Select Committee on International Development Minutes of Evidence


Memorandum submitted by ActionAid

EXECUTIVE SUMMARY

  ActionAid believes that the outcome of the recent UN Financing for Development conference (March 2002), the "Monterrey Consensus", does not provide long-term solutions to secure the resources needed for reaching the Millennium Development Goals (MDGs). Instead, it leaves a number of issues unresolved:

    —  The long-term funding for the MDGs and the UN 0.7 per cent target.

    —  The strategy to enhance the quality of aid[1].

    —  The unbalanced partnership between the donors and recipients.

  In line with the FfD review process, ActionAid urges the UK government to make progress on the following points by 2005:

    1.  To announce a binding timetable for raising the overseas aid budget to 0.7 per cent GNP within the life of the Parliament.

    2.  To verify compliance of EU member states to the proposed target of 0.33 per cent GNP and to encourage other EU states to adopt timeframes for reaching the 0.7 per cent target.

    3.  To use its membership of the G8, DAC and multilateral financial institutions to encourage other donors such as the US and Japan to set timeframes to reach the 0.7 per cent target.

    4.  To press donors for progress on the quality of aid agenda and to push for a common action plan which translates the vague Monterrey commitments into practical measures.

    5.  To continue challenging other donors to further untie aid, in particular as regards untying between the 15 member states.

    6.  To contribute to a true partnership between developed and developing countries by adopting and encouraging others to adopt coherent policies in relation to development and poverty reduction.

INTRODUCTION

  ActionAid welcomes this opportunity to submit evidence to the International Development Committee in the inquiry into the UN Financing for Development Conference (FfD) and particularly in reference to the ODA chapter. The FfD conference faced the challenge of agreeing the means and resources to meet the Millennium Development Goals (MDGs). The MDGs represent one of the most serious challenges of our times: lifting up to 800 million people out of poverty and delivering some of their basic needs; among others, basic education and health by 2015.

  ActionAid welcomes the efforts made by governments during the 18 months proceeding to the Conference to agree to a final document, the Monterrey Consensus. The Monterrey Consensus acknowledges that the MDGs cannot be met with existing levels of resources and that increased official development assistance (ODA) is critical to the achievement of these goals and targets.

  These broad policy statements form a good basis for restoring the international credibility of the MDGs and starting to reverse the decline of world aid. However, they have not been translated into concrete target figures and deadlines. In the absence of a concrete action, the Monterrey Consensus remains mere reaffirmation of "old" commitments, such as the 0.7 per cent target—a commitment made 31 years ago, and the MDGs—endorsed by the UN Millennium summit in 2000. Unless there is a massive increase in aid levels and improvements in the quality of aid, there is no prospect of the MDGs being reached.

MONTERREY OUTCOMES—ODA: AID VOLUMES AND EFFECTIVENESS

1.   Aid debate reactivated

  One of the merits of the FfD conference was the reactivation of the long-standing debate on aid levels and the creation of space for discussion at a time when world aid levels are at their lowest ever. Just a year ago, it would have been unthinkable to have the issue of the huge financial gaps for funding the MDGs on UN official agendas. Nevertheless, it is also true that the aid debate became prominent during the process partly due to the manifest lack of progress in other important areas, i.e. no readiness to revisit HIPC II, no specific action as regards innovative sources for development or no concrete initiatives to give poor countries greater voices in international financial decision-making.

  A first attempt at costing the MDGs was provided by the Zedillo report[2]. The benchmark was put at an extra US$50 billion per year or doubling current aid levels[3]. The World Bank reconfirmed the figure as a valuable benchmark and warned of the likelihood that more than 65 countries would not meet the goals without further external assistance[4].

  Given the current global economic and budgetary constraints, no one expected that such an enormous amount of money was going to be made available as a direct result of the conference. This is why expectations were high around donor countries significantly increasing their ODA and setting timeframes to pull together the required resources.

2.   EU-US AID ANNOUNCEMENTS FALL SHORT

  The EU-US aid announcements are the only concrete outcomes of Monterrey. Both announcements are appreciated although they fall short of closing the Millennium financial gap of US$50 billion per year up to 2015.

  The US will effectively increase the US foreign assistance budget by 50% over three years[5], spread as follows: US$1.3 billion in 2004, US$3.7 billion in 2005 and US$5 billion in 2006. The 2006 level, US$20 billion, will then be maintained in subsequent years. The US announcement is a positive step although the fact that it was made on the eve of the Conference signals more of a late response to mounting pressure rather than a real commitment to the goals.

