Lecture 7: Multilateral Aid Flashcards
Multilateral aid: Benefits
- appropriate way to address global issues
- political neutrality and legitimacy
- global presence
- economies of scale
- governance based on global development principles and standards
- abundant knowledge resources
- low transaction costs
multilateral organizations: definition
international institutions with governmental membership which conduct all or a significant part of their activities in favor of development of aid recipient countries
multilateral ODA definition
official, core contributions to ODA eligible multilateral organizations, either negotiated, assessed or voluntary
multilateral aid: inflows x outflows
o inflows: contributions of official bilateral donors to multilateral organizations
o outflows: aid activities financed from multilateral development institutions’ regular (core) budgets
o MOs mostly financed by official bilateral donors, few of them generate own resources
evolvement of MOs
• differently-oriented MOs have been created in different decades, reflecting the reaction of international community to current global problems
aid provided to X channeled through MOs
- *Core funding**
- *(= multilateral ODA):**
un-earmarked contributions to MOs, to common pools
Non-core funding (= multi-bi):
contributions to MOs earmarked for a specific region, country, theme or project by the donor
technically qualifies as bilateral ODA
Multilateral development finance
increasing in volumes and as a share of total ODA.
total ODA to MOs (core and non-core) increased.
MOs offer a variety of financing instruments (grants, loans, debt forgiveness, bonds, reimbursable grants, equities etc.)
non-core funding frowing faster
• Especially earmarked funding growing in volume and as a share of total funding to multilateral organizations: “à la carte” multilateralism
Bilateral donors -Advantages of non-core funding:
- greater visibility of individual donor’s contribution, allows for greater support for dev. assistance among the constituency at home
- easier monitoring of the use of contribution
- can be focused on specific sector, region, country where the donor has no presence or lacks expertise
MOs -Advantages of non-core funding
- still a welcome additional funding for MOs
- could help to sustain or broaden the MO’s activities
Disadvantages:
• may weaken established governance mechanism by bypassing board decisions
increases transaction costs (e.g. reporting requirements)
may conflict with MO’s core policies and strategies
Developing countries -Advantages of non-core funding
better harmonization compared to bilateral aid
Disadvantage: might blur lines of accountability
Emerging earmarked funding mechanisms
share of earmarked funding growing also due to the growing number of vertical funds and other earmarked funding mechanisms
examples of vertical funds:
o The Global Fund to Fight AIDS, Tuberculosis and Malaria (GFATM)
country-specific multi-donor trust funds (MDTFs): i.e. post-tsunami trust fund in Indonesia
funds being administered mostly by MOs, e.g. WB, UNDP, WHO etc.
financial mechanisms – not implementing agencies
potential to strengthen national ownership, reduce transaction costs, attract financing from new sources, focus on goal-based strategies
are successful in mobilizing financing from non-DAC providers, esp. from private sources
vertical funds very innovative in their business models and approaches to development challenges, but often rely on parallel co-ordination structures
MO trends 3 biggest recipient sectors
Infrastructure, production, social
Donor’s abuse of MOs
some donors’ practices are undermining the performance of MOs:
o multilateral funding decisions dispersed across numerous governmental entities => co-ordination difficult, reducing the strategic focus and coherence of allocations
o contributions to one MO can come from different ministries or departments
o increasing volatility of funding, funding to individual MOs varies
o MOs more reliant on non-core funding more vulnerable, undermining the planning processes
o unsustainable accountability processes, some MOs being assessed numerous times a year
MO system challenges
large number of MOs due to inability of nation states to solve global problems and inability of international community to abolish institutions with overlapping agendas:
o lack of co-ordination, duplication of activities => threatening effectiveness of aid
o increased administrative burden for recipient countries
o accountability issues
overlapping agendas of MOs caused also by insufficient financing →to attract more resources from bilateral donors, MOs are broadening their focus areas outside their original purpose
ineffective bureaucracies, cumbersome administrative systems of MOs
low effectiveness in reaching the set goals
high salaries, not respecting local salary levels
