The Paris Declaration and aid effectiveness

26 June 2008 by Yash Tandon


Yash Tandon (2008-06-10)
http://www.pambazuka.org/en/category/features/48634
The Third High Level Forum on Aid Effectiveness will be held this September in Accra. But is aid effectiveness a mirage? Yash Tandon dissects the Paris Declaration in relation to aid effectiveness and reaches the conclusion that “under the pretext of making aid more effective, the aid effectiveness project is a form of collective colonialism by Northern donors of those Southern countries that, through weakness, vulnerability or psychological dependency, allow themselves to be subjected to it at the Accra conference in September.” But all is not lost and he also offers a way out.

A HISTORICAL AND CONTEXUAL NOTE

The Paris Declaration and the debate on aid effectiveness must first be placed in its proper conceptual and historical context. The origins of the debate lie in the concept of ‘failed states’ that in the 1990s became a common explanation for ‘crisis’ in large parts of the South. Theorists, largely in the US and Europe, argued that failed states were at the root of global instability and terrorism. They had lost their legitimacy and credibility, giving the North the right to intervene in order to reshape them as democratic states that would no longer pose a threat to the rest of the civilised world.

Robert Cooper, for example, described a zone of the ‘pre-modern world, the pre-state’, which was in a condition of ‘post-imperial chaos’: ‘The existence of such a zone of chaos is nothing new, but previously such areas, precisely because of their chaos, were isolated from the rest of the world. Not so today… If they become too dangerous for the established states to tolerate, it is possible to imagine a defensive imperialism. If non-state actors, notably drug, crime or terrorist syndicates take to using non-state (that is pre-modern) bases for attacks on the more orderly parts of the world, then the organised states may eventually have to respond’ [1].

Cooper, an English version of the American neo-Conservatives, might have been ignored had not some of his ideas been given a boost a year later by Martin Wolf, a respected columnist for the Financial Times. In an article entitled ‘The need for a new imperialism’ [2], Wolf argued that Afghanistan was but an extreme example of a ‘failed state’. There were others, which not only posed a threat to the rest of the world but reduced the lives of their own people. ‘If a failed state is to be rescued,’ Wolf wrote, ‘the essential parts of honest government – above all the coercive apparatus – must be provided from outside…. To tackle the challenge of the failed state, what is needed is not pious aspirations but an honest and organised coercive force.’ In his view this entailed ‘a transformation in our approach to national sovereignty – the building block of today’s world.’ The legal doctrine of sovereignty must not impede the reordering of the South, by force of arms if necessary, even pre-emptively.

In essence, underpinning Bush and Blair’s intervention in Afghanistan and Iraq was the concept of failed states and the right (indeed obligation) of the North to intervene. This was ‘hard power’ at work. Complementary expressions of ‘soft power’ included Blair’s Commission for Africa and Bush’s Millennium Challenge Account. At the World Economic Forum in January 2005 Blair called for ‘a big, big push forward’ to end poverty. The G8 G8 Group composed of the most powerful countries of the planet: Canada, France, Germany, Italy, Japan, the UK and the USA, with Russia a full member since June 2002. Their heads of state meet annually, usually in June or July. meeting in July that year decided to double annual foreign aid to Africa and forgive African debt. In September the United Nations took up the theme: Jeffrey Sachs toured the world spreading the message that Africa could be saved through increased aid. The year ended with Bono being named Time magazine’s person of the year for his efforts to save Africa. Aid, along with other instruments of intervention such as human rights, had become a means to democratise the South and make it safe for the rest of the world.

Many in the South condemned the idea of failed states as a Northern pretext for intervention [3]. In the North, too, some were alarmed at this new-found justification for imperial or neo-imperial intervention in their name. Others were sceptical about Bush and Blair’s grandiose plans to ‘save Africa’. As a rejoinder to the idea that accelerated aid would (or could) make Africa’s poverty history, William Easterly, formerly of the World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

, argued that top-down, donor-driven aid does not work [4], and that aid can only play a supportive role to essentially domestic efforts. Stephen Browne emphasised aid’s inadequate market signals and the way in which donor domination distorts supply and demand [5]. Roger Riddell showed how short-term political interests distort aid [6], and argued that the aid industry must change radically to become the effective force for good that it is often claimed to be.

