Aid, MDGs and the Triple Crisis

To celebrate its 25^th anniversary, the UN University/World Institute for Development Economics Research, UNU-WIDER, in mid-May organised an international conference on The Triple Crisis – Finance, Food and Climate Change. The conference provided a number of insights and analyses of relevance also for the discussion on the role of MDGs beyond 2015, within the framework of the financial crisis, climate change and the related issues of global food and energy security.

One conclusion from the conference is that development economics is back as a main analytical tool, after almost three decades of marginalisation during the hegemony of the ‘structural adjustment’ doctrine with its emphasis on macroeconomic stabilisation. The focus appears now to move back to the challenge of transforming the African economies from being agriculture and commodity based into manufacturing and service economies with strong external competition from the emerging economies.

A related challenge is how to improve agricultural production and raise its productivity. Here the well-known debate on the potential for smallholder farming versus commercial large scale farming, including the new issue of land grabbing came to the fore. Linked to this is the elevation of employment issues on the policy agenda and the rapid rural-urban migration. It was argued that this is due to the perception of large groups of unemployed urban youth as a security threat in many countries.

Judging from the discussion at the WIDER conference, the research community is also returning to another area that has been marginalised during a significant period, namely the importance of reducing the galloping inequality. This is important both intrinsically and for the effectiveness of poverty reduction efforts. Professor Frances Stewart, Oxford University, referred to recent studies showing that, contrary to traditional theory, reducing inequality in most cases increases growth − especially inclusive, pro-poor growth − and thus effectively reduces poverty.

The aid analyst Roger Riddell, among others, expressed concern over the increasing complexity of the aid system. New aid modalities and instruments are introduced and an increasing number of purposes for aid are added. The mushrooming of vertical funds and special international and national programmes in areas like HIV/AIDS, climate, environment, education, ITC, etc are motivated by the importance of these activities in development. The flip side, which seldom is paid attention to, is that the uncoordinated proliferation of new actors and modalities in the field of aid is seriously eroding the Paris Declaration principles, such as harmonisation and alignment to recipient countries’ budget and other systems and institutions.

This trend is further exacerbated by another policy trend − in itself positive − namely enhanced coherence between the various policy areas of donor countries. This trend has been promoted by OECD/DAC and the European Commission, and adopted by Sweden as the framework for its Policy for Global Development. The intention is to secure coherence between various policy areas, so that trade and agriculture policies among others promote rather than counter the development policy objectives. However, coherence is a two-way street; it can also be used to finance politically more powerful policy areas with aid funds, e.g. security, trade, migration, agriculture or industrial policy. Moreover, it may undermine the efforts to increase the effectiveness of aid by focusing on fewer sectors and reducing the number of cooperating countries.

Aid is increasingly being integrated in a multipurpose policy context where multiple and mutually dependent, but sometimes also incoherent, objectives are to be fulfilled – security and peace keeping, climate change mitigation, employment creation, increased food and energy production, etc. Thus, the role of aid is changing and the provision of aid for development purposes risks to be further eroded.

So what about the MDGs beyond 2015 in this context? For the next few years, concern was raised that the needs of poor countries risk to be forgotten when many donor governments are forced to handle their bolting debt situation. As a result of the triple crises, the commitment of OECD countries to increasing aid and focusing it on the MDGs may be weakened further, while the crises make aid for poverty reduction even more important.

At one point the WIDER Director Finn Tarp emphasized what I consider to be the main aid paradox. Poverty reduction, which is the overarching objective of aid, requires among other thing rapid economic growth, which in turn puts pressure on climate and, hence, on food production/security. Parameters such as depletion of non-renewable energy and mineral resources could have been added. Development research and development policy will have to strike an intricate balance between these parameters.

The majority of the poor in the world live in the rural areas of South Asia and China, but nobody is today arguing that aid will solve their problems, in particular not the governments of those countries. Instead the successful rapid growth policy and the radical transformation of their countries are expected to take care of poverty, although a number of researchers are raising concerns regarding the environmental and social sustainability of the trend.

If there will continue to be a link between aid and poverty reduction along the lines of any revised MDGs beyond 2015, I would suggest that its scope should be limited to the least developed countries and in particular to Sub-Saharan Africa. Any major effort to support African development will have to take into consideration the changed aid landscape in Africa due to climate change, increased world market prices of commodities, food and energy, as well as emerging markets’ combined aid/trade/investment agreements and thereby alternative modalities to achieve external funding available to African governments. The traditional DAC donors, UN agencies and IFI’s will have to adjust themselves to this dramatic sea change in development finance.