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Note: This document is from the archive of the Africa Policy E-Journal, published by the Africa Policy Information Center (APIC) from 1995 to 2001 and by Africa Action from 2001 to 2003. APIC was merged into Africa Action in 2001. Please note that many outdated links in this archived document may not work.

Africa: Aid and LDCs
Date distributed (ymd): 010529
Document reposted by APIC

Africa Policy Electronic Distribution List: an information service provided by AFRICA ACTION (incorporating the Africa Policy Information Center, The Africa Fund, and the American Committee on Africa). Find more information for action for Africa at http://www.africapolicy.org

+++++++++++++++++++++Document Profile+++++++++++++++++++++

Region: Continent-Wide
Issue Areas: +economy/development+

SUMMARY CONTENTS:

The Third UN Conference on the Least Developed Countries (LDCs), organized by the UN Conference on Trade and Development (UNCTAD), met in Brussels from May 14-20, with most observers seeing little new action to implement the anti-poverty goals repeated at the meeting. NGOs attending a parallel forum called the results 'disappointing.' However, coinciding with the opening of the conference, the OECD's Development Assistance Committee announced an agreement in principle to 'untie' $5 billion of the estimated $8 billion a year of bilateral aid to LDCs, opening contracts for supplying certain projects to international competition.

Below are several documents relating to the issues at the meeting: (1) the press release from OECD announcing untying of funds, (2) the press release from the parallel NGO Forum, and (3) a brief excerpt from UNCTAD's report on LDCs prepared for the meeting, in which UNCTAD Secretary-General Rubens Ricupero contrasts the status-quo view of development with a proposed alternative view. The outcome of the conference seems more reflective of the status quo view he critiques than the alternative proposed in the UNCTAD report.

Extensive documentation on the conference, including statistics on the 49 least developed countries (including 34 African countries) is available at
http://www.un.org/events/ldc3/conference/

According to a report in the Financial Times (May 14, 2001), official development assistance (ODA) to LDCs has dropped sharply over the last decade, from $17 billion in 1990 to $12 billion in 1999. The latest figures on Official Development Assistance to all countries show the total for DAC members as 0.22 percent of GNP, less than a third of the UN target of 0.7 percent. The U.S. continues to rank the lowest, with 0.1 percent, while Denmark,the Netherlands, Sweden and Norway exceed the target with 1.06, 0.82, 0.81, and 0.80 percent respectively. See
http://www.oecd.org/media/release/ODA_april01.pdf

Additional comparative statistics, with critical analyses of official aid written by representatives of both northern and southern NGOs, can be found in The Reality of Aid 2001 (http://www.realityofaid.org).

+++++++++++++++++end profile++++++++++++++++++++++++++++++

Organisation for Economic Co-operation and Development (http://www.oecd.org)

News Release Paris, 14 May 2001

Development Assistance Committee Reaches Agreement on Untying Aid to the Least Developed Countries

The OECD's Development Assistance Committee (DAC) has formally adopted a Recommendation to untie aid to the Least Developed Countries (1). The Recommendation was agreed at the DAC's High Level Meeting (25-26 April) ad referendum at that time in order to permit Members to secure political endorsement. The text of the Recommendation is available on the website at : http://www.oecd.org/media/release/dac_recommendation.pdf

The Recommendation is a concrete signal of donors' commitment to reforming aid practices to strengthen its impact and effectiveness. The agreement comes at a particularly opportune time in light of the Third United Issues Nations Conference on the Least Developed Countries, which opens in Brussels today.

Under the Recommendation, aid loans and grants covering a wide range of financial and project support (such as capital equipment, sector assistance and import support) will be open to international competition and no longer reserved to suppliers in the donor country. Total bilateral aid to the Least Developed Countries stands at around $8 billion (some 17% of total bilateral aid). The Recommendation means that about $5 billion of that will now be provided as untied aid. DAC Members are invited to continue to provide untied ODA in areas not covered by the Recommendation when they already do so, and to study the possibilities of extending untied aid in other areas and to other developing countries.

This agreement will improve the effectiveness of aid in various ways. It will realise better value for money (for taxpayers in donor countries, and for recipient countries). Tied aid is estimated to cost on average between 20-25% more than if the goods or services in question were procured through international competition. It will give recipient countries greater ownership of their development process and create the possibility to shape more efficient and rational public procurement capacities. In the context of the Recommendation there are provisions to promote and assess progress towards balanced effort-sharing among donors. In both developing and developed countries, the Recommendation opens up important markets to international competition that were previously closed and provides a level playing field for access to procurement markets by publicly advertising the aid offers covered by the Recommendation.

