Contributions from
the Column
Tribune

Peter Molt: Misleading notion of ownership

Timo Menniken: International cooperation on water along the Mekong and the Nile


10/2006
  

[ Ownership ]

Misplaced optimism

Recent donor discourse regards budget support as an innovative instrument to improve the governance of many poor countries. Similar approaches, however, have failed in the past. Ultimately, directly subsidising national budgets is less likely to strengthen responsible ownership by recipient governments, than to turn their administrations into donors’ implementing agencies. The task that budget support is probably best suited for is strengthening fragile statehood in the short run.


[ By Peter Molt ]

Propagated with the blessing of the 2005 Paris Declaration on Aid Effectiveness, budget support is being hailed in development cooperation as the new miracle cure. Its advocates believe that official development assistance (ODA) – which donors pledged to double in 2002 and which last year's Gleneagles G8 summit vowed to channel more substantially into helping sub-Saharan Africa – should mostly be provided in the form of budget support. Money is thus to flow directly into developing countries' government or ministerial budgets. The Africa strategy of the EU is geared to this objective. If all pledges are honoured, therefore, budget support could account for hundreds of billions of development dollars by 2015.

Budget support's backers say that efficient use of funds and successful results can only be achieved through ownership (self-determination by recipient countries), donor harmonisation, alignment (standardisation of modalities), profit-oriented management and accountability on both sides. Considering that a much greater volume of ODA will need to be managed and administered, the concept developed by World Bank, IMF and OECD experts sounds logical – but only from an administrative and finance-management point of view.

Unfortunately, the new concept is again based on the assumption that development is plannable and that better modalities optimise results. In this respect, it resembles the multi-year plannings of the '60s and early '70s, the structural adjustment programmes of the late '70s and '80s and the Comprehensive Development Framework of the '90s. Recipient states are expected to get complex social, economic, domestic and international problems under control by policy decisions. This expectation is neither reasonable nor realistic, and the key actors know that. Nonetheless, they prefer to ignore the fact because of short-term interests.

The point is that it is not larger countries with sound public-finance systems that form the target group. Their economies are so big that any assistance their governments receive is only minor in relation to the total volume of their national budgets. So the main focus is on states that are in dire need of financial support, many of which already finance over 20% and some even more than 50% of their budget with ODA.

The World Bank reckons that more than half of its funding for Africa will be in the form of budget support in 2015. What is more, with additional bilateral payments, it hopes to increase the volume for sub-Saharan countries by 500% by the same date.


Voice of experience largely unheard

Because of the scale of assistance involved, budget support must not be judged from a management viewpoint alone. More important in the long term are the structural political impacts, which can only be properly assessed in the light of experience. Overt and covert budget financing is really nothing new. France granted budget aid for decades to well-behaved former colonies. The structural adjustment loans of the International Monetary Fund and World Bank also fell into this category, and so did project aid provided under once-widespread multi-year plans, which allowed recipient governments to disregard entire sectors such as agriculture or highway construction in their regular budgets. That kind of budget support was no success, but it did allowed target countries to offset structural budget deficits.

The procedures were intransparent, and that certainly contributed to the financial chaos apparent in many countries after the 70's. Even so, developing countries at that time had considerable scope for discretion. The procedure propagated now is probably more transparent, but recipient countries have far fewer options. This is because budget support, comprised of contributions by various bilateral and multilateral donors, will be provided according to the lead-partner concept under the aegis of a coordinating donor. This is likely to be the World Bank or the IMF in most cases, because bilateral institutions could hardly be candidates. The lead partner will have extensive decision-making powers in dealings with the government of the recipient country. Its vote will ultimately decide what financial support is provided – and thus shape the face of many national policy programmes.

So, possible management advantages in the short run are likely to have negative political impacts in the long run. The modalities of budget support are not very conducive to dynamic reform. On the contrary, they are more likely to consolidate established power relations. After all, financial controls and the governmental advice that accompanies them restrict the freedom of local decision-makers. Democratic budget law are reduced to mere acclamation, as effective institutional controls are not promoted in the target country.