  The limitations of the new US aid package are evident. The new amount will be eroded over the years by inflation, as it is not linked to a percentage of GNP, and it has not got Congress approval yet. Strong conditionalities will go alongside this additional foreign assistance. The conditions are familiar, ie good governance, policy reforms, investment in health and education and democracy and rule of law. However, what it is unclear is the sort of criteria that the US administration will use when assessing southern countries' performance. There is a manifest risk, proven by recent events, of aid allocations being subject to political purposes.

  The EU reached an unprecedented agreement to increase aid in a concerted manner. The Barcelona Summit, following a recommendation from the European Commission, agreed to increase the current EU average of 0.33 per cent to 0.39 per cent GNP by 2006. This will raise total EU aid levels by extra US$7 billion, making a total of US$32 billion annually as from 2006.

  Its weakness lies in the fact that it only provides an intermediate timeframe (i.e. until 2006) for incremental increases in bilateral aid budgets. It is also limited in terms of enforceability as it is unclear what measures could be taken against a Member State that will not comply with the deadline.

  The EU-US unilateral announcements highlight the lack of absolute consensus among donors over the quantity and sequence of additional aid funding. Although they seem to have put a halt to the decline of aid experienced over the past decade, they are modest responses that will generate merely a quarter of what is required[6].

  The inconsistency here is between what the Monterrey consensus preaches and what is on offer. Donors have sent a message that aid is a crucial factor in meeting the 2015 goals and targets. The key question now is what is their strategy for increasing aid allocations between Monterrey and 2015? Monterrey has not solved the question of long-term aid funding nor has it set a timeframe for reaching the 0.7 per cent target.

  Further, it is important to remember the MDGs have set a target to halve the world's population that lives under a dollar a day—800 million people. Even in the best-case scenario of this goal being realised by 2015, there will still be 800 million living on abject poverty and an additional 1.6 billion living on less than two dollars a day. Long term solutions are critical.

3.   The UK to play a more significant role

  The UK has fully supported collective progress towards the 0.7 per cent target. It has particularly worked with its European colleagues to secure the EU bloc announcement as a concrete outcome of Monterrey. However, the new EU package will not significantly affect UK budgetary plans. Current UK aid levels are at 0.32 per cent and as publicly stated by Clare Short, there are plans to reach 0.33 per cent by 2004. The reality is that the EU announcement does not reflect a fair share of efforts among the 15 member states as aid levels in the EU largest economies are already close to the proposed average of 0.33 per cent[7]. The pressure to increase aid budgets will fall disproportionately on Southern European countries such as Spain, Portugal, Greece and Italy.

  We urge the UK government to address the limitations of the EU proposal by contributing to clarify Member States' responsibilities and compliance with the proposed 0.33 per cent average and encouraging the adoption of a subsequent timeframe to reach the 0.7 per cent target across the EU.

  In the UK, the Comprehensive Spending Review (CSR) process is due to be completed by July. The CSR provides an opportunity for the UK government to build on the commitments of Monterrey. We call upon the UK government to announce a binding timetable for reaching the 0.7% GNP target within the life of this parliament. We also call on MPs to use their influence wherever possible to hold the Government accountable to this commitment.

  Bilateral aid increases will make the UK the largest ODA provider in terms of percentage of GNP in the G7. ActionAid urges the UK government to use its leadership in the G7 group to keep up pressure for increased aid, particularly as regards Japan and the US. It is disappointing that one of the UK's most interesting proposals put forward by the Chancellor, the setting up of an International Trust Fund that will generate US$50 billion a year, has not materialised[8]. The UK's role in the G7, DAC, the EU and key international financial institutions provides medium-term opportunities for keeping the issue on the international agenda, encouraging other donors to set up timeframes for achieving the 0.7 per cent target and further exploring initiatives for increased funding.

4.   No concrete outcomes on the aid effectiveness front

  The Monterrey consensus embodies positive commitments to enhance the quality of aid, in particular commitments to increase Southern governments' ownership of the procurement and use of local resources for technical assistance. ActionAid welcomes these commitments but remains concerned that the very general way in which they are framed will result in a lack of concrete outcomes.

  Discussions regarding ways of boosting the effectiveness of aid are not new. The DAC has been working for a considerable number of years on issues such as harmonisation and simplification of procedures, untying, reform of technical assistance among others. Yet, to date this work has not translated into practical initiatives.

  Aid untying is an area where donors could have progressed in enhancing aid effectiveness. Previous to Monterrey, there was already a strong case for donors to untie. The OEDC/DAC had agreed to untie aid to LDCs acknowledging that tied aid undermines the value of aid. The OECD/DAC has estimated that half of world aid remains tied and that if all aid were untied, the increased effectiveness would be equivalent to a US$5 billion increase[9]. Although the arguments in favour of untying were given a new momentum, the results are disappointing. The Monterrey consensus is just a blurred reaffirmation of the DAC agreement, an agreement that donor governments have not yet even started to implemented.

