Suman Bery: Reforming multilateral aid

Multilateral aid reform is in the air. How much should India care?

India remains central to multilateral aid. It is already the largest borrowing country from the Asian Development Bank. At a seminar in Delhi last week, the World Bank's Vice-President for South Asia announced a three-year indicative lending goal of $12 billion; in introducing the new Country Director last Monday he expressed the hope that it would soon become the largest borrower from that organisation as well.

The reasons for this importance are no mystery. India is a large, creditworthy, relatively well-governed country with lots of poor people. As the global case for aid has increasingly become linked with achieving the Millennium Development Goals (MDGs), India's woeful social indicators make it ground zero for global progress.

Nor is India's centrality anything new. India's travails in the 1960s were the source of two important innovations in multilateral aid. The first was the creation of the International Development Association (IDA), the World Bank's "soft" lending window, which was a response to India's deteriorating creditworthiness after the hubris of the Second Five-Year Plan.

The second was the shift from project to programme lending (and the associated invention of macroeconomic policy conditionality, particularly on the exchange rate). This was an outcome of the so-called Bell mission, which visited India after the severe droughts of the late 1960s. This innovation was seized upon by Robert S McNamara on his arrival at the World Bank in 1968 to transform the World Bank from a project to a country-based institution. In turn, this laid the foundation for the invention of structural adjustment lending in the early 1980s.

Yet there is a puzzle. In the light of this long history and continued substantial current involvement, one would expect India to be central to current debates on reform of the multilateral aid system. But one would be wrong. India's concerns and interests are apparently peripheral to these debates, and India itself doesn't particularly seem to care.

These impressions were strongly reinforced at a recent workshop on this issue held in Berlin at the end of January. Entitled "Performance and Coherence in Multilateral Development Finance", the conference was organised by a German non-profit organisation called InWent on behalf of the OECD Development Centre and the German Federal Ministry for Economic Cooperation and Development (BMZ). I participated as an independent expert. Since the conference was conducted under Chatham House rules, any direct attribution of views to speakers is not allowed. The event formed part of a larger cycle of consultations building up to a Plenary Global Forum on Development at the OECD in early April.

The session titles were, for once, a good guide to the actual content of the discussion. The three plenary sessions dealt with the shifting landscape of multilateral finance; evaluating multilateral performance; and improving multilateral performance. There were approximately 50 participants, many of them at senior levels in their present institutions. These came from the OECD [both the Development Centre, in which India participates, and the Development Assistance Committee (DAC), which is the club of the major bilateral donors which does not include India or China]; the major multilaterals; major European bilateral donors (though not Britain); a range of borrower countries; developing country academics; and non-governmental organisations with an interest in aid policies from both North and South.

Three factors have provoked this cycle of consultations. First, notwithstanding cynicism about the effectiveness of past aid efforts, there is actually appetite for an expansion of official overseas development assistance (ODA, data on which is collated by the DAC Secretariat at the OECD), a significant portion of which is channelled through multilaterals. Taxpayers in the major donor countries accordingly need to be reassured that their funds are being well spent.

Second, there are a range of new players in the multilateral space, such as the Gates Foundation and other philanthropic bodies (referred to in the trade as multi-actor global funds), whose modus operandi is different from the conventional multilaterals, and whose operations in country need to be reconciled with the "official' multilaterals. In addition there is increasing "mission creep" on all sides leading to overlap among multilaterals and between bilaterals and multilaterals. A large number of donors are, for example, active in the area of public health, all interacting with the same underpaid and overstretched local bureaucracy. There is also bleeding across instruments. In the past grants were preferred by bilaterals (and the UNDP) while the multilateral development banks (MDBs) specialised in loans. But now the MDBs are increasingly moving to grants as well, to avoid build-up of debt.

A third concern is that the framework of bilateral/multilateral coordination established by the major donors is breaking down as new bilaterals (particularly China, but also India) "undercut" the sector conditionality that the multilaterals have imposed with the tacit consent of the traditional donors.

Listening to the discussion with Indian ears, I came away with several impressions. The first was surprise at the scale and rigour of research that is under way in the major donor countries on monitoring and assessing the performance of the major multilaterals and of their financing activities. The presentations documented a huge array of initiatives for donors to monitor and manage the performance of multilateral agencies, a scale of effort that I for one had not been aware of at all.* But second, I was amazed by the degree to which the discussion was Africa-focused, with scant consideration for the needs and interests of India. Indeed, in the corridors the discussion of India was mainly about it being a "rogue creditor" (or, more politely, a "free-rider"), together with China exploiting the "space" created by debt reduction in the highly-indebted poor countries (HIPC). India's needs for development finance, and its importance as a laboratory for development practice hardly got any mention.

At the Silver Jubilee of ICRIER in November, the Prime Minister urged local research institutions to take more of an interest in issues of global economic governance. I am not aware that any local institution is undertaking work of the quality and rigour that I saw on display at the Berlin workshop. While our Finance and External Affairs Ministries have formal positions regarding the distribution of voting power in the Bretton Woods institutions, there is little to suggest that they have a well-thought-through agenda for the future of these institutions. It is true that the world has changed and private capital is more abundantly available. But we remain a poor country with immense financing needs. We should take the governance of these institutions more seriously than we do. The Berlin conference provided useful pointers on what such serious consideration would look like.

* www.oecd.org/development/globalforum

The writer is Director-General NCAER. The views expressed here are personal. sbery@ncaer.org