Global Policy Forum

By Zarrin T. Caldwell

Finding Solutions: Is Aid Working for the Poor?

"World leaders can show that they really mean business by listening to those at the frontline of development and giving them the tools to do the job." Camilla Toulmin, Director, International Institute for Environment & Development

In 2000, the international community came together to take a closer look at the joint responsibilities of both developed and developing countries in addressing the world's poverty. The outline of this shared effort became embodied in goal #8 of the Millennium Development Goals (MDGs). Among other tasks, this goal asks rich country governments to address the needs of poorer countries by providing more debt relief, fairer trade rules, and more and better aid for countries committed to poverty reduction.

The document also emphasizes the need for those countries receiving aid to demonstrate a commitment to "good governance." Due to a history of development funds going into the bank accounts of corrupt dictators or bureaucrats and, therefore, not to the people who need it most, donor countries have increasingly insisted that good governance be a pre-condition for aid. Such governance is facilitated by having strong judicial systems, freedom of information, civil society participation, and more. Groups like Transparency International, with a mandate to combat corruption globally, look at steps that all parties can take to factor the risk of corruption into assistance programs. These include ensuring there is a strict accounting of contributed funds and that rigorous procurement standards are followed.

Civil society groups have joined the refrain for better oversight and for bringing more accountability to aid projects on the ground. As such, they have increasingly placed tougher requirements on evaluating their own programs. In sum, the bar has moved higher for transparency and accountability in all aid projects.

Getting Aid Where It Counts

Official overseas development aid--whether in the form of low-interest loans, grants, or technical assistance--remains crucial, especially as a response to disaster situations. Such aid is often vital for helping countries cope with famine, for rebuilding communities after floods or earthquakes, for providing life-saving medicines and clean water, for investing in education, and for using all of these means to combat poverty. A report from the U.N.'s Millennium Project argues that even small investments in basic infrastructure, such as providing electricity, safe drinking water, health clinics, and roads, can turn the tide on poverty in many village and slum communities.

But, what remains important about such aid is that it gets invested in local communities to really change the circumstances of the poor. Stringent conditions have often been attached to aid funds that have little relevance to a country's needs, or are beyond their capacity to meet, which has proven to be a poor recipe for combating poverty. In some cases, poverty is only exacerbated by this approach. Take the "structural adjustment policies" promoted by international lending institutions like the World Bank. Now widely discredited, these policies obligated developing countries to concentrate on exports, privatization, and debt servicing at the expense of providing education, health, and social care to their citizens. The result was often increased poverty and social unrest.

Furthermore, foreign aid sometimes has more benefits for donors than recipients. In a report released by Action Aid in June 2005, the organization claims that two-thirds of donor money goes back to donor countries and, thus, is not available for poverty reduction in developing countries. In addition to a large portion of funds going to Western consultants, the report argues that donor governments often require money to be spent in certain ways--having only American pharmaceutical companies provide drugs used in HIV/AIDS programs, for example.

A new U.N. study on African economies also claims that donor money that comes with strings attached cuts the value of aid to recipient countries 25-40%, because it obliges them to purchase uncompetitive imports from richer nations. Njoki Njoroge Njehu, director of a coalition of over 200 grassroots NGOs called 50 Years Is Enough, notes that such conditional aid raises project costs. She cites Eritrea's recent decision to build a more cost effective network of railways with local expertise and resources rather than using foreign consultants, experts, architects, and engineers imposed on the country as a condition of development assistance. The problems with such "tied aid" have led several European governments, like Norway, Denmark, and the U.K., to distance themselves from these practices.

Encouraging Local Ownership

A recent refrain of the international community has been the need to "harmonize" aid programs. More simply put, it's a call for procedures to be simplified and coordinated more closely with the specific--and often very different--needs of recipient countries. The Millennium Campaign asserts that, with donors funding more than 60,000 aid projects around the world, demands on recipient countries--with sometimes limited institutional capacity--are overwhelming. The reporting requirements alone are heavy burdens. Projects are also not always aligned with a country's priorities. For all of these reasons, the Millennium Campaign calls for donors to "move away from their 'own' projects and focus on supporting locally driven and country-owned priorities and strategies" and "to set benchmarks that are locally based."

To ensure that aid funds are directly invested in the communities they are designed to serve, some NGOs have been calling for more "community-based" development as a means to address the needs of the poor. In this model, local control of small-scale projects is highlighted. Along these lines, the London-based International Institute for Environment and Development (IIED) argues that aid should be channeled directly to people rather than governments. Aid moving from governments to governments concentrates power at the center, IIED notes, and provides fewer resources for successful activities--like small scale farming--at local levels.

Microcredit programs are another example of local people taking control of their own lives. Civil society groups have been at the forefront of these initiatives, which have proven particularly successful in generating income for the poor. Starting in the 1970s in Bangladesh, microcredit institutions offer loans and other financial services to the very poor--allowing them to engage in self-employment projects that generate income to support themselves and their families.

U.N. agencies estimate that, worldwide, there are now some 13 million microcredit borrowers. Although some criticize the debt dimensions of these programs, repayment rates for these projects are generally over 95 percent and the majority of borrowers are women. (See the Viewpoint article by ACCION International in this e-zine for more information on microfinance.)

Long-term solutions that emphasize community participation are the cornerstone of the work of some NGOs. Heifer Project International, for example, donates livestock to local communities based on the given community's consultation about what is needed. Initial training is offered in animal management and, to make the project self-sustaining, those receiving animals "pass the gift" to others. Some faith-based NGOs, like the Christian Reformed World Relief Committee and the Friends Society in Social Service, assert that involving communities in lasting socio-economic development is far more fundamental than short-term contributions that may, in fact, support the cycle of poverty. Regardless of the specific approach, many NGOs have led the trend to ensure that local stakeholders are more fully consulted and included in the design of their own futures.

Soumana Sako, the Executive Director of the African Capacity Building Foundation notes, "if there is no local ownership, it has been shown that development projects won't succeed. People have to feel that it is their program, designed with their priorities in mind and based on their own leadership." He adds that, with this approach, poverty reduction is likely to be more successful.

Participatory processes have also been more widely adopted by the world's largest lenders, like the World Bank and its subsidiaries. These institutions have begun to collaborate more closely with national governments in developing plans to address poverty. At the end of the day though, whether aid will really be channeled to improved systems at local levels--and facilitate poverty reduction as a result--remains an open question.

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