To summarise, then, we need to recognise that we are on very controversial and politically sensitive terrain when we talk about aid. Perhaps Bono and Sachs are honest advocates of aid, believing that the rich have a responsibility to help the poor. They do not ask if the rich had anything to do with creating poverty in the first place, but their good faith is best not questioned; they are artists and academics, not politicians, spreading the good word about humanity and humanitarianism. Bush and Blair, however, are in another camp altogether. They are in the category of people that Roger Riddell argues distort the purpose of aid because they have a political agenda, whether hidden or explicit. Their political track record suggests that they share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. Robert Cooper and Martin Wolf’s belief in defensive imperialism. Like their 19th century ancestors Bush and Blair are driven by a kind of missionary zeal to civilise the South and reorder it, to make it safe for democracy and ‘more like us’. Both soft and hard power are needed. Aid, from this perspective, becomes another weapon in their arsenal to discipline chaotic parts of the world. It follows that it would be irresponsible to give aid without conditions.

MORE RECENT REASONS FOR THE OECD OECD
Organisation for Economic Co-operation and Development
OECD: the Organisation for Economic Co-operation and Development, created in 1960. It includes the major industrialized countries and has 34 members as of January 2016.

http://www.oecd.org/about/membersandpartners/
’S AID EFFECTIVENESS INITIATIVE

More recently, aid effectiveness has been driven by three additional factors. First, the need to simplify and rationalise the complex system of aid administration and reduce transaction costs [7]. Second, demands from citizens of donor countries for greater discipline and accountability in the administration of aid by their governments. And third, a sudden awareness of the serious democratic and legitimacy deficit in the present aid architecture, dominated as it is by donor countries of the Organisation for Economic Co-operation and Development (OECD), the World Bank and regional development banks.

The OECD took the lead to reform the aid architecture. In 2003, at an intergovernmental High Level Forum (HLF) in Rome convened by the OECD’s Development Cooperation Directorate, Northern donors discussed how to make aid more effective. In March 2005, at the second High Level Forum, the OECD adopted the so-called Paris Declaration, which aims to take ‘far-reaching and monitorable actions to reform the ways we deliver and manage aid’. By mid-December 2007, 115 countries had endorsed it. At the third HLF in Accra in September 2008 the OECD and other signatories will agree a text on the methods and modalities of making aid more effective. Meanwhile OECD countries are already implementing the Paris Declaration in conjunction with, ironically, the World Bank.

On its website the OECD’s Development Assistance Committee (DAC) gives three reasons why the Paris Declaration will improve aid effectiveness. First, it goes beyond a statement of general principles; it lays down a ‘practical, action-orientated roadmap to improve the quality of aid and its impact on development’. Second, it sets out 12 indicators for monitoring and ‘encouraging progress’ against partnership commitments. Third, it promotes a model of partnership that will improve transparency and accountability in the use of development resources. At international level it provides a mechanism for donors and recipients of aid to hold each other mutually accountable and publicly monitor compliance. At country level it encourages joint assessment of progress by donors and partners using local instruments.

The Paris Declaration accepts that current accountability requirements are often ‘harder on developing countries than donors’. It also recognises that ‘aid is more effective when partner countries exercise strong and effective leadership over their development policies and strategies’. This is why ownership – i.e. developing countries exercising strong and effective leadership over their development policies and strategies – is, so the Paris Declaration says, its ‘fundamental tenet’.

THE SOUTH’S CONCERNS ABOUT THE PARIS DECLARATION AND ITS AID EFFECTIVENESS MODEL

On the face of it, then, the Paris Declaration looks a benign document. It recognises the faults of the present system, sets out reasonably sensible principles on aid and, significantly, emphasises principles of ownership by developing countries and mutual accountability between donors and recipients. Why, then, are developing countries not very excited about it? Many of them have signed on to it, but appear to have done so without fully analysing its implications. There is now growing awareness among both civil society and some government actors in developing countries that all that glitters about the Paris Declaration is not gold and that another agenda, not readily transparent on first reading, may underlie it.

The most critical analysis of the Paris Declaration has come from a study by Roberto Bissio of Social Watch for the UN Human Rights Council’s High-Level Task Force on the Implementation of the Right to Development. Bissio argues that relatively minor gains in efficiency and the reduction of some transaction costs are overridden by the asymmetrical conditions under which negotiations between donors and recipients take place. He adds that the Paris Declaration ‘creates a new level of supranational economic governance above the World Bank and the regional development banks’ [8].

In light of this and similar critiques [9], it is important to understand the overall purpose and methodology of the Paris Declaration to appreciate fully its implications for the aid industry. Here are some of the South’s major concerns.

