Official Development Assistance: The Human Rights Approach

7/30/2019 Official Development Assistance: The Human Rights Approach

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Official Deve lopmentssistanceThe Human Rights Approach

Official developmentassistance (ODA) is one of the most effective methods of promotingdevelopmentin low-income countries. However, the idea of developmentitself haschanged significantly over the years, and ODA has increasingly come to incorporatethehuman rights approach to development.Developing countries can draw up a basic frameworkincorporatingthe requirementsof growth withoutviolating other rights, and industrialcountries can then raise thefunds neededfor developmentassistance. The humanrights approach has the advantage of the recognition that the rights are universal and theresponsibilityof fulfilling those rights is also universal.

ARJUNSENGUPTA

TheCaseforODAT hereare wo maincharacteristicsfofficial development assistance(ODA) hatdistinguishtfromotherflows of financialresources rom indus-trial o developingcountries.First,ODAis provideddirectly o developingcoun-tries, or indirectly throughmultilateralagencies,bythe official authorities f theindustrialcountriesat their discretion,motivated ytheirowninterests robjec-tives and not determinedby marketre-turns.Second,ODA s provided nhighlyconcessionalerms,almost90 percent asgrants ndat low interest orlong periodsif givenas loans.Dueto both these char-acteristics,ODA becomes particularlyattractive o developing countries,andpreferable o other sources of externalfinance.Developingcountriesneed for-eign savings; to supplementdomesticsavings,to raisethe rate of domesticin-vestment. ODA supplementsdomesticsavingsandbecauseof thesetwo charac-teristics,t candoso in a manner hatotherformsof externalnflowscannotdo. Itthusbecomesa moreeffective means of cov-eringthe savings gap to finance the rateof investmentneeded to realise a higherrate of growth.The first characteristic llows ODA tobe used to finance activities that marketbasedsourcesof fundswould not accom-modate.Thediscretionof the authoritiesof the donor countriesprovidingODAwould be based on theirperceived nter-ests. A substantialartof ODAinthe coldwarperiodwas related o political actorsandsecurityalliances.This also explains

the sharp fall in the ODA-GNP ratios ofthe major powers in the immediate postcold war period when they no longerrequired those alliances. But even in thatperiod, many donors were motivated by agenuine desireforpromoting developmentin developing countries. That, they be-lieved, would serve their long-term com-mercial or economic 'mutual interest' andwould also foster peace and prosperityoftheworld. Inallocatingtheaid-funds, theywere usually guided by what they thoughtwould be most effective in promotingdevelopment and not by what would yieldthe highest market returns on their funds.ODA becomes one of the most effectivemethodsof promotingdevelopmentin low-incomrecountries, because their financialinstitutions are weak, physical infrastruc-tures are undeveloped, market prices failto give the right signals, resources areimmobile and as a result market failuresthereareendemic. Even donorswho believethatdevelopment is best promoted throughthe proper functioning of market forces,would agree that at the early stage ofdevelopment resource allocationmayhaveto be guided by indices of social gainswhichcannotalwaysbecapturedby marketreturns. What would be needed most inthese countries is investment in physicalinfrastructures, hrough substantial, if nottotal, public funding until these activitiescan be unbundled and instruments aredeveloped to capture the limited gainsspread all over the economy. Even morethan that, what will be needed is invest-ment in social development or humancapitalformation, education, health,hous-ing, sanitation and water supply, slum-clearance and rural development, food

securityandpoverty-reduction.hesearethe basic elementsof any developmentprogramme andarealsoessential or thestabilityand orderlyfunctioningof anymarketeconomy. These have to be fi-nanced romofficial sourcesas verylittleprivate undingwould be available romthe market,andtheonly form of foreignsavingsthat can financesuchpublicex-penditureswill be ODA.Thedevelopment xperience f the last20 years,whenmost countriesmovedoutof the hitherto tate-dominatedlanningandpolicysystem o liberalise conomies,clearlyshows that at the earlystagesofdevelopment, he state continues o playa major ole. It does that,not ust inregu-latingmarketorces,butalso npromotingtheirproper unctioning ver imethroughincreasedpublic nvestment ndexpendi-ture. ncertain reas hepublic ectormaystill have to directly providegoods andservices. nothers,tmay ndirectly upportandfacilitate heprivate ector o providethem, hrough haringisksand ubsidisingcosts or increasing heir incentives.These functions of the public sector,which contributeto promotingprivateinvestment hroughdeveloping physicalandcsocialnfrastructurend nsuringocialandpoliticalstability,aredifferent romthegenerallyaccepted ole of thegovern-mentof providingpublicgoods.Even theprotagonists f the 'minimal tate' wouldagree hatonlywelltargeted ublic xpen-diturescan preventthe under-supply fpublicgoods which are non-excludable,that s,oneusercannotprevent thers romusing them,andnon-rival, hatis, one'sconsumptionoesnotreduce heconsump-tion of others, eavinglittle incentive to

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profit-maximising, isolated individualmarketagents to provide them. The publicsector is in a position to do so because itcan act on its own discretion and is notguided only by market incentives.Many of the activities promoting physi-cal and social infrastructures renotstrictlysimilar to providing public goods, as inprinciple, schemes can be worked out toovercome the non-excludable and non-rival characteristics of their services andfinancial instrumentscan be designed tocapture their returns into assets that aremarketable.However, in the early stagesof development, when the capital marketsare not well developed and informationflows and movement of goods and servicesas well as of labour arerestricted,all theseactivities appearto have most of the char-acteristics of public goods and would verymuchdependupon theprovision of publicexpenditure. Private capital flows guidedby market incentives would seldom sup-port these activities.The problem with increasing publicexpenditure or investment is that it willhave to be financed by the governments,either by raising taxes or by borrowing,both of which may have the effect ofcrowding out private investment, unlessthere is additional flow of resources fromforeign savings. Increased tax revenues ofthe government will directly reduce. re-sources available to the privatesector, andgovernment borrowing will raise the in-terest rateswith a given volume of domes-tic savings. To raise the public expendi-tures withoutreducing privateinvestment,government policy will have to be directedat raising domestic savings, the scope ofwhich in a developing country may beseverely limited, or by raising the inflowof foreign savings. Since such publicexpenditures are guided not by marketincentives but by social objectives, in-creasing ODA is considered important,bothby therecipientcountries, who wouldwant to increase the public expenditurerequired oracceleratingdevelopment, andby the donor governments who can influ-ence thedeploymentof public expenditurein the receiving countries to maximisedevelopment.Low-incomedevelopingcountries,whichare argelybypassedbyprivatecapital lowsas they cannot attractprivate investmentthroughprojectswith high marketable andreasonably low-risk private returns, willalso have to depend mostly on ODA as thesource of foreign capital. In our rapidlyglobalising world, the overwhelming

majority f developingcountrieswill notbe able to raisetheirrates of growth, ftheir ates f investmentemain onstrainedby domestic saving, unaidedby ODA.Despite hephenomenal rowthof privatecapitalflows internationally,rivate n-vestors eekinghighestmarketeturnswilladopt wait-and-see ttitudeowardshesecountries ndwouldrathermovetowardsmoreadvanceddevelopingcountriesca-pableof offeringarger eturns.ODAthenmust play a majorrole in reducing hedisparitiesn the ratesof development fthe differentdevelopingcountries.Thisdoesnot,ofcourse,mean hatprivateflows of internationalapitaldo nothavemucheffect on thedevelopment f thesecountries.On thecontraryherearemanycharacteristicsf suchprivateapital low,whichmayhavea muchgreatermpactondevelopment, hroughncreasing roduc-tivity, technology transfer and marketdevelopmenthanODAcouldhave.Thisis so even when ODA couldbe usedfortechnicalassistanceandacquiringnfor-mationandknowledge,becausemuch ofthesources fimproved roductivityomeas a partof privatenvestment.Themainproblem s that,guidedby the prospectsof market eturns, rivatelowsof foreignsavingsdo notfindoperatingn these ow-incomecountries ufficientlyucrative. fsuch private lows couldbe attracted othese countriesby specialprogrammesfrisk-sharingor profit-augmentingmea-sures,possibly supported y ODA,therewouldbe a net increasen theavailabilityof resourcesor foreign savings in thesecountries.Even if these private foreigncapitalflows cannot be used directlytofinancepublic xpenditures,heywillrelaxthe constraintsof domestic savings bysupplementinghemwith oreign avings.Publicexpendituresanthenbe financedbythegovernmentswithout rowding utprivatenvestment, ecause f alarger artof availablesavings.In short, hemajorrole of ODAwouldbe financingpublicexpenditure nd in-vestment n thedeveloping ountries.Thiswould be importantor most low-incomecountries,ypassed yprivatenternationalcapital.If the publicsectorof the deve-lopingcountries ouldattract rivate api-tal from the internationalapitalmarket,the burdenon ODA of financingsuchpublic expenditure ndinvestment ouldbe lower. Even if privateinternationalcapital lowed o theprivateectorof thesecountries,hatwouldhaveaugmentedhedomesticsavingsand releasedresources

