Jocelyn Cook
June 2008
Time for a Revolution? A Brief Analysis of the History, Policy and Reform of Foreign Aid.
ABSTRACT
Foreign assistance, in one form or another, has been a long standing practice for the developed world. However, after years of foreign aid with marginal progress, some argue, the question must be asked, “Is the current process and policy of aid assistance working?” This exploratory paper briefly analyzes the history and policies of foreign aid, evaluates the future of aid assistance practices, and questions whether the current goal of aid merely serves as a short-term, "band aid" fix verses long-term development and sustainability.
This paper also briefly addresses foreign aid effectiveness in terms of the Millennium Development Goals and the Paris Declaration on Aid Effectiveness, preliminarily concluding foreign assistance in its current state is ineffective, and briefly analyzes the current processes and policies of aid assistance, proposing a desperate need for revolutionary aid reform.
The terms “Humanitarian Assistance/Aid” and “Foreign Assistance/Aid”
throughout this analysis will be used in reference to any assistance, be it agriculture, economic, goods/services or training that is intended for the reduction of suffering and death resulting from failed government, economic disparities, famine, disease epidemics, civil war, refugee flight, or natural disaster
1.0. INTRODUCTION
Curiosity is a trait often observed in children as they eagerly search to learn about a world which surrounds them like a cocoon. However, by the time those children reach adulthood, their curiosity about the world diminishes as they become engrossed with the daily grind. There are some individuals, however, who mysteriously maintain that curious spirit, an awkward inquisitiveness, asking questions even if answers are hard to find.
Throughout the maturation process, I was conditioned, along with many others in the developed world, to put great emphasis on preventative measures and to work towards long-term goals instead of short-term, immediate gratification. Why then, when policies and procedures of aid assistance are developed and executed, do they not reflect the principles we were taught to embrace?
As instantaneous information becomes increasingly available throughout world, awareness of the escalating global humanitarian crises is a budding topic of discussion. Rising provisions of aid focused on short-term, emergency assistance, opposed to long-term preventative measures and economic sustainability, induce undeveloped countries to increase in strife, resulting from extreme poverty, potentially insurmountable disease, and weak or failed government structure. The latter of which harbors a breeding ground for global insecurity and continued suffering (Unger, 2008).
2.0. FOREIGN AID: A BRIEF HISTORY
Humanitarian aid dates back to 1948 when The Marshall Plan came into existence as a means of helping European countries rebuild after World War II (U.S. Department of State, 2008). Today, 60 years later, visible steps towards reform are evident, such as the Millennium Development Goals and the creation of The Millennium Challenge Corporation. However, we still must question if the current processes and policies of humanitarian assistance are working, if donor dollars are being used to their full capacity, and if donor priorities focus more on national security and international alliances opposed to long-term global development.
When analyzing the information available on foreign assistance and its development, one thing becomes increasingly apparent: regardless of the form, the question remains the same, “Is this working?” In 1948, The Organization for European Economic Cooperation (OEEC) was formed, with aid received from The Marshall Plan, and designed to consult with aid agencies on creating effective donor strategies. In 1961, the OEEC became the Organization for Economic Cooperation and Development (OECD), and had a specific focus on development which manifest though the creation of the Development Assistance Committee (DAC) (Barder, 280-1).
In the last 40 years, there have been at least eight major foreign aid reform efforts: the Kennedy administration’s enactment of the Foreign Assistance Act of 1961; The Peterson Commission (1969-1970); The New Directions legislation (1973); The Humphrey initiative and the creation of the International Development Cooperation Agency (1977-1979); The Carlucci Commission (1983-1984); The Hamilton-Gilman Task Force (1988-1989); The Wharton Report and the Peace, Prosperity, and Democracy Act (1993-1994) (Nowels, 257); and President Bush’s Millennium Challenge Corporation and the President’s Emergency Plan for AIDS Relief (PEPFAR) (2002).
