Aid effectiveness debate in Busan

- www.ft.lk

By Saman Kelegama
New deal from Busan?
The 4th High Level Forum (HLF) on Aid Effectiveness in Busan which took place during 29 November to 1 December 2011 came out with a New Deal for Engagement of Fragile States – a somewhat novel document of aid architecture that provides fragile states a stronger role in their destiny.

Those who argue that there was a breakthrough in Busan called the New Deal revolutionary and that it will transform the relationship between the aid donor and recipient countries. They argued that the New Deal places for the first time, the fragile states at the helm of their development goals.
It is argued that the New Deal articulates the vision and principles of the Millennium Declaration and the Monrovia Roadmap, a 2011 document that outlines five peace-building and state-building objectives as well as several high-level commitments to include increasing citizens’ access to justice, managing revenues, and building transparency. It is further argued that the New Deal acknowledges that fragile states require special assistance in developing strong government institutions.
The Busan outcome also focused on new development challenges and this is highlighted in the Busan text under the theme: “From Effective Aid to Cooperation for Effective Development”, where there are four sub-sections, viz., (i) South-South and triangular cooperation for sustainable development, (ii) private sector and development, (iii) combating corruption and illicit flows, and (iv) climate change finance (subsections 28 to 34).
In order to assess whether there was a breakthrough in Busan, it is essential to examine the key objectives of the 4th HLF. They were:
1.To look at experiences in implementing the Paris Declaration and Accra Agenda for Action to highlight good practices, identify lessons that could be learned and highlight where more work was needed.
2.To assess new development challenges – evolving landscape of actors and partnerships – to enhance aid’s contribution to broad and inclusive development goals.
3.To chart the way forward in the form of a new agenda for development and aid.
In this context, it is important to comprehend the evolution of the Paris Declaration and the Accra Agenda of Action in the aid effectiveness debate, which is directly related to the first objective of Busan.

Aid effectiveness debate
The efficacy of foreign aid as a developmental tool over the last few decades has been mixed. The literature suggests several factors that influence the efficacy of aid, including the quality of domestic policies, types of conditionalities, quality of domestic institutions, and rent seeking. Whilst some studies have found evidence for enhancing aid under certain conditions such as good economic policies, others have found evidence to the contrary. A recent survey shows that on average, foreign aid is effective at spurring economic growth in recipient countries (McGillivary et al., 2006). Overall, the message that emerges for policy makers is that aid is necessary, particularly in the context of achieving the Millennium Development Goals (MDGs), but that there is a need for reform in the practice of aid delivery.
Accordingly, since the MDGs were announced in 2000, there have been several multilateral initiatives that have focused on the issue of both increasing the magnitude and quality of aid. In 2002, global leaders met in Monterrey, Mexico to discuss the modalities of enhancing finance for development. To quote from the Monterrey Consensus;
“We recognise that a substantial increase in ODA (Overseas Development Assistance) and other resources will be required if developing countries are to achieve the internationally agreed development goals and objectives, including those contained in the Millennium Declaration. To build support for ODA, we will cooperate to further improve policies and development strategies, both nationally and internationally, to enhance aid effectiveness.”
The Monterrey meeting was followed by the 1st HLF in Rome in 2003 where heads of donor agencies, both multilateral and bilateral, met with donor and partner countries to discuss measures to enhance harmonisation of aid, particularly by working within partner country systems. The Rome HLF was followed up by the 2nd HLF in Paris in 2005 which culminated in the Paris Declaration (PD) on Aid Effectiveness. The PD was signed by 91 countries, 26 international organisations (mainly donor agencies), and 14 civil society organisations.
The formulation of the Paris Declaration of Aid Effectiveness in 2005 grew out of the need to understand why aid was not producing the expected results, and to step up efforts to meet the ambitious targets set by the MDGs. The PD offers a blueprint for effective aid that maximises impact from investments, synchronises donor efforts and integrates the full spectrum of development challenges. Today, it is the rallying point for international consensus on aid effectiveness and many countries adhere to it.
The PD is founded on five core principles, born out of decades of experience on what works for development – and what doesn’t. These principles have gained support across the development community, changing aid practices for the better. It is now the norm for aid recipients to forge their own national development strategies with their parliament and electorates (ownership); for donors to support these strategies (alignment) and work to streamline their efforts in-country (harmonisation); for development policies to be directed to achieving clear goals and the progress towards these goals to be monitored (managing for development results); and for donors and recipients to be jointly responsible for achieving these goals (mutual accountability). These are the five tenets of donor and partner commitments.
In 2008, to step up implementation of the PD and build countries’ capacity to manage their own future, an unprecedented alliance of developing countries, DAC donors, civil society organisations, emerging economies, UN and multilateral institutions, and global funds agreed on the Accra Agenda for Action (AAA) at the 3rd HLF in Accra.
The AAA proposes improvement in three main areas: (a) Ownership – developing countries to participate in policy formulation, take the lead in aid coordination, and have aid delivered through their own country systems; (b) Inclusive Partnerships – all partners – DAC donors and developing countries, as well as other donors, foundations and civil society – to participate as full partners; and (c) Delivering results: aid is squarely focused on producing real and measurable impact on people’s lives.
In other words, the key principles agreed upon in Accra relate to the following issues: (i) enhancing predictability of aid, (ii) ownership (partner countries engaging more with parliaments and civil society), (iii) use of country systems in aid delivery, (iv) untying aid, (v) country led division of labour among donors to avoid aid fragmentation, (vi) enhanced use of PD principles including South-South partnerships, and (vii) increased transparency in reviewing aid.
In 2010, three new agreements grounded on the PD to improve the impact of development cooperation came into operation. The Bogota Statement commits partners engaging in South-South cooperation to deepen the exchange of knowledge and mutual learning. The Dili Declaration proposes to counter conflict and fragility through country-led processes in peace-building and state-building, while the Istanbul principles were set to provide specific guidance for the development work and practice of civil society organisations.
A recent study by the Brookings Institution of the PD and development outcomes shows that ownership, alignment, predictability and capacity development are key development outcomes. In particular, countries must show strong leadership over their development programmes and be able to count on long-term support from their major partners. A well thought out exit strategy from aid also emerges as an important feature of successful development (Kharas, et al., 2011).
The PD however has been criticised for not been able to address development goals of human rights, social justice, and equity. In this respect, the Reality of Aid (2008) argues that “PD springs from a technocratic depoliticised vision of development, with no accountability for intended beneficiaries. The power in aid relationships is still heavily weighted on the side of donors, and the Declaration does nothing to check this imbalance. The aid effectiveness being promoted remains essentially donor-centred.”