to finance public investment withoutcrowding out private investment. So theother importantrole of ODA would be toleverage the flow of privatecapitalto thesecountries, through special measures, sothat one dollar of ODA can generate sev-eral dollars of flow of foreign savings tothese countries. ODA can play all theseroles, because it is given by the govern-ments of the donor countries at their dis-cretion,withoutbeing dependenton marketincentives.In addition to this, ODA has often beenconsidered for financing the so-calledglobal public goods, whose services bene-fit mankind in general, rather than anyparticularcountry,and are non-excludableand non-rival between different countries,analogously to the national public goodsdiscussed above. These includepeacekeep-ing, prevention of contagious diseases,research into medicines and vaccines, thelimitation on carbon emissions, and pre-servation of biodiversity. The global pub-lic goods need to be supplied throughcollective internationalaction, as any onestate will have no incentive to invest inproducingthese goods on its own. Clearly,supplying such goods and services willrequire international public expenditure,which ODA may well finance. However,it may be noted thatsupplying such globalpublic goods cannot be regardedas aimedat helping development of the poor coun-tries. If ODA's aim is to finance nationalpublic expenditures for promoting deve-lopment,providingforglobal public goodsfromODA will notbe the best use forthoseresources.The second characteristicof ODA, thatis, its concessionality, makes it particu-larly valuable to low-income countries, asit allows them to use it for activities whosebenefits are widely dispersed and cannotbe capturedto pay for its costs. They cando so without trying to borrow from theinternationalcapital markets and enteringinto debts andaccumulating liabilities thatwill have to be paid off over a number ofyears. The reasons why these countries areunable to tap internationalprivate capitalat reasonable cost are the same that makeconcessional aid importantfor them. It isnot thatthey cannot absorbforeign capitalor thatthey do not have projects with highreturns, when efficiently executed. It isonly thatthose returnson most of the basicprojectsthat have a large impacton growthare largely social, not reflected in privategains. Usually they accrue in a mannerwhichattheearly tageof institutionalnd

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financialdevelopmentannotbecapturedin a formthatcan be used to make therepayments.ConcessionalODA allowsdeveloping ountrieso retain hesurplusof social eturnseneratedrom heprojectsfinancedoraise heirdomestic avings orincreasingurtherheirrateof investment.There s thusa very good reasonwhyODA shouldbe all grantsand the multi-lateralagencies providingassistance tolow-income ountrieshould lsogivethemas grants.This is not the situation oday,as about 10 per cent of ODA, on theaverage, s still given as loans and themajortemsof multilateralssistance uchas IDA are still providedas long-termloans, though at a concessional rate.2Givingaid in the formof loans to thoselow-incomecountrieswhich do not havethe capacityto make repayments, venwhen theirprojectsyield high social re-turns,will be pushingthem to into debttraps.This does not mean thataid fundsshouldnotbe subjectedo stringent cru-tiny for theirefficientuse andto ensurehigh social returns.Thereshould be nocompromise n that.Butefficiencyin theuse of these funds and a mechanismofmoppinguptheirbenefits ntorepayablefinancial lows are separate ssues. Theargument or concessionality is basedmainly nthe nability f thegovernmentsofthe ow-incomeountriesowork utsucha mechanism t that tageof development.As the countriesdevelop, they wouldbuild up the financialand institutionalmechanismto capturethe gains frominvestments rbe able omobilise ncreas-ingrevenueshroughiscalmeasures. heywould henbe able ofullymeetrepaymentobligations,and the element of conces-sionalitymaythen be reduced n parallelwith the improvement n the stage ofdevelopment.At some point,thesedeve-lopingcountrieswouldbe able to attractprivate capital from the internationalmarkets n their erms.Buttill then,theywould needconcessionalassistance, hatcan be provided y ODAand multilateraldevelopment gencies.Concessionalitys usuallydiscussed nterms of the cost of ODA, to the deve-loping countries.3But even if ODA isgivenas grantandcomes as a freegift tothedevelopingcountries, t has a cost tothe donorcountriesand unless the ODAflowsgenerateeturns hichareperceivedby the donors o be of highervalue thanthatcost,theycannotbesustained.There-fore,anyprogrammeorincreasingODAmustbe built on how these resourcesare

used whether theireffects are seen by thedonors as worththeir sacrificing the alter-native uses. Since ODA is public moneyof the donor countries, its costs should bereckoned in terms of opportunitycosts, orwhat thatmoney could get as benefits fromalternative avenues of public expenditure.These benefits have to be evaluated by thedonorcountries' preferencesorobjectives.They may genuinely desire that the deve-loping countries achieve a higher growthof per capitaincome ora visible fall in theirpoverty, or become a potential expandingmarket or theirproducts.To achieve thesethey may willingly sacrifice the alternativedomestic use of those funds. But anyprogrammefor increasingODA musttakeinto account the natureof the activities thatODA would finance, in terms of theirefficient use without any waste, and interms of their effects on what the donorsregardas theobjectives of theirforeign aidpolicies.These objectives change.Whattheywerein the cold war days need not be the samein the period of globalisation and interna-tional cooperation, and even if the donorswere genuinely interested in the develop-ment of the poor countries, either ongrounds of 'mutual interest'oron groundsof an accepted obligation to help themdevelop, as mentioned above, the under-standing of the development imperativesmight change, calling for a different orderof priorities and relative weights to thepolicies and outcomes of the use of aid.These issues will have to be considered

carefully n anydiscussionabout nterna-tionaldevelopmentassistance.IITheProspectsforAugmentingODA

There s a prevalentbelief thatthe in-dustrial ountriesarenowhavingwhat scalled an 'aid fatigue' in the sense of agrowing eluctanceotransfer esourcesothedeveloping ountries.The statisticsofnet official development ssistance romtheDACcountriesodeveloping ountriesand multilateralorganisations,do not,however, endmuch upporto thisbelief.ODA as apercentage f GNPof the DACindustrial ountriesneverreached0.7 percent,atarget hatwasfixed earlier taUNconference,withoutmuch ormalbacking.However, t hoveredaround .33 percentorslightly essthanhalf, he arget hrough-out the last few decades of developmentcooperation. For example, ODA as apercentage f theGNP of DAC countriesaveraged .32percentduring1975-76and0.33 percentin 1985-86.It was0.33 percentin 1990, 1991, 1992,butcamedownto 0.30 per cent in 1993 and 1994. Thedeclines nthe ateryears uchas 1993and1994,wasagain,mainlydueto a substan-tial decline of ODA as a percentageofGNPin the US. The US performancefODA was as highas0.26 percent nmid-70s and0.24 percent in the mid-1980s.But it came down to 0.20 per cent in1991-92, and fell steadilysince then to

Table 1: Volume of Net ODA by Individual DAC Countries at 1998 Pricesand Exchange Rates(US $ Million)1978-79 1988-89 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Australia 911 1033 861 926 934 938 990 1051 876 898 960 946Austria 298 383 439 598 528 557 641 647 487 523 456 545Belgium 947 862 977 908 833 833 711 875 802 764 883 785Canada 1740 2233 2165 2183 2195 2203 2163 1951 1657 898 1707 1674Denmark 803 1221 1276 1315 1400 1427 1486 1444 1592 647 1704 1759Finland 141 662 709 810 617 424 310 333 369 379 396 432France 3862 7099 7309 7904 8036 8138 8385 7392 6592 6288 5742 5862Germany 5332 6366 7076 7621 6904 7041 6610 6313 6628 5838 5581 5704Greece 168 168 179 195Ireland 62 68 64 82 73 93 121 154 175 186 199 249Italy 803 4111 3295 3126 3657 3314 2920 1685 2257 1274 2278 1862Japan 5395 9853 10388 11360 10686 9439 10183 10327 7892 8678 10640 13451Luxembourg 24 28 45 38 53 59 57 74 95 112 121Netherlands 2043 2695 2721 2711 2716 2592 2473 2746 2869 2954 3042 3213NewZealand 117 100 97 104 107 105 106 104 96 127 130 135Norway 643 1028 1139 1125 1128 1047 1169 1114 1147 1215 1321 1328Portugal 158 190 247 298 259 325 237 200 253 259 281Spain 481 928 1155 1281 1310 1327 1218 1109 1237 1376 1385Sweden 1461 1831 1839 1845 2034 1909 1901 1590 1729 1684 1573 1686Switzerland 394 765 829 929 1171 834 941 887 875 913 898 999UK 4495 3680 3184 3639 3483 3671 3883 3680 3600 3577 3864 3399US 10689 11263 12163 10830 12156 11111 10673 7752 9680 6964 8786 9010TotalDAC 40136 55937 57678 59465 60274 57297 57375 51558 50876 47561 52084 55021Source: OECD DevelopmentCooperationAnnualReport2000' at www.oecd.org.Tables 6a and8.