technocratic top-down approaches
lack of transparency
Strengths of MOs
not affected by particular political and economic interests of bilateral donors => focused on the needs of recipients
rich body of experience, better organization and specialization, direct presence in recipient countries → economies of scale
political neutrality → legitimacy and respect
international in their nature → more appropriate entities for management and protection of global public goods
Multilateral Organizations Performance Assessment Network (MOPAN):
- network of major donors, assessing the effectiveness of the major MOs
- set of indicators in key performance areas, set of questions to provide assessments of KPI
- originally based only on perception of donors’ representatives, now includes document review and survey among other stakeholders as well (donor representatives, other INGOs and NGOs, recipient gov., etc)
World Bank
international financial multilateral institution
providing financial and technical assistance with the aim of reducing poverty and supporting long-term development
investments in wide range of areas:
o education, health, public administration, infrastructure, financial and private sector development, agriculture, environmental and natural resource management
comprising of two institutions:
o International Bank for Reconstruction and Development (IBRD) and
o International Development Association (IDA)
x World Bank Group (+ 3 other institutions)
• IBRD:
o founded in 1944 (Bretton Woods conference)
o provides loans primarily to middle-income countries (in Latin America, North Africa, Middle East, South-East Asia)
o lower interest rates than regular loans on the market
o acquires most of its capital by borrowing on international capital markets through bond issues
• IDA:
o founded in 1960
o zero or low-interest loans (credits) and grants to low-income countries (sub-Saharan Africa, South Asia…)
o most of the funding acquired from WB richer member states
• three categories of loans and grants provided by WB:
- *1. investment operations:** financing for projects in physical and social infrastructure
- *2. development policy operations:** financing for political and institutional reforms
3. program for results: provides funding for programs with defined results and indicators, money disbursed upon achievement of results, focuses also on capacity building and institutional strengthening
• Criticism of the World Bank:
- Aid conditionality:
only to governments that agreed to implement a set of reforms
no ownership of the proposed reforms, top-down approach, reforms based on neo-liberal approach
loans provided ex-ante => low motivation of governments to properly implement the reforms
- Weighted voting system:
o voting power based on quotas related to economic criteria (GDP, external reserves, variability of exports etc.)
o dominant role of developed countries
o reforms in 2010, to increase voting power of developing countries (China)
IMF
multilateral financial institution
founded in 1944 at Bretton Woods conference
main goal: to foster international financial stability and avoid major financial crises:
o monitoring and assessment of macroeconomic policies and financial sector in member states
o technical assistance to improve economic policies of member states (esp. low and lower-middle income countries)
o loans to countries with payment imbalances that cannot borrow money on the capital market
o coordination of debt relief initiatives
• Quota system:
o each member country is assigned a quota based on several economic criteria (GDP, openness of economy etc.)
o quotas determine:
- subscriptions: amount of financial resources the member state is obliged to provide to the IMF
- voting power: countries with higher quotas have stronger voting power
- access to financing: the member country may borrow up to 25% of its quota with no conditionality applied
• conditionality of IMF’s loans:
o applied when countries borrowing more than equivalent of 25% of their quotas
o countries required to adopt a set of macroeconomic and structural reforms to stabilize the economy, promote economic growth and ensure the ability of the debtor to pay the loan back
o reforms include: liberalization of foreign trade, privatization of state-owned companies, austerity measures
o conditions very often criticized
• loans are being provided through various facilities, differ in the extent to which the loans are concessionary
UN
founded in 1945
main purpose: to maintain international peace and security => over time complemented by social and economic development goals
foundational treaty: Charter of the United Nations (UN Charter)
5 principal organs (+ 1 inactive body)
UNGA, UN secretariat, UN Security Council
ICJ & UN Econ. and Social Council & UN Trusteeship Council
Specialized agencies:
e.g. ILO, FAO, UNESCO, UNIDO, WFP, WHO etc.