The Kennedy Administration’s implementation of the Foreign Assistance Act (now referred to as the U.S. Agency for International Development (USAID)) was developed to address the administration’s belief that the current process for aid funding “took a piecemeal approach, and there was too great focus on short-term strategic matters and insufficient attention to the longer view of international development” (Nowels, 256-7). The New Directions Legislation, was an attempt to move forward differently and was initiated by a “growing dissatisfaction that American development assistance did not directly address the problems and needs of the poorest populations in the developing world [and in 1961], the bill amended the Foreign Assistance Act of 1961 and remains the core structure … of current authorizing law” (Nowels, 258). During the Regan Administration, the Carlucci Commission was born from the notion that “foreign aid was ‘broken’” (Nowels, 258). Similarly, the Millennium Challenge Corporation’s mission is to reduce global poverty through the promotion of sustainable growth and is based on the principle that aid is most effective when it reinforces good governance, economic freedom and investments in people (United States, 2008).
Undoubtedly, in terms of overall monies provided for humanitarian aid, the United States is the largest contributor worldwide; however, the 2007 Center for Global Development stated the US$21.2 billion provided in aid only amounted to 0.16% of the U.S. Gross National Product (GNP) (Global Issues, 2008). Furthermore, the U.S. scored the lowest on “Aid Quality” which is measured by calculating gross aid as a share of Gross Domestic Product (GDP) and adjusted for various factors. The U.S. scored 19th out of 21 participating countries, and 20th in terms of tied aid at a whopping 57%, meaning that more than half of aid distributed from the U.S. is spent in the U.S., in a group of selected countries, or on selected items determined by the U.S such as medical research and food for aid efforts. Clearly it is time for a revolution.
3.0. FOREIGN AID REFORM: A GLIMPSE OF THE MOVEMENT
The past several years have produced many new humanitarian aid initiatives, some of which have simply been a renaming of old efforts. Consistently, four themes arise when analyzing aid effectiveness and reform. First, there is an increased need for transparency between the donor and the recipient countries; second, there is a need to increase accountability regarding use of appropriated funds; third, there is an increased need for untied aid; fourth, fitting adjustments must be made in policy and procedure based on changing global realities.
3.1. Structural Adjustment Programs (SAPs)
Following the global debt crisis in the early 1980s, the International Monetary Fund (IMF) and World Bank, were able to impose Structural Adjustment Programs, as a means of ensure that the money lent would be spent in accordance with the overall goals of the loan and guarantee loan repayment, from countries seeking to qualify for new loans. SAPs traditionally required the borrowing country to devalue their currency against the U.S. dollar, promote imports and exports as a means of increasing revenue, and balance their respective budget. In reality, SAPs have had disastrous consequences, leading to increased poverty and negatively impacting the poor by diminishing country programs and subsidies. Furthermore, my analysis uncovered no reports of SAPs positively impacting the development countries’ GDP; rather, GDP was stagnant or even showed signs of decline (Welch, 1998). With knowledge the SAPs were an utter failure, opposed to revolutionary reform, the IMF and World Bank continued the failed initiative, changing the name to Poverty Reduction Strategy Papers.
3.2. Poverty Reduction Strategy Papers (PRSPs)
Updated every three years, PRSPs detail the plan developing countries will pursue to promote long-term development and reduce poverty. “PRSPs aim to provide the crucial link between national public actions, donor support, and the development outcomes needed to meet the United Nations’ Millennium Development Goals (MDGs)” (Factsheet, 2008). Unlike SAPs, the IMF and World Bank claim the PRSPs place a considerable emphasis on the collective process of determining priorities driven by needs of the community. Additionally, PRSPs claim to be “pro-poor”; yet in the end, the final approval comes from the IMF or World Bank, not a collective consensus. Thus, the notion of a collective process based on country driven priorities is misleading. PRSPs operate on the same tried and failed structure as SAPs, resulting in no reform, only continued failure under a new name.