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around 0.10 to 0.11 per cent in the late1990s. Even in termsof ODA, in constantdollarsof the differentDAC members, therecords show a significant increase formost of them except for the US, as canbe seen from the chart and Table 1.These figuresdo not show that therewasan increasedapathytowardsforeign aid orofficial developmentassistancein the DACcountries over these years, except for theUS. There was not avery greatenthusiasmfor foreign aid in the DAC countries asa whole, but whatever enthusiasm therewas, does not seem to have declined overthis period in any country other than theUS, and to some extent, in Canada. For-eign aid in real terms, both as total andasper capita,keptincreasinginthese years,showing that there was no significantopposition to the sacrifices of real sourcesin these countries. Some of decrease in thenominal value of ODA after 1991 has tobe explained by factors, other than aidfatigue, such as pressureson theirbudgets,disillusionment about the way aid wasused by some of the recipients. But theydid not indicate a loss of their interest ormotivation for helping the developingcountries, if those countries made properuse of those resources.4Since 1997, the situation has improved.Although the ODA performance of DACas a whole has not increased, and theaid:GNPratio for the two largedonors, theUS and UK, continued to be below thelevel of the early 1990s. The position ofJapan, the world's largest donor, whichfell from 0.32 per cent of GNP in 1991to 0.22 in 1997 recovered to 0.35 in 1999.Indeed, if the US is taken out of the DACfigures, the ratio of ODA to GNP of thenon-US DAC countries which fell from0.38 in 1993-94 steadily to 0.30 in 1997recovered in the next two years to 0.33 in1999. But moresignificantly, ODA in realterms, measured at 1998 prices and ex-change rates, show a sharp upturn after1997 for both the DAC and non-US, DACcountries.A recent study of the World Bank5suggests that one of the reasons why allmajordonors reduced aid relative to theirGNPs between 1991 and 1997 was that"inrecent years OECD countries had beenstruggling to control fiscal deficits andcontain growth in government spending,and even though foreign aid was a tinyfractionof budgets, it had been one of thefirst items for the axe". There is some truthinthat rgument,houghtcouldnotexplainthe nter-countryariations ndespecially

not the fact thatthedecline in the ODA/GNP ratio was the sharpest n the US.Foreignaid from the US was associatedwith the cold war and the conductof itsforeign policy, and went mostly to thecountrieswith whom the US had somekindof defenceallianceorunderstanding.It is possiblethatthe supportor foreignaid n thecountry nd n theCongresswasderived rom therequirementsf the USplaying heroleof abigpower ntheworldofbalanceof power. n otherOECD oun-tries nEurope ndJapan,oreignaidwasalso oftenseen as an nstrument f foreignpolicyforexpandingnfluenceover othercountries.However, hisrole of influenc-ingotherswasrelatedmore o thehistori-cal associations etween hecountries ndthe prospectsof establishinginksin thefuture,even after the cold war ended.Another lausible xplanationwouldbethe change in the whole paradigmofdevelopmentcooperation hathas takenplace in the 1990s as reflected in thecompositionof resource lows from theDAC to the developingcountries. n the1970sand1980s,officialfinance nclud-ing foreign aid and other bilateralandmultilateralinanceconstituted bouthalfof all financial lows from the OECD tothedevelopingountries. hesewere undsmade available mostly to governmentagencies in the developingcountries ocarry utand inance evelopmentrojects,asprivate apitalattracted y market ro-fitabilitywere notexpected o be a majorsourceof developmentinance. n the late1970stherewas a surge n private lows,whichreceded fter hedebtcrisesand ellbelowthe level of foreignaidflows inthelatter half of the 1980s. But after 1991therewas asharpncreasenprivatelows,so muchso thatby 1996 theyamountedto almost our imes heofficial lows.Thedevelopment aradigm hanged romthedependence n officialflows forpromot-ingdevelopmentoprivate apital espond-ing to market orcesfor financingdeve-lopment.The donorsin most industrialcountriesost theirconfidence n financ-ing developmenthrough he stateagen-cies, as theyfelt thatchanges n policiesand the qualityof implementationf theprojectswere often moreimportanthanthe quantum f finance.So even thoughmany n industrial ountrieswerewillingto sacrificeandtransfer ealresourcesodevelopingcountriesfor their develop-ment, they were not willing to channelthose unds hrough fficialagencies.Thatis why,even withouta clearsign of aid-

fatigue, they reduced their level of foreignaid in relation to their GNPs.Increasing ODA to Raise NetInflow of External Resources

As discussed in Section 1, a net inflowof externalresources rom whateversourceswould supplement domestic savings, andwould allow a general rise in the rate ofinvestment, and in particular financingpublic investment and expenditures with-out crowding out private investment. Soif ODA can be used to raise the inflow ofexternal resources, it will help indirectlyto finance such public investment andplayits role in promoting development.There has been, according to OECDcalculations, an increase in the privateflow in real terms by nearly $ 90 billiontodeveloping countriesfrom 1990 to 1995,although they were concentrated in only10-12 such countries. There is no reasonwhy this trend should not continue in thefuture unless there is a severe recession inthe industrial countries. It might then beveryuseful,ifforeignaid s used as an instru-ment to promote a larger diversion of thetotal financial capital from the DAC coun-tries to the developing countries that havebeen bypassed by private capital flows,andtocorrecttheirdistributional isparities.In fact, if foreign aid can be used effec-tively to leverage private capital flows, itis possible that the quantumof foreign aidflows itself would improve significantly,especially in the US. The governments ofindustrialcountries are often quite willingto use public money in their own countriesto subsidise, promote and channel todesirable users the flows of private invest-ment. Almost all of the industrial coun-tries' governments use their budgetaryresources to provide tax incentives andcapital subsidies and grants to stimulateprivateinvestment, and to direct it to areaswhich are considered backward or under-developed within their own countries. Thesame reasoning would apply to theirusingpublic money for promoting private in-vestment in developing countries.Indeed, several industrialcountrieshaveoften shown their willingness to augmenttheir official transfer of resources to helpprivate capital flows or to resolve theproblems of capital marketsfor maintain-ing financial flows to developing coun-tries. In spite of the generally decliningtrend in foreign aid, the US governmenthas shown its inclinationrepeatedly ocometotheaidof thedeveloping ountries

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to save them from financial crisis or acollapse of the capital market and theconsequentfall inoutputandemployment.The latest examples of this have been theMexican crisis followed by the crisis ineast Asia, when the US came to their aidby providing a generous contribution it-self, and mobilising international capitalthroughmultilateralagencies. Othercoun-tries have followed the example of US forreconstructing hecapitalmarkets andpro-moting privateflows and have contributedgenerously to international financial res-cue programmes. It is true that there areusually confined to what aredeemed 'sys-temicallysignificantcountries'. Neverthe-less, theyshow thatwhen thedonorsregardhelping the developing countries withofficial finance corresponding to theirinterest in preserving and promoting pri-vatecapitalflows, they exhibit little reluc-tance to increase their aid. Similarly, if aprogrammecould be worked out specifi-cally to use foreign aid to promote privatecapitalflows todeveloping countries,evento those countries which have been gen-erallyavoidedby privateinvestors, it is notunlikely that the US contribution in for-eign aid itself might increase in comingyears, to match similarincrease from otherindustrial countries.The first element of a programme forpromoting private capital flows to deve-loping countries would be to raise theincentives to attract foreign investmentthere with the help of ODA funds by thecountries from which these flows origi-nate. It may begin by giving domestictreatment in industrial countries to pro-ductsmanufacturednthedeveloping coun-tries by investors from those industrialcountries. For tradableproducts, if outputand nputpricesapproximatednternationalprices and if the developing country gov-ernments imposed no barriers on theexportables, and if the domestic govern-ment of the investors imposed no exportor import tariffs or quantitative restric-tions, the rates of return on investmentsin sectors getting such treatment wouldhave capturedthe comparative advantageof thecountries concerned. So, if the firmsinvestinginthedeveloping countriescouldexport the productsof theirforeign opera-tions to their home countries without anytariff or quotarestrictions, it would createa situation for the investing firms as if theywere extending theirproduction activitiesacross the borders of their countries intothe developing countries, to sell theirproducts ntheir home marketsortoexport

to thirdcountriesdependingon the relativeprofitability. The firms are expected toknow well the conditions in the homemarkets, and if they were producing indeveloping countries for selling in theirdomestic markets, it would have reducedthe risks related otheoutputprices, makinguse of the low-cost location of productionin developing countries. Even if the de-veloping countriesdidnotgive upalldutieson exports and all tariffs on imports, therelative profitability of producing in de-veloping countries, and selling in indus-trial countrieslike otherdomestic productswould often be quite high.Within the existing rules of the WTO,itmay not be possible for thehome countryof a foreign investor to give directly apreferential treatment to the products ofits offshore operations relative to otherMFN producers. There are, however, anumber of ways of providing such facili-ties, without contravening the WTO pro-visions. First, the industrialcountry con-cerned may extend the Lome 'treatment o

all developing countries' exportsallowingthem to enter duty free and quota free tothe homecountrymarkets, o longas certaindisciplines about the rules of origin arefollowed. If the governments of the donorcountries find it difficult to extend auniversal Lome treatment to the productsof all developing countries, the facilitiescan be limited to only low-income coun-tries, oronly the least developed countries.It would, however, be better not to intro-duce any productor sectoral limitations asthe marketswould be a better udge of thepotential comparative advantages of thecountries, and which of the products thatthe investors from industrial countrieswould most fruitfully specialise in whichcountry.However, keeping some sensitiveproductsout of the scope of such domestictreatment would not detract from thegeneral appeal of this policy.A second option would be to revive thegeneralised system of preferences (GSP)and extend it to specific products or in-dustries linked to investments from the

Table 2: Alternative Models of Burden SharingModel1 Model2ODA ODA Weight- BurdenShare# Target BurdenShare*PerCent of GNP US $ Mn US $ Mn ODA/GNP**US $ Mn1998 1998 1998 PerCent 1998