The Recommendation is focussed at the Least Developed Countries -- the world's poorest countries -- because of their relatively greater reliance on aid to support growth and development objectives. Untying aid to these countries will contribute to broader efforts by DAC Members in helping these countries to meet the international development goals (including that of the proportion of people living in extreme poverty by 2015).

Information For further information, please contact Helen Fisher, OECD Media Relations Division (tel. 33 1 45 24 80 97).

(1) The Members of the Development Assistance Committee are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom, the United States and the European Commission.

NGO FORUM at the UN LDCIII
(http://www.oneworld.org/liaison/forum)

Brussels, 20 May 2001 - Press Release

The NGO Forum has concluded that the overall outcome of the Third United Nations Conference on Least Developed Countries is disappointing in terms of the concrete commitments civil society was seeking. Success can be measured in different ways, however, and in terms of gathering the largest number ever of NGOs from LDCs to discuss with civil society representatives of other countries ways of solving LDC problems, and in terms of the important precedent this sets, the NGO Forum has been a success. It was a very important first step, one which needs to be followed up, and which we hope will contribute to the involvement of civil society in policy making on various issues of international concern.

The NGO Forum has identified, inter alia, the following weaknesses in the various areas addressed by the Programme of Action (LDC III):

• Debt cancellation: The NGO Forum is extremely disappointed that LDC III retains the framework of the Heavily Indebted Poor Countries Initiative (HIPC), which the NGO Forum considers completely inadequate for resolving the long-term problems of LDCs. As the representative of civil society at this Conference the NGO Forum is all the more disappointed by its failure to cancel this debt whose main victims - the people in the LDCs - were never consulted when the loans were signed. To go some way towards repairing this enormous injustice, the NGO Forum calls on governments and international bodies to ensure that civil society is consulted before any further loans are signed with the potential of crippling themselves and their grandchildren.

• Official Development Assistance: It is deplorable that LDC III signatories do not renew their commitment to raise ODA levels to 0,7% of GNP by 2005. In fact LDC III failed to set any target whatever for increasing ODA - even on the "commitment" to reach the lower 0.15% target mentioned in the text, donors have only resolved to "accelerate their endeavours to reach". The NGO Forum would furthermore like to see pressure applied to multinational corporations to sign up to the "Global Compact" initiative launched by UN Secretary General Kofi Annan in 1999. The NGO Forum welcomes the decision by donors to implement the OECD-DAC recommendation to untie aid to LDCs, which will significantly increase the value of aid.

• Trade: LDC III gives no commitment to ensure that any reforms to the World Trade Organisation system do not further undermine the interests of LDCs. It contains no agreement to address the fact that non-tariff barriers, and particularly protective measures disguised as sanitary standards, remain a severe impairment to LDCs trying to gain access to the markets of industrialised countries. While welcoming the UNCTAD initiative to hold a capacity-building session for LDC governments ahead of WTO negotiations in Quatar, the NGO Forum regrets that this initiative includes no provision for participation by civil society. Furthermore, LDC III did not heed NGOs' call for an international fund to address the international commodity crisis, but refers only in general to helping LDCs cope with it. There is also an absence of financial and political support for institutionalising fair trade, which as a voluntary system has proven to be a successful trade and development model.

• Environment: LDC III did not go far enough in committing to ensure an environmentally sustainable development of LDCs, including providing additional resources to assist LDC countries in mitigating the impacts of climate change and action on the part of developing countries to reduce environmental degradation - notably ending the dumping of hazardous waste in LDCs.

• Gender: LDC III lacks any formal recognition of the need to introduce concrete measures to introduce women in LDCs, particularly poor rural women, to user-friendly legal instruments which empower instead of disempowering them.

• Follow-up. NGOs will work to ensure the strategies identified in LDC III (both in the United Nations Action plan and by the NGO Forum) are followed up at international, regional, national and sub-national levels.

• On the subject of good governance, the NGO Forum reiterates its call on the United Nations to take further steps to help governments around the world realise that governance is the business of all the people of a country, and not just the prerogative of its leaders.

UNCTAD (http://www.unctad.org)

The Least Developed Countries 2000 Report
Excerpt from Overview by Secretary-General
[full report and much additional information available on site]

The current diagnosis for policy change

The diagnosis for policy change which is currently guiding the rethinking of international development cooperation can be summarized as eight central propositions.

