to the developing world and the decreasing availability of ODA resources — what has been called the “ODA squeeze” — we will shift attention to the prevailing sense of dissatisfaction and uneasiness with development cooperation and with multilateral institutions in particular, which is leading to a profound questioning of the organizational arrangements for development assistance. We then mention briefly the new demands on international development cooperation, focusing on the challenges of conflict prevention, peacemaking, and postwar reconstruction. This chapter ends with a review of some initiatives developed in response to the demands to transform development cooperation in the context of the emerging fractured global order.
Resource flows in the 1980s and 1990s: the ODA squeeze
After experiencing a rapid growth during the 1970s, roughly in parallel with the growth of development-cooperation organizations, total resources for development assistance began to level off during the 1980s and decline in the 1990s. ODA disbursements have actually decreased in real terms since 1988 (Figure 2). Along the way, the participation of various groups of donors remained stable, with the exception of the relative shares of Japan and the United States (Figure 3). In effect, in the 20-year period from 1975–76 to 1996–97, the share of the United States in the total flows from the countries of the Development Assistance Committee (DAC) was more than halved, from more than 30% to less than 15%, whereas that of Japan more than doubled, from about 8% to nearly 20%. This has made Japan the largest donor and appears to be one of the indications of the end of a long period of American leadership in the field of development assistance. 
Figure 2. Total official development assistance (ODA) at current prices and exchange rates and 1995 prices and exchange rates. Source: DAC (1997b).
Figure 3. Share of total OECD Development Assistance Committee (DAC) official development assistance (ODA) at current prices and exchange rates. Source: DAC (1998).
But the changes in the structure of total financial flows to developing countries during the past 15 years have been even more dramatic than those in relative shares of ODA donors (Figure 4). In 1980, private flows represented 57% of total net financial flows to developing countries and multilateral institutions; official flows, 24%. After the debt crisis of the early 1980s, the volume of private flows dropped significantly, to the point that by 1990 ODA flows were larger (43%) than private flows (39%). Moreover, considering only the resources provided by the countries of the DAC, private flows in market terms (excluding grants provided by NGOs) accounted for just 13% of official and private flows to developing countries and multilateral organizations in that same year (Table 3). 
Figure 4. Official development assistance (ODA) and private flows as percentage of total net financial flow to developing countries and multilateral organizations. Source: DAC (1993, 1998).
Table 3. Official and private flows from OECD DAC countries to developing countries and multilateral organizations, 1980, 1985, 1990–96. |
| Type of flow | 1980 | 1985 | 1990a | 1991a | 1992a | 1993 | 1994 | 1995 | 1996 | 1997 | |
| ODA b
% of total | 26195
35 | 28755
65 | 52955
69 | 56678
60 | 60850
53 | 56486
42 | 59152
36 | 58926
36 | 55485
28 | 48324
26 | | Bilateral grants and grant-like flows b
% of total | 12968
18 | 17026
38 | 30754
40 | 34629
37 | 32913
28 | 33416
25 | 35185
21 | 36184
22 | 36506
19 | 31197
17 | | Bilateral loans b
% of total | 4015
5 | 4164
9 | 6377
8 | 6624
7 | 8336
7 | 5943
4 | 6115
4 | 4444
3 | 2585
1 | 1147
1 | | Contributions to multilateral institutions b
% of total | 9212
12 | 7566
17 | 15824
21 | 15425
16 | 19601
17 | 17127
13 | 17852
11 | 18299
11 | 16347
8 | 15981
9 | | Other official flows b
% of total | 5037
7 | 3144
7 | 8631
11 | 7062
7 | 8900
8 | 7918
6 | 10456
6 | 9872
6 | 5562
3 | 6113
3 | | Private flows at market terms b
% of total | 40316
55 | 9505
21 | 9790
13 | 25519
27 | 40052
34 | 65316
48 | 90238
54 | 89824
55 | 128939
66 | 128525
69 | | Net grants by NGOs b
% of total | 2386
3 | 2884
7 | 5077
7 | 5403
6 | 6005
5 | 5692
4 | 6046
4 | 5973
4 | 5568
3 | 4628
2 | |
| Source: DAC (1993, 1994, 1995a, 1996, 1997b, 1998).
Note: DAC, Development Assistance Committee; NGO, nongovernmental organization; ODA, official development assistance; OECD, Organisation for Economic Co-operation and Development.
a Excluding debt forgiveness of non-ODA claims.
b Current prices. (million $)
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However, the rebound of private flows was quite spectacular: from 1990 to 1996, they increased nearly fivefold in current terms and rose from 39% to 77% of total financial flows to developing countries. The World Bank estimated that net private capital flows to developing countries exceeded $240 billion in 1996, which was about five times the size of official flows in that year. Yet, it is important to add that private flows are highly concentrated: just 12 developing countries received 80% of these flows in the period from 1990 to 1995. Meanwhile, the total volume of ODA remained practically stagnant in current terms during this period (Figure 5), and fiscal constraints in most donor countries appeared to be transforming “aid fatigue” into outright “aid exhaustion.” There was also a significant change in the nature of private flows from the early 1980s to the mid-1990s, with portfolio investments and direct foreign investment replacing lending by commercial banks to developing-country governments as the main vehicle for private flows. Although direct foreign investment has emerged as the most important component of private-capital flows in the 1990s, portfolio flows have also increased sharply and by 1996 represented a third of total private-capital flows (World Bank 1997b). 
Figure 5. Evolution of total net financial flows to developing countries and multilateral organizations. Source: DAC (1993, 1998). Note: Data for 1997 are provisional; ODA, official development assistance.
