Contributions from
the Column
Focus

UK development cooperation

Dutch development cooperation reform

No development model Eastern Europe

Multilateralism versus bilateralism in foreign aid

The Utstein Group

The Millennium Development Goals

Development Assistance Committee (DAC)



03/2003
  

Multilateralism versus bilateralism in foreign aid

by Helmut Asche

Multilateralists and bilateralists – their disparity, often even their opposing polarity is a firmly established fact of foreign policy, especially the foreign policy of the United States. But the same contrapositioning exists in the world of development aid, too, in Germany as elsewhere. Which is not to say, however, that political discussion of the dichotomy is exhausted and its ramifications are understood. In recent years, the issue has flared up again. Helmut Asche looks at the advantages and disadvantages of bilateralism and multilateralism in German development cooperation.


The new multilateral gearing of development assistance is paraded by those at the top in the Federal Ministry for Economic Cooperation and Development (BMZ) as nothing less than a programmatic reversal of the "re-nationalisation" of BMZ aid by the old federal government. But what did "re-nationalisation" mean? It meant that, to make Germany's aid contribution more visible, the old BMZ gave bilateral cooperation between Germany and partner states precedence over development work conducted through the World Bank and the UN system; it also meant that German cooperation should be clearly reflected in the symbolism of the contributions to bilateral projects. In diplomatic jargon, this is called showing the flag, and it is not a term intended to flatter. A great deal certainly needed to be corrected and the systematic untying of financial cooperation since the beginning of 2002 makes this change in political attitude clear.

From what we hear, however, multilateralists and bilateralists are still arguing the toss even in the ministry itself, their differences cutting a swathe across party lines. This is not the case in the big implementing organisations, though. GTZ and KfW, for example, are bilateralist to a fault, of course: multilateralism would fly in the face of the agencies' own interests. And here we hit on one of the first indications that the process of political re-gearing is not easy and has not been systematically addressed.

The Budget Committee of the Bundestag has its own way of addressing the issue: it shoots bolts. Only 30% of development assistance is to be channelled through multilateral institutions such as the World Bank, UNDP or EU. Why the ceiling should be pegged at just under a third and not 50% or two thirds is a mystery, of course. It seems to be defined by little more than a basic concern that the German taxpayer should know where his money goes. And the prevailing view is that it is still more traceable in bilateral projects than in multilateral aid programmes.

The advantage of multilateral cooperation can perhaps be shown by an example. For sound political reasons, BMZ endeavours to limit bilateral cooperation with individual partner states to a few focal areas (three or four at most). This is a major improvement on the way aid used to be fragmented, although its implementation has not been all too systematic. When focal areas are established, sectors like education, for example, are found to figure less and less in bilateral aid (a trend in evidence since as long ago as 1994). This is because of the implicit belief that major education programmes are probably in better hands when run by the World Bank or the EU. Indeed, the latest PISA study may cast considerable doubts about the exportability of the German education system. Set against this, however, is a new political determination to re?boost bilateral education spending in the wake of the Education For All initiative.

Examples like this show that no really systematic attempt has ever been made to establish what kind of development cooperation is best handled bilaterally and what lends itself better to a multilateral approach. In practice, this has invariably resulted in a gay assortment of 'German' projects and World Bank or EU projects co-financed by Germany. Reducing the purely German projects in favour of a development agenda pursued jointly by the international community not only sounds progressive, it is progressive, because it lowers transaction costs for partner countries, avoids work being duplicated and has a greater impact. Where all this is achieved, it would basically be possible even to abandon the widespread co-financing of World Bank projects by the German financial corporation KfW, which is a curious cross between bilateral and multilateral funding.

For that, however, a number of conditions need to be met. And this is where the new multilateralism becomes a political debt. What are the key criteria for defining a reasonable balance between bilateral and multilateral use of development cooperation funds?


1. The criterion of efficiency

Most development projects are hailed as successful, of course. As if by some strange law of nature, all development organisations – whether national, international, governmental or non-governmental – invariably report that two thirds to three quarters of their projects are a success. Those reports do not always tell the full story. Fortunately, moves are now being made to apply different yardsticks of success, ones which focus primarily on actual social impact and not on the development agencies' targets. This and cost-effective delivery need to form the first key criterion, and that is where the multilateral agencies probably still lag a considerable way behind. UN and EU are noted throughout the development community for quite some wastefulness and disorder of their projects. Even the World Bank's reputation is not much better. This is an aspect that needs to be addressed on the political stage if the critical views of both specialists and an interested general public are not to be ignored. Interesting to note in this context is the fact that the Rome correspondent of the liberal daily Neue Zόrcher Zeitung in the 1970s and '80s (Otto Matzke) spent a great deal of his time reporting on the money wasted by the FAO and the World Food Program. Nevertheless – and this is what ends discussion of the first criterion – everyone involved is sitting in a glasshouse, so until the transition to full social analysis of results is completed (assessment geared to output not input), there will be no basis for developing sensitive yardsticks.


