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AFRO-NETS> Aid And Reform In Africa - World Bank

Aid And Reform In Africa - World Bank
-------------------------------------

A review of AID AND REFORM IN AFRICA: LESSONS FROM TEN CASE STUDIES,
FINAL REPORT World Bank, Aid Effectiveness Research, Development
Research Group (released March 27, 2001).
[www.worldbank.org/research/aid/africa/release/aid.htm] *

Welcome to a post-mortem of and a critical look at Structural Adjust-
ment Programs (SAPs) in Africa together with a proposed new recipe to
make them better, avoiding their (sometimes now judged clumsy) pit-
falls.

The Report reviews aid and policy reform in ten African countries
spanning from the eighties to the nineties. The countries are
arbitrarily divided into four categories: -Successful Reformers
(Ghana and Uganda -and, interestingly, Vietnam added), -Post-
socialist Reformers (Ethiopia, Mali and Tanzania), -Mixed Reformers
(Ivory Coast, Kenya and Zambia), and -Non-reformers (Zaire and
Nigeria). All of them received large amounts of aid and all of them
had SAPs.

Overall, I see the Report as an apology for market-based reforms, be-
cause the authors truly believe them to be the best option. In doing
the latter, the Report tacitly calls on Western donors and on the
private foreign investors to rethink their strategies and to support
countries that adopt WB-sponsored macro economic policies.

Without having any qualms about the brilliance of this Report, the
first monumental problem I have with it is that it represents a
typical cold economists' account and analysis of an indeed complex
matter. The warm analysis of the social consequences and costs of
these reforms is nowhere to be seen!! It is skipped as if it does not
exist, as if it doesn't count, as if it is unimportant. Passing-by,
casual mentions of poverty reduction on pages 4, 31 and 34 add to
mere mockery. This shortcoming seriously detracts from the Report's
ultimate moral authority.

The second problem I have with this Report relates to the authors'
definition of what constitutes "good policies". In an astonishing
leap of faith, they arrogantly tell us: "we know enough about
development policies to make a fair assessment of the quality of
policies across countries and over time, the notion that we are doing
a reasonable job of measuring policy across countries is supported by
the fact that our broad measure of policy predicts fairly well the
GDP growth rates of the four categories of countries in our study".

Absence of high inflation, functioning foreign exchange and financial
markets, openness to foreign trade, effective rule of law and
delivery of key services, plus tax and sectoral policies that create
good incentives for 'accumulation', and the public sector providing
services complementary to private initiatives are given as key
elements of "good policy". (pp.2+3) For the Report's analyses, this
is then all blended into a 0-4 scale or index in a way that remains
unexplained in the main text (trust us: "we know enough about
development."). In short, "good policy" here clearly fits (and
serves) the ideological outlook of the World Bank. That, to me,
detracts on the Report's objectivity.

The Report (controversially) concludes that aid is not a primary de-
terminant of policy, i.e. that variables under donor control do not
consistently influence the success or failure of reform; that aid
does not buy good reform. We are further told that policy is truly
independent of aid and that the effect of aid will increase with the
quality of policies. Aid, in the authors' eyes, did play a
significant and positive role in the 'success' of the two sustained
reformers (Uganda and Ghana). (pp.4+6)

The Report then goes on to regret that donors tend to concentrate
their assistance in countries with mediocre policies with the
expectation that aid can spur policy reform. But we are told that
policy formation is primarily driven by the domestic political
economy where vested interests can (and do) perpetuate poor policies.
Therefore, no relationship between formal democratic institutions and
good economic policy could be found. Actually, large amounts of aid
to countries with bad policies sustain those poor policies allowing
the delay of reform, we read. Funds can (and do) actually sustain
corrupt and incompetent governments. Attaching conditions to the aid
(conditionality) has, in the Report's view, not led to successful
policy change. It has often been wasteful and even harmful. If
countries perceive donors want to set policy, ministries become
passive without disagreeing with the donors since this will only
serve to delay the arrival of the much-needed resources. Further,
donors coordinate their work in a remarkably poor way and actually do
not discriminate effectively among different countries: they tend to
provide the same package of assistance everywhere and at all times;
they also give less aid per capita to populous countries. All this is
explained by the fact that aid in too many cases is a foreign policy
tool rather than a tool for economic development. It is often
dictated by colonial relationships and/or voting patterns in the
United Nations and often ends up financing non-viable or even non-
development schemes. Alternatively, aid provides governments with the
breathing space they require to contain domestic opposition to market
reforms, or it fills the shelves of supermarkets to provide a
psychological impression of better things to come. Donors should
definitely not provide aid before governments are serious about re-
form. (pp.5, 6,12,21,26,27+29)

In the early stages of serious reform, we learn that leaders and
technocrats (self-servingly meaning those sympathetic to WB policy
advice) actually welcome conditionality to 'bind' the process of
change. Later, once the reform movement is well in place,
conditionality becomes less useful and should be withdrawn, because
it limits participation and it disguises the ownership of reforms.
But the case studies show that, in a mistake, this has not happened
and conditions have become tighter, more numerous and their
acceptance more important for lending to be approved. (p.6,30+32) (In
an oxymoron, on page 31, we read that to be useful, conditionality
must reflect measures that the government wants to carry out. Then why
the conditionality?, I ask)

The composition of aid is important, we read. In the pre-reform
period, Technical Assistance (TA) and Policy Dialogue are most
supportive. During rapid reform Financing and Conditional Loans are
most important. At a later stage of reform, sustained Finance remains
crucial. (p.6)

Rapid reform leading to "good policy" occurs when all of the impor-
tant macro economic reforms have been completed, we are told. (Note
the total absence of any mention of the social realm). Then,
countries are said to need to move into "second generation reforms";
and which are these?.. privatisation , civil service reform, judicial
reform, and budget reforms. (p.23) One cannot avoid but asking: and
what about structural reforms leading to poverty alleviation, greater
equity and the provision of services for the poor.?

