Lecture for International Affairs U6043 (Integrated Approaches to Development Practice), fall 2009

McArthur, John W.

Columbia University Academic Commons

Foreign Aid “101” Global Classroom Integrated Approaches to Sustainable Development Practice John W McArthur  October 2009 What is “Aid?” 3 Two Main Types of Aid •  Humanitarian aid  Given for emergency relief or to prevent or alleviate a humanitarian crisis •  e.g. food aid, emergency shelter •  Development Aid   Aims to address the economic, social, and political factors that contribute to long-term economic growth •  e.g. primary education, health systems 4 What Counts as Aid? •  Official Development Assistance (ODA)  Government aid for the purpose of promoting economic development and welfare in low- and middle-income countries. Resources given as either (1) grants or (2) loans with a minimum 25% grant component.  •  Private giving  Aid from the private sector (e.g. business), charities (e.g. Oxfam, CARE), and philanthropic foundations (e.g. Gates, Rockefeller, Soros) to aid recipient countries and projects and programs in recipient countries 5 What Does Not Count as Aid? •  Military support •  Market-based flows  –  FDI –  Portfolio investment –  Export credits •  Remittances 6 Types of ODA Delivery Systems •  Bilateral  Aid flows provided directly by a donor country to a recipient country (e.g. government to government) •  OECD-DAC: Club of 23 “rich” countries •  Emerging donors: Korea, China, Gulf States, etc. •  Multilateral  International development-focused institutions with governmental membership that pool and disperse aid to recipient countries  •  e.g. ADB, AfDB, European Commission, World Bank, UNICEF, UNDP, WFP How is ODA Directed? 8 Types of ODA Transfers •  Grants  Transfers for which no repayment is required •  Concessional Loans (credits)  Transfers for which repayment is required under terms beneficial to the borrower compared to a loan at market rates •  e.g. Long-term, interest-free loans provided through IDA to low-income countries; loans provided to middle-income countries through IBRD •  Debt relief  Partial or total forgiveness of the repayment of existing or outstanding loans; NOTE: not a “real” transfer 9 Forms of ODA •  Project aid  Aid given for a discrete purpose (e.g. an irrigation project) •  Sectoral aid/budget support  Aid directed to support a specific sector (e.g. education, health) •  Technical co-operation  Grants to support advisory services for the implementation of a capital project (e.g. engineers to build a road) •  International research   e.g. CGIAR Donor  countries Multilateral  institutions Recipient countries $$$ 10 Many Aid Paths to Many Places Source: OECD – DAC 2009 Note: Data are averages for 2006-07 Source: OECD – DAC 2009 12 Conditionality of Aid •  Untied  ODA for which the associated goods and services may be fully and freely procured in substantially all countries •  Tied  ODA for which the goods and services must be procured in the donor country or among a restricted group of other countries but not all aid recipient countries (e.g. building a road with Caterpillar equipment and U.S. contractors) 13 Source: OECD – DAC 2009 14 System Efforts on Aid Quality2005 Paris Declaration on Aid Effectiveness set key principles •  Ownership - Developing countries set their own strategies for poverty reduction, improve their institutions and tackle corruption. •  Alignment - Donor countries align behind these objectives and use local systems. •  Harmonisation - Donor countries coordinate, simplify procedures and share information to avoid duplication. •  Results - Developing countries and donors shift focus to development results and results get measured. •  Mutual Accountability - Donors and partners are accountable for development results.  2008 Accra Agenda for Action then emphasized •  Predictability – donors will provide 3-5 year forward information on their planned aid to partner countries. •  Country systems – partner country systems will be used to deliver aid as the first option, rather than donor systems. •  Conditionality – donors will switch from reliance on prescriptive conditions about how and when aid money is spent to conditions based on the developing country’s own development objectives. •  Untying – donors will relax restrictions that prevent developing countries from buying the goods and services they need from whomever and wherever they can get the best quality at the lowest price.  15 Some Famous Aid Successes•  Korean post-war support; Mozambique post-war support •  Green Revolution in South Asia •  Eradication campaigns against smallpox, guinea worm, polio •  Debt relief … and education improvements •  AIDS treatment post-2001 •  Malaria control 16 ODA for Health:  Major Success Since 2000 2000: Launch of GAVI Alliance –  Supported by Gates, UN, World Bank, private sector 2002: Launch of Global Fund to Fight AIDS, TB, Malaria –  Developing countries submit plans for independent technical review and funding 2003: “3 by 5” target for AIDS treatment  - WHO set ambitious 2005 delivery target 2003/2005: USA programs for AIDS, Malaria –  Bilateral program anchored in performance targets 17 0 1 2 3 4 5 6 7 8 9 10 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Aid for Health and Population ODA (2006 USD billions) The Lift-Off Since 2000 in Global Financing for Health (yet still only 1/3 of recommended levels) Source: OECD Development Assistance Committee 18 Source: UNAIDS 2009 19 Key Elements of Success •  Clear performance targets •  Known technologies •  Adequate finance •  National and Global mechanisms for achieving scale •  Auditable and accountable systems What Aid Has Been Promised? 21 Quick History of 0.7 1969  Pearson Commission: 0.7% Public+ 0.3%  Private  1970  UN General Assembly Resolution 2002  Monterrey Consensus     “We urge developed countries that have not done so to make  concrete efforts toward the target of 0.7 percent of gross national  product (GNP) as ODA to developing countries.” (para 42) 2005  EC-15 commitments for 0.7 by 2015 Today we are the first generation in which the world can afford to halve extreme poverty within 0.7 envelope 22 CURRENT GLOBAL INVESTMENTS Source: OECD – DAC 2009 23 Source: OECD – DAC 2009 How to Interpret All These Numbers? 25 Sources: USG 2009; WDI 2009; calculations 26 Source: OECD DAC 2009 27 Source: NYS Comptroller (multiple); ONE 2009 28 Source: OECD – DAC 2009; calculations 29 Most Important Aid Questions •  Which programs have worked well and which have not? •  What lessons do the successes have? •  How can the successes be scaled and replicated in other areas? •  How much aid is needed to achieve that scale? 30 To Study The Numbers in Detail www.oecd.org/dac/stats/data  31 Thank you! 

Foreign Aid "101"

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Foreign Aid "101"

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