formally also WB and IMF
autonomous intergovernmental agencies with specific purpose
formally subjects to ECOSOC, but high level of autonomy
some of the agencies older than the UN, now part of the UN
Funds and programs:
e.g. UNDP, UNICEF, UNEP, WFP, UNCTAD, UNHCR
subsidiary bodies to the UN General Assembly
own administrative structure, but lower level of autonomy
decisions taken by these bodies have to be approved by the GA
Role of the UN in development
despite its original purpose, most of the financial resources spent on economic and social development-related activities
peace and level of socio-economic development interconnected
three areas of the UN’s influence and role in development:
- Political role
- Expertise
- Operational role
Role of the UN in development: political
- several forums and instruments having political influence
- UNGeneralAssembly:
o certain importance in questions of security, but very limited influence in development area
o decisions adopted are consensual, thus vague
o symbolic value, limited impact
• Global conferences and summit meetings:
o more important role
o UN conferences since 1970s, more intense during 1990s
o special importance of the UN Millennium Summit (Millennium General Assembly) in 2000, adopted the Millennium Declaration
o prepares political goals and plans of actions
• conferences and summits produce 4 types of results:
Common political goals and minimum standards: directly mentioned in the approved documents, difficult to set clear goals
New knowledge and insight: e.g. Rio summit – boosted environmental consciousness, less successful with sensitive issues
New resources: should always be negotiated to address the discussed problems, but never lead to “new money” (=increased ODA), exception: HIV/AIDS conference in 2001 leading to Global Fund (GFATM)
Common plan of action: almost all UN conferences have approved one, but are almost never carried out, developed countries consider them irrelevant, developing countries not interested unless accompanied by funds
conferences primarily be evaluated based on the political goals and new knowledge role of the UN Secretariat:
o considerable informal influence of the Secretary-General
Role of the UN in development: Expertise
original purpose of the UN agencies: to function as centers of knowledge with the best global expertise in various sectors
=normative function: creating norms, technical assistance
system changed in 70s and 80s: donors have own experts, agencies funded directly, undermining UN agencies’ role
some agencies still important for their expertise, e.g. WHO in health sector in both developed and developing countries, ILO in labor market issues etc.
Role of the UN in development: operational
many of the UN agencies, funds and programs are providers of development assistance, implementing development projects and programs
aid volumes UN bodies are managing unequal
UN Financing
assessed (mandatory) contributions:
o GA approves the budget and determines the assessed contribution for each member country
o determined by their GNI (high external debt and low per capita income significantly reduce assessed contribution) – min. contribution is 0.001% of the total UN budget
o used for:
a) UN general budget (operational costs)
b) UN peacekeeping operations (separate assessment scales)
c) partially for UN specialized agencies’ budgets
voluntary contributions:
o earmarked or unearmarked
o the only source of funding for UN funds and programs
Delivering as One reform
initiative and program of reforms of the UN’s development and humanitarian aid system based on the report done by the High-Level Panel on UN System-Wide Coherence in the Areas of Development, Humanitarian Assistance and the Environment issued in 2006.
UN system should be “delivering as one” at country level
4 main principles:
ONE leader, program, office & budget
Delivering as One reform: One Programme:
to avoid duplication of activities and increase coherence
joint United Nations Development Assistance Framework (UNDAF): medium-term results framework, describes the collective vision and response of the UN system to national development priorities, defines how the UN will contribute to the achievement of development results
defines outcomes to be achieved by UN entities
should be fully aligned with national priorities
Delivering as One reform: One Budget:
medium-term Common Budgetary Framework encompasses all planned costs of implementing One Programme
provides holistic overview of required, available and expected funding sources and gaps in funding
Delivering as One reform: One Leader:
to strengthen strategic leadership and develop synergies among UN agencies
UN resident coordinator is made a head of the UN country team, is designated representative of the Secretary-General, directly reporting to him, is coordinating the UN operational activities
UN country team ensures full participation of all UN entities working in given country
Delivering as One reform: One Office:
harmonization of administrative and supportive practices and bringing all UN entitles into common premises
goal of reducing transaction costs, enhancing transparency
One Fund: complementary funding mechanisms, mostly un-earmarked funding
