Will Debt Relief Make a Difference? Impact and Expectations of the Multilateral Debt Relief Initiative

The Multilateral Debt Relief Initiative (MDRI) is the latest phase of debt reduction for poor countries from the World Bank, the IMF, and the African Development Bank. The MDRI, which will come close to full debt reduction for at least 19 (and perhaps as many as 40) qualifying countries, is being presented as a momentous leap forward in the battle against global poverty. However, the analysis in this paper suggests that the actual gains may be more modest and elusive. This is not because, as some anti-debt campaigners fear, that the initiative is a mere accounting trick. Rather, the limited short-term financial impact of the MDRI on affected countries is because the debt service obligations being relived were themselves relatively insignificant. For example, in 2004 the average African country in the program paid $19 million in debt service to the World Bank, but received 10 times that amount in new Bank credit and more than 50 times as much in total aid. Just as importantly, finances are rarely the binding constraint on poverty and other development outcomes. This is not to say that the MDRI is futile. Indeed the impact could be considerable over the long-term, especially on the ability of creditors to be more selective in the future. But most of the impact of the MDRI will be long-term and difficult to measure. As such, expectations of the effect on indebted countries and development indicators should be kept modest and time horizons long.Debt reief, multilateral, foreign aid, poverty, development

Ten Myths of the International Finance Facility

The British proposal to create an International Finance Facility in order to ‘frontload’ $50 billion in aid per year until 2015 has generated a lot of attention and will likely be a major topic at the G8 meeting this July. But the IFF has also been shrouded in confusion and misconceptions. This paper explains the IFF proposal and highlights some of the common misunderstandings surrounding it, including the mechanics of the scheme itself, the potential for a U.S. role, and the expectations of aid which underlie the IFF’s premise. The UK deserves plaudits for elevating global poverty on the international agenda and for seeking ways to better harness the power of private capital markets for development. But the IFF, as currently conceived, is an idea that merits more scrutiny and a healthy dose of skepticism.development aid, International Finance Facility (IFF), poverty, private capital market

Ghost of 0.7%: Origins and Relevance of the International Aid Target

The international goal for rich countries to devote 0.7% of their national income to development assistance has become a cause célèbre for aid activists and has been accepted in many official quarters as the legitimate target for aid budgets. The origins of the target, however, raise serious questions about its relevance. First, the 0.7% target was calculated using a series of assumptions that are no longer true, and justified by a model that is no longer considered credible. When we use essentially the same method used to arrive at 0.7% in the early 1960s and apply today’s conditions, it yields an aid goal of just 0.01% of rich-country GDP for the poorest countries and negative aid flows to the developing world as a whole. We do not claim in any way that this is the 'right' amount of aid, but only that this exercise lays bare the folly of the initial method and the subsequent unreflective commitment to the 0.7% aid goal. Second, we document the fact that, despite frequent misinterpretation of UN documents, no government ever agreed in a UN forum to actually reach 0.7%—though many pledged to move toward it. Third, we argue that aid as a fraction of rich country income does not constitute a meaningful metric for the adequacy of aid flows. It would be far better to estimate aid needs by starting on the recipient side with a meaningful model of how aid affects development. Although aid certainly has positive impacts in many circumstances, our quantitative understanding of this relationship is too poor to accurately conduct such a tally. The 0.7% target began life as a lobbying tool, and stretching it to become a functional target for real aid budgets across all donors is to exalt it beyond reason. That no longer makes any sense, if it ever did.aid, foreign aid, development, mdg, mdgs, millennium development goals, oda, united nations, un, overseas development assistance, africa

Moving Mugabe's Mountain: Zimbabwe's Path to Arrears Clearance and Debt Relief

Zimbabwe is embarking on a long, complex, and difficult journey to rebuild its economy, which has been shattered by years of neglect and destructive government policies. If the final political hurdles are overcome? hopefully sooner rather than later—the new coalition government will be faced with making politically difficult decisions and addressing conclusively the economic ghosts of the past. One of those ghosts is more than $5 billion owed to external creditors, of which nearly 80 percent is arrears. Clearing Zimbabwe’s external debt arrears and securing comprehensive debt relief will be a critical step in eventual recovery. By doing so, the government will remove a crippling burden on its budget, investment climate, and overall macroeconomic environment. More important to the success of the coalition government, it will unlock hundreds of millions of dollars in new external assistance for critical reconstruction programs that will improve the Zimbabwean people’s quality of life. This paper provides a detailed overview of the arrears clearance and debt relief processes. The purpose is to spark a debate in creditor capitals and hopefully to buttress the government’s analytical foundation. With a strong dedicated team of experts—and support from relevant donor agencies— the Zimbabwean government will one day conclusively address its crushing debt burden and proceed with the rebuilding of a once vibrant and proud nation.zimbabwe; reconstruction; external debt; economic development; debt relief

The Trouble with the MDGs: Confronting Expectations of Aid and Development Success

Growing concern that the Millennium Development Goals (MDGs) will not be achieved by 2015 should not obscure the bigger picture that development progress has been occurring at unprecedented levels over the past thirty or more years. At the same time, the MDGs may perhaps create an unnecessary pessimism toward aid by labeling many development successes as failures. The first MDG of halving the number of people living in poverty will probably be met globally, but for most developing countries to achieve this at the national level, the growth rates required are at the bounds of historical precedent. Additionally, there appears to be only a weak relationship between aid and rapid economic growth. A similar problem holds for many of the other education and health goals. For many countries, the rates of progress required to meet the MDGs by 2015 are extremely high compared to historical experience and there is only a tenuous relationship between expenditure and outcomes. Nevertheless, estimates that an additional $50 billion in aid per year is necessary to meet the MDGs are frequently misinterpreted to suggest that it is also sufficient. Most of the goals are unlikely to be reached, but this will probably not be due primarily to shortfalls in aid. This is in part because development is a long-term and complex process dependent on relieving more than a supply-side constraint on resources. Aid remains vital and contributes to development progress, but even considerable increases in aid are unlikely to buy these particular goals. Goal setting is also useful, but continuing to suggest that the MDGs can be met may undermine future constituencies for aid (in donors) and reform (in recipients). The MDGs might be better viewed not as realistic targets but as reminders of the stark contrast between the world we want and the world we have, and a call to redouble our search for interventions to close the gap.Millennium Development Goals poverty economic growth