2. The so-called comparative advantage

A borrowing from the world of economics, the expression 'comparative advantage' is used by practically every development organisation to signal superiority over the competition. Even Germany's technical and financial cooperation providers claim they are better at this or better at that than their French, British or multilateral neighbours. On the German side, the list of professed strengths has been the same for decades: Germany's two-track vocational training system, its measurement and industrial standards technology, its federalism and local government system – all examples which prompt a wry smile in the light of the obvious need for domestic reform in Germany. Elsewhere, in public health for instance, German systems and experiences have never been seriously held up as particularly exportable items. This has not stopped German development aid agencies engaging vigorously in the health sector, though, and not just delivering poor results.

What needs to be taken more seriously is the case for personnel presence in the field. This is one area in which the German system – always associated with relatively heavy deployment of personnel – stands apart from others, especially multilateral systems. Often there is no more substance to the German case than the statement: we are there because we are there, which promptly draws a response from others in the international debate calling for a reduction in the number of seconded experts. In its strongest form, however, the German case for deployment is that seconded German experts have engaged with partners to generate local expertise of a kind which is often unique and definitely a help for development. That expertise could naturally also be channelled into international or supra-regional organisations, however - which brings us back to square one in the argument.

What we learn from this is that the much-vaunted comparative advantage is anything but self-explanatory. We obviously need a much more focused political debate about the genuine bilateral contributions that Germany, from its own economic and socio-political viewpoint, wishes to make in the field of international development cooperation – contributions which cannot be made by others. There are certainly examples in modern technologies and environmental science, e.g. in the fields of renewable energy and ecological farming practices.


3. The policies of multilateral institutions

A last and crucial criterion for a substantial increase in multilateralist cooperation is quite simply whether the policies of the multilateral organisations – such as the World Bank or the IMF – are basically correct. This is more or less taken as a given by the latest advocates of multilateralism in German development cooperation, although it is a question that has fuelled decades of controversy. As former long-serving Parliamentary State Secretary Volkmar Kφhler chidingly remarked, BMZ kept out of the debate for a decade and a half and simply assumed that the structural adjustment programmes that formed the core of the two Washington banks' support activities during that time were a move in the right direction – whereas NGOs in particular complained that SAPs (Structural Adjustment Programmes) had the effect of cutting spending on education, health, etc.. In the meantime, the question has moved on and now reads: how can the SAPs' incontestable stabilising impact – on inflation rates, balances of payments and public-sector budgets – be used to secure more growth and employment and are the measures packaged by the World Bank and the IMF the right way to go about it?

Official German development policy has come up with an excellent response to this question: the debt relief initiative HIPC II and the poverty reduction strategy papers (PRSPs) connected with it are the much-cited evidence, even guarantee that the World Bank and International Monetary Fund are now on the right track. The initiative is undoubtedly a major step forward but whether it means a political departure from the Washington Consensus is a highly controversial issue. All the more important, then, the need for an effective system of political consultation and control that would make it possible for the Germans, like the Americans, to share in the critical and confident control of the international financial institutions. No political progress at all has been made in this direction, however; the ministry has not put the machinery in place. Nor is much use made of the critical studies produced by major German NGOs. So the new multilateralism is founded more or less on the hope that the World Bank and the IMF have now had a re-think on substance. Political action is needed here to significantly strengthen influence in Washington as well as on the resident missions in partner countries.

Another example is the trade policy advice given in the WTO to developing countries which lack the resources to mount a confident defence of their position on their own. Here, the German government also gives itself a pat on the back for supplementing that advice with financial disbursements to the International Trade Centre (ITC), which is jointly operated by the WTO and UNCTAD. Even if one accepts that the ITC is a centre of competence, however, one can still wonder whether it might not be possible and sensible – especially considering Germany's relatively neutral position – to provide more active bilateral advice for partner countries highlighting alternatives to the speedy liberalisation of markets sought by the WTO.