Together with the worldwide trends toward economic liberalization, privatization, deregulation, and the spread of market economies, these changes in the structure of flows are leading to a redefinition of development finance. During the 1950s and 1960s, before the trends reviewed in the preceding chapters led to the emergence of a fractured global order, official sources of finance — both bilateral and multilateral — played the dominant role in structuring the flow of external resources to developing countries. The surge in commercial bank lending to developing countries from the mid-1970s to the early 1980s changed this pattern, but the 1980s debt crisis reduced significantly the role of private sources in development finance and reasserted the preeminence of official flows. This situation has changed once again during the 1990s, with the spectacular increase of foreign investment and portfolio flows. The dozen or so developing countries that have been the major recipients of private-capital flows have not found it easy to manage them: in many cases these flows have led to overvalued exchange rates and have increased the vulnerability of domestic capital markets. This has increased the requirements for sound and sophisticated macroeconomic management and for designing appropriate policy responses (Fernández-Arias and Montiel 1996). At the other extreme, “the overwhelming majority of developing countries, in particular the smaller low-income economies, still need to create the conditions to attract private capital and must depend on declining official flows” (World Bank 1997b, p. xi). It is also clear that private financing — which follows primarily the logic of the market — is not an adequate substitute for ODA, particularly for the poorest countries. Flows of direct foreign investment are highly concentrated in just a few relatively better-off developing countries, difficult to steer toward regions or activities where they would have greatest social impact, and generally not oriented toward the long-term task of building local capabilities. This prompted the OECD’s DAC to state that “the international community needs to sustain and increase the volume of official development assistance in order to reverse the growing marginalisation of the poor and achieve progress toward realistic goals of human development” (DAC 1996, p. 4). Donors have shown a clear preference for multilateral channels, over which they are able to exert more influence. It is also becoming apparent that a greater concern with accountability, targeting, and efficiency is pushing donors in the direction of multilateral channels and programs that reduce delivery costs and allow them to trace the impacts of their contributions. This is reflected in the growing proportion of multilateral ODA channeled through IDA, the World Bank affiliate, where weighted voting prevails, in relation to contributions to the core budget of UNDP, where one-country, one-vote is the rule. Contributions to the latter diminished steadily from 2.2% of total ODA resources in 1985 to 1.6% in 1993, whereas those to the former have risen from 6.8% in 1985 to 8.9% in 1993 (they reached a peak of 10.4% of total ODA resources in 1992). In addition, although core contributions to UNDP tripled in nominal terms during the period of 1973–93, in real value they remained practically constant and even declined slightly. Whereas IDA has faced serious difficulties during the 1990s, UNDP has experienced even worse problems in terms of securing contributions to its core budget, but this has been compensated for, in part, through voluntary contributions tied to specific programs or activities (Sagasti 1994). The troubles ODA faced during the 1990s have also been exacerbated by difficulties in securing the resources agreed on for the 10th (1994–96) and 11th (1997–99) replenishments of IDA, the concessional-assistance window of the World Bank group, which provides long-term, low interest, extended-grace-period loans to the poorest countries. For example, the IDA-10 negotiations failed to raise additional resources for the “Earth increment,” which was agreed to at the 1992 United Nations Conference on Environment and Development in Rio de Janeiro to help in the transition toward environmentally sustainable development. Moreover, the United States, which had pledged $3.75 billion to IDA-10, reduced its third-year (1996) contribution from $1.3 billion to $700 million, bringing its total overdue payments to IDA-9 and IDA-10 to $934 million by early 1996. As the President of the World Bank indicated, “if every government cut [its pledges] by the same rate, IDA — which deals with 67 countries and more than 2 billion people of whom 1.2 billion live on under a dollar a day — would have been cut from $6 billion a year to a bit over $3 billion” (Wolfensohn 1996). This forced other donors to establish an interim fund of 2.2 billion Special Drawing Rights (about $3.2 billion), without the participation of the United States, to secure resources for projects to be financed as part of IDA-11. Even though the provisional trust fund allowed IDA to maintain an annual level of disbursements close to $6 billion between 1995 and 1997, the troubled IDA-11 negotiations may have signaled the end of nearly three decades of steady increases in multilateral concessional assistance. Moreover, in January 1997, the Board of Directors of the World Bank increased the number of poor countries eligible to receive IDA soft loans to 79, bringing the combined population of these countries to about 3.3 billion, or 57% of the world’s total. The difficulties in IDA financing have led some to suggest alternative approaches to raising the resources needed to keep IDA in operation at a steady level indefinitely — for example, the establishment of a fund to subsidize the interest rates of regular loans provided by the World Bank (delivered through the European Bank for Reconstruction and Development [IBRD]) (Sanford 1997). During the early 1990s, several poor countries experienced serious problems in their financial relations with multilateral development institutions, and for some of them repayments of old loans exceeded the inflow of new capital. For example, considering all developing countries, World Bank net transfers (disbursements minus amortization and interest payments) to developing countries were negative during the first half of the 1990s, and the regional development banks were in a somewhat more favourable position (Ohlin 1994; World Bank 1996b). The problem was most acute for some of the poorest developing countries that rely on soft loans from IDA and other concessional resources from multilateral and bilateral agencies. By the end of 1996, the IMF had established the ESAF-Heavily Indebted Poor Countries fund, and the World Bank had established the Heavily Indebted Poor Countries (HIPC) trust fund, both designed to help heavily indebted poor countries reduce their financial obligations to multilateral institutions. The AfDB and the IDB, as well as several bilateral agencies, had agreed to take part in these initiatives to ease the multilateral-debt burden of countries such as Bolivia, Burkina Faso, Côte d’Ivoire, and Uganda. Considering that the World Bank made an initial contribution of $500 million from its net income to the HIPC trust fund and that most of the net income of this institution comes from its borrowers’ loan repayments, such contributions effectively constitute a transfer of resources from the middle- and low-income World Bank borrowers to the heavily indebted poor countries. Unless the rich countries that dominate the World Bank’s board make additional contributions to the HIPC trust fund, a significant share of the burden of financing the HIPC trust fund will fall on the middle-income developing countries that borrow from the IBRD window of the World Bank group at near market rates. In general terms, considering the new composition of resource flows to developing countries, there appears to be an implicit emerging trend toward allocating official aid resources to the tasks of social and sustainable development, whereas private financing takes care of economic growth. Multilateral institutions have announced they will give greater priority in lending to the social sectors (education, health, population) for environmentally sustainable development, the reform of public administration, and improvement in governance. Even the financing of physical infrastructure, particularly transport and energy, which was a traditional preserve of multilateral development banks, is now increasingly left to the private sector, which is often expected to work in partnership with international financial institutions and bilateral export-development agencies. In addition to social, sustainable, and governance development — to which many donors add the task of promoting their exports to developing countries — in the post-Cold War period official flows also began to finance tasks like conflict prevention, peacemaking, and peacekeeping in developing regions. It is beginning to be understood that assistance for such purposes is part of the development effort, in the sense that many violent conflicts are only an intensification of the struggle for power inherent in the process of economic, social, and political development (Miller 1992). As ODA stagnates in nominal terms and reaches historical lows as a proportion of GDP in rich countries (Figure 6) a significant proportion of official assistance is being channeled to nontraditional recipients like the former socialist regimes of Eastern Europe and the former Soviet Union, which in 1995 received $9 billion, or about 15% of the resources provided by the countries of the DAC (Table 4). An increasing share of what is left of ODA is being allocated to emergency relief, both for natural and human-made disasters — which means that it is not really focused on the long-term tasks of environmentally sustainable economic and social development. For example, the number of grants for refugee relief grew from 177 in 1988 to 1975 in 1993, a more than 10-fold increase in just 5 years, whereas total ODA funds for emergency and distress relief grew from about $350 million in 1980 to about $600 million in 1985 and then soared to nearly $3.5 billion in 1994 and almost $3.1 billion in 1995 (Figure 7). Table 4. Official aid disbursements from OECD DAC countries to Part II CEECs and NISs, 1990–95. |
| | 1990 | 1991 | 1992 | 1993 | 1994 | 1995 | 1996 | 1997 | |
| Total DAC ODA (million $) a | 52961 | 56678 | 60850 | 56486 | 59152 | 58926 | 55438 | 48324 | | | ODA to Part II CEECs and NISs | 2248 | 7128 | 6948 | 7092 | 7468 | 9202 | 5694 | 5056 | | % of total ODA | 4.24 | 12.58 | 11.42 | 12.56 | 12.63 | 15.62 | 10.27 | 10.46 | |
| Source: DAC (1995a, 1996, 1998, 1998).
Note: CEECs, Central and Eastern European countries; DAC, Development Assistance Committee; NIS, newly independent state; ODA, official development assistance; OECD, Organisation for Economic Co-operation and Development.
a Current prices.
|
Figure 6. Official development assistance (ODA) as a percentage of donor gross national product (GNP). Source : DAC (1997b , 1998).
Figure 7. Official development assistance (ODA) for emergency and distress reflief (excluding emergency food aid) from OECD Development Assistance Committee countries. Source : DAC (1996, 1998).
Taken together, all of these trends in the structure of development finance point toward a “squeeze” on traditional forms of development assistance, particularly from the perspective of the poorer developing countries that are unattractive to private investors and have relied on official sources of finance to prevent a further deterioration of their already low standards of living (for example, in 1994–95, ODA to Mozambique and Rwanda represented, respectively, 95.7 and 123% of their GNP). Finally, the role that multilateral and some bilateral agencies played in the East Asian financial crisis of 1997–98 has also intensified the ODA squeeze. For example, in late 1997 the World Bank agreed to provide about $10 billion — roughly half of its total annual lending volume — to South Korea, of which nearly $3 billion was disbursed during the first quarter of 1998 (this compares with the nearly $7.3 billion that the World Bank group provided to South Korea between 1963 and 1990). In addition, South Korea received a $4 billion loan from the AsDB, 43% of its total 1997 lending volume, as part of the IMF-led rescue package. A similar situation is likely to develop in the case of the Russian Federation — an “emergent” transitional market economy with more than 10000 nuclear warheads — as a result of the stock-market crash of mid-1998, which will require a major injection of funds that the international financial institutions do not have the capacity to provide, at least not without substantial increases in the resources available to them. Indonesia, Malaysia, and Thailand, among other countries, have also requested significant resources from multilateral financial institutions and from bilateral sources (most notably from the Japanese government and its aid agencies). Moreover, to strengthen its balance sheet, the Board of Directors of the AsDB recommended that in 1998 no profits should be transferred to the AsDF, the soft-loan window providing resources for the poorest countries of the region, and that, instead, profits should be used to increase provisions and reserves to deal with the additional risk brought about by the crisis. Therefore, unless there is a major, but rather unlikely, increase in ODA and in the resources available to multilateral institutions, funds will be reallocated away from low- and middle-income countries and toward the relatively better-off East Asian countries that experienced financial crises in late 1997 and 1998, further aggravating the ODA squeeze.