1. The UN was initially excluded from the system and then, belatedly, brought in to give the Paris Declaration a semblance of credibility. The UN lacks any leverage Leverage This is the ratio between funds borrowed for investment and the personal funds or equity that backs them up. A company may have borrowed much more than its capitalized value, in which case it is said to be ’highly leveraged’. The more highly a company is leveraged, the higher the risk associated with lending to the company; but higher also are the possible profits that it may realise as compared with its own value. to promote its priorities within the Paris Declaration because it was not involved from the start. For example, the ILO`s internationally recognised concept of ‘decent work’ does not appear as one of the objectives in aid evaluation – nor do many of the MDG-related objectives, especially MDG 8 that deals with North-South relations.

More worryingly, the OECD has now sought to bring the UN into the Paris Declaration process. Why should this be a matter for concern? The UN`s early involvement could have been a positive step in reforming the global aid architecture, but the OECD apparently preferred to place its trust in the Bretton Woods Institutions. It now seems that the OECD’s directorate has belatedly become aware of the World Bank and IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
’s democratic deficit, and of the need to involve the UN to provide a veneer of legitimacy.

It has done this in two ways. First, the OECD-DAC has embraced the UN’s Development Cooperation Forum (DCF) initiative. The DCF was created by the General Assembly in October 2005 as a follow-up to the 2005 World Summit [10]. It is mandated to review ‘trends in international development cooperation, including strategies, policies and financing’, to promote ‘greater coherence among the development activities of different development partners’, and to strengthen ‘the normative and operational link in the work of the United Nations’. Its overall purpose is to help strengthen the Economic and Social Council (ECOSOC) and make it more effective. In January 2007 the General Assembly further provided for the DCF to meet biennially in a forum ‘within the framework of the ECOSOC High Level Segment’ [11].

It is reasonable to suggest that once the OECD-DAC became aware of the democratic and legitimacy deficit of the IMF-World Bank architecture, it embraced the DCF to provide that missing dimension. The intention behind this move may not be as conspiratorial as it appears; it may be a genuine desire to render credibility to the Paris Declaration process. However, the OECD-DAC did not allow the UN to influence the process or the outcome (for example on ILO and MDG objectives). Furthermore, the World Bank continues to play a dominant role. All that the Paris Declaration has done is remove the more offensive vocabulary of the Bretton Woods institutions (such as ‘conditionalities’) and co-opt a new terminology (such as ‘mutual accountability’ and ‘coherence’ with development objectives).

The OECD-DAC’s second strategy has been to bring the Paris Declaration into the negotiating methodology of the UN system through the back door. This appears to be the objective of the Accra meeting in September 2008 at which the text of the so-called Accra Action Agenda (AAA) will be negotiated for adoption. What its legal implications might be nobody knows. Normally, the UN methodology of a negotiated text begins very early with experts and other stakeholders from the negotiating countries working on drafts. These early texts outline areas of convergence and divergence. The final proposed text is then negotiated by member countries, paragraph by paragraph, until a text is agreed that then has legal validity. The AAA text, on the other hand, appears to have been drafted by a working party outside the UN process, and it is this text that will be negotiated in Accra.

The intentions of those shepherding the Paris Declaration process are not clear. However, the process leading to Accra and the meeting itself do not seem calculated to build credibility for the AAA, especially given the other serious shortcomings of the Paris Declaration, as discussed briefly below.

2. Donors prepare performance conditionalities in conjunction with the World Bank. In the case of Tanzania, for example, there is a 12-page matrix and 49 pages on accounting. The matrix is prepared with no participation by the recipient country. There is no real mutual accountability, contrary to the Paris Declaration`s stated objective. If recipient countries do not perform, they are subject to penalties, but if donor countries do not perform they are not penalised. In normal business transactions, banks that lend money take risks as well as borrowers; if borrowers fail to repay, the banks pay a price. But in the aid architecture proposed by the OECD, the risks are taken by recipient countries alone.

3. The compliance tests administered by the Word Bank do not use the economic and social policies of recipient countries. With regard to procurement, for example, the tests are externally imposed based on a World Bank-devised procurement assessment methodology. There is no recipient country ownership of these tests. The rating system uses a methodology provided by the OECD-DAC and the World Bank to test the effectiveness of aid in relation to systems of both public finance management and procurement. There are twelve criteria or indicators by which to measure the performance and progress of recipient countries, graded on a scale from A to E. If recipient country systems meet agreed donor criteria they will be used to make the evaluation; if not, tests provided by the OECD-DAC and the World Bank will be used. For example, if the national procurement system is not good enough, an open tender system will be used to undertake international procurement, something that developing countries have already rejected in the context of WTO WTO
World Trade Organisation
The WTO, founded on 1st January 1995, replaced the General Agreement on Trade and Tariffs (GATT). The main innovation is that the WTO enjoys the status of an international organization. Its role is to ensure that no member States adopt any kind of protectionism whatsoever, in order to accelerate the liberalization global trading and to facilitate the strategies of the multinationals. It has an international court (the Dispute Settlement Body) which judges any alleged violations of its founding text drawn up in Marrakesh.

negotiations. In other words, the Paris Declaration brings through the back door what developing countries have already turned down.