Australia 0.27 960 0.016 785 0.44 604Austria 0.22 456 0.009 458 0.44 456Belgium 0.35 883 0.011 557 0.44 227Canada 0.3 1707 0.025 1256 0.44 797Denmark 0.99 1704 0.008 380 0.99 0Finland 0.32 396 0.005 273 0.44 149France 0.4 5742 0.063 3170 0.44 574Germany 0.26 5581 0.095 4739 0.44 3864Greece 0.15 179 0.005 263 0.44 346Ireland 0.3 199 0.003 146 0.44 93Italy 0.2 2278 0.050 2515 0.44 2734Japan 0.28 10640 0.168 8390 0.44 6080Luxembourg 0.65 112 0.001 38 0.65 0Netherlands 0.8 3042 0.017 840 0.8 0NewZealand 0.27 130 0.002 106 0.44 82Norway 0.91 1321 0.006 321 0.91 0Portugal 0.24 259 0.005 238 0.44 216Spain 0.24 1376 0.025 1266 0.44 1147Sweden 0.72 1573 0.010 482 0.72 0Switzerland 0.32 898 0.012 620 0.44 337UK 0.27 3864 0.063 3160 0.44 2433US 0.1 8786 0.388 19399 0.44 29872Total DAC 0.23 52084 1.000 50000 50011Notes:- Weightrepresents he ratioof GNP of individualountries o the sum of DACGNP.# BurdenShare representsthe weightof each individualountrymultiplied ythe targetof US $50,000 million.For Denmark,Luxembourg,Netherlands,Norway nd Sweden thetargetODAcontribution asbeen takenas theiractualODA/GNP ercentagecontributionor the year 1998.For all otherDACcountries argetODA/GNP ercentagehas been estimatedat 0.44 percentof GNP.Burdenshare has been calculated by subtracting he actual contribution n 1998 fromtheestimatedcontribution.Theatesmentioned nthe previouscolumnhave been used forarrivingat the estimatedcontribution.Sources:Derived rom 1) OECD, DevelopmentCooperation:Effortsand Policies of the Membersofthe Development Assistance Committee 1998 Report', ( France: OECD,1999). StatisticalAnnexA7-A8,Table 4.(2) OECD, DevelopmentCooperationAnnualReport2000', at www.oecd.org(3)UNCommission nHumanRights, Study n thecurrenttate ofprogress n heimplementationof the right odevelopment', ubmittedby ArjunKSengupta,IndependentExpert. /CN.4/1999/WG.18/2July1999.

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industrialountries,keepingthe grantofthepreferential arketsothehomecoun-triesof the nvestors. tmaynotbedifficultto get a dispensationrom the WTOforthisfacility n thesame manner hatGSPsecured t in the late 1960s.A third alternativewould be to havenegotiatedbilateral greementwith vari-ousdeveloping ountrieswhere he ndus-trialcountryadopting hispolicy of pre-ferential treatment would offer the"Israeli"reatmento a developingcoun-tryfor anasymmetricreetradearrange-ment. Under t; the productsoriginatingfrom hechosendeveloping ountrywouldbe givenfreeaccessto themarkets f thedonor ountrynreturnor thedevelopingcountries greeingofollow certain olicyframeworks ndeventual reetrade reat-ment of the productsof the industrialcountry ftera specifiednumber f years.It is possible to exclude certainoverlysensitive roductsrom hesearrangements,thoughucharbitraryimitation ouldonlyreduce he effectivenessof the free tradearrangements.hisarrangement ightbea veryeffectivemethodof enhancing hevalueof investmentsn thepartneroun-tries,andensuringat the same time thatthedeveloping ountry oncernedmakesfirmcommitmentsoappropriateolicies.It should,however,be recognised hatgivinga free tradeor domestic reatmentto theproducts f avery poorunderdeve-lopedcountryn the market f the indus-trial countriesmay not be sufficient toattract nvestment n these countries.Jtwould reduce he risks in projecting heratesof return ndpossiblyof changes nthepoliciesof the host countries.But theactualvalue of the returnswoulddependontheproductivityfcapital,whichwoulddepend n nfrastructures,abour-skillsnda host of other actorsrequiring omple-mentarynvestments.The experienceofthe Lome convention suggests that,despitemanyyearsof concessional ccessof the products f the membercountriesin the industrial ountries, herewas notenough upplyof theirexportables.Moreeffectivestepsneeded o be taken o makeinvestmentspossible in these sectorsofthosedeveloping ountries o thatexportsupplies ncreased ndthecountries rulybenefited rom such treatment.It is herethatODA canplaya catalyticrole. For many low-incomedevelopingcountries,a principal easonfor the lowreturn n investments inefficientsupplyof infrastructureervices,whichareoftennot tradable.f investmentsn thetradable

sectors have to be made cost effective, itmust be preceded by investment in thecapacity of those infrastructureservices,ensuring their supply at reasonably lowcost. It is now possible to have technologyfrom many industrial countries that canunbundle the infrastructureservices intodifferent sectoral activities, permittingcompetition in productionand delivery ofthe services, andmanymultinationalcom-panies have the capacity to produce theseservices in a cost-effective manner. How-ever, because these productsare non-trad-able, their prices are dependent on theconditions of the domestic markets andgovernment policies, all of which aresubject to high risks and uncertainty.Thehome governments of the investors maythen use their ODA to help promote infra-structuresby directly financing the publicinvestment of these developing countriesand co-finance theadjustmentprogrammessupported by multinational agencies. Inaddition, such ODA can finance capitalsubsidies either by the recipient govern-ments or by the donors themselves toinvestors in such infrastructureprojects.A capital subsidy may help lower thecost of investment or raise the effectiverate of return or private nvestors who canthen raise marketcredit for these projects.This might be a very useful way of spend-ing a small amount of public money toleverage a substantial amount of foreigndirect investment to the developing coun-tries. For a foreign direct investor, how-ever, what can often be more importantthan the cost-sharing is the coordinatedimplementationof theproject ogetherwiththe development of the backward andforward linkage industries, with the co-operationof host countries. ODA can pro-mote such plans in recipient countries inthe form of a 'technology park'or 'specialinvestment or tradingzones', with liberalpolicies or special facilities.In many infrastructureprojects, multi-national corporations and foreign inves-tors have been asking for guaranteesfromhost governments against contingenciesresulting from policy changes. Theseguarantees are of course, not meant toensure a minimum rate of return or profitfromtheproject.It is the investors' respon-sibility to make the right kind of projec-tions of marketdemand andsupply andtheexpected rates of return to decide if theirinvestments would be viable. However,when a part of this return is dependentupongovernment oliciesabouthonouringcontractsregarding he pricingand the

quantity f infrastructureroducts,ollec-tion of userchargesand the deliveryofcomplimentaryervices, t is quitelegiti-mate for the foreign nvestor o ask for aguaranteerom hehostcountryor insur-ing against uch non-commercialisks,Itwould enhancethe attractiveness f theinvestment rojectsf theseguarantees ythe host governments an be given withcounter-guaranteesydonor overnments,to be met, when invoked fromODA.Tax Incentives

There s now aconsiderableiteratureosuggest that tax incentives on foreigninvestments, fferedby developing oun-tries,havea ratherimited ole.Whenhostdeveloping countriesprovide such taxincentives, f they are not neutralised ytaxes in the home countries, he cost ofcapitalfor the foreign investormay bereduced.However, n most surveyscon-ductedamong oreign nvestorsabout hefactorsdeterminingheirdecision o investin developingcountries, ax incentives nthese countries are given much lowerimportancehan heprovisionof compli-mentary ervicesandstabilityof thepoli-cies of those governments.Still, the de-velopingcountriesprovide ax incentivesforforeign nvestment,mainlybecauseofcompetitionwithotherdevelopingcoun-tries.The cost and oss of revenue or thedevelopingcountrieson accountof thesesubsidiesas a proportionof their totalrevenue an oftenbe very large,althoughfor the multinational ompanies, he re-duction n the total tax liabilitiesmaybequite insignificant.Itis, however,possible o argue hat axincentivesprovidedby the home coun-tries, that is, the countries of origin offoreign nvestment,may eadtoasubstan-tial increase in foreign investment todeveloping ountriesat a relatively mallcost to the;home countries' revenue orpublic money. The scope of doing so,however,by reductionn the taxratesoncorporatencomes,is rather imited.Butprovidingnvestment llowances rom hetaxable ncome of thecorporationsouldbe an effective methodof promotingn-vestment in developing countries,at arelatively ow cost to the treasury f theinvestor'scountry.Such allowances forpromotingnvestmentnspecialareashavebeen ollowed nseveral ountriesor ong.There is also considerable iterature nsupport f using nvestment llowances opromotenewinvestment,n preferenceo



