Hard currency: unilateralism doesn't work for foreign aid, either

Washington Monthly, March, 2004 by Nancy Birdsall, Brian Deese

Grading on a curve, the east African nation of Tanzania is something of a success story. While still as poor as most of its neighbors, Tanzania has in recent years kept inflation in check, achieved annual growth of over 5 percent, and launched an ambitious plan to reduce poverty and increase investment in its citizens' health and education. Such progress has not been lost on such aid agencies as the U.S. Agency for International Development (USAID), the United Kingdom's Department for International Development (DFID), and the World Bank. Beginning in the 1990s, new donors began to flood into Tanzania, while long-time donors branched out into new areas. The capital of Dar-es-Salaam was soon teeming with foreign consultants and aid missions, as the various donors broadened their portfolios to include projects in primary education, clean water, renewable energy, road building, civil-service reform, banking oversight, environmental sustainability, and almost every other area of development.

But this generosity, soon became a double-edged sword. Where once Tanzania had hosted a few hundred discrete donor projects, by the mid-1990s it was hosting an estimated 1,500 projects--each with its own expert consultants, procurement deals, auditing arrangements, and reporting requirements--a number that has only increased since. By the end of the decade, the country's Ministry of International Cooperation prepared 2,400 donor reports every quarter and hosted 1,000 meetings a year.

All this new red tape has not come with much new money: Between 1992 and 2002, real growth in foreign aid to Tanzania was almost nil. By 2003, donors' demands on Tanzania's small cadre of competent senior officials were undermining the government's ability to manage its own resources--which, even with large donor inflows, still represented the large majority of total public spending. So the government made a decision. The Tanzanian Ministry of Finance announced (with appropriate diplomatic courtesies) that President Benjamin Mkapa was declaring a four-month long "mission holiday" from April to July of each year, a so-called "quiet time," when foreign aid missions would be asked to stay home.

Enter President Bush, who in March 2002 announced a major new initiative--dubbed the "Millennium Challenge Account" (MCA)--to provide significant assistance to stand-out poor countries that were "ruling justly, investing in people, and encouraging economic freedom," including Tanzania, a likely recipient for the programs first year of funding. (Under Bush's plan, spending will increase to $5 billion a year by 2006.) As if to outdo himself, President Bush last year announced another new aid program: $10 billion over five years to combat the AIDS pandemic in Tanzania and 13 other poor countries in Africa and the Caribbean, roughly quadrupling current U.S. funding for AIDS treatment and prevention. These new initiatives reverse a 40-year downward trend in U.S. foreign aid as a percentage of the gross domestic product. But they are more noteworthy for their strong emphasis on targeting resources only to a select number of high-performing countries that can use resources effectively. That's a welcome development in a business best known for such high-profile failures as when billions of dollars were spent by Western donors to prop up Mobutu Sese Seko's regime, or the financing of so-called 'white elephant" projects aimed more at doling out lucrative construction contracts than making any real progress in the lives of the world's poor.

Yet the administration's well-intentioned focus on performance and results, while innovative, does nothing to address--and may well aggravate--the problem of project proliferation. As currently conceived, both the MCA and Bush's new AIDS initiative will either reinvent or overlap with efforts already underway at the international level, many of which are effective and, indeed, already supported by the United States. For Tanzania and its peers, that means more layers of bureaucracy with which to cope, more quarterly reports to file, and more visits from more officials.

There's a better way to deliver aid. Focusing on performance and results would seem to require bypassing the crowded field of donors and aid agencies. But in fact, the opposite is true. The duplication, waste, and inefficiencies of the worldwide aid business are largely a consequence of unilateralism--that is, of the unwillingness of many donor countries, including the United States, to coordinate development projects within the countries they aid. To get the most out of its newfound generosity, the Bush administration must adapt to the new world of foreign aid, in which going it alone is not the best way to help the poor.

Paper trial

When the modern practice of assisting poor countries was launched at the end of World War II, the United States was the only game in town, committing 2.5 percent of GDP spread over three years--the equivalent of about $250 billion in today's dollars--under the Marshall Plan to rebuild Western Europe. During the 1960s, at the height of the Cold War, the United States still dominated the foreign aid business, contributing about two-thirds of all such money given in order to win hearts, minds, and basing rights in the developing world. But as a resurgent Japan and Europe, along with oil-rich states, got involved, the United States contracted its commitments, and today accounts for less than one-fifth of global aid spending.