Questioning development cooperation and the role of multilateral institutions
In parallel with the ODA squeeze, in the last decade, there has been an intense reexamination of the purposes, means, and impacts of development assistance. As early as the 1960s, when the development-cooperation experiment was less than two decades old, there were many criticisms, some rather harsh, of the motivations, choice of channels, conditions, and impacts of development assistance. Although notable advances have been made in social conditions in the developing world in the past 50 years, there is no consensus that financial and technical assistance from the rich nations have been decisive in achieving these gains. During the 1990s, as the ODA squeeze focused attention on the effectiveness of international cooperation for development, these criticisms have reemerged with force. Keith Griffin and Terry McKinley articulated this sentiment clearly: Looking back over four and a half decades of international economic assistance to the developing countries, it is clear that expectations of rapid and dramatic progress were too high, the economic analysis was faulty and the political assumptions were simplistic. In short, the supporters of foreign aid were embarrassingly naive. ... First, it is evident that foreign aid, contrary to original expectations, has not contributed to a noticeable acceleration of the rate of growth of developing countries. ... Second, where aid inflows are large in relation to the recipient’s national product, relative prices are distorted in an anti-development direction. ... Third, the availability of foreign aid has made it easier for the governments of recipient countries to increase unproductive current expenditure, to expand the military and to reduce taxation. ... Fourth, there is no evidence apart from the occasional anecdote that either bilateral or multilateral aid programs have succeeded in reaching the poor.
(Griffin and McKinley 1994, pp. 3–4) Other critics, such as Paul Blustein, see the whole development-cooperation experiment as a colossal waste of money: “the billions of dollars in foreign aid showered on poor countries since 1970 has produced no net impact on the overall economic performance of the Third World, nor on the economic policies of the recipient countries” (Blustein 1997). Graham Hancock has gone even further, arguing that “aid is not bad, however, because it is sometimes misused, corrupt or crass; rather, it is inherently bad, bad to the bone, and utterly beyond reform” and that aid is “the most formidable obstacle to the productive endeavors of the poor.” However, not even the most acerbic critics of development assistance have surpassed the vituperative level of Hancock’s characterization, on the donor side, of “the notorious club of parasites and hangers-on made up of the United Nations, the World Bank and the bilateral agencies,” who have reached “record breaking standards [of] self-serving behavior, arrogance, paternalism, moral cowardice and mendacity” and, on the recipient side, of the “incompetent and venal” leaders and of “governments characterized by historic ignorance, avarice and irresponsibility” that engage in the “most consistent and grievous abuses of human rights that have occurred anywhere in the world since the dark ages” (Hancock 1989, pp. 183, 192–193, his emphasis). Against this radically pessimistic perspective on the impact of development assistance, a major study, Does Aid Work?, conducted by Robert Cassen in the mid-1980s and updated in the mid-1990s, reaches a rather different and more nuanced conclusion (Cassen 1994, pp. 7, 224–225, his emphasis): In the broadest sense, this report finds that most aid does indeed “work.” It succeeds in achieving its development objectives (where those are primary), contributing positively to the recipient countries’ economic performance, and not substituting for activities which would have occurred anyway. That is not to say that aid works on every count. Its performance varies by country and by sector. On the criterion of relieving poverty, even the aid which achieves its objectives cannot be considered fully satisfactory.
... [Considering] official aid for long-term development, not ... emergency relief or the work of private voluntary organizations ... and only the developmental purposes of aid, not any other motives the donors might have ... the majority of aid is successful in terms of its own objectives. Over a wide range of countries and sectors, aid has made positive and valuable contributions. The report also refutes some of the common criticisms of aid — that it cannot reach the poor, or that it conflicts with development of the private sector.
This does not mean that all is well with aid. A significant proportion does not succeed. The question is, how is this to be judged? Suppose it were known that x percent of aid did fail, how would this compare with other kinds of investment — in the private sector in industrial countries or in the public sector? Considering the difficult circumstances in which aid operates, one might conclude that the record compared well with the average for complex human endeavors.
The perceived ineffectiveness of international development cooperation has been considered an important contributing factor in donor fatigue, which is reflected in the diminishing public support for government spending on foreign aid (Smillie 1995; ICVA 1996) and in the reduction in ODA flows. Considering the wide diversity of motivations for development assistance, the multiplicity of delivery channels, and the different objectives of various programs, it is not surprising that when aid is viewed from a particular perspective — reducing poverty, empowering women, containing ethnic conflicts, helping refugees, building local capacity in the recipient country, or promoting donor-country exports, among others — specific projects and programs can be seen to fall short of expectations. As Cassen (1994) stressed, it is important to evaluate development-assistance undertakings in terms of their own specific objectives, which often differ from the goals that critics believe aid programs ought to pursue. After reviewing a large amount of quantitative evidence, a report prepared at the World Bank (Dollar and Pritchett 1998) concludes that “aid works. Financial assistance leads to more rapid growth, poverty reduction, and gains in social indicators in developing countries with sound policies and institutions.” However, rather than focusing on the amount of aid, the authors argued that good domestic policies and institutions are a necessary condition for aid to have a positive impact. According to their calculations, improvements in governance and policies of the same order of magnitude as those experienced throughout the developing world during the last decade may lift an additional 100 million people a year out of poverty. For this reason, they highlighted the intangible benefits of development assistance, which include dissemination of ideas, education of future leaders, and stimulation of policy debate within civil society, and emphasized the importance of building a broad base of institutions to ensure the delivery of public services. In a major reversal of trends in thinking of the 1960s and 1970s in favour of multilateral channels for development cooperation, during the late 1980s and the 1990s multilateral development-cooperation agencies — in particular the World Bank group, IMF, and United Nations — have been questioned from many quarters. Most analysts would agree with Reginald Green’s statement that “there is a consensus that global economic institutions function poorly” (Green 1995, p. 66). For example, as the World Bank expanded its scope of action into policy-based lending to support policy reforms in borrowing countries (through structural-adjustment loans) the distinctions between the roles of the World Bank and IMF (the two Bretton Woods sisters) became blurred in the 1980s. As a consequence, some critics of international organizations in general raised the question whether the World Bank and the IMF should be merged or even abolished. But this suggestion has not been taken seriously in most international policy-making circles (Bandow and Vasquez 1995). The IMF and World Bank have also been attacked for of their adherence to what are perceived as a rather rigid set of policy prescriptions, the so-called Washington Consensus (Williamson 1990), imposed on borrowers as a condition for access to resources. According to one of the pioneers of development thinking, Hans Singer, “nowhere in the Articles of Agreement of the IMF (nor of the World Bank for that matter) is there any mandate to evolve or prescribe proper development policies to its member countries, let alone to develop the specific school of prescriptions now known as the ‘Washington Consensus’” (Singer 1995, p. 7). Criticism reached a high point in 1994, when the Bretton Woods institutions celebrated their 50th anniversary.12 Environmental groups and grass-roots activists disrupted their Annual Meetings with demonstrations and chanted the slogan “fifty years is enough.” The World Bank study on aid (Dollar and Pritchett 1998) underscores the importance of good policies and institutions as a condition for aid to have a positive impact and argues that “what is good policy is not something that is subjectively decided in Washington. Rather, lessons about good policy emerge from the experiences of developing countries. What we mean by good management is — objectively — what has led to growth and poverty reduction in the developing world” (Dollar and Pritchett 1998, p. 47). However, considering the frequent changes in the policy advice provided by the World Bank over the last decades and the changing nature of the evidence to support what are considered good policies, the claim to “objectivity” has to be taken with a grain of salt. However, even though the World Bank report highlights the importance of sound economic management and credible policy reforms and the need for developing countries to be to a large extent masters of their own fate, it fails to acknowledge that conceptions of good policy and sound economic management have varied over the last several decades. Moreover, international financial institutions like the World Bank have imposed a wide variety of policy reforms as conditions for access to their resources and have often pressured developing countries into adopting what the institutions consider appropriate policies at a given time, only to change their views with regard to the adequacy of such policies at a later time. Rethinking Aid: What Works, What Doesn’t and Why (Dollar and Pritchett 1998) does not sufficiently acknowledge the responsibility of international financial institutions in the design and implementation of failed policies in developing countries, especially in sub-Saharan Africa (Leandro et al. 1999). Another reason for serious criticism of the World Bank in recent years has