Select Committee on International Development Minutes of Evidence


Examination of Witnesses (Questions 20-39)

BELEN VAZQUEZ, JENNY ROSS, JUDITH RANDEL AND TONY GERMAN

TUESDAY 23 APRIL 2002

  20. But to do the kind of partnership where substantial flows of money as budget support in some way or another are going to a country which is fulfilling its side of the partnership should be reserved for those countries which fulfil their side of the partnership because otherwise it will go into Mercedes cars, sheep farms in Australia, Swiss banks and so on. Should we try to make that distinction?
  (Ms Vazquez) Stronger conditionality goes with aid funding now and this is especially the case with the US at the moment. I do not want to enter the debate about what is good about conditionality and how we define good and bad performers because it is rather academic. What I do want to say is that conditions look good in theory when we look at good governance, rule of law, etcetera, but the problem is when we put them into practice. Let us say the criteria for assessing a country's performance are not clear to us—maybe they are clear to the Committee—they are not transparent. We do not know how governments decide to suspend aid, on what basis they decide to suspend aid for one country or another. The decisions are not consistent. For instance let us think of Pakistan where the donor community decided to suspend aid in 1999 following the coup and now everyone seems to have resumed co-operation with this country. Co-operation was suspended on the grounds that no democratic government was in place and as far as I am concerned the same government is in place. Another thing about aid conditionality is that it cannot be used in the one-size-fits-all approach. I was talking to the Development Co-operation Minister of Sierra Leone at Monterrey. We have post-conflict countries where maybe not all the conditions are already in place but they still need financial support from the donor community so you cannot treat post-conflict countries in the same way as you treat countries which are in the process of consolidating democracy. There are several problems with putting aid conditionality into practice. This should be developed and should be flexible enough to adapt to countries' contexts.

John Barrett

  21. Clearly the figure of 0.7 per cent trips off the tongue but conditionality is slightly more complicated, particularly in relation to dealing with the United States one would imagine. When you see the chart of ODA as a percentage of donors' GNP, right at the top are countries like Denmark, the Netherlands which one would not imagine would be trying to put too many onerous conditions on recipient countries and right down at the bottom is the United States which may be a country which would like to see a lot of conditions linked with aid. How can you see the way forward in relation to conditionality, particularly when one of the countries most people are trying to encourage to increase that percentage is the United States?
  (Mr German) Most of the academic studies which looked at conditionality have concluded that it does not work. The first thing is that people need to get real about conditions and say, especially when in one year Tanzania had to meet 121 conditions attached to its aid, that a plethora of conditions is ridiculous because it simply does not work and it puts an immense burden on countries in trying to comply with all the conditions. The first step is to say it does not work and then to try to invest in what does work. Linking what you asked to the question of what makes a good donor, what makes a good donor is not making the fragmentation even worse by everybody having their own individual little programme. Progress that has been made in discussions within the group of development ministers is about collaboration and shared programming and that it is better for more countries to get together to do joint programming rather than having to have their own little bit, which only makes it much more difficult for host finance ministries to track the money and then to be accountable for how the money is being spent. If you take a consistent approach to long-term financing and a collaborative approach with other donors to long-term financing then that will invest in local capacity and local accountability and that is the opposite of imposing conditionality externally but it is much more likely to work.

  22. Is approaching the US on the basis of the conditions they would like to attach to aid as important as discussing the figures? The figure is what people know about, the conditions are slightly less well known. It is probably completely unrealistic to think that the United States are going to fund certain regimes with certain trade arrangements—and there are certain post-conflict countries which are most in need of aid—until they have a structure in place which will see that aid is effectively spent.
  (Ms Ross) One thing to mention which we can share with the Committee is that during the Monterrey conference, BOND, with its US counterpart and its Norwegian counterpart, ran a forum on aid. During that forum there was heated discussion between the Minister for Economic Planning and Development from Sierra Leone and the Head of USAID, Andrew Natsios, on this very issue. I can send that through to the Committee and it is quite interesting[14]. We can report what happened but we do have a verbatim report of that and it demonstrates how these debates are going on at ministerial level and the difficulties there are in overcoming the US's reluctance to approach aid in the same way. One of the key things about donors and the key principle is that aid should go to the poorest and at the moment only 17 per cent of US aid goes to the least developed countries. As you know, having just done a European report, EU aid performance is better than that, but still not great. One of the key things which NGOs need to be doing more is publicising to the public and making governments more accountable and making it clear that actually aid is not going to go to the poorest and that is one of the key reasons why you are not seeing these developments. Money is not going on basic health and education and a great deal of US aid is now tied and goes to US corporations and US technical assistance.