  ActionAid strongly welcomes the continuous efforts made by the UK to challenge other donors to untie. In particular, the UK initiated a proposal inside the EU for the untying of bilateral aid between EU Member States. This proposal was aimed at bringing national regulations in line with EC public procurement directives. For a number of years, ActionAid has sought to make the case that tied aid, as a form of protectionism, runs counter to EU internal market and free competition rules. ActionAid maintains with the European Commission a legal case that if successfully proven would compel all Member States to untie all bilateral aid (the UK did so in April 2001).

  It is disappointing that the proposal to untie among the 15 was rejected when it could have represented an additional concrete measure by the EU for Monterrey. The disagreement in the EU shows that untying is not a central issue for most EU countries. Economic reasons and commercial pressures continue to outweigh free and fair competition considerations.

  The UK government must continue to press the aid effectiveness—aid quality agenda vis-a-vis other donors to make sure that the Monterrey consensus translates into a donor action plan for aid effectiveness.

5.   An unequal partnership

  Throughout the FfD process, we have witnessed donor governments emphasising aid effectiveness over volume. Aid effectiveness has been repeatedly referred to by donors as the set of conditions that recipient countries must have in place in order for aid to work and so for them to receive support.

  Donors regard aid effectiveness as a core element of a new partnership between developed and developing countries. However, what the Monterrey consensus reflects is an unequal partnership. In the consensus document, developing countries have accepted the responsibility for their own development and for creating the conditions for high growth and poverty reduction, while developed countries have failed to correspond by providing sufficient and good quality aid.

  In a more general way that goes beyond purely development assistance, donor governments have resisted any attempts to review a number of policies that presently undermine the value of aid, such the debt burden, trade barriers to developing countries' exports or agricultural subsidies[10]. Aid could be more effective if developed countries moved towards a more coherent set of policies.

  True partnership on the part of developing and developed countries is needed if the potentials of Monterrey are to be fully realised.

6.   Recommendations—looking forward

  The Monterrey conference did not result in a concrete action plan from donor governments to meet the MDGs. The Monterrey Consensus is also unbalanced. It focuses attention on southern governments' responsibility for the conditions in which aid can be effective but it fails adequately to recognise donors' responsibility to deliver sufficient, good quality resources.

  The FfD conference agreed to review progress by 2005. In the coming years, governments will need to fill the gaps left by the Monterrey consensus with tangible actions. ActionAid urges the UK government to make progress on the following action points by 2005:

    1.  To announce a binding timetable for raising the overseas aid budget to 0.7 per cent GNP within the life of the Parliament.

    2.  To verify compliance of EU member states to the proposed target of 0.33 oer cent GNP and to encourage other EU states to adopt timeframes for reaching the 0.7 per cent target.

    3.  To use its membership of the G8, DAC and multilateral financial institutions to encourage other donors such as the US and Japan to set timeframes to reach the 0.7 per cent target.

    4.  To press donors for progress on the quality of aid agenda and to push for a common action plan which translates the vague Monterrey commitments into practical measures.

    5.  To continue challenging other donors to further untie aid, in particular as regards untying between the 15 member states.

    6.  To contribute to a true partnership between developed and developing countries by adopting and encouraging others to adopt coherent policies in relation to development and poverty reduction.

ActionAid

April 2002












1   We refer to the quality of aid delivered by donors and its relation to the impact of aid intervention. Back

2   http://www.un.org/esa/ffd/aac257-25. Back

3   Current world aid level is US$53 billion or 0.22 per cent GNP. Extra US$50 billion would raise the percentage from 0.22 per cent to almost 0.50 per cent. Back

4   Reaching the MDGs, report by WB at www.worldbank.org/developmentnews/stories/html/022102a.htm. Back

5   Currently, the US is the donor with the smallest allocation in terms of GNP, with a level of US$10 billion/year or 0.1 per cent. Back

6   EU and US new pledges combined will provide extra US$12 billion or 25 per cent of US$50 billion. Back

7   Indeed, the UK is at 0.32 per cent, France at 0.33 per cent and Germany at 0.29 per cent. Back

8   Gordon Brown's propsal is about long term commitments of donors to help developing countries to have better access to concessional lending. Back

9   OECD/DA policy brief, at www.oecd/dac.org. Back

10   Repayments for debt servicing represent a net massive transfer of wealth from developing to industrialised countries. Developing countries repay around US$300 billion, which is six times world aid. UNCTAD/WB have estimated that trade barriers from developed countries causes loses to developing countries of around $100 billion a year or two times world aid. Moreover, agricultural subsidies from rich nations are of the order of US$350 billion a year, six times world aid. Back


 
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