been that the bank apparently tolerates corruption in countries where it operates. In the case of Indonesia, for instance, it has been reported that 20 to 30% of Indonesian government funds earmarked for development are diverted to bureaucrats and politicians (Simpson 1998). Although World Bank staff have not been directly implicated in these activities, many appear to have been ignorant of local practices and habits and for this reason rather susceptible to deception (World Bank 1997a). In the late 1970s, after the collapse of the fixed exchange-rate regime, and especially during the 1980s, as a result of the debt crisis, the new roles that the IMF began to play transformed this institution into “both a police officer of economic policy and a mediator between debtors and creditors” (Minton-Beddoes 1995, p. 127). The IMF interventions to address the Mexican peso crisis of 1994–95 and the East Asian crisis of 1997–98 have been severely criticized from many different quarters, as going well beyond the appropriate role for this institution (Kapur 1998). According to Martin Feldstein, “the IMF’s recent emphasis on imposing major structural and institutional reforms as opposed to focusing on balance-of-payments adjustments will have adverse consequences in both the short term and the more distant future” (Feldstein 1998, p. 20). This is particularly worrisome in the case of South Korea, where the country needed resources to stave off a temporary liquidity crisis and the IMF demanded policy reforms that Japan and the United States had previously urged but that the Korean government had balked at (Feldstein 1998). The 50-year-old United Nations system has also come under increasing pressure to reform and keep up with the times. Although there is general agreement that an international forum is needed to maintain peace, handle crises and conflicts, deal with various problems of a global nature, and foster sustainable human development, the effectiveness of the various United Nations organizations (the United Nations Secretariat, independent agencies, committees, councils, and affiliated bodies) has been seriously questioned. One major point of criticism is that the United Nations system has grown excessively and in a disorderly fashion, to the point that some observers have suggested that “by pruning obsolescent, inefficient, redundant, and corrupt branches, the UN [United Nations] could cut its budgetary costs in half” (Rotberg 1996). However, even if major gains in efficiency were to be achieved, the growing global and international agendas will certainly require additional resources for the United Nations system to adequately carry out its mandates (Méndez 1995). During the Reagan administration, the United States government became a most severe critic of the United Nations for a variety of reasons, many of them of an ideological and political nature, but several others related to the inefficient and wasteful nature of many United Nations bodies. This “UN-bashing” mood persisted through the 1990s, primarily in the US Congress, which has repeatedly refused to appropriate resources to cover assessed contributions to the regular budget of the United Nations, provide funds for peacekeeping operations, or finance development-cooperation programs. The United States has been using its arrears to the United Nations budget, which in the mid-1990s exceeded $1.5 billion, as a stick to pressure for drastic organizational and procedural reforms and major cuts in the administrative budget. By mid-1998, arrears reached such a level that the United States was threatened with the loss of its vote in the United Nations General Assembly.
New demands for development cooperation
As discussed in the preceding chapters, the last two decades have witnessed profound changes in the context for development efforts, as well as in conceptions of development and how to bring it about. Whereas economic issues dominated the early years of the development-cooperation experiment, issues such as environmental sustainability, gender equality, the informal sector, and poverty reduction were incorporated into the design and implementation of development-cooperation programs during the second half of the 1980s, particularly after the debt crisis subsided (DAC 1989). Notwithstanding the decline in resources for development assistance, several political and noneconomic issues were added to an already overcrowded international development agenda during the 1990s. These included good governance, varieties of market economies, culture and religion, and conflict prevention. Curiously enough, even though disparities in the capacity to generate and use knowledge have become the most prominent feature of the emerging fractured global order, building scientific and technological capabilities in developing countries is not considered a priority issue in the international development-cooperation community. Respect for human rights, democratization, popular participation, demilitarization, transparency in decision-making, and, in general, themes related to the idea of good governance are now routinely discussed in development-cooperation forums. This has prompted calls for the more active involvement of bilateral and multilateral institutions in promoting good governance. Some critics, particularly from the NGO community, have argued that human rights, democracy, and related criteria should be incorporated as formal conditions on access to loans, grants, and other forms of international assistance. Bilateral aid agencies and multilateral financial institutions have been gradually developing their own views on the more political aspects of governance. The DAC (1996, 1997b) has addressed topics such as the role of civil society, human rights, legal systems, and democratic decentralization, and the World Bank has moved beyond its pioneering report on development and governance (World Bank 1992a), which covered aspects such as transparency in government decision-making, reduction of military expenditures, elimination of corruption, and improvements in the administration of justice. Although concerns have been raised that these issues exceed the apolitical mandate of most multilateral financial institutions and push them into potentially dangerous areas, they are likely to remain on the international development agenda for the foreseeable future. Pressures for greater political conditionality are likely to increase, particularly on concessional assistance in a resource-constrained environment. Indeed, the articles of agreement of the EBRD, which was established in the early 1990s to provide financing to the countries of Eastern Europe and the former Soviet Union, stipulate that borrowers must have democratic political systems. The demise of the former Soviet Union and the collapse of centrally planned economies have left the scene free for a more sober appreciation of the variety of really existing market economies, particularly in the industrialized nations (Albert 1991; Hampden-Turner and Trompenaars 1993; Redding 1997). Within the general framework of capitalism, developing countries face strategic choices regarding the type of market economy they want to have and the roles to be played by the state, the market, and civil society in the conduct of economic and social affairs. Among the many issues open to debate on the varieties of capitalism, it is possible to identify the degree to which governments should provide guidance on the development of the productive system, the specific institutional arrangements to mobilize savings and allocate investment resources, the nature and scope of mechanisms to regulate the markets, and the channels through which civil society participates in economic-policy debates and decisions. A study on the East Asian experience with economic growth and development carried out by the World Bank with Japanese funding during the early 1990s (World Bank 1993) provides an indication of the interest in exploring alternatives to what was perceived as the dominant “Anglo-Saxon” perspective on economic development prevailing in that institution. Issues such as the role of directed and subsidized credit figured as a prominent concern of a Japanese member of the Board of Directors of the World Bank, as such policies played a major role in the industrialization of Japan and other East Asian countries. These questions were also raised in the World Development Report 1997, which focused on the role of the state in a changing world (World Bank 1997d), and in the debates on the appropriateness of the economic policies advocated through the Washington Consensus. As the competition between different varieties of capitalism intensifies in the coming years, multilateral financial institutions and development-cooperation agencies will need to develop a more pluralistic view of strategies for economic development. The growing importance of cultural factors, ethnic allegiances, spiritual concerns, religion, and ethical issues has made it necessary for development-cooperation institutions to be more sensitive to these values issues, which have largely been ignored in the design and implementation of development-cooperation programs during the last several decades. For example, when approaching the questions of poverty, social safety nets, and gender equality in Islamic societies, it is necessary to take into consideration religious and cultural traditions. The Latin American Catholic Church has criticized neoliberal structural-adjustment programs as morally and ethically reprehensible, primarily because of what it perceives as their negative impacts on the poor. Also, it may be difficult to adopt the Western approach to the rule of law in societies that have no clear demarcation of roles between church and state. Conflict prevention, conflict resolution, and postwar reconstruction provide a good illustration of the complexity of the new demands on bilateral aid agencies and multilateral financial organizations and support the adoption of a well-defined division of labour between the multiplicity of organizations that need to be involved to prevent deadly conflicts. Appendix 1 describes the main features of conflict prevention and the roles that the various international organizations can play. The high degree of uncertainty associated with conflict prevention makes it a rather inappropriate and risky undertaking for international financial institutions. Considering the dual financial-mobilization and development-promotion mandates of multilateral development banks, they need to be reasonably confident that their interventions, particularly when lending operations are involved, will have positive results and generate income streams that enable borrowers to repay these loans. Conflict prevention involves tasks that are better suited to United Nations bodies, bilateral aid agencies, regional political entities, and NGOs, combined with the diplomatic initiatives of influential countries and the possible use of military force.