  (Ms Randel) The US is a very odd donor, particularly on the conditionality side. Congress has a huge influence on very small amounts of money. There are reports literally this thick of congressional approvals for project, by project, by project within things like the child survival programme. In some ways that is very good because you have a lot of political input. In other ways it is very fragmented and an official within a developing country will be responsible for ensuring that this little pot of £10,000 or small amounts of money go to a particular thing. US aid is very programmed, so there is an issue there. On the question of whether you should focus on volume or conditionality, there is this huge issue about volume because of a misperception in the States about the burden they share. Because they spend—equal with Japan more or less—a very large amount of money on aid compared with what other donors spend, the perception is that they are bearing the large burden, because a quarter of humanitarian assistance is funded by the US at least and so on and so on. There is a big information job about both how much money the US is spending as part of the international effort and also what a tiny percentage it is of the federal budget. It is something like 0.3 per cent of public expenditure in the states, compared with 0.6 per cent for the OECD as a whole. Public perception is that it is very, very high spending. There is a big job to do on volume.

  (Ms Ross) For the US, the extra annual spending of $11 billion required to meet the 0.7 per cent target represents around a quarter of the increase in military spending scheduled for 2003 and announced after 11 September, and a seventh of the tax cuts for the period 2002-14. Education is needed at that level and we are working to try to create international coalitions of NGOs working on these issues to pressure donors to give more aid to the poorest, do more donor harmonisation, untie aid alongside progressive governments such as the Utstein group and the UK Government which have been quite progressive on these issues.

Mr Robathan

  23. You say it is an educational job for the United States. I find that slightly strange since you have also said that they produce one quarter of the world's development assistance. That is quite a lot.
  (Ms Randel) Humanitarian assistance, emergency assistance. For emergencies, the US funds about one quarter of the global effort, but about one fifth of the global aid effort.

  24. As a Briton, I am not going to preach to the United States, never mind the 0.7 per cent.
  (Ms Randel) It is the burden sharing point.

  25. I understand the point but I think we should be slightly wary about telling the United States' taxpayers how to spend their money, although I do take the point. That is not what I want to talk about. Since you are saying there should be greater co-operation, of course I entirely agree, it is very sensible that there should be greater co-operation. Would you therefore like to see more done through UN agencies in general? Yes or no? That is the way that a lot of British Government money is now being spent. We have committed more through UN agencies and multilateral rather than through bilateral aid.
  (Ms Randel) It depends on the UN agency. For instance, if you want to improve public health, then investing more in UNICEF would be a very, very sensible thing to do.

  26. Is it not the case that the UN charges 13 per cent administration costs?
  (Ms Randel) If you look at the administration costs for bilateral donors, you will find that they are at least that or higher.
  (Ms Vazquez) Bilateral aid is tied.

  27. British bilateral aid is not tied.
  (Ms Vazquez) No, that is the only exception.

  28. Do you not think 13 per cent is quite a lot to charge on administration? I think it is an awful lot of money to charge for disbursement. It is quite an issue with a lot of NGOs that I know.
  (Ms Randel) It is a difficult question because what people include in administration is very different between donors, so it is very hard to compare. The number of officials you have delivering however many billion dollars' worth of aid is another mechanism people use to compare between UN agencies and bilateral donors. I certainly would not want to be in the position of claiming that UN agencies are necessarily more efficient than some bilateral donors at least.

  29. Regarding the untying of aid, the UK Government, working closely with NGOs such as yourselves, have been at the forefront of moves to untie aid and we all agree that this is a good way forward. It is a measure which the OECD's Development Assistance Committee estimates would release an extra $5 billion of aid resources. What is the status of discussions with our EU partners about them untying their aid?
  (Ms Ross) Work on EU aid is continuing and work on bilateral aid is continuing on aid untying. A paper is going to be put together on aid untying. What happens to that paper ...? The discussions are ongoing and the UK Government are at the forefront of pushing those discussions but several governments are hostile to aid untying and slowed down the process of discussions around aid untying.