Back to Busan
Critics while acknowledging the positive outcome from Busan in regard to objectives (2) and (3), argue that the Busan outcome does little to improve upon the aid effectiveness on developing countries [objective (1)], as discussed in the past High Level Forums, in particular in Paris and Accra.
The report Aid Effectiveness 2005-2010: Progress in Implementing the Paris Declaration draws on the results of the 2011 Survey on Monitoring the PD, building on similar surveys undertaken in 2006 and 2008. A total of 78 countries volunteered to participate in the final round of survey which took place in 2010. The results are sobering – only one out of 13 targets established in 2010 – coordinated technical cooperation (a measure of the extent to which donors coordinate their efforts to support countries’ capacity development objectives) – has been met, albeit by a narrow margin. Overall, donors did not make progress in further untying aid across countries participating in this survey. Donors were using developing country systems more than in 2005, but not to the extent agreed in Paris.
It is also shown by critics that aid is becoming increasingly fragmented, despite some initiatives to address this challenge. Emerging economies like China, Russia, and India and institutions like the Bill Gates Foundation have gained importance in the aid landscape. Thus, the proliferation of aid channels, fragmentation and earmarking of ODA is on the increase. This is particularly costly for fragile states and low income countries with little capacity to manage multiple actors. The AAA called for donors to “think twice” before creating new funding mechanisms but this has proved largely ineffective. Today, there is more urgency to consolidate funding mechanisms and make better use of multilateral channels to mitigate the impact of the fragmented aid systems.
Furthermore, critics pinpoint that most donors still not have been able to meet the long-standing pledge to provide 0.7 per cent of GDP to ODA, although ODA has increased from US$ 106 b in 2005 to US$ 121 b by 2008. This area hardly received attention in Busan, perhaps due to the slow economic growth that the donor countries are experiencing at present.
These issues are highlighted by the critics as vital and that they should have been addressed before embarking on a New Deal in Busan. Overall, it is clear that the aid effectiveness debate has a long way to go, and that Busan has only laid some building blocks. Just like we have the three ‘A’s from Accra, we now have three ‘B’s from Busan, i.e., the Busan Building Blocks (BBB).
The BBB together with AAA can now gradually shape the international aid architecture that is required to make aid more effective and meaningful for developing countries in the coming years.
(Courtesy: Trade Insight, Vol.8, No. 1, 2012; South Asia Watch on Trade, Economics, and Environment: www.sawtee.org. The writer is the Executive Director of the Institute of Policy Studies of Sri Lanka).


References:
Kharas, H., K. Makino, and W. Jung (2011), Catalyzing Development: A New Vision for Aid, Brooking Press, USA.
McGillivary, M., M.S. Feeny, N. Hermes, and R. Lensink (2006), ‘Controversies Over the Impact of Development Aid: It Works; It Doesn’t: It Can, But It Depends…’ Journal of International Development, 18.
Reality of Aid (2008), The Reality of Aid: An Independent Review of Poverty Reduction and Development Assistance, IBON International, Philippines (www.realityofaid.org )

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