The Global War on Terror and U.S. Development Assistance: USAID allocation by country, 1998-2005

The launch of the Global War on Terror (GWOT) soon after September 11, 2001 has been predicted to fundamentally alter U.S. foreign aid programs. In particular, there is a common expectation that development assistance will be used to support strategic allies in the GWOT, perhaps at the expense of anti-poverty programs. In this paper we assess changes in country allocation by USAID over 1998-2001 versus 2002-05. In addition to standard aid allocation variables, we add several proxies for the GWOT, including the presence of foreign terrorist groups, sharing a border with a state sponsor of terrorism, troop contribution in Iraq, and relative share of Muslim population. We find that any major changes in aid allocation related to the GWOT appear to be affecting only a handful of critical countries, namely, Iraq, Afghanistan, Jordan, and the Palestinian Territories. The extra resources to these countries also seem to be coming from overall increases in the bilateral aid envelope, combined with declines in aid to Israel, Egypt, and Bosnia and Herzegovina. We do not find that any of our GWOT proxies (or their interactions) are significantly correlated with changes in country allocation of aid flows to the rest of the world, including to sub-Saharan African countries. Concerns that there is a large and systematic diversion of U.S. foreign aid from fighting poverty to fighting the GWOT do not so far appear to have been realized.Global War on Terror (GWOT), September 11, foreign aid, terrorism, Iraq, muslim, poverty

SSME single crystal turbine blade dynamics

A study was performed to determine the dynamic characteristics of the Space Shuttle main engine high pressure fuel turbopump (HPFTP) blades made of single crystal (SC) material. The first and second stage drive turbine blades of HPFTP were examined. The nonrotating natural frequencies were determined experimentally and analytically. The experimental results of the SC second stage blade were used to verify the analytical procedures. The analytical study examined the SC first stage blade natural frequencies with respect to crystal orientation at typical operating conditions. The SC blade dynamic response was predicted to be less than the directionally solidified blade. Crystal axis orientation optimization indicated the third mode interference will exist in any SC orientation

Why Doesn't Africa Get More Equity Investment? Frontier Stock Markets, Firm Size and Asset Allocations of Global Emerging Market Funds

This paper addresses the question of investment in sub-Saharan African listed securities by examining characteristics of the continent’s 15 equity markets, the rise and fall of African regional funds, and the asset allocation trends for global emerging market (GEM) funds. The data shows that South Africa is now a leading destination of capital, but that few managers invest elsewhere on the continent. However, we find that African markets are not treated differently than other markets and present evidence that small market size and low levels of liquidity are a binding deterrent for foreign institutional investors. Thus, orthodox market variables rather than market failure appear to explain Africa’s low absolute levels of inward equity flows. The paper then turns to new data from firm surveys to explore why African firms remain small. The implications of our findings are threefold: (a) efforts to encourage greater private investment in these markets should concentrate on domestic audiences and specialized regional funds, (b) the depth and success of the Johannesburg Stock Exchange can perhaps be better utilized to benefit other parts of the continent, and (c) any long-term strategy should concentrate on the underlying barriers to firm entry and growth.sub-Saharan African, equity markets, global emerging market,inward equity flows, private investment, Johannesburg Stock Exchange

Energy in Africa Promotes U.S. Economic and Security Interests

In testimony before the U.S. Senate Foreign Relations Subcommittee on Multilateral International Development, Multilateral Institutions, and International Economic, Energy, and Environmental Policy, nonresident scholar Todd Moss outlined how the United States can better utilize energy policy to pursue its objectives in sub-Saharan Africa. Video of Moss' testimony is available at http://bit.ly/2zt5YDN (his remarks begin at 1:00:00)

Is Africa’s Skepticism of Foreign Capital Justified? Evidence from East African Firm Survey Data

The world has increasingly recognized that private capital has a vital role to play in economic development. African countries have moved to liberalize the investment environment, yet have not received much FDI. At least part of this poor performance is because of lingering skepticism toward foreign investment, owing to historical, ideological, and political reasons. This wariness has manifested in many ways, including a range of business environment factors that impede greater foreign flows. Although much of the ideological resistance has faded, a number of specific challenges to the purported benefits of FDI have been successful in preventing more active liberalization and in moving to deal with indirect barriers. New data from firm surveys in Kenya, Tanzania, and Uganda suggest that there are important positive effects from FDI for both the host economies and the workers in foreign-owned firms. Based on our three-country sample, foreign firms are more productive, bring management skills, invest more heavily in infrastructure and in the training and health of their workers, and are more connected to global markets. At the same time, foreign firms do not appear to succeed by grabbing market share and crowding out local industry. These results suggest that many of the common objections to foreign investment are exaggerated or false. Africa, by not attracting more FDI, is therefore failing to fully benefit from the potential of foreign capital to contribute to economic development and integration with the global economy. Length: 30 pagesAfrica, foreign capital, Kenya, Tanzania, Uganda, foreign direct investment,