  30. Which?
  (Ms Vazquez) Denmark and Germany. As you know, Action Aid presented a legal complaint to the European Commission on this very issue, saying that bilateral aid tied programmes were in contravention of EC law on internal market rules. The aid procurement markets cannot be closed, so therefore you cannot discriminate. It is not only bad from the developmental point of view but also from the economic point of view and it is in violation of EU legislation. That legal complaint has been ongoing for two years and the Commission has not made much progress because the Commission relies on information from Member States about their own procurement systems and they have not been very willing to give that information. This is where we face a blockage. We need evidence against Member States' tied practices.

  31. Regarding British aid, which is the only thing in which we really have interest, if any, Clare Short is very keen that private money and inward investment will generate a much greater poverty reduction than straight aid money. I think we would agree with that; I certainly would. I think we would all agree that untying aid is in principle a very good thing. The complaint I have heard from British companies is that if they cannot get a contract from the UK Government, from DFID, consultants or whatever it might be, and they cannot get them from our EU partners because they are tied and only giving them to national companies, or largely, you then end up with a situation where the British overseas investment is drying up because they are not getting any contracts. What do you think the solution to that might be?
  (Ms Vazquez) Development assistance should not be used as a form of subsidising home companies. There are other instruments within a government to promote export: you have export credits, you have ministries of trade, etcetera. What we have to work on now is challenging first of all our European colleagues to untie and then the rest of the world, the Japanese and the Americans. Seventy per cent of US aid is tied and the Japanese are no better than the Americans. We should concentrate first on untying European bilateral aid and then other donors' aid.

Mr Colman

  32. To confirm what has been said, the four countries which have a percentage above 0.7 per cent, that is Denmark, the Netherlands, Sweden and Norway, all are tied aid and it is in fact support for their business community. One shake of the head and one nod. What is the answer? All of these are really to support home industries in those four countries.
  (Ms Ross) I am not clear on all of the governments individually.
  (Ms Vazquez) Yes, they do. They all have different proportions of tied aid. Sweden's proportion of tied aid is smaller than Denmark. Denmark is the country which ties most in that group. You are right they all have tied aid.

  33. It would be helpful if Development Initiatives, as a research body, could provide this information as a breakdown of ODA as a percentage of DAC donors which would help in our thoughts going forward[15]. I know at the prepcom and at the conference one of the things put forward by the Interparliamentary Union, which represents all the parliaments of the world who choose to belong to it—I regret to say that the United States still has not rejoined but they were represented—was that all aid flows to developing countries, the use of those aid flows or the approvals of those aid flows, would have to go through a vote of those parliaments and that there should be ongoing scrutiny on a six-monthly basis of how that aid was being used. Was this something which was discussed in Monterrey and if it was not discussed do you think it should have been? Is this something you would approve which is to have scrutiny, accountability? At the moment there is no requirement for IMF, World Bank or any aid flows to be discussed, approved in any way by any developing country's parliament. Do you agree this is a good way forward?

  (Ms Randel) Yes; absolutely.

  (Ms Ross) Yes. As donor countries are constantly preaching good governance and good governance is important to improve the effectiveness of aid, I would have thought that accountability to parliaments on governance of aid flows would be something donor governments should be supporting.

  34. Was it discussed in Monterrey?
  (Ms Ross) No.
  (Ms Vazquez) No.

  35. That was the first conference where the IPU had observer status and I regret to say that it was at exactly the same time as the IPU Marrakesh conference, so a number of the people who could have been at Monterrey were in fact at the Marrakesh annual meeting. My second question is about this business of dialogue and partnership. You were saying civil society and business interests were present through the whole process. All the information which has been given to us by Development Initiatives is about government ODA. Was there any discussion about the quantum of private sector development assistance untied or of, let us say, the money raised by NGOs? We are about to come to Christian Aid week. A lot of us assumed that quite large sums of money are raised in this country which are disbursed as development assistance. Were there any discussions about what the quantums were around this? How much is being raised that could go alongside development assistance as partnership on a global basis, on a country basis? If this was not raised, it would be very interesting for Development Initiatives to seek to collect this sort of information. A very interesting discussion at the moment in this country is about the Health Service and people look at what is going through government and what is going through the private sector and you have a total sum. I just wondered whether similar figures were available for what private individuals are donating in the United States as opposed to what the government is contributing and similarly in this country and other countries around the world. Is there in fact a much larger amount of development assistance going out into developing countries which none of us really knows about or has not been tracked?
  (Ms Randel) The last bit is the most correct bit. None of us really knows about it. The estimates range from something like six billion to something like $18 billion which is rather a large range of total voluntary flows from developed countries to developing countries. We did do a paper for the White Paper on Globalisation on voluntary flows which I have brought with me, for which the Charities Aid Foundation showed the total UK development NGO income for 1998 at just over £1 billion. We are talking about significant sums of money, especially as it will probably be going to the poorest countries and to basic social services.