• The relatively weak economic response to policy reforms in lowincome countries is a result of poor implementation rather than inadequate policy design or underfunding. Poor implementation in turn reflects the impossibility of rigorously enforcing policy conditionality, and thus allowing Governments that did not wish to implement economic reforms vigorously to get away with it.

• Aid will work if the national policy environment is right.

• The fundamental elements of the right national policy environment are present when Governments: (a) pursue macroeconomic stability by controlling inflation and reducing fiscal deficits; (b) open their economies to the rest of the world; and (c) liberalize domestic product and factor markets through privatization and deregulation.

• Insufficient attention was given in the past to the achievement of social objectives. Social policies, which should aim to ensure that development is more pro-poor, should thus now be integrated with the macroeconomic policies and structural reforms that define the right national policy environment.

• National policy will be most effective if donors are not in the driving seat and there is national ownership of policy. Ownership in this context means that Government, through a participatory process, takes the lead in the preparation of the strategic programme document which will guide the economic reform process and whose implementation will later be monitored as a condition for aid and debt relief.

• Aid effectiveness can also be increased if donors focus their aid on countries that have the right policies, i.e. increase the geographical selectivity of aid flows.

• Aid effectiveness can be increased by improved coordination between the IMF and the World Bank, and also amongst bilateral donors. The strategic documents prepared by the Government should provide a framework for this.

• External debt is a problem for highly indebted poor countries. But the debt relief provided through the HIPC Initiative will be sufficient to provide a sustainable exit from debt problems and will be effective in reducing poverty as long as the national policy environment is right.

Diagnosis for policy change: an alternative view

The issues of reorienting national policies, promoting national ownership and partnership, and increasing aid coordination are certainly the right ones. But the current diagnosis for change is too rooted in a perspective which locates past problems at the national level rather than in international economic relationships, and is also unbalanced in its attribution of policy mistakes and bad management between donors and recipients. The core elements of an alternative diagnosis for policy change, based on the analysis of this Report, can be summarized in seven propositions.

• In spite of problems of implementation and interruptions, and differences among countries, there has been a significant change in the policy environment of many LDCs in the direction of economic liberalization.

• It is correct to argue that it is necessary to have the right national policies for aid to work. However, the policies currently recommended have serious design shortcomings in the context of LDC-type economies. These go beyond their past insufficient attention to social issues. In short, they have neglected the impact of structural constraints, lack of social and economic infrastructure, weakness of market development, the thinness of the entrepreneurial class, and low private sector production capabilities. As a result, the new policy environment does not deliver high growth rates except when the external trade environment is favourable or reforms are adequately and stably financed. The sustainability of economic growth stemming from these reforms is questionable in most countries.

• Even if the national policy is right, this is not sufficient for aid effectiveness. The lack of coordination among the activities of various aid agencies and the failure to integrate their projects into domestic economic and managerial structures have undermined the sustainability of aid projects. Moreover, although the LDC economies clearly need foreign aid, the fragmented aid delivery system, administered by multiple donors, has profoundly disrupted the resource allocation mechanisms in these countries, with serious negative consequences for economic management, the overall efficiency of resource use, and economic growth in general.

• Aid effectiveness has also been undermined by the external debt burden. This has reduced public and private investment within recipient countries, and also had negative effects on the allocation and use of aid by the international creditor-donor community.

• It is artificial to separate the questions of the quantity and quality of aid disbursements. Increased aid flows will be ineffective without due attention to improvement of aid effectiveness. Similarly, its improvement cannot be divorced from considerations of adequate levels of external finance for the LDCs. Insufficient funding in relation to foreign exchange requirements and the dearth of contingency financing have undermined some structural adjustment programmes, thus contributing to programme interruptions.

• National ownership is vital for development programme success. But weak ownership is not simply a problem of donors bringing inappropriate "off-the-shelf" blueprints which are then imposed by the sticks and carrots of policy conditionality. The poor integration of the aid delivery system into national economic and administrative structures and the lack of coordination of donor activities have, in conjunction with strict policy conditionality on the fiscal budget, eroded government capacities over time, thus undermining the possibility for national ownership.

• Current expectations regarding the implementation of the enhanced HIPC Initiative are unrealistic. The scale of debt relief will prove insufficient to ensure debt sustainability in the medium term unless external conditions are very favourable and economic performance under policy reforms somehow improves; moreover, the magnitude of debt relief, and its manner of delivery, will not have major direct effects on poverty reduction, although it does provide a vehicle for promoting the adoption of pro-poor policies within poor countries.