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smallcurrency ransaction ax is unlikely toplay thatstabilising role. But for our pur-pose, this additionalpropertyof Tobin tax,if valid, is good news, but notrelevant.Thesupport orTobintax,fromthepointof viewof raising ODA, should be based on itsability oyieldalargerevenue,and he possi-bility of arrivingat an internationalagree-ment to make it work and use the revenuesfor augmenting development assistance.Most otherproposals of global taxationshould be considered in the same manner.Some of them a tax on carbon emissions,or a tax on using 'global commons' suchas the high seas, Antarctica, and outerspace, will have implications for supply-ing global publicgoods, andtheirproceedsmay be used for financing and regulatingthose supplies. Some like the carbon taxmay also have the potential of yieldinglarge revenues, partof which can be usedbeyond the management of global publicgoods, for augmenting ODA. But if aninternationalagreementcan be reachedforusing the proceeds of such taxes as Tobintax or carbon tax for development pur-poses, itwould imply that the internationalcommunity agrees to cooperate to raiseresources for development and share theburden.Inthatcase, thereis no reasonwhysuchagreementcannotbeextended toothersimpler and straightforwardareas such asa small tax on the exports of all industrialcountries, air travel or arms exports. If allcountriesagree to impose a small uniformtaxon these transactions,thatwill have theleast distortionaryeffect and will yield asubstantial revenue. Even a 1 per centexport tax on all exports of industrialcountries will yield more than$ 50 billionayearandmaynot divertthesupplyamongindustrialcountries,even if they arepassedon to the importersand may give a slightcompetitive edge to the export suppliesfrom developing countries.The proposal of 'link', which is relatedto the creation of SDRs by the IMF, andlinking that to augmenting resources fordevelopment assistance is somewhat dif-ferent.This is an old proposalthat has beenperiodicallyrevived,and stechnically quitefeasible.The IMFhasactuallycreatedSDRsseveral times to expand its resource basewithout much effect on world inflation,theargument hat s usuallyinvokedagainstthe creation of such additional interna-tional liquidity. The IMF, however, doesnotconsider itanymorenecessarytocreateSDRs to fundits own operation.The quota-resourcesand theirability to tap emer-gencyresourceshroughchemes ikethe

Figure2: ODAfrom DAC o Developing Countries and MultilateralOrganisations (At 1998 Prices and Exchange Rates)US $ Million70000 - . . ..

60000 - *

50000

40000

30000 - -

20000

10000 - ' - - -- ^- _-X_____

1978-79 1988-89 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999Years

-4-TotalDAC - A - US -- Non-USNotes: OfficialDevelopmentAssistance:Grantsor oans tocountriesandterritories n PartIof the DACList fAidRecipientsdevelopingountries) hich reundertakeny heofficialector withpromotionof economicdevelopmentandwelfareas the mainobjectives;at concessional financial erms.Source: Derived romOECD,DevelopmentCooperationAnnualReport2000, Table 8 and Table6a.GAB or NAB are regardedby them assufficient or heirpurposes.ButSDRscanstillbecreatedosatisfy hereserveneedsof themember ountries, ndalthoughheindustrialountries avenowmanyalter-nativesourcesfor satisfying heseneedswithoutrecourse o additional DRs, thedeveloping countries would still havereserveneedswhich hecreation f SDRscansatisfy.Eventhough heuse of SDRscarriessome interestcosts while ODAusuallydoes not the abilityto drawonSDRswouldhaveaverysimilar ffect fordevelopingcountries, s havingaccess toadditionalODAcomparedwiththe alter-nativesavailable o them.However,hemainproblem ftheSDR-linkproposalswouldbe thewillingnessofthe industrialcountriesto createSDRsevenwhentheydo notneedthem,so thatdeveloping countries can add to theirreserves,whichwhen heyusewould laimresources rom heindustrialountries sunder oreignaid, while those industrialcountrieswouldhave to holdthese addi-tionalSDRsasreserves. ndeedherehavebeen proposals to make the industrialcountriesogivethesereserves sto oan tothedeveloping ountries,whichcanagainbe usedforfurther esourceransfer.6 llthese proposalsare technically easible,andalthough he use of SDRswill notbe

like interest-freerants, t canbe usedbytheauthoritiesntirelyat theirdiscretion.But heydependupon ndustrialountries'willingness to accept the obligationofresource ransferalmost like ODA, andthat willingness, as mentioned above,dependsupontheir udgementabout theworthof such aid.

IVTheMotivationorODAThisbringsus to thefundamentalues-tion of the motivationof the industrialcountries ortransferringesourcesunderODA.Whyshould he ndustrialountriesgive and ncreaseODA?If we ignore hemilitaryandsecurityreasons,whichmayhave lost theirrelevance n thepost-cold-waryears, hemotivation f theindustrialcountries for providingODA must berelatedo theirdesire opromote conomicgrowth n thedeveloping ountries, s wehave discussed above. Their perceivedbenefit romthatprocessof growthcouldbe eitherpolitical,that s, a processtheythoughtwould ead o astable nternationalpolitical ystemwhich heyvalue,orbasedon a notionof mutualbenefits hatwouldallowindustrialountries lso to prosper,throughxpandingmarkets,ncreasedradeandhigherreturnson theircapital rans-

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actions. Besides, many people in theseindustrialcountries would genuinely wantthe overall development, removal of pov-erty and deprivation, malnutrition, illit-eracy andill-health, as well as technologi-cal, scientific and social progress of poorcountries,just as they would want for thebackwardregions in their own countries.The governments in these countries, beingall democratic, would follow policies thatreflect the views of their constituents.Althoughlobbies of interestgroups wouldinfluence specific policies for specificcountries,the overall motivation for ODAwould depend upon a general perceptionof the benefits of ODA.

Failures of Foreign Aid andDevelopment PolicyAssuming that promoting economicgrowth in developing countries has beenthe main motivation for ODA, there canbe different views about the role and

performanceof ODA, according to viewsabout how development takes place andwhat should be the right developmentpolicies. The first question that is oftenaskedtoday,after decades of using foreignaidfor development cooperation, is: Whyhas foreign aid not been so successful inachieving its goals of development? Jef-frey Sachs has gone into some of theseissues in a recent paper on Africa.7 Ac-cording to him, sub-Saharan Africa is aregion that illustrates quite clearly thefailure of foreign aid to achieve the mostimportant objective that it set for itself,namely, the growth of per-capita incomeof these countries. Despite continuouseffortover several decades by donor coun-tries in providing foreign aid and otherkinds of external assistance, sub-SaharanAfrica has failed to achieve sustained orrapideconomic growth, and in fact, manyof the countries have now less per-capitaincomes thanin 1975. Sachs believes thatinstead of promoting growth-orientedpolicies, foreign aid only increased the aiddependency of these countries. He, there-fore, calls for stopping all open-endedforeign aid, especially to Africa, and toreplace it by an assistance based on strictpolicy conditionalitieswhich aresupposedto promote growth in these countries.This, however, begs the real question:did foreign aid fail because it did notprescribepolicy conditionalities, or did itfail because it promoted wrong policies?Sachs admits that foreign aid to Africancountries,and for that matter,to other

developing ountries,wasalwaysattendedwith substantial conditionalities. Hecriticises especially the InternationalMonetaryFundand World Bank assis-tance orprescribingoomanycondition-alities, mplying hat heywereunfocused,unnecessaryand often unsupportive fgrowth-oriented olicies.Sachssuggeststhatsuchgrowth-orientedoliciesshouldhave focusedon marketorientation, e-regulation nd radeiberalisation,swellasfiscaldiscipline.But hesewereactuallythebasisof allpolicyrecommendationsfthe donorsand multilateral genciesforthedeveloping ountrieshroughouthesedecades. nparticular,uringhe ast10 to12yearswhenthe African ountrieswereuniversally rought nderhediscipline fstructuraldjustmentacilitiesof theFundandtheBank,theyall hadadopted hesepolicies.The continuance f the supportof internationalgencieswere n factmadecontingent n their ulfilling hosecondi-tionalities.In spite of that,during heseyears,hesub-Saharanountriessawhole,had onsistentlyessthan1percent reven0percentofper-capitarowth frealGDP.Economicpoliciesarenot usttechnicalexercises.Their easibilitydependsuponthepoliticaleconomyof theirworkabilityin a particularituation. f policyfailuresoccurredn Africa and otherdevelopingcountries sSachssuggests, heywerenotbecauseof lackof knowledgeor want ofefforts.They were largely because theauthoritiesof these countriescould notcope withthe economic and socialcostsof thosepoliciesunder hepoliticalcon-straintswithinwhich heywereoperating.This is the only explanation ossiblefortherepeated ccommodationy theIMFand the World Bank of countries whofailed to fulfill all the conditionalities fthe programmes. In spite of theseprogrammesgoing off-trackagain andagain, he internationalgenciesreformu-lated heperformanceriteria ohelp hesecountries ocome backwithrevisedpack-ages. It would be banal to call this acondoningof themistakesof theauthori-ties. It wasrather recognition f the factthateconomicpoliciesare matters f theartof the feasible,and that the fundingagencies must come out to help thesecountries orrect heirpolicies,rather hancut off theirsupport.During hisprocessof repetitive efor-mulation ftheadjustmentrogrammesfdeveloping countries,the internationalagenciesrealised hatadjustmentoliciesbasedonliberalisationndderegulationf

