Busan meet to decide how to make international aid effective, transparent

India and China, two emerging economic powers, may also be included under the aid effectiveness strategy now

By Richard Mahapatra
Published: Tuesday 29 November 2011

The Fourth High Level Forum on Aid Effectiveness, the world's largest gathering on international aid, got underway on Tuesday in Busan city in South Korea. Attended by more than 3,000 delegates from 160 countries, donor organisations and civil society groups, the Forum will finalise a global monitoring mechanism on making global aid effective and transparent. A draft statement to be endorsed at the end of the conference, however, does not give details of the new mechanism.

Emerging economies like India and China are under immense pressure from developed donor countries to be brought under this mechansim. Both India and China have emerged as key donors in Africa and in their own regions.

Aid without strings attached

The forum will discuss how aid from donor countries will reach the beneficiaries without conditions. Developed countries take back a large chunk of their development assistance by forcing recipient countries to buy goods and services from them. Of the US $138 billion annual global assistance, more than 50 per cent is spent on goods and services required to implement development projects. A research by the European Network on Debt and Development (Eurodad), a network of 54 non-profits from 19 European countries, finds that 20 per cent of the annual assistance is tied. This means the donor country gives aid on condition that the recipient nation buys goods and services from it.

This money, obviously, never reaches the recipient country. Moreover, conditional aid makes development projects expensive by 15 to 40 per cent, states the Eurodad report. The report was released at a meeting of civil society groups in Seoul on September 1-2. It analyses how far the donor countries have kept their promise.

The High Level Forum on Aid Effectiveness marks the 10th year of the Organisation for Economic Cooperation and Development (OECD) countries pledging not to set such conditions while extending development assistance. OECD represents the donor countries. These nations had made similar promises in 2005 and 2008.

“Much larger shares of overseas development assistance could be retained in developing countries and translated into additional income for the poor if donors change the way they are doing development business,” the Eurodad report states. Donor countries do not disclose the amount of aid they are ploughing back to their own countries.

“Busan is the place for OECD countries to prove they take aid effectiveness seriously, and can really change the way that aid is spent,” says Bodo Ellmers, author of the report. Besides, the developed countries debating it, India and China, two emerging economic powers, may also be included under the aid effectiveness strategy now.

Though conditional aid has been reducing, donor countries constantly use tricks to favour their own companies. During 2001-2009, aid without condition increased from 51 per cent to 79 per cent. But 60 per cent of the unconditional contracts still go to the donor country companies, the Eurodad report states. An official evaluation of the OECD in 2010 confirms this.

Tenders, procurement processes and qualifications for biddings are manipulated to achieve this. Multilateral agencies like the World Bank also do this to favour donor countries. “In 2008, 67 per cent of the World Bank financed contract amounts went to firms from just 10 countries (including India),” the report says. “Donor countries mislead their own citizens, and those of developing countries, bypassing what is essentially state aid to donor country firms, as a genuine contribution to poor countries’ effective development.”

China, India v OECD

In build up to Busan forum, OECD countries wanted new donors like India and China to take the same pledge. Of late, both the countries have been funding a large number of development programmes in their regions and in Africa. Going by various media reports, European Union, a big donor group, wants them to be under the same framework.

When aid effectiveness deals were made during the past decade, India and China were not party to it. Now, they have emerged as key donors in a direct challenge to OECD members. Their emergence will face stiff resistance. China, for instance, extends 40 per cent of its aid as finished goods.

In the case of untied aid, Chinese companies will suffer losses. “OECD’s legitimacy is being challenged by these new donors,” says Antonio Tujan, international director of IBON International, a Manila-based network of grassroots groups drawn from the global south. “The Busan meeting will be an OECD-led process, but it will mark the crossroads of the changing development landscape,” he adds.


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