Rising to the challenge? Responses and initiatives
The ODA squeeze, the questioning of aid and multilateral institutions, and the new demands placed on international cooperation for development have prompted a flurry of responses from the international development community during the 1990s. A few examples will illustrate the ways governments and various organizations engaged in development finance and international cooperation have reacted to the new circumstances. Developed-country governments are beginning to perceive the need for a comprehensive approach to the reform of international development cooperation. Discussions aiming at a “new partnership for development” took place at the 1996 Lyons Summit of the leaders of the Group of Seven highly industrialized countries and the Russian Federation (the “G-8”), where they were joined by the top officials of the United Nations, IMF, World Bank, and WTO. The declaration that emerged from that summit emphasized the importance of quality over quantity in development cooperation, held that development aid should be based on solidarity and effective burden-sharing among all actors, placed the chief responsibility for development on developing countries, and stated that development should be sustainable, equitable, and environmentally friendly and create jobs. These views were reaffirmed at the 1997 Denver G-8 Summit, where a new initiative for aid to sub-Saharan Africa was also announced (SELA 1997). During the early and mid-1990s, multilateral financial institutions, bilateral assistance agencies, and independent development-cooperation organizations undertook many initiatives that have been changing the way development cooperation works. Most of these organizations have experienced major reorganizations, changes in their product lines, significant budget cuts, staff reductions, and substantive modifications in their procedures. A large proportion of these initiatives have emerged as reactions to crisis situations, and this has made it difficult to plan and carry them out in a careful and well-thought-out manner. As a consequence, there have been many advances and retreats, and some institutions have experienced severe organizational shocks in fairly short periods. For example, the World Bank had two major reorganizations and four significant modifications in its organizational structure between 1987 and 1996, some of which reversed changes introduced 1 or 2 years earlier. The Mexican peso crisis of 1994–95, the East Asian crisis of 1997–98, and the collapse of the Russian stock market in mid-1998 taxed the response capacities of international financial institutions to the limit. In the first case, a joint effort of the IMF, World Bank, IDB, and the US Treasury raised more than $40 billion to prevent the collapse of the Mexican economy. In the second case, a $120-billion rescue package for several East Asian countries was put together rather hastily, draining the resources of a broad range of multilateral institutions and bilateral agencies (the rather reluctant participation of private banks in the financial rescue efforts was secured at a later stage). In the third case, it is yet to be seen what quantity of resources will have to be mobilized to stabilize Russian finances. Concerns have been expressed about the possible recurrence of similar crises, particularly because it cannot be expected that international financial institutions will be able to periodically mobilize resources on such a massive scale to maintain the stability of the international financial system.
World Bank
As early as a decade ago, the World Bank launched its Strategic Agenda exercise, which anticipated the need for radical adjustments in World Bank operations, product line, and organizational structure, changes that would only come several years later in the mid-1990s (World Bank 1989). In March of 1997, the World Bank group approved a $250 million, 2-year Strategic Compact aimed at producing fundamental changes in the way this institution operates. According to the World Bank, The development business is undergoing dramatic change: surging private capital flows and declining support for official aid; greatly diversified sources of advice and technical assistance; and recognition of a broader development paradigm — with greater emphasis on local capacity and social, environmental and governance dimensions. At the same time, a powerful technological revolution is facilitating access to knowledge, a crucial factor of development. It is also having profound effects on how all organizations do business: more competitive, faster, flatter in their structures; more networked and eager to partner; and more learning-oriented, with knowledge recognized as a key driver of effectiveness.
(World Bank 1997c, p. ii) Admitting that, in many respects, it had failed to keep up with these trends, the World Bank acknowledged that close to one third of Bank-supported projects have unsatisfactory outcomes ... demand for the Bank’s standard loan product is flat and its financial tools have aged ... there is a lack of professional expertise in key areas ... the Bank’s development experience is not systematically catalogued or retained, and clients complain about the Bank’s slowness and standardized approach, while many potential partners have often been critics ... or perceived as competitors.
(World Bank 1997c, p. ii) In response to these shortcomings, four key elements were identified in the Strategic Compact: refueling current business activities, primarily by easing budget pressures to protect the level and quality of client services; refocusing the development agenda on issues of social and environmental sustainability, as well as on the changing roles of the private and public sectors; retooling the World Bank’s knowledge base so as to collect, synthesize, and disseminate best-practice knowledge and make it more accessible; and revamping institutional capabilities by realigning the institution’s information systems, reformulating financial management, investing more in staff training, and relocating functions, authority, and staff to the field. The World Bank is now putting into practice the ambitious agenda of the Strategic Compact, but it will take a few years to assess whether it succeeds in repositioning the World Bank in a vastly changed context for international development cooperation. It offered several new products in 1997, including lending instruments such as the Adaptable Program Loans and the Learning and Innovation Loans, together with measures to catalyze private investments in infrastructure (information about investment opportunities, creation of an Infrastructure Advisory Services Unit, cooperation with business associations, training and education). The World Bank has also expanded the range of guarantees it provides to subsovereign (provincial and municipal) governments and has begun to offer partial risk guarantees to lenders backing major investment projects and guarantees to support private-enclave projects, with both of these types of guarantee intended for poor countries eligible for IDA concessional loans (BWI 1997). In addition, the World Bank has been quite eager to improve its relations with civil-society organizations, particularly with NGOs that have often been the most severe critics of the institution. It has appointed NGO liaison officers in practically all its field offices, and according to its 1996 annual report, “the Bank is strongly committed to going beyond traditional cooperation with member governments to include participation in decisionmaking by NGOs, community groups, cooperatives, women’s organizations, the poor and the disadvantaged, as well as the private sector” (World Bank 1996a, p. 74). A new Development Grants Facility has been established to consolidate the administration of a variety of grants provided by the World Bank. At about $125 million a year, this new facility places the World Bank among the largest institutions making grants to developing countries. Besides the grant programs that have been in effect for quite a long time (for example, Consultative Group on International Agricultural Research, Research and Training in Tropical Diseases, Global Water Partnership (GWP), International Program for the Improvement of Educational Outcomes), it has initiated new grant programs during the early and mid-1990s, including the Post-Conflict Program, the Information for Development Program, the Institutional Development Fund, and a microfinance program (Alexander 1998).