markets and fiscal consolidation could notbe sustained in these countries,unless theyraised their growth rates and provided forsocial safety nets for vulnerable groups.Growth-promotingpolicies build on rais-ing investment rates,which in turndependas much on potential returns and efficientfunctioning in the markets as on the sta-bility of the system andthepolicies. Safetynets and expenditures on social develop-ment, such as education, health, nutrition,housing andsanitation,contributenotonlyto the stabilityof the system by improvingthe well- being of the people but also tothe increased productivity and absorptioncapacity for new technology. Many of theadjustment programmes were, therefore,redesigned to provide for increasedpublicexpenditure for social development. Oneimportant reason, therefore, for the lackof success of foreign aid could then beattributedto the faulty design of the poli-cies that focused on market-promotingpolicies without emphasising the policiesfor social development.However, a majorreason for the failureof the adjustment programmes was alsothe inadequacy of the amount of externalresource flows. The insufficiency of thevolume of foreign aid shows up in threedifferent ways: to meet the savings gap,the import gap and quite often, the fiscalrevenue gap. In considering the adjust-ment programmes of policy reforms, theinternational funding agencies usuallymake projections of funding requirementsto support investment needed to maintaina rate of growth, as amounts that wouldhave to be provided from outside sourcesover and above the projected increases indomestic savings. Further, since policyreforms would take time to fructify andduring the period of adjustment importrequirements would exceed exports andnormal capital flows, the gap would haveto be met by additional external flows,eitherfrom public or fromprivatesources.Then, the possible increases in the rev-enues of the government through tax re-forms and increased coverage from risingincome would very often fall short of theminimal expenditure requirements of thegovernment. To carry on normal admin-istrative and capital expenditures mightrequire budgetary support from sourcesoutside of the government.The requirementsof external finance tomeet these gaps are often quite large andthe largestof these differentgaps becomesthe binding constraint on carrying out theprogramme.f externalresourcesare not

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adequate o meet the binding gap, theprogrammewould go off track.8Also,thesegapsareonly partiallymetby assis-tance rom hemultilateralgencies, n thehopethat herewill be othercomplemen-tary lows of external apitaleither romofficialbilateral onorsorfromdirect n-vestment.Time andagain, hesecomple-mentary ourcesof external inancehavenot responded o the challengesof thesituation ndhave failed to generate uf-ficientresources o bridge hesegaps.Asa result,most of theseprogrammes averemainedunderfundedven on the basisof the initialprojections f the financingrequirements.f, in addition, omeexog-enousfactors hatarebeyond he controlof thegovernments,uchas natural isas-ters or weather ailure,changes n inter-national ricesof major mport ndexportcommodities, rsharpvariationsn inter-est rateson past accumulated ebt, thatwiden the projectedgaps, the extent ofunderfundingften increases.Policy reforms and flow of externalcapitalarecomplementaryo each otherandnot substitutes. xternal lowscannotachievegrowthobjectiveswithoutpolicyreforms.But policy reformsalso cannotbe successfully mplementedf they arenotsupported y adequatelows of exter-nalcapital.The logic of the argumentsapplicableo alldeveloping ountries.Forsome, which have an alreadyreasonablydevelopedinfrastructure nd supply-ofskilled abour ndother inancial ervices,policyreformsmay be quickto fructify.But ngeneral,majorbilateral r multilat-eral official initiativesmay have to betakeno ncreasehe lowofexternalapital.Policyreformsmayhelp omobiliseeven-tuallyprivate apital lows. Butat heearlystageexternal apitalhas tocomethroughofficialbilateralndmultilateralssistance.

ConditionalityAll these wouldalso suggesta review

of the mechanism f conditionality.Thediscussions n this area have been dis-tracted yissues ikedeveloping ountriessacrificingsovereignty, or the foreignagencies dictatingpolicies, or that thepoliciesmustbeownedbythedevelopingcountries.Superficially,here will be nodisagreementnthese ssues andall donorgovernmentsand agencies will alwaysproclaim heir support or the country-ownership f thepolicies,as without hatnopoliciescan succeed.The factremainsthat all developmentpolicies would in-

volve strictdiscipline and austerityon thepartof their governments, and the donorsgranting their money insisting on thatdiscipline. This would remain so even ifthepolicies aredesigned andowned by thedeveloping countries themselves and itwill be futile to think thatthe donors wouldpart with the money without making it acondition that these policies are imple-mented. It is not possible to avoid condi-tionality in any such arrangement.Thepointthatshouldbetakencareof s thereciprocityof theobligations.It s nobody'scase that there should be no conditionalityof policy reforms attached to any grantoffinancial support. But as we have seenabove, it is notjust the mistakes of policymakersof thedevelopingcountries,but alsothe timely and adequate availability offinancial support that may be responsibleforthefailureof adevelopmentprogramme.Those mistakes may also be due to faultydesigning of the programmes, incorrectsequencing of the differentelements of thepolicies orinabilityto respondto changingsituations, and exogenous variables in-cluding political exigencies. There has tobe a mechanism in the exercise of theseconditionalities, which should be able toevaluate and arbitrateon all these aspects,before stopping financial support or im-posing more stringent policy conditions.Most donor agencies do try to reviewthese policies, as impartially as possible,eitherby theirmanagementor their execu-tive boards. But in many cases, whenunderfunding of the programmes or im-proper designing may be responsible forthe failures, corrective action may have tobe taken by the agencies themselves. Toavoid any conflict of interests, the reviewmechanism in such cases mustbe indepen-dent of the agencies involved, even if theydo not have the powers of arbitrationbinding on the agencies.Both the IMF and the World Bank nowhave mechanisms of evaluation of theprogrammes.What s being suggested hereis a different kind of an institutionalmechanism for reviewing conditionality.These agencies must have a standingcommittee of independent experts whocan review theworkingof theprogrammesand the issues of conditionality and toreciprocal obligation at the request of theparties concerned. Their reports will besubmitted to the executive board, whichwill decide on the recommendations ofthis committee in consultation with themanagement. To be workable, thiscommittee's unctions houldnotbe that

of arbitration r giving awardsand theexecutiveboardwouldalwaysbethefinalauthority bout hecontinuation,ermina-tionorrevisionof theprogrammesnd hefinancial supports for them. Thecommittee's unctionshouldbe moreinthenature f reconciliation f thedifferentpoints of view, not just for giving theconcerned ountries senseofjusticeandfairness n reviewingtheirproblemsbutalso for helpingthese institutions o ex-ecute heprogrammesmoreeffectivelybyintroducing mid-course corrections ifnecessary.These committees should beseen asaiding he workof theboards, ndnot nanysenseoverridingheirauthority.Indeed,bilateral onorsmayalsoadoptasimilarmethod f reviewing heiractivi-ties in individual ountrieshrough tand-ing expert committees attached to theministries oncernedandgiving theirre-portsto the ministers or final decision.In a democratic ystem this wouldonlystrengthen he positionof the ministersand make theirbilateralaid programmesmore transparent nd accountable andthereforemoreacceptable o the people,whoare heir onstituenciesndwhowouldultimatelydecide on the extent of ODAfrom variouscountries.It is thetransparencyndaccountabilityof theprogrammeshatODAsupportshatmay turnout to be the most importantdeterminantf publicsupportorODAinindustrial ountries.Whiletheobjectivesof those programmes ave to be formu-lated n a manner roundwhich a consen-sus maybe developed, he way in whichthey are executed,whether he financesprovided reeffectivelyused withoutanywastedue to corruption r faulty designand whether hey serveonly specific in-terests or all people in the country,areoftenas importantorgettingODA fromthe publicexchequerof the donor coun-tries.WhenODA is no longerseen as aninstrumentelated o thesecurity oncernsof thedonors, heprogrammes upportedbyit shouldbe seen as not ustacceptablebut as highlywelcomedby the receivingcountries.The donorcountrieswould iketo get full recognitionof theirsupportnthe countriesthey assist, as having noulteriormotive otherthanhelpingtheirdevelopment owards hat end. An inde-pendentcommitteeof expertsreviewingandevaluatingheconditionalitiesnd heworkingof theprogammes ndthe useofODAwill notonly prevent hemisuse ofODAfunds,butalso helptheauthoritiesin the developingcountryto adoptthe

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programmesas their own and not asimposedfromoutside.Human Rights Approachto Development