3.3. Results-Based Management (RBM)
Results-Based Management (or Programming) is a way aid agencies manage development funding and projects based on results. By referring back to childhood conditioning mentioned earlier in this paper, RBM is much like that of a gold star: behave well and you will get a gold star, behave poorly and receive a ‘time out’. Donor’s shifted in strategy to the RBM approach with the goal of increasing the effectiveness of aid through increased country ownership, which refers to the country having sufficient political support to implement its developmental strategy, including the projects, programs, and policies for which external partners provide assistance. RBM is applied through alignment of country strategy to long-term development goals, strengthening monitoring systems, and implementing evaluations to force increased accountability.
Increasingly, RBM is linked directly to the principles expressed in the Paris Declaration for Aid Effectiveness and the Millennium Development Goals (MDGs) (Scott, 2006). However, with such an emphasis on successful projects, countries and programs considered to be of higher risk may be denied appropriate opportunity for aid, an outcome that is completely contradictory to the underlying goals of providing aid in the first place. Additionally, countries may be resistant to RBM as they fear poor results will lead to diminished aid.
3.4. Managing for Development Results (MfDR)
Managing for Development Results (MfDR), built on the five core principles supported in the Paris Declaration for Aid Effectiveness, is a strategy that focuses on using evidence-based decision making, through collection of performance information, in the pursuit of human development (MfDR2, 2006). In keeping with the theme of earlier noted steps of reform, MfDR also attempts to focus on long-term results instead of immediate performance. Additionally, since MfDR is a strategy more than a system, the MfDR Principles in Action: Sourcebook on Emerging Good Practices, has been developed to offer suggestions to development agencies on how to achieve the five core principles effectively and efficiently. Again however, this strategy, coupled with its suggested best practices, fails to bring about the revolutionary reform in aid needed to truly affect change in the developing world.
3.5. Debt Relief Initiatives
In September 1996, the Heavily Indebted Poor Country (HIPC) initiative was born. Under this initiative, creditors agreed to assist qualifying countries reduce their debt liabilities through loan reduction programs. The intention is that the reduction of debt, would allow the developing country to focus attention and finances on sustainable, long-term development opposed to loan repayment. However, many countries found the debt relief did not apply to interest accrued so their dilemma of financial constraints was not relieved. Furthermore, the HIPC initiative is structured such that few countries qualify after a three year application, planning and review process; and those who do are bound firmly by the SAP’s conditionality (50 years2, 1999).
With the MDGs achievement as a driver, the Multilateral Debt Relief Initiative (MDRI) was created on July 1, 2006. MDRI, developed by the 8 major industrial countries (G8), proposed that the IMF, World Bank, and the African Development Fund (AfDF) cancel 100 percent of International Development Association (IDA) debt in poverty paralyzed countries. A country can qualify for the MDRI one of two ways. Firstly, countries with per-capita income of US$380 a year or less would receive MDRI debt relief financed by the IMF’s own resources through the MDRI-I Trust; or secondly, “countries that have successfully completed the HIPC initiative with per capita income above that threshold will receive MDRI relief from bilateral contributions administered by the IMF through the MDRI-II Trust” (IMF2, 2008). Debt cancellation, however, only applies to debt owed at the end of 2004, and no cancellations would be made for debt disbursed after January 1, 2005. According to the IMF website, as of March 2008, 16 countries have received “MDRI-I Trust” debt cancellation and 9 countries have received “MDRI-II” debt cancellation.
An article published by the African Journal of Reproductive Health in December, 2006, listed many instances where the Millennium Development Goals are failing in Africa. The MGDs were created and agreed upon as a global initiative, yet for many parts of the world, especially Africa, the goals are failing. Any examination of the MDGs will show that the plan was thoughtfully created to support successful accomplishment. So then, are the MDGs failing because of preexisting humanitarian assistance policies and procedures which have undermined the structural, political, and economic changes needed to combat human suffering?