Regional development banks
Practically all the regional development banks experienced significant changes during the 1990s. The IDB doubled its capital base and became a more important source of financial resources for Latin America than the World Bank, both in absolute and in net-transfer terms. The IDB underwent a lengthy, often acrimonious, and highly disruptive reorganization process during the first half of the 1990s. Moreover, scepticism regarding staff capacity to provide adjustment loans made the IDB Board of Directors request management to follow the lead of the World Bank in sector-adjustment lending during the late 1980s and early 1990s. The IDB has also entered into new areas, such as the provision of technical assistance and lending to improve the functioning of the judiciaries and of congresses in Latin American countries and has committed itself to doubling its lending for social development and, in particular, education. The AfDB experienced severe financial difficulties and undertook a major reorganization during the first half of the 1990s but is very far from challenging the World Bank’s leadership in this region. The AsDB encountered problems and controversy in the negotiations to increase its capital base, primarily because of differences between shareholders regarding the role it should play in the Asian region and differing views on issues such as lending to the public and private sectors, concessional lending to India and China, and the provision of loans to Viet Nam. With the potential addition of new members from Central Asia, with its role in defusing the East Asian financial crisis of 1997–98, and with a possible major capital increase, the number, complexity, and scope of AsDB operations may expand significantly in the coming years. After experiencing significant start-up difficulties and being mired in controversies, the ERDB is gradually becoming a more important player in the Eastern European countries and the former Soviet Union, and it doubled its capital base in early 1996. In addition, several subregional development banks have been playing a minor but important financing role in a few sectors in some countries (for example, the Islamic Development Bank, the European Investment Bank, the Central American Integration Bank, the Andean Finance Corporation). Institutional relationships between the World Bank and the regional development banks have been marked by cooperation, rivalry, and competition (Culpeper 1993; Kapur and Webb 1994; Rwegasira and Kifle 1994). To improve coordination and advance toward an appropriate division of labour between these institutions, a Task Force on Multilateral Development Banks was established in 1994 by the Development Committee of the World Bank and the IMF, with the mandate to undertake, for the first time, an assessment of the capabilities and coordination among the World Bank and the regional development banks. The Task Force report (Development Committee 1996) calls for intensified coordination at the country level, at that of the chief executives, and at that of the shareholders. It also recommended a set of shared goals: to mobilize international savings and concessional assistance for sustainable development, to ensure access of lower-income countries to special resources linked to policy reforms, to support the transition of formerly centrally administered economies to market systems, and to assist in the reconstruction of devastated economies and provide economic support for a lasting peace.
United Nations Development Programme
The United Nations system embarked in a laborious restructuring process in the early 1990s, and it is likely to continue to make organizational, financial, and operational changes in the transition to the 21st century. The Secretary-General’s report, Agenda for Development (United Nations 1994), outlined a new set of United Nations policies to reposition it in the international development arena and gave overall responsibility for coordinating all development-related activities to the Administrator of the UNDP. However, this agency faced resource constraints during the early 1990s, as its erstwhile major supporter, the United States, reduced its contributions to the core budget, and several other donors followed suit. As a result, the UNDP’s core budget has declined steadily for more than a decade, even though this was compensated for in large measure through donor contributions to the noncore budget and revenues earned from the provision of services to other international agencies and developing- and developed-country governments. A major strategic-planning exercise launched in 1993 by Gustav Speth, the newly appointed Administrator of the agency, sought to define new directions for the UNDP. It began with the premise that We are at a crossroads in Official Development Assistance (ODA). Three generalizations can be offered regarding ODA. First, it is needed now more than ever and must be expanded to meet increasing needs and opportunities. Second, it must be thoroughly reformed to learn from past mistakes and to escape fully the Cold War’s legacy. And third, ODA even if reformed will still not provide an adequate response to inequitable economic growth and social injustice. The crossroads of ODA is very much the crossroads of UNDP. Although we are at the end of an era of development experience ... . We have a UNDP that has begun to reposition itself to help meet the challenges of global transformation.
(Speth 1995, p. 5) One of the main problems with the UNDP was “its lack of clear mission and focus,” which was a consequence of being pulled “too many ways by too many forces,” as a result of which it tried to do too much, its resources were spread too thin, and its overstretched staff became less effective. Weak substantive capacity was exacerbated by carrying out too many “mailbox” or processing functions. There has been uneven leadership at headquarters and in the field. Moreover, UNDP’s coordinating assignment is not fully accepted within the U.N. [United Nations] system as a whole — nor yet fully realized by UNDP. All of this adds to the difficulty of measuring results and having a clear sense of what UNDP is accountable for.
(UNDP 1995a, p. 13) UNDP’s strategic framework outlined a series of programmatic and organizational changes to improve the delivery of technical and financial assistance (UNDP 1993, 1994a, 1995a, b). The strategic framework aimed at repositioning the agency in a new context for development cooperation. It emphasized the concept of partnership, which involves extensive consultations with other development-cooperation actors, such as national authorities, the World Bank, other United Nations agencies, and key donor partners. Forging new partnerships for development has also involved civil society as UNDP has moved toward strengthening its involvement with NGOs, the private sector, and civil-society organizations. It also articulated the need for a differentiation of development-cooperation schemes on a country-by-country basis, a long-standing practice of UNDP, an agency that takes pride in its field presence, its close relations with developing-country governments, and the fact that it has 85% of its staff in program countries. In a significant move to advance its strategic framework, in June 1995, the Executive Board of the UNDP modified its rigid 25-year-old scheme for allocating resources to individual countries through the Indicative Planning Figure, which had severely limited the capacity of managers to direct resources where they could be most effective. However, the highly political and uncertain context of the United Nations system and the recurrent financial upheavals of the agency make it very difficult to put into practice the measures advocated in the strategic framework. In addition, the World Bank — which has considerably larger and more stable financial resources than UNDP — is aggressively moving to strengthen its field presence everywhere, diversify the range of its services, and improve relations with governments, the private sector, and NGOs in the countries where it operates. In all likelihood, during the next few years, the UNDP will have to continue redefining its strategy in response to the changing circumstances, particularly to the challenge posed by the expanding presence of the multilateral development banks at field level. Similar considerations apply to the specialized United Nations agencies, such as the Food and Agriculture Organization, the World Health Organization, and the United Nations Industrial Development Organization, which are all facing stiff competition from the World Bank and the regional development banks. UNICEF began a restructuring process in the mid-1980s, focusing its mission more clearly and embarking on a public-outreach campaign, and this process has spared the agency many of the problems experienced by other United Nations bodies.
European Union
After a lengthy review of priorities, practice, and experience in late 1995, the member states of the European Union and 70 developing countries comprising the African, Caribbean and Pacific (ACP) group signed the second financial protocol of the fourth Lomé Convention, which for two decades has been the main mechanism for development cooperation between European countries and their former colonies and territories. These difficult negotiations reflected a greatly changed global situation, incompatibilities between the Lomé Convention and the WTO, major political shifts in Europe and many ACP countries, and the changing concerns of donors regarding development cooperation. In June 1996, after the signing of the second financial protocol (for the last 5 years of the 20th century), the European Center for Development and Policy Management (ECDPM) convened a major international conference on the current situation and future prospects of the Lomé Convention. Considering the member countries’ variety of the economic, social, humanitarian, political, commercial, and cultural interests, it is not surprising it was difficult to find a common ground: it became clear in the meeting that common economic interests have declined since the 1970s. The common interests between the EU [European Union] and members of the ACP are now less clear than they were 20 years ago when the agreements were first signed. And, there are some who suggest that the shared interests of the group of ACP countries, beyond the Lomé connection to Europe, are also rather tenuous. ... The tone of the debates on the Lomé Convention was summarized by one observer as: “past imperfect, present tense, future uncertain.”