4. Inefficiency of EU assistance

The last major topic is obviously the question of development cooperation as a common European task. To date, development cooperation in the European Union has been a subsidiary task (Article 177 of the EC Treaty). Every now and then, we see a rekindling of the debate on whether EU development assistance should focus on sectors which are defined as common tasks elsewhere. Against this, it can be argued that in the wake of major EU reform, development cooperation should be a community task in its own right. The big debate on the future of the European Union is thus linked with the smaller debate on development assistance.

As long as EU assistance is as inefficient as it is generally reckoned to be, however, it is not unreasonable to define the benchmark for German funding of European development projects on the basis of the resources required for monitoring the use of such funds. The crucial problem is that the administrative apparatus of the EU is too small to spend the prodigious amount of money at its disposal and that 21 billion euros is stuck in the pipeline as a result. Even after the flow-boosting reforms that kicked in under Commissioner Poul Nielson, the root of the problem remains unchanged.1 At present it is aggravated by the fact that a great deal more direction is needed for groups in the field handling the massive budget support provided by the European Commission for national poverty strategy papers (PRSPs). This approach certainly offers opportunities for harmonising the activities of European donors flanking the EU contribution but it hits understaffed German resident missions hard.

Viewed from this angle, the level of current German payments into the European Development Fund is too high– firstly because of the problems attached to the way funds are used and secondly because an effective, statutory say in the shaping of EU assistance would require a totally different apparatus – one which is currently available only to two members of the Utstein Group (UK and NL). The debate and the opportunities to influence EU financing proposals are shifting increasingly to partner countries, where Germany does not have the kind of presence required, while the extremely short time allowed for final consultation in Brussels gives Germany hardly any chance of playing a co-directional role there. The problem has been known for years and still awaits a solution: in this case a strengthening of German overseas representation.


What is BMZ doing?

As regards the development banks and the UN system, BMZ has taken an important step in producing policy papers on the international organisations ("institution papers"). The papers are designed to deliver a German assessment of the development banks and UN institutions and at the same time define the way influence is exerted on them. The papers on the World Bank and UNDP have recently been published as "BMZ Specials"2. The World Bank paper presents for the first time a systematic review of the issues central to Germany's relations with the World Bank. However, it does not look at the two key questions closely enough. These are:
  • Has the World Bank "changed course", abandoning the old neoliberal Washington Consensus in favour of a more open attitude to economic policies?
  • Are we correctly positioned vis ΰ vis the World Bank?
As many participants remarked in the refreshingly open discussion of the draft paper, the answers to both questions are no, and of course they are interconnected. Judging from the Bank's environmental policy standards too (it does not insist on compliance with environmental standards for PRSP-related loans, for example), it is legitimate to question whether one can really speak of a steadfast new Bank position. What is needed is a German World Bank task force which, led by the relevant BMZ directorate-general and together with other ministries and implementing organisations, would influence World Bank and IMF operational policies on a scale similar to the British and the Americans (who at times pull in different directions). A need for this has existed for years. It would be a direct institutional contribution to what the coalition agreement of the new German government calls "helping to create a fair world economic order".

This is not an appeal directed at just ministries and lower tiers of government. The challenge must also be addressed by involving on a broader footing NGOs and their umbrella organisations as well as certain institutes which already monitor the work of the World Bank, WTO and EU with minimal resources and sometimes more success than the ministry bureaucrats. If there are no other resources for this essential work, e.g. from non-project-linked technical cooperation, it needs to be paid for out of the multilateral quota. Anyone advancing a serious political argument against this has to believe or claim that self-monitoring by international development organisations alone is an effective enough safeguard – which narrows down potential apologists to the totally naive and political rogues.

The facts and arguments presented above lead to a simple conclusion: a high quota of multilateral German development cooperation is not a badge of progressive development policy per se. To qualify as such, it needs to be flanked by effective political control of the essentials of a policy which is pursued by the multilaterals and endorsed by Germany. And that is why the multilateral quota at present is almost certainly too high.


1) cf. the assessment in: VENRO: Globale Armut – Europas Verantwortung. Ein Vorschlag zur Reform der EU-Entwicklungszusammenarbeit (Global poverty – Europe's Responsibility. A Proposal For the Reform of EU Development Cooperation), August 2002
2) BMZ: Partnerschaft gegen die Armut – Unsere Ziele mit der Weltbank (BMZ: Partnership Against Poverty – Our Objectives With the World Bank), BMZ Special 057, October 2002; BMZ: Die deutsche UNDP-Strategie (BMZ: German UNDP Strategy), BMZ Special 070, December 2002

Dr. Helmut Asche is the GTZ economist for Subsaharan Africa. helmut.asche@gtz.de