5.0. FOREIGN AID EFFECTIVENESS: PARIS DECLARATION ON AID EFFECTIVENESS
With the Millennium Development Goals well underway, in March, 2005, 22 donors and 57 partner country governments developed a list of measurable actions and targets to improve the effectiveness of aid and accelerating the achievement of the Millennium Development Goals (Reality Check, 2007) known as the Paris Declaration on Aid Effectiveness. Similar to earlier noted initiatives, the Declaration places extreme importance on country ownership; and similar to the MDGs, the Declaration consists of 12 “indicators of aid effectiveness” and measurable targets to analyze results. Some indicators of aid effectiveness include: aid flow alignment with national priorities, parallel project implementation is decreased, untied and program-based approaches are used, increase transparency and put in place mutual assessment reviews (MfDR1, 2006).
However, the Declaration establishes no commitment or assessment regarding whether these specific reforms will result in sustained progress in reducing poverty. The Declaration places greater consideration for subjective opinion, with institutions such as the IMF and World Bank failing to consider local knowledge, and spending little time addressing the purpose of aid effectiveness. Additionally, the Declaration “fails to address how governments can be truly accountable to their citizens, when policies are imposed by donors as conditions for debt cancellation and aid, [furthermore] the Declaration fails to go far enough in tackling some deep-seated obstacles that have stood in the way of aid as an effective resource that addresses the acute conditions facing poor and marginalized people” (Reality Check, 2007).
Although the targets set forth in the Declaration are focused on increasing aid effectiveness and have been well established, they fail to address, and it appears do not consider, the current bottlenecks preventing foreign aid efficiency.
6.0. IMPLICATIONS OF MY FINDINGS
Awareness of ineffective aid is not a new phenomenon, yet the desperate need for revolutionary reform lingers. Greater emphasis should be focused at the country level for those affected by poverty to express their needs and desires. History has shown in a number of examples, that thriving societies rarely develop or grow from a “top down” structure. Thus, particular attention should be given to building a firm foundation for sustainable long-term development.
Furthermore, tied aid is inefficient, wasteful, and undermines local economic development. In a recent Oxfam America paper, USAID is criticized for “lining the pockets” of the U.S. with aid dollars by mandating all contracts be with U.S. companies. One example noted USAID paid $87.95/ton to ship goods abroad where they could have spent a mere $21.95/ton had USAID utilized a foreign carrier. Another example told of NGO workers who were forced to buy rehydration salts at five times more than locally available because USAID dictated that the salts had to be purchased from a U.S. supplier.
Another reason current aid lacks effectiveness is simply because too many people and organizations are involved. Monies divided between five organizations working on similar projects in the same community compromise ultimate end results. Additionally, the current system of providing aid is unpredictable, and often causes hardships on the citizens of developing countries through the actions of governments and bureaucratic loopholes. This issue is exemplified by looking to the recent cyclone disaster in Burma. Burma’s ruling military junta prevented humanitarian aid and assistance from entering the country for a number of weeks (and still has not removed all barriers).
The ultimate goals of aid assistance are misaligned. When faced with seemingly insurmountable circumstances, aid practices focus on immediate, short-term fixes, failing to implement a long-term plan, including preventative measures. Likewise, more often than not, especially in recent years, foreign assistance monies hinge on securing national boarders and forming security and trade alliances. How can developing countries be expected to grow when they are being held down by oppressive trade agreements, when aid dollars are not being spent locally to support development of the local economic structure, and preexisting aid reform has set policies and procedures which stunt growth and hamper development?
7.0. CONCLUSION
Part of the natural maturation process is learning by trial and error. We are born with an unexplainable curiosity, which introduces experiences and helps shape development. What is the relationship between the knowledge we acquire and how it is used in decision-making? Sitting on the floor with a shattered ceramic piggy bank, I certainly wouldn’t continue to drop my change in it only to watch it fall out the bottom. Why? Because the bank no longer serves the purpose it was intended to serve. The flagrant error is that foreign aid is not working in its current state, and arguably has not for years. A radical and pervasive change is needed; a change that abandons attempts to mend the broken piggy bank and embarks on a new path.
