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TWN Info Service on Finance and Development (Apr08/03)
10 April 2008
Third World Network

PARIS DECLARATION UNDERMINES POLICY SPACE THROUGH AID

The Paris Declaration on Aid Effectiveness may have the effect of circumscribing national sovereignty and country autonomy over development policies contrary to its stated principles of country ownership and mutual accountability, research has shown.

Two recent studies have highlighted the propensity of new modalities of aid and aid harmonisation processes under the Paris Declaration framework to increase rather than reduce donor interventions in aid recipient countries and exacerbating the imbalances of power between donor and recipient countries.

The Paris Declaration was adopted in 2005 as a ‘roadmap’ to increase the quality of aid, and development assistance is increasingly influenced by whether the recipient developing countries comply with the Declaration’s principles.

Below is summary of the findings of two recent reports on the Paris Declaration. It was published in the SUNS #6451, Wednesday, 9 April 2008.

With best wishes
Martin Khor
TWN

Paris Declaration Undermines Policy Space through Aid

By Celine Tan, Warwick, 8 April 2008

The Paris Declaration on Aid Effectiveness may have the effect of circumscribing national sovereignty and country autonomy over development policies contrary to its stated principles of country ownership and mutual accountability, research has shown.

Two recent studies have highlighted the propensity of new modalities of aid and aid harmonisation processes under the Paris Declaration framework to increase rather than reduce donor interventions in aid recipient countries and exacerbating the imbalances of power between donor and recipient countries.

The Paris Declaration was adopted in 2005 as a ‘roadmap’ to increase the quality of aid, and development assistance is increasingly influenced by whether the recipient developing countries comply with the Declaration’s principles.

In a report prepared for the UN Human Rights Council’s High-Level Task Force on the Implementation of the Right to Development released earlier this year, Roberto Bissio, executive director of the Third World Institute and Social Watch based in Montevideo, Uruguay, argued that the relatively minor gains in efficiency and reduction of some transaction costs in the aid process are often overridden by the asymmetrical conditions under which negotiations are taking place between donors and recipients within the Paris Declaration framework.

Meanwhile, the findings of a study by the European Network on Debt and Development (Eurodad) released two weeks ago showed that donors have continued to undermine policy ownership in low-income developing countries by imposing their own priorities and policies on developing country governments through new aid instruments while marginalising the voice and participation by citizens and civil society groups in the process.

Taken together, these studies highlight the danger that the new architecture for negotiating and delivering concessional financing to developing countries under the rubric of the Paris Declaration may have the converse effect of reducing rather than improving the efficacy of development assistance.

They demonstrate that increased coordination of aid policies by developed countries can in practice work towards undermining rather than supporting global partnerships for development, including those under the Millennium Declaration, and create new forms of conditionalities on developing countries.

The Paris Declaration is a non-binding declaration that was endorsed by a group of developed and developing countries in 2005, following on from a series of high-level inter-governmental forums on aid effectiveness and harmonisation.

It has a total of 115 signatories to date and claims to lay down “a roadmap to improve the quality of aid and its impact on development” with 56 partnership commitments organised around the five key principles: ownership, alignment, harmonisation, managing for results, and mutual accountability.

Compliance with the principles of the Paris Declaration is measured using 12 different indicators and development financing is now increasingly channelled through countries’ compliance with these indicators.

According to Bissio’s extensive study of the Paris Declaration framework, the Declaration fails “to provide the institutional mechanisms to address the asymmetries in power” between donors and creditors on one hand and individual aid recipient countries on the other. He argues that institutional ownership of the Paris Declaration process remains vested with the OECD’s Development Assistance Committee (DAC) and the World Bank “where donors and creditors have exclusive or majority control, with little or no developing country voice or vote”.

Bissio’s report further points out that for recipient countries, the Paris Declaration creates a new level of supranational economic governance above the World Bank and the regional development banks, with the OECD’s DAC comprising of the same western governments who control the World Bank and the International Monetary Fund (IMF) and who contribute to the Bank’s concessional lending facility, the International Development Association (IDA).

“At the country level this new international governance increases the asymmetry between the aid recipient country and its donors and creditors, which gather together as a single group in the new aid modalities ... While this is intended to save costs and make procedures easier for the recipient country (and thus make aid more efficient), the inherent risks of such an increased imbalance in negotiating power at the country level are not compensated in any way by the international mechanisms set in motion by the [Paris Declaration].”

Although developing and developed countries are represented in equal numbers in the Working Party on Aid Effectiveness which has the responsibility for managing the operationalisation of the Paris Declaration principles, “the presence of institutions controlled by OECD members tilts the balance in favour of the latter”, said the report.

