Economy
Time for action on aid
Published 28 November 2008
To increase economic parity worldwide, developed countries must live up to their commitments to streamline aid and remove barriers to trade writes the UN Millennium Campaign founder
A woman harvests pearl millet in Namibia.
While the media confront us daily with yet more alarming news from financial markets, few people are aware of the international meeting taking place at the end of this month in Doha. Not the moribund Doha trade Round but on Financing for Development — another likely victim of the present crisis, with grave repercussions on global poverty and the achievement of the Millennium Development Goals.
This Doha conference will assess progress on the Consensus agreed at the Monterrey conference in 2002, which, for the first time, contained commitments by both developed and developing countries on all aspects of funding for development: developing countries’ own resources, trade, aid and investment. Monterrey was unique because it was attended not just by development ministers like myself, but by heads of state, as well as their finance and trade ministers, the World Bank, the WTO and the UN.
It was also the first time developing countries frankly acknowledged their own primary responsibility to improve their policies and institutions, instead of blaming all of their woes on evil outsiders. Since Monterrey, many developing countries, including those in Africa, have made great strides, partly because of increased aid and debt relief, but primarily by putting their own homes in order. The world was on track to achieve at least the first Millennium Goal of halving the number of extreme poor -- and was coming close in several others. It is good news that the recent G-20 meeting in Washington reaffirmed the Monterrey principles and the importance of the Millennium Development Goals.
However, without meaningful action now, the present crisis might wipe out that hard- fought progress. The crisis will dampen investment and reduce poor countries’ access to credit and demand for their exports. And yes, some rich countries have already indicated that the crisis will have consequences for their aid budgets. The result will be much slower, if any, growth. Africa might be robbed of its one chance in a generation to make real progress. And the Millennium Development Goals will end up on the boulevard of broken dreams.
While I hope that Doha will see rich countries recommit to increasing their aid budgets, not too much energy should be wasted on the smokescreens of “innovative financing” mechanisms, which just substitute budget-funded aid, or lack political feasibility. Instead, rich countries should focus on taking immediate concrete action in two areas, which do not need additional taxpayer money: aid quality and trade.
The OECD says that less than half of all bilateral aid can be used by recipients to address their needs. Donors should raise the effectiveness of their aid by first reducing the amount of “aid” that is actually spent in donor countries themselves; and second, by reducing the number of sectors and countries each donor tries to support through bilateral aid. Recipients should not have to deal with dozens of donors, half of them European, each with their own demands and procedures, imposing huge transaction costs on weak developing country institutions. The EU committed to some division of labour among their members two years ago, but has failed to act so far. Each European donor should now define their comparative advantage, both in countries and sectors, and radically reduce the number of those in which they are active bilaterally. The European Commission or other donors’ programs could be used to channel aid, particularly by these European donors who lack the capacity to deliver bilateral aid.
The second area is trade, which according to the Monterrey Consensus “in many cases is the single most important external source of development financing.” However, the results of the so-called “Development Round,” at the time it stalled, did not justify the promised “Development” label. Because of today’s financial crisis, global trade might contract for the first time in decades. Demand for poor countries’ exports will decline, while trade credit dries up, devastating poor producers’ livelihoods. But the “Doha Development Agenda” is apparently not on the agenda for Doha.
The recent commitment of the G-20 to a one-year moratorium on protectionist measures and to reviving the WTO negotiations is good, but not enough. Action is needed now. First, as rich countries review their public spending for things to cut, they should start by eliminating their wasteful agricultural policies that only help rich farmers in rich countries at the expense of poor people everywhere. Second, they must eliminate all remaining limitations to market access for the poorest and most vulnerable economies. These countries make up less than one per cent of the world economy, but are home to hundreds of millions of the world’s poor. Rich countries have pledged to provide totally free market access time and time again, but have maintained restrictions which make a mockery of their commitments.
On these issues of aid and trade, the world does not need more international conferences, where governments once again make speeches and pledges. Governments just need to live up to commitments they already made – over and over again.
Eveline Herfkens is the Founder of the United Nations Millennium Campaign and as a former Development Minister of the Netherlands co-chaired the Monterrey Ministerial Round Table on Coherence.
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