WORKS CITED
50 Years Is Enough1. “How International Monetary Fund (IMF)/Word Bank structural
adjustment programs have increased poverty around the world.” 50 Years Is Enough. Accessed June 10, 2008. <http://www.50years.org/action/s26/factsheet2.html>
50 Years Is Enough2. “Statement on Highly Indebted Poor Countries (HIPC) Debt Initiative.”
Feb. 1999. 50 Years Is Enough. Accessed June 18, 2008. <http://www.50years.org/ factsheets/hipc.html>
Barder, Owen. “Reforming Development Assistance: Lessons from the U.K. Experience.”
Security by Other Means: Foreign Assistance, Global Poverty, and American Leadership. Editor Lael Brainard. Washington, DC: Brookings Institution Press, 2007. 277-319.
Brainard, Lael. “A Unified Framework for U.S Foreign Assistance.” Security by Other Means:
Foreign Assistance, Global Poverty, and American Leadership. Editor Lael Brainard. Washington, DC: Brookings Institution Press, 2007. 1-31.
Brainard, Lael. “Organizing U.S. Foreign Assistance to Meet Twenty-First Century
Challenges.” Security by Other Means: Foreign Assistance, Global Poverty, and American Leadership. Editor Lael Brainard. Washington, DC: Brookings Institution Press, 2007. 33-66.
Brainard, Lael. “U.S. Foreign Assistance: Reinventing Aid for the 21st Century.” Brookings 23
Jan. 2008. Accessed June 6, 2008. <http://www.brookings.edu/testimony/2008/0123
_foreign_assistance_reform_brainard.aspx>
Carbone, Maurizio. “The Millennium Challenge Account: A Marginal Revolution in US
Foreign Aid Policy?” Review of African Political Economy. 31.101 (Sep. 2004). 536-542.
Carlsson, Jerker, Gunnar Köhlin, et al. The Political Economy of Evaluation International Aid
Agencies and the Effectiveness of Aid. Houndmills: The Macmillan Press LTD, 1994.
Cronin, Patrick, and Tarek Ghani. “The Changing Complexion of Security and Strategic
Assistance in the Twenty-First Century.” Security by Other Means: Foreign Assistance, Global Poverty, and American Leadership. Editor Lael Brainard. Washington, DC: Brookings Institution Press, 2007. 195-224.
Dam, Kenneth. “Assuring that Foreign Aid is Effective: Raise the Level of Debate about Aid.”
Brookings Institution. 31 Oct. 2007. Accessed June 6 2008. <http://www.brookings.edu
/~/media/Files/Projects/Opportunity08/PB_ForeignAid_Dam.pdf>
Dembele, Demba Moussa. “PRSPs: Poverty Reduction Or Poverty Reinforcement?” Economic
Justice News Online. 7:1 (Jan. 2004). Accessed June 10, 2008. <http://50years.org/cms/
ejn/story/40>
Easterly, William. “The Future of Western Assistance.” The White Man’s Burden: Why the
West’s Efforts to Aid the Rest Have Done so Much Ill and so Little Good. New York: The Penguin Press, 2006. 367-384
Global Issues. “Net ODA in 2007 as US dollar amounts.” Global Issues. April 2008. Accessed
June 5, 2008. <http://www.globalissues.org/TradeRelated/Debt/USAid.asp>
Hansch, Steven. “Humanitarian Assistance Expands in Scale and Scope.” Security by Other
Means: Foreign Assistance, Global Poverty, and American Leadership. Editor Lael Brainard. Washington, DC: Brookings Institution Press, 2007. 121-160.
IMF1 – International Monetary Fund. “Poverty Reduction Strategy Papers – Factsheet April
2008.” International Monetary Fund. Accessed June 9, 2008. <http://www.imf.org/
external/np/exr/facts/prsp.htm>
IMF2 – International Monetary Fund. “Changing Aid Landscape.” Finance & Development
44.4 (2007): 20-21.
IMF3 – International Monetary Fund. “The Multilateral Debt Relief Initiative (MDRI)”.
International Monetary Fund. March 2008. Accessed June 16, 2008. <http://www.imf.
org/external/np/exr/facts/mdri.htm>
IMF4 – International Monetary Fund. “Poverty Reduction Strategy Papers: Updated June 2,
2008.” International Monetary Fund. Accessed June 9, 2008. <http://www.imf.org/
external/np/prsp/prsp.asp>
IMF5 – International Monetary Fund. “The IMF and the Millennium Development Goals.”