4. On governance, it is once again donor procedures that determine the method of harmonisation. Although the Paris Declaration talks about ownership, the opposite is in reality the case. Harmonisation processes are externally set. Donors decide whether a particular procurement item is to be tendered internationally or nationally (or locally in a local government context), and whether it is open to the private sector or the state sector or both. Donors may disagree (for example, the US favours the private sector and the Scandinavians prefer state procurement). These disagreements are first sorted out between donors, and then become inflexible instruments of enforcement on recipient countries in the name of aid efficiency.

5. There is a shift from project lending to programme-based lending, which involves the pooling of donor resources and the injection of these funds into the national budget through direct budget support. Donor countries develop a single Joint Assistance Strategy for each country. Recipient countries must discuss their strategies with donors and the World Bank. The provision of assistance and funding is based on a collective donor assessment of recipient countries’ policies and the extent to which these policies are acceptable to donors. There is a danger that if the performance of recipients falls short of the indicators, direct budget support may become the instrument for stopping the flow of aid. Recent World Bank documents show that in Poverty Reduction Strategy assessments undertaken by the World Bank, ‘few of them provide the level of operational detail that specifies how objectives are to be achieved through policy actions’. [12] Growth is apparently much lower than expected by the donor community. If this is still the case in 2010, the implication is that donors will demand better performance from recipient countries or they might stop aid.

CONCLUSION

The conclusion is unavoidable. Under the pretext of making aid more effective, the aid effectiveness project is a form of collective colonialism by Northern donors of those Southern countries that, through weakness, vulnerability or psychological dependency, allow themselves to be subjected to it at the Accra conference in September.

Is there a way out? Can the Paris Declaration be salvaged? Yes, it can. In order to give it legitimacy and credibility, the following steps are necessary.

1. The Paris Declaration must be properly embedded in the UN system. The UN (ECOSOC, for example) must thoroughly analyse it and bring into it the UN`s evaluative criteria on aid effectiveness, such as those related to internationally agreed development goals, the MDGs, and the ILO`s concept of ‘decent work’.

2. Meanwhile, there must be a moratorium on the Accra process and the proposed Accra Action Agenda.

3. The Paris Declaration must distance itself from the Bretton Woods institutions or it will suffer the same credibility and legitimacy gap.

4. The principle of mutual accountability must be properly structured and monitored by a UN body. The Development Cooperation Forum of the UN can play this role. Although it is a new institution created as a forum, without power of implementation or enforcement, it could undertake or commission a proper study of the Paris Declaration and recommend how a two-way process of accountability could be put in place.

5. Finally, aid is not the route to development. It creates dependency and erodes self-reliance. The UN should encourage a study on how developing countries can exit from aid dependency over the next 10 or 15 years. The South Centre is already engaged on such an exercise.

* Yash Tandon is the Executive Director of South Centre based in Geneva.




Footnotes

[1The Post-Modern State and the World Order, Demos, 2000

[2Financial Times, 9 October 2001. See also ‘We cannot ignore failing states’, 8 June 2004

[3I, with others, have drawn attention to this on several occasions, for example at the Africa Leadership Forum conference ‘Africa on the eve of the 21st Century’, Maputo, 9-11 September 1997

[4White Man’s Burden: Why the West’s Efforts to Aid the Rest have Done So Much Ill and So Little Good, Penguin, 2006

[5Aid & Influence: Do Donors Help or Hinder? Earthscan, 2006

[6Does Aid Really Work? Oxford University Press, 2007

[7n 2005, for example, Tanzania hosted 541 donor missions and had to account to donors for 700 projects managed by 56 parallel implementation units

[8Human Rights Council, eighth session, Working Group on the Right to Development, High Level Task Force on the implementation of the right to development, Fourth session Geneva, 7-15 January 2008, A/HRC/8/WG.2/TF/CRP.7

[9Among others, Nancy Alexander ‘The New Aid Model: Implications for the Aid System’, mimeo, 20 September 2007

[10Resolution A/Res/60/1

[11Resolution A/Res/61/16

[12World Bank Comprehensive Development Strategies and Aid Effectiveness Reviews (AERs)

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