Aid is not without any controversy. To some, it is a source of meeting poor country’s needs but to some it means promoting and safeguarding the donors’ interests and security. After 9/11, aid is being co-opted to serve in the global ‘War on Terror’. It has, therefore, strategic meaning.
The rewording of the rules by Organization for Economic Co-operation and Development (OECD) member countries while accessing aid also raises lots of unanswered questions. In OECD document, the purpose of aid is being extended by including terrorism prevention and a range of military activities. This can be easily visible when one assesses the aid flows in Afghanistan and Iraq. To be more clear about the changing dynamics of international aid, consider what British Prime Minister Gordon Brown said recently in Paris: “We understand that it is not just morally and ethically right that developing countries move from poverty to prosperity, but that it is a political imperative – central to our long-term national security and peace – to tackle the poverty that leads to civil wars, failed states and safe havens for terrorists.”
Increased allocation of military aid to address security concerns has shown symptoms of human rights abuses. In Africa, such cases have already been recorded. The Christian Aid Report on “The politics of poverty: aid in the cold war” states, the growing politicization of aid obscures the goal of poverty reduction by making world’s poorest a hostage to the fortunes of the War on Terror.
Most of the studies focus on the impact of aid flows on GDP growth and other macroeconomic variables (economic growth, savings and investments). The result is rather mixed. Those who find significantly positive effects from aid, face heavy methodological criticisms. Not much work has been conducted in Nepal on the impact of foreign aid on Human Development Indicators (HDIs). Meeting the Millennium Development Goals (MDGs) would require assessing aid effectiveness on selected HDIs. Two-gap model of mid-60s developed by economists Hollis B Chenery and A M Strout is still important to show whether aid improves GDP growth. The model shows constraints on savings and export earnings hamper investment and economic growth and aid as such fills the gap – aid-growth and aid-savings.
The Sixth World Trade Organization (WTO) Ministerial Conference launched Aid for Trade (AfT) initiative in Hong Kong in December 2005 by prioritizing trade in development strategies of the recipient countries. The donor’s positive response in providing aid has helped less developed countries overcome their supply-side constraints. The Task Force was later constituted in February 2006 to “operationalize” AfT. Its’ responsibility was to identify the needs of the recipient countries, and work as a bridge between donors and recipients. The Task Force has also recommended undertaking a periodic global review based on reports from various stakeholders. The two Global Reviews in 2007 and 2009 have comprehensively demonstrated that AfT is making progress with regards to the partner countries mainstreaming trade in their national and regional development strategies, and the donors proceeding ahead with mobilizing additional resources. The work on the Third Global Review will be held on July 18-19, 2011 in Geneva.
Most of the aid is endorsed for a political purpose and almost all the aid of whatever kind, and at whatever situation, is a result of direct or indirect political action.
Aid should contribute to tangible improvements in the lives of the poor people. The Paris Declaration on Aid Effectiveness (2005) and Accra Agenda for Action (2008) aims to improve the quality of the delivery, management, and use of official development assistance to maximize its development impacts. The Paris Declaration has accommodated the task of formalizing and focusing international efforts to improve aid effectiveness and their contribution to development. The assumption is that improved aid effectiveness will increase the impact of aid in reducing poverty and inequality, increasing growth, building capacity and accelerating achievement of the MDGs.
Besides, AfT, which aims at expanding the trade within the given WTO agreement, the World Bank has also initiated a new program to advance open data, knowledge, and solution for the poor under the “Aid and Trade Effectiveness Partnership”. This partnership focuses on capacity-building and transfer of knowledge on policies and regulatory options to improve the business and trade climate for Least Developing Countries; enhancing the rate of return on infrastructure investments; evaluating and monitoring effectiveness of trade and work on services and agricultural trade especially non-tariff measures such as standards and technical regulations. National-level programs in the major international events should therefore be integrated into the existing provisions on AfT.
Nepal’s trade scenario is alarming. Total trade deficit in FY 2009/10 escalated by Rs 317.67 billion (46.5 percent) against the growth of Rs 216.77 billion (33.3 percent) last year. Trade deficit with India is steadily increasing. Against the growth of 17 percent last year, trade deficit with India rose by 46.5 percent during 2009/10. A serious effort to divert trade finance to Nepal should be made to facilitate trade; support growth; and reduce poverty. This can be done through AfT. Evidences show, between 2005 and 2007, AfT flows grew by more than 20 percent in real terms. This trend is still positive. To sustain this trend, two factors are considered to be important – linking aid for trade to the wider development agenda and broadening and deepening the aid-for-trade dialogue.
The guiding principle for implementing AfT as recommended by the Task Force and adopted by WTO in 2006 include, building up trade-related infrastructure (road, telecommunication, electricity); productive capacity (enhancing the productivity of agriculture, industry, fishery sectors) ; trade development (investment promotion, trade promotion, business services); trade-related adjustment (retraining of workers, compensation for retrenched workers); trade policy and regulations (training of officials and stakeholders, help in designing policies and complying with trade rules); and other areas (other needs of the recipient countries that are not included above).
A consistent approach to track activities on the relevance, effectiveness, efficiency, and impact of the aided programs should be taken by answering the questions if assistance program can be sustained even after the funding is withdrawn? Are the beneficiaries rightly addressed? Do we have right indicator to guarantee inclusive growth, increasing incomes and reduce overall inequality?
Global agreements and individual sentiments will have no meaning when countries step outside the WTO rules by playing a political triumph card of aid on trade and poverty reduction. Henry Kissinger had said in 1974 during the Bonn Food Conference that “within a decade no child shall go to bed hungry, that no family will fear for its next day´s bread and that no human being´s future and capacity will be stunted by malnutrition.” Has anything changed after 38 years when most of the aid is endorsed for a political purpose and almost all the aid of whatever kind, and at whatever situation, is a result of direct or indirect political action.
bishwambher@yahoo.com
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