Within recipient countries, administrators will find their hand strengthened in dealings with parliament. But even civil servants will have no freedom of decision; they will largely be required to meet donors' targets. So governments are not very likely to develop initiative. On the contrary, they will basically try to do as they are told so that they retain or maybe even strengthen their power base. Enlightened oligarchies will presumably emerge, their discretionary powers limited only by external controls. The international administration of Kosovo offers plenty of examples of that.

Under such conditions, elections will be decided according to which segments of the elite get on best with donors. Domestically, competition will not be between parties that represent large sections of the population and offer programmatic alternatives. What will predominate are squabbles over resources among elite segments and their supporters (ethnic, religious or regional networks). In these circumstances – and despite all the assurances of ownership and participation – responsible constitutional control, reconcilement of interests and policy-making are writ small. What is at most conceivable is that a charismatic authoritarian leader could rebel against the international bureaucracy, and that too would be a setback for the objectives of general participation and democratic control of power.

Small or particularly poor states whose budgets depend heavily on budget support could degenerate into quasi protectorates where responsibility for major areas of policy ceases to reside with the government. Decisions would be taken de facto by foreign consultants and controllers with no political accountability.

Furthermore, the budget-support approach is inherently contradictory. Theoretically, only “well governed” countries should be assisted in this way. But if the criteria are taken seriously, countries that qualify for that description in the envisaged group of recipient countries in sub-Saharan Africa are pretty much the exception. So the criteria set out are unlikely to be met.


Secret motive

Behind the fine-sounding multilateral principles, there probably lies a much less noble motive. The donors presumably want to stabilise fragile states. Since the attacks of September 11, 2001, that has been a major concern of Western governments. In the light of terrorism, drug crime, migration and increased demand for commodities, the geostrategic importance of Africa is growing again. That is leading to mounting competition among the industrial nations but also between them and the emerging economies. In its latest National Security Strategy document, the US Administration expresses the concern that China will undermine pressure by Western governments on resource-rich African countries to embrace reform.

However, budget support will only help to stabilise African states for a while. And it will probably tend more to hinder the radical reforms that could really contribute to better administration and governance. For promoting good governance, an interesting alternative to budget support is offered by the US Millennium Challenge Account (MCA) programme, which openly sets out to reward “good performers”. The concept relies on the responsibility of local governments that receive assistance only for a few years towards their own country.

In theory – reliable data are not yet available – the MCA has a good chance of effectively promoting national reform without intervening in its implementation over a long period and therefore without weakening the responsibility of partners. The only criterion for ongoing MCA aid is success. Since it works without the need for sophisticated monitoring systems – a special agency with its own rules has been created to perform that task for the programme – overheads are low and over 90 % of the MCA's budget is distributed to recipient states.

Budget support is not the miracle cure the world wants it to be. For a while, there may be no alternative for restoring long-term stability to places like the Democratic Republic of Congo (DRC). But budget support needs to be embedded in a more comprehensive political concept for it to be effective at all. The schematism and bureaucracy of international programmes and organisations are definitely not suitable for doing so. General application of the international development architecture set out in the “Paris Declaration” would be politically disastrous. Fortunately, though, it will not come to that because some of the major donors will not join in, as the United States has already shown. In these circumstances, it is to Germany's advantage that its own budget problems are likely to preclude it from providing any substantial budget support in the years ahead and allow only selective use of this instrument in exceptional cases.




Prof. Dr. Peter Molt
is honorary professor of development policy at Trier University and looks back on years of experience in the field – with the Konrad Adenauer Foundation, the German Development Service (DED), the UNDP, the Government of the German State of Rhineland-Palatinate, the Association of German Development NGOs (VENRO), CARE INTERNATIONAL and other organisations.
pmolt@t-online