About heobjectives f theprogrammessupported y ODA, there seems to be ageneralconsensus that they should berelated otheoveralldevelopment f poorcountries.But the views aboutwhatcon-stitutesdevelopment avechanged igni-ficantlyovertheyears.In the 1950sand1960s,developmentmeant heacceleratedgrowthof per-capitaGDP anddevelop-mentpoliciessupported y ODA,as wellas internationalagencies, were mostlytargetedtrapidndustrialisation,ncreasedagricultural roductivity ndraisingrateof investment in well coordinatedprogrammes.nfact,multilateralgenciesas well as bilateraldonorswere not onlypromoting ctiverole of the state in de-velopment, utwere alsocalling orcom-prehensiveplanning for development.Removing overty, lliteracy,malnutritionand ll-health ndpromotingocialdevelop-ment ndwelfare,were fcourseconsideredthe ultimate oalsof development olicy.Butarapid rowth fGDPwasexpected obe theprincipalnstrumentor achievingthosegoals.Later, s it was seen thatGDPgrowthwas notsufficient n manycoun-tries orrealisinghem, hedonors ncour-aged policiesfor meetingthe "minimumneeds"andwell-targeted rogrammesorsocial development.At aboutthe sameperiod,hedevelopment aradigmhangedtowards human evelopment',with rela-tively essweightattachedoprogrammesmeant nly or hegrowth fGDPandrais-ingtherateofphysicalnvestment.Gradu-ally, herewasalsoa shift way romempha-sisingthe role of the stateto liberalisingthe markets ndopeningupeconomies ointernationalompetition.As the effectsof all these werehighlyuncertain n theimprovementf the welfareof thepeople,the aid policies did not seem to work,leading o a loss of supportor them.Thepolicy objectives became increasinglyconcernedwith governance, avoidingwaste, orruptionndmisuseofassistance.Inparallelwiththesechanges n think-ingabout nternationalevelopment oli-cies, the world witnessed a significantexpansion f the human ightsmovementand hegovernmentsf industrial emoc-racies cceptingnternationaluman ightslawsas the standards ndnormsof inter-national elations.Duringthe Carterad-

ministration, heUnitedStates firstbroughtin human rights consideration in decidingon theirpolicies of foreign aid andforeigneconomic relations. European countrieswere also invoking both thepromotionandtheviolationof humanrightsas influencingnot only theiraid, but also their trade rela-tions withothercountries.9While initially,violation of humanrights, particularly ivilandpolitical rightswere used to withhold,or diminish or regulateexternal assistanceand other economic relations, over timeand with the gradual acceptance of eco-nomic social and culturalrights as humanrights, the promotionof these rightscameto be regardedas objectives of policy. Theauthorities nindustrial ountriesconcernedwith ODA also found it expedient to pleadfor increasing the provision of foreign aidin the name of protecting and promotinghumanrights.Most of theiraidprogrammescame explicitly to incorporatethe humanrights approach odevelopment.Even mul-tilateraldevelopment agencies, through heUNDAF process of the UN, the compre-hensive development framework of theWorld Bank orthroughthe poverty reduc-tion strategyof the IMF, supportedby thebank built up their programmes on theelements of that approach.There were two main reasons forfavouringtheadoptionof the humanrightsapproachto foreign aid. First,many of theobjectives of development could be givenconcrete form in terms of economic andsocial rights, for example, to food, health,education, housing, work and social secu-rityas they were speltout inthe conventionof economic, social and cultural rights,which had a large support base in mostindustrial countries. Secondly, in all inter-national human rights agreements, it wasaccepted that the internationalcommunityhas an obligation to cooperate with thecountries trying to realise these humanrights.Thisobligationwasopenly acceptedby all signatories to such agreement.Articles 55 and 56 of the UN Charter,which has the authorityof an internationaltreaty, acceptthisobligation by statingthatall countries pledge themselves to coop-erate for the achievement of these rights.With the adoption of the Declaration onthe Right to Development in 1986 at theUnited Nations, and then through inter-governmentalconferences andagreement,culminating in the Vienna Declaration of1993, the humanrights approachto devel-opment gained almost universal accep-tance in the industrial countries.10Thereare threemaincharacteristicsf thatap-

proach o development.First, heright odevelopmentwas theright o aparticularprocessof developmentwhereall humanrightsand reedomsareto berealisedandthose humanrights were relatedto alldimensionsof humandevelopment,o berealised n a manner hatestablishesnotonly the entitlementsto food, health,education, overty eduction nd quitabledistribution f the fruitsof development,butalso heculpabilityor henon-achieve-ment of those entitlements.11 econdly,since under he rightto development, lltherights o different lementsof humandevelopmentare to be realised n an in-tegratedmanner, stheyareallrecognisedto be dependent on each other, theprogrammeso implement hemmust berelatedo adevelopmentrameworkasedon equityandjustice and would call fortheefficientuse of resources hathavetogrow in a sustainablemanner,and thatwoulddepend nappropriateevelopmentpolicies and macro-economicstability.Thirdly, lthoughheprimaryesponsibil-ity of delivering heright o developmentto all individualswould be of the statesof which they are citizens, the interna-tionalcommunitywill also have the re-sponsibility robligationocooperatewiththose statesto deliverthese rights.Theseobligations o cooperateare im-plied quiteunmistakablyn any country'sacceptingthe humanrights approachodevelopment.Whiletherewere someres-ervationsabout he rightto developmentwhen hedeclaration n that ightwasfirstadopted nternationallyn 1986,over theyears, through nternationalonferencesand agreements, hese reservationsgotresolved. n1993,aconsensuswasreachedin Vienna at the World ConferenceonHumanRights,whenallcountries eclaredthat heright odevelopments an nalien-able human ight,recognising heobliga-tion of all countrieso cooperatewith theconcerned tatepartiesorealise hat ight.Thisobligation o cooperate, f course,does not meanthe obligation o increaseforeign aid. But it does mean that themembersof the internationalommunitymust cooperatewith each other to findeffectivemeansofhelpingacountrywhichis making he best endeavours o realisetherightto development.The transfer fresources s only one such means, andothersmayberelatedotradeiberalisation,debtreduction,odes of technology rans-ferandmultinationalehaviour,inancialarchitecture,r ntellectual ropertyights.Anyone of thesemeansmayhaveamuch



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greater impact on the developing coun-tries' process of economic growth. Forexample, appropriatetrade liberalisationin the industrialcountries alone may yield$ 140billionof additional oreignexchangeearnings of the developing countries. Butif these means cannot be used, or do notproduce a result sufficient to help thecountries to achieve the right to develop-ment, resource transfer would remain anessential element of the obligation ofindustrial countries to cooperate withdeveloping countries.Although these ideas have been gener-ally accepted by the donor community,which has incorporated n different formsthe commitment to help to realise humanrights in their programmes of ODA andother forms of international economicrelations, they have not been always for-mulated as reciprocal obligations, impliedin the human rights approachto develop-ment. According to it, if some countriesmake all possible efforts required forrealisinghumanrights, such as the right todevelopment,theinternational ommunitymust accept the obligation to cooperatewith these states to achieve those rights.In his 1999 reportto the Human RightsCommission in Geneva, the independentexpert on the right to development sug-gested the adoption by the industrial anddeveloping countries, 'development com-pacts' based on mutual commitment tofulfilling conditions for implementingdevelopment programmes. The idea of acompact was first floated by Norwegianforeign minister T Stoltenberg in the late1980s and was elaborated upon by otherdevelopment economists and also in thehumandevelopment reportsof the UNDP."Itwasmeant osupportprogrammeswhichthedeveloping countries were supposed toimplement according to a sequenced de-sign of policies with a clear commitmentby donors to provide the required assis-tance in terms both of finance and tradeaccess and other policies, to match theefforts of therecipientcountries.

12If these'developmentcompacts' areformulatedasa method of implementing the right todevelopment, mutual commitments areplaced firmly in the context of humanrights.Developing countries would acceptthe conditonality of designing and imple-menting in a mutually agreed manner theappropriate programme for achieving adevelopment process with poverty eradi-cation and humandevelopment to realisehumanrights. If they do so, the industrialcountrieswould implement,as theirpartof

mutualbligation,programmeordevelop-mentcooperation, overingseveralareasof trade,debtandfinance, ncludingad-ditionalflow of development ssistance.These ideas of reciprocalobligationshave already ound some support n theinternationalevelopment iscussions.Atthe WorldEducationForum n Dakar n2000, a framework or actionplans to-wards ducationor all wasadoptedwhendevelopedcountriesagreedthat if anycountrymade erious fforts oachieve tseducation oals, twouldbe assured f allexternal esources ssentially equiredorthatpurpuse. heKanbur-Sandlerroposalfor commonpoolsof assistance,o whichthe Zedilloreportmakesa reference, salso a variationof this approach. f adeveloping ountry resents programmefor development,after mutualconsulta-tion,andwhich sacceptableo thedonors,theywouldputunrestrictedinancingntoa commonpoolof developmentssistancetoprevent failure fthatprogramme.herecentlydeclared'Compact or AfricanRecovery',hatoperationaliseshemillen-niumpartnershipsnAfrica, s alsofirmlybasedon thenotionofmutual ommitmentor reciprocalobligation.Therewill be three ssential lementsnsuch a development ompact.First, herehas to be a programme,ormulated y adevelopingcountry, hrough processofconsultation, both within the countryamong heconcernedpeople,with trans-parencyand fair participation,nd withothercountriesanddonor nstitutions nequal ooting, hatprogrammehouldndi-catepoliciesand equentialmeasureso beadoptedn order orealiseherighto deve-lopment,whichwouldmean mplementingat leastsome of therights,such as food,health,ducationrpovertyeduction ith-outviolatinganyotherhuman ight.Theserightsmplyentitlemento both heavaila-bilityand access to the relatedgoodsandservices.Forinstance,atisfyingheright ofood wouldmeannotjust increase n theavailability f food,butalso themode ofaccess,equitablydistributedwithoutanydiscrimination.hepolicies houldbespeltout,soalsowhathappensndwho s to takeappropriatection f policiesfail, as im-plied nthe ixingofculpability. econdly,it shouldspell out the responsibility fothers, uchas thedonorsandmultilateralagencies,about tepsto be takenby themforcooperationncludingheprovision fODA.Since herightodevelopment eansthat he ndividualightshave oberealisedin the contextof a sustainabledevelop-

mentprogramme,takinginto account theirinteractions,the development cooperationhas to be aimed at satisfying the require-ments forrealising thatwhole programme,in terms of additional resources and otherinternationalpolicies. In other words, theODA requirement should be assessed forrealising the whole development pro-grammeofthecountry,andnotjustrealisingin isolation aparticularright.Forexample,the right to health cannot be realised in asustainable manner without realising therightto food, orpoverty eradicationcannotbe sustained without the full realization ofthe right to education.The third element would be setting upa mechanism that will monitor the imple-mentation of the programme, who is re-sponsible for what, if there is a deviationin the programme and how to redress thesituation if there is any failure. Thismonitoring mechanism must be indepen-dent and fair, so that the conditionalitiesassociated with the programme can beaccepted by all concerned.

