All posts tagged ODA

The Future of Offical Development Assistance

Posted by / 3rd July 2014 / Categories: Analysis, Polis / Tags: , , , , / -

Official Development Assistance has failed. Donor and recipient activities in the past decades have shown little success, and ongoing practices and ideas are subject of continuous criticism. What are the lessons learned and is the criticism valid? This article elaborates on those questions by shedding light on two cases from the 1990s in which the World Bank implemented reform programs in Guatemala and Nicaragua. Their successes were negligible.

Why ODA is controversial

“Aid” in itself has been divided in many subcategories and types, representing a multitude of different targets and aims. Humanitarian and relief aid serve immediate needs while structural adjustment programs and the millennium development goals are set out for the longer term. They aim to sustainably improve people’s livelihoods. So far there is little evidence to suggest that the billions of dollars circulating have actually had a positive effect. On the contrary, it is increasingly argued that development aid fails to achieve its proposed effects, and in some cases it even worsens the situation. Often this happens through increased government accountability to donors instead of the electorate, resulting in the deterioration of stability and decreased focus on local needs and progress.

Quantitative analysis found that countries receiving ODA over the course of decades are more likely to show decreasing quality of governance and democracy.  Furthermore, it seems that ODA is primarily given to countries that are able to present some minimum level of good governance already. Consequently, those countries that are most in need of support systems are less likely to receive aid. Certainly, it is understandable that donor organizations and governments refrain from giving aid to countries that are incapable of processing aid money. However, these countries should be given more attention and care.

The role of influential International Financial Institutions (IFIs) such as the World Bank or the International Monetary Fund is controversial. Their neoliberal political agenda is imposed on recipient nations through money lending programs, which condemn recipient governments to follow the specific requirements, posed by the IFIs disregarding any national attempts to develop towards a different political and economic model. The most prominent example is conditionality based lending, where recipient states are forced to implement certain conditions in order to receive financial support. Most often these conditions are related to changes in governance and increased democratization.

Originally conditions were designed to ensure that recipient states would be equipped and prepared to receive and process the incoming financial support. However, contrary to initial expectations, many recipient countries felt that the conditions were defined by the IFIs following their neoliberal development perspectives rather than national and local interests. As a result most conditionality-based programs are described as failures today.

Conditionality-based lending was most prominent in the 1980s and 1990s, a period in which many countries emerged from civil wars or dictatorships and were seeking to establish democratic nation states. It would be beyond the scope of this article to elaborate on the ‘West’s’ interests in this process. However, it needs to be clear that industrialized nations, especially the United States had and continues to have strong interests in many countries, especially in Latin America and the Middle East. This resulted in strong tendencies towards neoliberal development.

The Case of Guatemala and Nicaragua

Nicaragua and Guatemala are two examples of countries that have been subject to lending programs in the 80s and 90s after having emerged from civil conflict just recently before.

Nicaragua looks back at a violent past of a decade long kleptocracy by the Somoza family in the 1970s, followed by the guerilla dictatorship of the Sandinistas between 1979 and 1990. In first free public elections political and social change was introduced under the leadership of elected President Chamorro. The country entered a phase of reconciliation, reintegration and de-politicization of armed security forces. As part of the reform process decentralization and increased local accountability away from Nicaragua’s capital Managua were initiated. While the process was hampered by a lack of coordination among state actors and failure to bridge gaps between local and national interests, the international donor community entered the debate. Its considerable financial support effectively dominated the political dialogue and steered decisions towards its own interest.

In this situation the World Bank introduced an institutional reform program in 1995. It was designed to reform twenty ministries, reduce personnel costs and bureaucracy while increasing wages and technological advancement. In total US$ 33 million was invested. The reform was designed to run over five years, envisioning that each year five ministries would successfully reform their organizational structure, redesign its human resource sector and be fully equipped with new technology.

In the World Bank’s 2002 evaluation report, the results are rather moderate. Instead of twenty, only seven ministries underwent any parts of the reform. The other ministries decided to continue evolving on their own pace and agenda. Furthermore, the leadership and execution of the reform, which was supposed to be managed by a Nicaraguan government agency, was hampered by high fluctuation of personnel and unsatisfactory commitment. As a result, the evaluation report assesses the result of the reform as ‘likely’ sustainable. Given the minimal outcome and lack of compliance by Nicaragua’s government, this assessment is highly optimistic and far from reality.

The project had a relevant objective. However, in its entirety it appears to be detached from the political reality of Nicaragua at entry time as well as during its execution. It failed to acknowledge that Nicaragua was a country in transition with a lack of many democratic features; effectively leading to deterioration of people’s trust in democracy. The World Bank’s project contributed to the decrease in trust and lack of government effectiveness, through mistaking its own priorities with the country’s needs. Therefore, its millions spent failed to reach any of the project’s long-term goals.

A similar situation occurred in Guatemala, which was subject of a World Bank reform program some years before Nicaragua. Similar to Nicaragua, Guatemala suffered under a civil war up to the 1980s. In 1985 a new constitution was approved in order to secure peace and democracy. It took ten more years to put an end to the civil war, with yearlong peace talks between governing parties, UN representatives and foreign mediators. The peace treaty involved the establishment of a human rights accord, a demilitarization treaty and an accord on the rights of indigenous people as well as one on socio-economic advancement, centered on poverty alleviation.

Given the political developments, the World Bank’s involvement clearly shows the absurdity surrounding some ODA programs: In 1988 already it introduced a municipal development project that was designed to reform the municipality’s organizational structure, reorganize urban planning and thereby reduce urban poverty. Over the set out timeframe of ten years, the project constituted ten percent of all ODA received by the Guatemalan government.

From the outset, the reform was doomed to fail, as the initial loan disbursement was withheld: Guatemala’s creditworthiness could not be guaranteed. Later, in 1993 the loan disbursements were stopped entirely due to the lack of Guatemalan counterpart commitment. Furthermore, the government issued new laws that rendered the further implementation of the reform infeasible. As a result the main goals of the project were never achieved. Nonetheless, the results report describes the entire project as “satisfactory with likely sustainability”.

After 1995 the Guatemalan government implemented various reforms with similar aims as the ones stated in the World Bank reform program. However, they did so following their own agenda.

In the two cases presented the World Bank failed to acknowledge that the governments were not prepared to take the burden of intrusive structural reform and were incapable to implement it. As a result millions are lost with little measureable future effect. The political environment in both countries continues to be instable.

Where to steer in the future

Two contradictory directions for future involvement have been suggested: Firstly, donors argue that not enough money has been spent yet and once aid flows cross a certain threshold, their desired effects will be observed. In other words, more money is needed. Secondly, the development sector is becoming increasingly aware that its foreign involvement may have been more harmful than supportive, at least on a large scale.

The evidence so far clearly favors the second perspective. ODA has been more harmful than fruitful. ODA’s intrusive conditions force recipient governments to accurately follow IFI agendas, disregarding national political characteristics that might ask for different approaches to development. However, ODA must not be condemned it its entirety. If IFIs decide loosen their conditions and allow for more national ownership, the future of ODA could be bright. As the two case studies show, strictly prescribed ODA does not help. On the contrary, it may be misallocated and push for a development that is not supported within the recipient government. Seeing that the government of Guatemala did implement municipal reforms some years after the World Bank project, it is clear that the need for change is recognized locally, but it needs to follow its natural pace. ODA needs to become more flexible, allowing for recipient countries to choose who to collaborate with and which reforms to implement. Once the IFIs let go of their agendas, ODAs worst critics might be silenced and the road towards success could be revealed.