(ECDPM 1996) Nevertheless, most ACP participants at this event asserted that common interests do exist and should be the base for a new understanding between the ACP and the European Union. These common interests focus primarily on moral and human-security concerns, which from a European perspective may seem too weak to provide a basis for a new Lomé Convention. According to ECDPM, the 1998 talks on the Lomé Convention took place in a context of decreasing interest in ACP–European Union cooperation. This situation was markedly different from the optimistic mood of good will in the mid-1970s, when this development-cooperation scheme was launched. In the 1990s, development aid budgets were reduced; the European Union’s geographical interests were distinctly unfavorable to ACP countries; strong pressure was exerted on Lomé-created commercial preferences; and mutual ties were increasingly eroded between Europe and ACP countries (ECDPM 1996). Therefore, if the special ties between Europe and the developing countries in its former colonial sphere of influence are to be maintained — and the desirability of this may be subject to question, in view of an overcrowded European Union agenda, which includes enlargement, reform of its agricultural policy, launching of the Euro, among other items — it will be necessary to develop a new rationale for maintaining the privileged relations between Europe and the ACP countries. In particular, it will be indispensable to harmonize the preferential trade provisions of the Lomé Convention with the agreements reached by the WTO, which rule out such trade preferences. Despite these changes, an interesting development in recent European Union–ACP talks is the degree to which nonstate actors have pushed for greater space in future European Union–ACP cooperation. The previous Lomé IV agreement had set the stage for “decentralized cooperation,” a pluralist approach to development cooperation that is yet to be fully operationalized. Decentralized cooperation involves a participatory, bottom-up approach to development, in which collaboration is promoted between diverse actors. This approach ultimately seeks the decentralization of governments and donor agencies. Although decentralized cooperation has had a mixed track record, there may be a promising future for it as traditional development-cooperation approaches are superseded. Among the trends identified as push factors for the gradual entry of decentralized cooperation into the mainstream are the search for public-private synergies, the increasingly significant dynamic of development at the local level, changes under way in donor agencies, and the decentralization processes that many ACP governments are undergoing (Bossuy 1998). In addition, as advanced in its Agenda 2000 report released in July 1997, the European Union is in the process of reforming its Common Agricultural Policy (CAP). Commitments to decrease subsidies and special trade preferences under the GATT Uruguay Round; budget constraints, which highlight the large amounts spent by the European Union in agricultural support; and the prospects for the enlargement of the European Union to include Eastern European countries that have large agricultural sectors all require CAP reforms that are likely to have important implications for developing nations. The negative impact of liberalizing measures will be felt most strongly among the countries benefiting from the preferences established by the Lomé Convention, even though developing countries as a whole are likely to benefit from the changes to be introduced in CAP (IDS 1998).
The DAC and bilateral agencies
As the umbrella organization for bilateral development aid agencies, the OECD’s DAC has embarked on several exercises during the 1990s to review and adapt bilateral cooperation to the imperatives of a period of global change. In a major report on the subject, it stated that “the time is ripe to reflect on the lessons of development cooperation over the past 50 years and put forward strategies for the first part of the next century” (DAC 1996, p. 12). This report followed a ministerial pronouncement issued in May 1995, Development Partnerships in the New Global Context (DAC 1995b), which stated several strategic orientations to guide the actions of bilateral aid agencies. Chief among these are the ideas that development cooperation is a key investment in the future, that combatting poverty is the central challenge of development assistance, that cooperation should be aimed at strengthening capacities in developing countries, and that additional resources are required to revitalize development cooperation. The DAC has sought to define long-term goals for development cooperation in the transition to the 21st century, focusing on improving the quality of life for all through development that is sustainable along the economic, social, and environmental dimensions. Some of these long-term goals, most of which have 2015 as a time horizon, are reducing the proportion of people living in extreme poverty in developing countries by at least one-half, achieving universal primary education in all countries, eliminating gender disparity in primary and secondary education, reducing the death rate for infants and children under the age of 5 by two-thirds, making primary health care and reproductive health services available to all individuals of appropriate ages, and ensuring that current trends in the loss of environmental resources are reverted (DAC 1996). The approach advocated by the DAC is to view development cooperation as an essential complementary factor in achieving development, and the DAC argued that development efforts have only been successful in countries where people and institutions have made sustained efforts to help themselves (DAC 1996). In addition, as pointed out in the preceding section, the OECD’s DAC has given high priority to the problems arising from regional and ethnically motivated violent conflicts. Based on the premise that “helping strengthen the capacity of a society to manage conflict without violence must be seen as a foundation for sustainable development,” DAC has drawn detailed policy guidelines on how to deal with these situations and incorporate conflict prevention into the framework of development assistance (DAC 1997a). To indicate the extent to which some countries are reacting to the changing context for development cooperation, we shall mention the cases of Japan, the United Kingdom, and the United States.13 The United States appears to be ready for an overhaul of its aid policies and practices, although it is rather unlikely to recover the preeminent role it played during the first three decades of the development-cooperation experiment. Judging from public pronouncements and declarations by high-level government officials, American foreign-development assistance is likely to experience significant changes in the next few years, but increasing the resources allocated to development cooperation does not appear to be one of these changes. For example, in the wake of the East Asian financial crisis, legislation pending approval in the US Congress in early 1998 proposed the establishment of a US Advisory Commission, comprised of at least five former US Secretaries of Treasury, to report to Congress on the future role and responsibilities of the IMF. This commission would also report on the advisability of merging the IMF, the World Bank, and the WTO, particularly in view of the cross-conditionality practices prevailing in these three institutions (BWI 1998). Although it is most unlikely that such a merger will be formally proposed by the US government and taken seriously in international circles, when added to the UN bashing mood prevailing in Congress, the appointment of such an Advisory Commission does not bode well for increased US support for international development-cooperation institutions. A new US policy on Africa unveiled in 1997, several months before President Clinton’s 1998 visit to the region, may signal a change in emphasis from aid to trade as a means to support African development efforts. The initiative includes lowering trade barriers to promote exports from the region, providing debt relief for highly indebted poor countries that implement adjustment programs and maintain economic stability, and providing support for improving infrastructure in countries south of the Sahara. The idea is to transform relations between the United States and African countries away from what is perceived as a welfare-style, donor-recipient model to a more mature partnership based on trade and mutual interests (The Washington Post 1997). USAID, a major bilateral player on the development-cooperation scene, is also set to change the way it operates. In early 1998, it made public its new Strategic Plan, which states clearly the philosophy of American aid in the following terms: Promoting sustainable development among developing and transitional countries contributes to U.S. national interests and is a necessary and critical component of America’s role as a world leader. It helps reduce the threat of crisis and create the conditions for economic growth, the expansion of democracy and social justice, and a protected environment. Under these conditions, citizens in developing and transitional countries can focus on their own social and economic progress, which creates demand for U.S. goods and services and expands cooperative relationships between the United States and assisted countries.