International Monetary Fund. Accessed June 6, 2008. <http://www.imf.org/external
/np/exr/facts/mdg.htm>
MDG Monitor – Millennium Development Monitor. Accessed June 15, 2008. <http://www.md
gmonitor.org/>
MfDR1 - Managing for Development Results. “Paris Declaration on Aid Effectiveness.”
Emerging Good Practices in Managing for Development Results: First Issue. Feb. 16, 2006. Accessed June 1, 2008. <http://www.mfdr.org/Sourcebook/1stEdition/MfDRSour
cebook-Feb-16-2006.pdf> v-xvi.
MfDR2 - Managing for Development Results. “Part 4. Examples of MfDR in Development
Agencies.” Emerging Good Practices in Managing for Development Results: First Issue. Feb. 16, 2006. Accessed June 1, 2008. <http://www.mfdr.org/Sourcebook/1stEdition/Mf
DRSourcebook-Feb-16-2006.pdf> 133-134.
Nowels, Larry. “Foreign Aid Reform Commissions, Task Forces, and Initiatives: From Kennedy
to the Present.” Security by Other Means: Foreign Assistance, Global Poverty, and American Leadership. Editor Lael Brainard. Washington, DC: Brookings Institution Press, 2007. 255-275.
Okonofua, Friday E. “Achieving the Millennium Development Gals in Africa: How Realistic?”
African Journal of Reproductive Health. 9.3 (Dec., 2005). 7-14.
Oxfam America. “Smart Development: Why US Foreign Aid Demands Major Reform.” Oxfam
America. 2008. Accessed May 25, 2008. <http://www.oxfamamerica.org/newsandpubli
ctions/publications/briefing_papers/smart-development>
Radelet, Steven. “Strengthening U.S. Development Assistance.” Security by Other Means:
Foreign Assistance, Global Poverty, and American Leadership. Editor Lael Brainard. Washington, DC: Brookings Institution Press, 2007. 93-119.
Reality Check. “The Paris Declaration Towards Enhanced Aid Effectiveness?” The Reality of
Aid: An Independent Review of Poverty Reduction and Development Assistance. January 2007. Accessed June 1, 2008. <http://www.realityofaid.org/rchecknews.php?
table=rc_jan07&id=1>
Roodman, David and Selvin Akkus. “United States” Commitment to Development Index 2007.
Center for Global Development. Accessed June 18, 2008. <http://www.cgdev.org/section
/initiatives/_active/cdi/>
Scott, Alison. “Emerging Practices of Results-based Country Programming among Aid
Agencies.” MfDR Principles in Action: Sourcebook on Emerging God Practices March 2006: 146 – 162. Accessed May 22, 2008 <http://www.mfdr.org/sourcebook/MfDRSourcebook-Feb-16-2006.pdf>
Stevens, Yvette, ed. “Update on Humanitarian Reform.” United Nations Office for The
Coordination of Humanitarian Affairs (OCHA). March 2006. Accessed May 31, 2008.
<http://www.reliefweb.int/library/documents/2006/ocha-gen-31mar.pdf>
U.S. Department of State's Bureau of International Information Programs. “The Marshall Plan:
Rebuilding Europe.” May 2007. Accessed June 17, 2008. <http://usinfo.state.gov/produ
cts/pubs/marshallplan/>
Unger, Noam. “A New Face of Hunger Should Prompt a New Approach to Foreign Aid.”
Brookings 2 May 2008. Accessed June 10, 2008. <http://www.brookings.edu/opinions
/2008/0502_foreign_aid_unger.aspx>
United States. “The Millennium Challenge Corporation.” United States Government. Accessed
June 17, 2008. <http://www.mcc.gov/about/index.php>
Welch, Carol. “Structural Adjustment Programs.” Foreign Policy In Focus. 3.3 (1998): 1-4.