  36. Was this data collection discussed at Monterrey, given the partnership approach?
  (Ms Vazquez) Not as far as I know. The US administration repeated on several occasions that although the US official assistance may not be that large, a huge amount is coming from US foundations and charities which had to be taken into account. I have the figures but not with me.

  Mr Colman: Could that be provided to us[16]? It is interesting as a scoping exercise: where we are now, where we wish to go and how this relates to the 2015 target achievement country by country, both how much is raised in the donor country and how much is disbursed in the country which is the recipient. ODA may in fact be a minor amount. I do not know. Clearly it is the view of this Committee that it should be increased, but it is worth having an overview as to what is actually going on.

Hugh Bayley

  37. The importance of private sector flows should be factored more prominently by the lobby generally into the equation. All of you made some very interesting responses to my earlier questions. Judith made the point that amongst the responsibilities of donors should be to change policy in areas other than development assistance, such as trade and agriculture subsidies. That also must be a pre-condition. Without change to the terms of trade again development goals will not be reached. It is quite right for people to make proposals, whether it is the World Bank or NGOs or parliaments, to turn Doha into a development round, to reform agriculture in poor countries. I wonder whether it would be sensible to seek to supplement the progress such as it was at Monterrey by setting goals or targets for the volume of imports to developed countries from the poorest countries. If you could get developed countries to sign up and say yes, we must have a tripling over a decade, or whatever it is, of imports of agricultural products, then you would be required to do things in terms of tariff and non-tariff barriers. However, if you simply demand change, which we should continue to do on tariff and non-tariff barriers, certain things will happen, but people will not be under any obligation. There is a commitment in principle to 0.7 per cent so you have been able to nudge people up over the years, at least use that as an argument, so there is a commitment to volumes of trade. Would that be a useful thing to set? Do you think that would be a useful goal and lead to policy change?
  (Ms Randel) I do not know, but I do remember reading the US statement that that was one of the things that the Minister reported on, the volume of imports into the US from developing countries as part of their development effort.

  38. Could you find that document?
  (Ms Randel) I have it right here.
  (Ms Vazquez) It is a question of indicators: how do you measure development? Just by the volume of developing countries' imports? It is a good measure but we also have to think of human development indicators.

  39. Forgive me, whether they are good or bad, we have the Millennium Development Goals which are human development indicators. What I am trying to think of, in the same way that we have 0.7 per cent as a goal to strive for in terms of north/south financial flows from aid ... You asked the right question. Is the volume or cash value of trade a good indicator? I do not know. Brighter people than I need to try to work out what is the right thing. The question is: should an indicator of that kind be used to try to promote accelerated policy change on the terms of trade?
  (Ms Ross) BOND does not advocate or campaign on trade, but trade campaigners would probably say that there was no shortage of banner headlines for how you could improve terms of trade: zero tariffs. The point is that the political will is not there to do it. With any proposal you might come up against the same problem, which is also the same on 0.7 per cent, which is that you can have your banner headlines, but there has to be the will for change.
  (Mr German) In principle anything which encourages engagement with developing countries, including trade, is very welcome. However, you have to remember that most private finance which is invested in developing countries is not targeted on poverty reduction. It may be welcome, it may contribute to growth, but if you look at the people who are chronically poor, then they are the people who most need the aid which is the only international resource which can be specifically targeted on poverty and the goals. On the question of promoting broader engagement, I did want to mention the UK Council for International Co-operation, which we put in our note. If you do have something like a UK Council, then it could promote every kind of engagement with developing countries, be it through aid, be it through exchange visits, be it through investment. That is very important. Our discussions with people from the private sector show that a lot of them are extremely well disposed towards development, both for business purposes and for humanitarian purposes, anti-poverty purposes.


14   Not printed. Copy placed in the Library. Back

15   Ev 30. See also supplementary memorandum from ActionAid/Bond, Ev 35. Back

16   OECD Development Co-operation Report, 2001, Table 13. Back


 
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