Lecture 7: Multilateral Aid

Question 1

Multilateral aid: Benefits

Answer 1

• 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

Question 2

multilateral organizations: definition

Answer 2

international institutions with governmental membership which conduct all or a significant part of their activities in favor of development of aid recipient countries

Question 3

multilateral ODA definition

Answer 3

official, core contributions to ODA eligible multilateral organizations, either negotiated, assessed or voluntary

Question 4

multilateral aid: inflows x outflows

Answer 4

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

Question 5

evolvement of MOs

Answer 5

• differently-oriented MOs have been created in different decades, reflecting the reaction of international community to current global problems

Question 6

aid provided to X channeled through MOs

Answer 6

• *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

Question 7

Multilateral development finance

Answer 7

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.)

Question 8

non-core funding frowing faster

Answer 8

• Especially earmarked funding growing in volume and as a share of total funding to multilateral organizations: “à la carte” multilateralism

Question 9

Bilateral donors -Advantages of non-core funding:

Answer 9

• 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

Question 10

MOs -Advantages of non-core funding

Answer 10

• 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

Question 11

Developing countries -Advantages of non-core funding

Answer 11

better harmonization compared to bilateral aid

Disadvantage: might blur lines of accountability

Question 12

Emerging earmarked funding mechanisms

Answer 12

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

Question 13

MO trends 3 biggest recipient sectors

Answer 13

Infrastructure, production, social

Question 14

Donor’s abuse of MOs

Answer 14

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

Question 15

MO system challenges

Answer 15

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

Question 16

Strengths of MOs

Answer 16

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

Question 17

Multilateral Organizations Performance Assessment Network (MOPAN):

Answer 17

• 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)

Question 18

World Bank

Answer 18

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:

1. 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

2. 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)

Question 19

IMF

Answer 19

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

Question 20

UN

Answer 20

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

Question 21

Role of the UN in development

Answer 21

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:

1. Political role
2. Expertise
3. Operational role

Question 22

Role of the UN in development: political

Answer 22

• 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

Question 23

Role of the UN in development: Expertise

Answer 23

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.

Question 24

Role of the UN in development: operational

Answer 24

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

Question 25

UN Financing

Answer 25

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

Question 26

Delivering as One reform

Answer 26

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

Question 27

Delivering as One reform: One Programme:

Answer 27

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

Question 28

Delivering as One reform: One Budget:

Answer 28

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

Question 29

Delivering as One reform: One Leader:

Answer 29

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

Question 30

Delivering as One reform: One Office:

Answer 30

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