A Fund for FinancingDevelopment CompactsThe details of the steps necessary toworkouthuman-rightsbaseddevelopmentmay take a long time to receive interna-tional approval. But even without them,an ad interim plan can be formulated byany developing country containing some

basic ingredientsof development, meetingthegoals ofjustice andequity, which are attheheartof humanrightsconcerns. We maysuggest that to start with, the developingcountriesmayconcentrate npovertyreduc-tion andfood security, primaryhealthcareandbasic education na manner hat s trans-parent, participatory and equitable. Thehumanrightscondtionality will be that nootherrightsshould be violated, whichnmaybecivil andpolitical rightsor noregressionin any other social variables including un-employment and social security. For that,the countryshould have a reasonable, sus-tained rate of growth, realised in a mannerthat does not increase disparities or mak-ing anyone's condition deteriorate.These are the minimum requirementsofthe rights approach to development. Ifdeveloping countries accept the responsi-bility of implementing such a programmeof development, they can claim that theinternationalcommunity must accept theobligation to cooperate and help them tomeet their requirement. The industrialcountriesalso should be able to raise funds



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that may be required for this purpose asadditional ODA, as an increase in theirpublicexpenditure n thesame mannerthatthey raisemoney for meeting theirdomes-tic obligations, of protecting and promot-ing the welfare of their vulnerable sec-tions. The human rights approach has theadvantageof therecognition thattherightsare universal, and the responsibility offulfilling those rights is also universal.It is difficult to imagine that if the peopleof industrial countries are motivated tohelp the realisation of such a rights-basedapproach to development, their govern-ments will not be able to raise theresourcesnecessary, implying a small increase intheirpublic expenditures. For example, ifit is decided to create an internationalfundfor financing these programmes amount-ing to $ 50 billion a year, it would hardlybe an additional burden on the DACcountries of 0.20 per cent of their GNP of1999. The actual ODA-to-GNP ratio ofthese DAC countries was only 0.24 percentof GNP in thatyear, andtogetherwiththeadditional0.20 percent, their ratiowillamount to 0.44 per cent, far less than0.70per cent that was targeted earlier.The Zedillo report has given estimatesof additionalcosts for achieving the 2015international development goals of theMillennium Summit, amounting to $ 50billion. A humanrights-basedapproachtodevelopmentcanbedesignedwithout muchdifficulty around those international de-velopment goals. It can also have somevariant of these goals making them moreapparentlynaccordancewithhumanrightsapproachthat aims at not just increase inthe provision of the goods, but also themethods of accessing them with respectfor human dignity. We can have severalother targets not all of which need beaccepted by all countries. For example,over and above the objectives of halvingpoverty andhunger, we can have: univer-sal primaryeducation, eliminatoin of in-fant mortalityand maternal mortality, inadditionto reversing HIV AIDS, achiev-ing targetsof primaryhealth, or housing,sanitationor slum clearance. Any of thesetargetscan be adopted by any developingcountry, if it agrees and formulates a pro-gramme to realise them in a rights-basedapproach. The international communityshould then be in a position to commit tothatcountryhefinancialsupport hatwouldbe necessary to achieve the targets.Forthis it is proposed that first an inter-nationalfund for financing such develop-ment compacts amounting to $ 50 billionayear s setup.All thatwould be necessaryis to find an agreement on the burden

sharingof thatamountamong he indus-trialcountries.In Table2, we give twoalternative ersionsof suchburden har-ing, firston the basisof weightsof eachcountry'sGNPas a proportion f all theDAC country'sGNP,andthe second onthe basisthat,except orthefivecountrieswhoseODA/GNP atioshave beencloserto the 0.7 percenttarget,all othercoun-tries'ODA/GNPratiosareraised o 0.44per cent. These exercises are based on1998figuresbutcanbe carried utforanyotheryear.Thisexerciseclearlybringsouthowmarginalwouldbethe ncrease n theburden f each of theindustrialountries.The second element of the proposalwould be thatthese amountsshould bekept n a separatenternationalccount obe used when called upon, and can bemanaged yDACsecretariatsnecessary.Any developingcountrywith a properlyworkedout planfor realisingany of thetargetsmentionedabove, following thehuman ightsapproach,ndacceptingheconditionalitiesmplied,will beeligible obe accommodatedo thisfund. ThefundsecretariatrDAC wouldhelptheforma-tionof asupportroupor hatprogramme,withrepresentativesrom heWorldBank,IMF, the regionalbanks, UN agenciesdealingwith thesubject suchasFAO forfood, WHO for health,UNICEF or pri-maryeducation)and the HumanRightsCommission.They would examine therequirementsof assistance,taking intoaccount hat no otherrightsareviolatedandthe countryhas a reasonable ateofgrowth,togetherwith the supplyof re-sources romotherbilateral ndmultilat-eral ources,which hould otbeallowed ofall,and hendetermine hatpolices houldbefollowedsothat he ndustrialountriesmeet theirobligationsof cooperation.Third,on thebasisof thisexamination,the supportgroupwouldcall for the re-lease of resources romthe internationalfund,and each industrial ountry houldprovide heassistancehat s called or,upto the maximumof the burden haring.Fourth, hissupport roupwill also beresponsibleormonitoringheprogrammesandtakingstepsthatmaybe necessary omake nymid-courseorrection.However,if there s any disagreementn anyof themeasuresamong heparties, hereshouldbe a provision orappointing nindepen-dentgroup fexpertswhocanexamineandadjudicateon the issues of contentions.The supportgroup will have the finalauthorityoacceptorrejectherecommen-dations of the groupof experts.But thewholeprocessshouldbe openandtrans-parent,whichshouldbesufficient obuild

up pressuresn the democratic ountriesif the recommendations re unfair andarbitrary. iNotes

[This paper was presentedat a G-24 workshopin New York, in preparationor the FinanceandDevelopmentConference o be held in Mexico inMarch 2002. The author is grateful to theparticipantsat the workshop, especially GerryHelleiner,Irfanul Haqand Aziz Ali Mohammed,for their comments.]

1 See the Pearson Commission Report, 1969:'Partners in Development', Report of theCommission on InternationalDevelopmentPraeger,New York, 1969.2 The Zedillo Report, section 4.3 The Zedillo Report and many other writershave talked about another element of costrelated to aid-tying, making the recipientsengage in high-cost transactions or buyingmaterials from expensive sources connectedwith the donorcountries.This would in effectreduce the value of the aid, not so much itscost if it is given as grant.If the alternativetoaid-tying swithdrawal faid, hedevelopingcountrieswouldpreferhaving twhatevermaybe the grantelement. In actualpractice,aid-tying is motivatedby thedonorgovernments'ability to sell foreign aid to their domesticconstituencies in the name of promotingbusinessat home. Thatreduces the volume ofeffective aid to thedevelopingcountries. f thisaid is given as loan, what should be avoidedis that the receiving countriesshould not beasked to repaywith interest he portionof thereduction of aid due to aid-tying.4 All thesenumbers re aken rom heStatisticalAnnex of theOECDReportson DevelopmentCooperation, 1998, and 2000, Paris.5 'AssessingAid:WhatWorks,WhatDoesNot andWhy', A WorldBankPolicy ResearchReport,1998.6 See,ArjunSengupta:TheAllocationofSpecialDrawingRightsLinked o theReserveNeeds ofCountries' nInternationalMonetary ndFinan-cial Issues for the Developing Countries,UNCTAD,UnitedNations,New York1987 aswellasFinanceandDevelopment,aquarterlyubli-cationofIMFandWorldBank,September1986.7 JeffreySachs:ANewPartnershipforGrowthorAfrica,HarvardnstituteorInternational eve-lopment,Cambridge,Mass,February 8, 1997.8 EdmarBacha: 'A Three-gapModel of ForeignTransfer and the GDP Growth Rate inDeveloping Countries',Journal of Develop-ment Economics (32), 1990.9 See for example, Tomasevski, Katarina:DevelopmentAidand HumanRightsRevisited,London Printer, 1993.

10 See thethreereports f theIndependentExperton theRighttoDevelopment,ArjunSengupta,first on July 27, 1999, Ref No E/CN4/1999/WG18/2, second on August 17, 2000, RefNo A/55/306, and the third on (January2,2001 Ref No E/CN4/2001/WG18/2.Website:http://www.unhchr.chlhtml/menu2/7/b/mdev.htm.11 For a discussion of the difference betweenhuman development and the human rightsapproach to development, see HumanDevelopmentReport,2000, UNDP,Chapter1.12 The first reportof the IndependentExpertontheRightto Development,to theCommissionon HumanRights,Geneva,(E/CN4/1999WG18/2, July 27, 1999).


Official Development Assistance: The Human Rights Approach

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