The Report repeatedly speaks about "poor policy" periods, always as-
suming those to mean periods when World Bank-prescribed policies were
not (yet) followed. Confirming the political nature of aid, it goes
on to say that governments were estranged from the West during their
"poor policy" periods.

In the Report's context, policy dialogue -euphemistically called "low-
key assistance" or "dialogue with foreign experts"- seems to be
associated with the license Bretton Woods IFIs and donors took to put
high pressure ('leverage', the Report says) on governments to adopt
macro economic reforms, i.e. replacing state controls by market
mechanisms, the latter gratuitously assumed to be superior. "When
governments are sufficiently desperate, the promise of support in-
duces them to come to agreement relatively quickly on far reaching
reform programs". (p.24,26+35) .so much for the conclusion above that
aid is not a primary determinant of policy.

The Report self-servingly claims that policy dialogue with the IMF
and WB played a critical role in the early years of "good policy"
reform involving small groups of dedicated technocrats and
politicians and that TA (absorbing up to 13-18% of all financial
aid!) was later most helpful in pushing the early reform agendas. It
then recognizes that TA was sometimes ineffective , because it was
supply-driven from the donors side. (pp.15,16,20+35). With hindsight
I ask myself, is that what you call 'buying yourself a reform
package'?

In procuring technical assistance, the report warns us that many of
the consultants "parachute in" giving mediocre advice even as
countries complain they need freedom to buy expertise as they see
fit. TA, it is confessed further on, is designed to provide
ammunition to reformist technocrats; in that sense, policy choices
are driven by donor funding rather than the domestically formulated
policies: a nice contradiction here again with what is said earlier.
(pp.20+21)

Historically, there does not seem to be a systematic relationship be-
tween structural adjustment programs and the extent to which African
countries reformed, we read. It seems countries embraced serious
reform only after they exhausted all other options, and the last
option for most often meant adopting IMF SAP packages. Most
interestingly, reforms tended to occur following a crisis.
("Necessary but unpopular decisions had to be made quick before
opposition to the reforms could be mobilized"). This highlights the
role of leadership, technocrats, ideology, and institutions during
such crises and, in order to lead to a "good" reform process, TA has
to have done its job. (pp.6, 7,8 +12)

 >From the case studies, it is clear that countries often slide back
following rapid reform. Examples of reasons given for this slippage
include wage increases that had to be given to civil servants and
political opposition. To me, these seem quite genuine reactions to
growing misery brought about by acute macro economic reforms. Donors
react to slippage with cut backs particularly when they perceive
'inability' of the government to privatize. (p.9)

Any reform program has losers, we are further told. Because of that,
we need objective decision-makers to minimize negative impacts.
'Disinterested' economists then have an edge, because they can 'sell'
the program both to winners and potential losers.(pp.10+11) I find it
hard to accept that there is genuine disinterest here. Good reformers
do need consultative processes;.period; even in the absence of formal
democratic structures.

I further find it objectionable that the Report trivializes the role
of external economic shocks and pressures in bringing about and
perpetuating economic hardship in African countries. In a put-down
way, it is said that President Nyerere "believed" that to be the
case. (p.11) Negating the negative effect of these external factors
on national economies is borderline part of a dishonest analysis, I
contend.

The Report concludes that donors have three basic instruments that
they can use to encourage the adoption of "good economic policies" in
developing countries: money, conditionality and technical
assistance/policy dialogue. It contends each of these made positive
contributions in the 10 case studies. But donors used these
instruments fairly indiscriminately and later, in the 1990s, did not
provide appropriate debt relief. Using the wrong instrument at the
wrong time proved wasteful and retarded reform. This, in concluding
we are told, calls for "a better calibration of aid and reform".
Giving aid to countries with "poor " policies will not stimulate re-
form, will maintain the status-quo and will not be reflected in
poverty reduction (!). Finally, donors need to be more selective of
the recipient countries they choose and the instruments they use and
when. They should operate "on a small scale" with governments with
poor economic policies, perhaps providing support to groups outside
of government. Conversely, they should maintain high levels of
finance in countries with sustained "good policies". Money can help
improve policies, but the key is to disburse it when actual policy
improvements have already been achieved. Surprisingly, and despite
all the suffering they have caused, the Report regrets the fact that
SAP loans became discredited as instruments; "they could have been
useful"..if what is said in this Report would have been heeded..
(pp.33,34+35)

I find that I always learn from reading documents I do not agree with
100%. In this and other cases, I think it will be the same for you.
The individual country case studies are not reviewed here.


Review by Claudio Schuftan
Hanoi
mailto:aviva@netnam.vn


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