“Further, in such an ad hoc new body, developing countries lack the tradition and expertise of their own negotiating groups that they have put together over the years in other international negotiating fora (such as the G77 in the UN or G20 and G33 and other regional groupings in the WTO)”.

Under the Paris Declaration framework, donors and recipients are not peers, as recipient countries are penalised if they do not implement conditions for assessing financing under the framework but they do not have a corresponding mechanism for penalising the donors and/or creditors, the report argues.

Bissio’s study found that the complex set of assessment criteria and definition of indicators by which the Paris Declaration is reviewed, the associated “new conditionality packages” for disbursement of aid under new mechanisms such as direct budget support and sector-wide approaches (SWAPs) and criteria for evaluating recipient countries’ governance systems as part of the new aid system “are all ultimately decided upon by the DAC, in close working relation with the World Bank”.

These findings are complemented by results of the Eurodad study which showed that the Paris Declaration’s measure of country ownership is the presence of a good quality and operational national development strategy as determined by the World Bank.

The Eurodad report also argues that in spite of the Paris Declaration’s rhetoric on mutual accountability, donors are rarely held accountable for the quality of their aid to developing countries.

Instead, it found that the focus of the Paris Declaration has been “entirely on the recipient government’s responsibilities and fails to recognise the steps that donors must take to create space for recipient governments to fulfil these responsibilities”.

At the same time, recipient governments rarely take the lead in determining aid policies and “are only negotiating around the edges if at all when it comes to improving the quality of the resources on offer”. Case studies from seven low-income countries showed that power imbalances and weak capacity continue to limit developing country governments’ ability to negotiate with donors and creditors on the conditions of their financing. “The high aid dependency of some recipient countries shifts the balance of power to the donors,” says Eurodad.

Both reports also highlight the undermining of national policy space which accompanies the new modalities of aid championed by the Paris Declaration, including those centred on the World Bank and IMF-led Poverty Reduction Strategy Papers (PRSPs) and PRSP-linked financing instruments, such as budget support whereby financing is channelled direct into a country’s budget in support of a general policy framework.

The Eurodad report shows that the complex array of structures which have grown up around the PRSP process where donors and recipient governments gather to discuss policies and programmes under the guise of policy coordination have increased donor interventions in country’s development strategies and economic policies.

“As donors increase the amount of aid they give either through direct budget support or to sector (e. g. agriculture, health, education) ministries, they also want to have a say on government policy in that sector,” says the report.

“Not only do the donors’ constant presence and increased discussions with governments on the minutiae of government policy place additional pressure on overburdened administrations in developing countries, they also enable donors to get increasingly involved in the details of national policymaking.”

The Eurodad report argues that the conditionalities accompanying new aid instruments such as budget support has therefore shrunk the political space that such an instrument was supposed to have provided.

It says: “Budget support has come hand in hand with more intrusion by donors in government policy making through ever more detailed matrices of policy conditions and performance indicators ... usually laid out in the Performance Assessment Framework (PAF) - the conditionality matrix attached to budget support.”

Conditionalities may also be attached through the Paris Declaration indicators themselves. For example, according to the Paris Declaration, donors are required to increase the use of country systems, including national procedures for public financial management and public procurement. However, recipient countries must in turn commit towards improving such systems in order for them to be considered reliable by donors.

Indicators for reviewing compliance with the Paris Declaration principles in these areas include adherence of developing countries to “broadly accepted good practices” or implementation of a reform programme to achieve such practices. These “good practices” in turn are based upon the OECD’s indicators which include the opening up of national procurement systems to “qualified foreign firms”, according to Bissio’s report.

This amounts to a controversial conditionality of liberalising public procurement system and undermining developing countries’ right to use national procurement systems as a development tool, and one which goes against the developing countries’ demands against the Singapore issues in the World Trade Organisation (WTO), says Bissio.

In adopting some of the report’s recommendations at its fourth session in January this year, the High-Level Task Force on the Right to Development called for “greater efforts to promote untied aid aligned with national priorities, particularly in the fields of procurement and financial management” in order to meet the ownership requirements under the Paris Declaration and to make use of “opportunities to build on the congruence between the principles of aid effectiveness and the right to development”.

The two reports referred here have come at a crucial time for the Paris Declaration in the run-up to the third High Level Conference on Aid Effectiveness to be held in Accra, Ghana in September 2008 which will review the operationalisation of the Paris Declaration framework.

The two reports can be downloaded from:

www2.ohchr.org/english/issues/development/taskforce2008.htm

www.eurodad.org/whatsnew/articles. aspx? id=2168

 


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