(USAID 1998, p. 1) In addition to reaffirming USAID’s mission to contribute to the United States’ national interests, the Strategic Plan views sustainable development as including not only implementing “open, market-oriented economic policies and institutions” but also strengthening democracy and good governance, building human capacity through education and training, stabilizing the world population, protecting human health, and protecting the world’s environment for long-term sustainability. Most of the document presenting USAID’s Strategic Plan is devoted to a detailed description of goals, objectives, and performance measures, which are all particularly worthy of notice, primarily because they provide an indication of the way the administration of this agency thinks about the process of development. Emphasis is placed on quantitative indicators of performance, which are to be reviewed annually and to provide the basis for resource allocation. However, many of the indicators — all linked to performance targets and goals, USAID objectives, and US national interests — have little to do with decisions or actions under the direct control of this agency’s field missions or central operating units. For example, according to the plan, the strategic goal to encourage “broad-based economic growth and agricultural development” is supposed to be evaluated by indicators such as average annual growth rate of GNP per capita (in constant prices), the difference between the average annual growth rate in agriculture and that in population, the percentage of the population living below the poverty line, and the annual average growth rates of direct foreign investment and trade in goods and services. More tellingly, advances toward the strategic goal of strengthening democracy and good governance are to be evaluated using indicators such as the number of countries classified by Freedom House as free, partly free, and not free and the Freedom House scores for political rights and civil liberties. However, in addition to the obvious imperfections of these indicators as means of measuring progress toward the stated strategic goals, it is also clear that US assistance plays a very minor role in the development outcomes reflected in these indicators. It appears that USAID’s Strategic Plan makes the mistake of considering aid a direct producer of development outcomes, rather than viewing it as an enabling or facilitating condition, whose role is to help produce the development outcomes. The use of such indicators to evaluate USAID performance and guide resource allocations on a yearly basis has generated a great deal of bureaucratic creativity, as well as considerable stress and administrative gridlock, as managers struggle to produce indicators that reflect short-term progress in specific projects, even though these usually refer to long-term development processes. Japan became the largest provider of ODA during the first half of the 1990s. By 1995, total Japanese ODA reached nearly $14.5 billion, topping second-place France and third-placed Germany be nearly 70 and 90%, respectively. However, in 1996, Japanese aid was cut by 34.9% in current US dollars (24.7% in constant US dollars), and in June 1997 the Japanese government announced that the ODA budget would be reduced for each fiscal year of a 3-year intensive fiscal reform. Added to the depreciation of the yen, the cuts in development assistance would be even larger in US-dollar terms. Moreover, as demands derived from the East Asian financial crisis of 1997–98 absorb a significant proportion of Japanese aid funds, it is likely that other assistance programs will suffer major budget cuts (ICVA 1996; DAC 1997a). Together with the long-drawn recession that Japan is experiencing and the internal political difficulties it faces, these developments in ODA make it rather unlikely that Japan will assume a leadership position in the field of international finance and development cooperation as we approach the 21st century. Efforts to improve the quality of aid, strengthen its capacity for policy dialogues, and provide intellectual guidance for developing countries will, in all probability, be shelved, at least for a few years. Other countries are also set to revamp their development-cooperation programs. For example, shortly after assuming power, the labour government in the United Kingdom created the Department for International Development, in May 1997, and by November 1997 the United Kingdom had issued its first White Paper on development assistance in more than two decades. Although British aid had been declining for a number of years, the White Paper, which focuses on the elimination of poverty as “the single greatest challenge which the world faces,” states that the government would start to reverse the decline in United Kingdom development assistance, and reaffirms the country’s commitment to the United Nations target of 0.7 of GNP for ODA (DID 1997). Among bilateral development-cooperation agencies, Canada’s International Development Research Centre (IDRC) has always occupied a special place. As the first and, for a rather long time, the only agency with the mission to support the development of scientific and technological capabilities in developing countries, since the early 1970s it evolved a style of operation — focused on research, emphasizing capacity-building, treating developing-country institutions as full partners — that anticipated many of the practices that have become common among other development-cooperation organizations. It also enjoyed widespread support abroad and at home, and in the late 1980s it appeared poised to continue on expanding at a steady pace. However, IDRC did not escape the budgetary difficulties that bedeviled all development-assistance agencies during the 1990s: by 1995–96, the Government of Canada grant to IDRC was nearly 40% below the levels projected 6 years earlier. This required major organizational, programmatic, and financial adjustments. As a response, in 1991, IDRC launched a new strategic plan and embarked in a major reorganization, well ahead of other bilateral agencies and multilateral institutions. The 1991 plan reaffirmed IDRC’s mission to empower through knowledge, as “predicated on the explicit relationship between knowledge and development, and in the conviction that empowerment through knowledge is the key element in the development of nations, peoples, communities, and individuals.” Because research provides the means to acquire appropriate knowledge, the strategic plan stated that “IDRC is dedicated to creating, maintaining, and enhancing research capacity in developing regions, in response to needs that are determined by the people of those regions in the interest of equity and social justice” (IDRC 1991, p. 7). A key element identified in the IDRC strategy is the role this institution can play as a “knowledge broker” (IDRC 1991, p. 25), to help developing countries acquire the knowledge they need to fully use their resources and to “meet their needs without damaging their neighbors’ or their children’s prospects of doing the same” (IDRC 1991, p. 33). The strategic-planning document examines the changing context for development, summarizes the comparative advantage of IDRC, establishes directions for future work, and provides guiding principles for the operation of the institution. During most of the early 1990s, IDRC has been undergoing a rather difficult transformation process, which culminated in 1996–97 with the approval of a new program framework and with a Canadian government grant that will, in all likelihood, not be subject to further cuts and may even grow gradually.
Concluding remarks
Development finance and international cooperation have undergone fundamental changes during the last decade, and the 50-year old institutional arrangements associated with the development-cooperation experiment are struggling to adapt to the new circumstances. It is interesting to compare the situations prevailing after the end of World War II, when development cooperation was launched, and after the end of the Cold War, when this experiment appears to be coming to an end — at least as we knew it. Although the economic standing of the United States at present does not even approach the dominant role it played in the aftermath of World War II, in both cases it emerged as the dominant power with the capacity to exercise global leadership in many fields, including development cooperation. As pointed out in Chapter 2, the Marshall Plan and the Point IV Program were the most visible expressions of the United States’ enlightened leadership and commitment to international development 50 years ago. However, the general mood prevailing at present in the United States, the richest country in the world, could not be more different with regard to development cooperation. In addition to slipping to fourth place in terms of the total amount ODA, by the mid-1990s, the United States reduced contributions to multilateral institutions, failed to honour commitments, and placed unacceptable conditions on the provision of the amounts delivered. Despite enjoying the longest period of sustained economic growth in half a century, reaching stock-market levels of activity unimaginable a decade ago and achieving its first budget surplus in three decades, in 1997 the United States did not seem ready or willing to lead a renewal of international cooperation for development. Japan appeared to be poised to make a bid for international leadership in this field during the early 1990s. However, the protracted economic crisis it has suffered for nearly a decade, the aftereffects of the East Asian financial crisis of 1997–98, and the inability of its political leaders to chart a clear course for economic recovery have prompted a precipitous drop in the level of Japanese ODA and signaled a hasty retreat from the possibility of its exercising leadership in development cooperation. The European Union is looking inward to resolve its own problems, faces difficult negotiations with the ACP countries, and does not look ready to lead an effort to revitalize development cooperation. Even Sweden, once a stalwart supporter of development assistance, cut its aid budget in the mid-1990s and retreated from its 20-year commitment to raise its ODA to 1% of GNP, adopting instead the 0.7% target agreed to at the United Nations General Assembly in 1970 (ICVA 1996). Perhaps the most clear indication of this changed mood is the approach taken by rich countries to the highly indebted poor countries. For example, Mozambique, one of the poorest countries in the world, which has just emerged from a decade and a half of violent conflict, is trying to stabilize its economy and to begin a laborious reconstruction process. However, its efforts are stymied by the crushing weight of a debt service that eats up nearly half of the government’s revenues. Despite being identified by the World Bank as one of the first countries that might benefit from debt reduction within the framework of the HIPC initiative, Mozambique’s negotiations with Paris Club creditors nearly collapsed in January 1998, primarily because the representatives of creditor governments could not agree on how to share the burden of the $350 million needed to fully finance the debt-reduction plan. This took place at the same time as multilateral and bilateral agencies managed to rapidly raise more than $120 billion to help the East Asian economies (Gordon and Gwin 1998). |
12 The 5Oth anniversary of the Bretton Woods institutions and that of the United Nations (celebrated in 1994 and 1995, respectively) led to a flurry of proposals and suggestions for major reforms in the system of international institutions. See, among others, Urquhart and Childers (1990), Paarlberg and Lipton (1991), Adams (1994), Griesgraber (1994), International Institute for Labour Studies (IILS 1994), Kennen (1994), Patel (1994), Commission on Global Governance (CGG 1995), Griesgraber and Gunter (1995), and Stewart (1995). See also the various reports produced as part of the project Rethinking Bretton Woods, carried out at the Center for Concern in Washington, DC, under the coordination of JoMarie Griesgraber. Return
13 For a review of recent changes in bilateral assistance, see DAC (1997b) and International Council of Volunteer Agencies (ICVA 1996). Return |
Documento(s) 6 de 11
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