International aid architecture’s adaptation to today’s global landscape
On October 1, GMF hosted a luncheon discussion with Clay Lowery, Assistant Secretary for International Affairs of the U.S. Department of the Treasury, with response from Ruediger von Kleist, Alternate Executive Director for Germany of the World Bank. The event was a part of GMF's continuing aid series and was moderated by Jim Kolbe, Senior Transatlantic Fellow at GMF.
The international aid architecture has changed drastically since the establishment of the International Development Association (IDA) at the World Bank 47 years ago. With the growth in bilateral and multilateral agencies and new kinds of aid instruments and actors, such as vertical funds, foundations, and China, the aid landscape has fragmented, increasing transaction costs and redundancy.
IDA is adapting to this changing landscape. It has implemented new innovative approaches to development such as the Poverty Reduction Strategy Paper (PRSP). Moreover, the World Bank has doubled its pledge to the world's poorest countries from $1.5B during IDA14 to $3.5B. Since IDA14, the World Bank has continued to expand the reform process and pursue its multilateral debt relief initiative. Steps have already been taken to look at key areas of reform such as corruption and monitoring, while other areas such as loans versus grants and performance-based aid continue to be examined and discussed.
The use of loans versus grants remains a contested issue. The United States continues to question the rationale of loan distribution to the world's poorest countries because of the potential repayment problems and the ensuing debt accumulation. On the other hand, by providing loans, the World Bank is able to generate income, which can then be reinvested in other countries. While this approach allows for a longer time frame, legitimate concerns arise from a structure where one poor country is paying for the development of another poor country. Others argue that given the impressive and sustainable recent growth in many African countries, this may actually be an opportune time to continue disbursing loans rather then grants.
The United States also believes strongly in the importance of rewarding good performance when allocating aid. The issue is, however, that a performance-based reward system can overlook the world's poorest countries. Given that this performance-based system rewards countries based on their high GNP and other indicators, some fear that this type of aid tends to overlook countries that are most in need. Another cause for concern is that the performance statistics are often revised and adjusted, which can create difficulties in judging the performance of the recipient country.
Although the World Bank and, consequently, IDA have a long road ahead, there are multiple areas that, if leveraged, would give IDA a strong comparative advantage in its area of expertise. IDA must work to incorporate the private sector in its efforts and work with other parts of the World Bank, specifically the IFC, towards these ends. IDA must also create its own agenda and selectively choose projects based on organizational goals and capabilities rather then the interests of individual donors. Furthermore, IDA should leverage its extensive experience and on-the-ground network in fragile and post-conflict states to improve aid coordination and alignment among donors and recipient countries. Lastly, to assure transparent and sustainable development, it must continue to measure and monitor results, thus demonstrating the impact of its work to the international aid community and to the taxpayers of donor countries and recipient countries.