Tied aid and unfair trade contrary to MDG achievement

A recent study on the African aid consuming economies conducted by the United Nations reveals that the donor money that comes with strings attached cuts the value of aid to recipient countries by 25-40 percent, because it obliges them to receive uncompetitively priced imports from the richer nations.

The study singles out four countries -- Norway, Denmark, the Netherlands and the United Kingdom -- as the only donors breaking away from the concept of 'tied aid' that comes with conditionality. The four nations now provide more than 90 percent of their aid 'untied'. On contrary, Canada maintains 60-75 percent of its assistance as 'tied'. The United States, Germany, Japan and France still insist that a major proportion of their aid money be used to buy products originating only in their countries, according to the study. Even the aid earmarked to fight HIV/AIDS in Africa is also 'tied' as the 'donors' insist the recipient countries to purchase anti-AIDS drugs from them instead of buying cheaper generic products from developing countries.

'Tied aid' means the aid-receiving nations have to buy products only from donor countries as a condition for development assistance. May be, it is practiced to ensure a substantial share of aid money back into the economies of donor nations. India made a study in 1980s on the utiliszation of development assistance and found that three rupees had been spent to reach one rupee of the assistance to the needy. It means that out of four rupees of development assistance, the actual recipient got one rupee. The study did not elaborate the mode of expenditure but hinted to similar findings of the recent UN study. May be, findings of such studies acted as a wake-up call to Indian policy-makers. So they decided to show about-turn to the so-called foreign assistance and vowed to stand on their own feet. As a result, in 1991, they have started financial sector reform. Since then India has been maintaining above 6 percent GDP growth per year.

Although there has not been any nation-wide study so far in Bangladesh about the percentage of disbursed assistance actually reaching the country and that to the target group, but a few research organisations have made some stray survey on the issue and found that Taka 5-6 is needed to reach one Taka of development assistance to the rural poor. East African country, Eritrea, has discovered that it would be cheaper to build its network of railways with local expertise and resources than be forced to spend aid money on foreign consultants, experts, architects and engineers imposed on the country as a condition of development assistance.

One may ask why the developed countries offer development assistance to the third world economies, if it is stringed. It has a background. In 1974, the UN General Assembly unanimously approved a resolution calling on rich nations to provide 0.7 percent of their Gross National Product (GNP) as aid usually termed as Official Development Assistance (ODA) to the poor. It has not mentioned anything about conditional aid. Only four nations -- Norway, Demark, Sweden and the Netherlands -- have consistently met the ODA target. But it took them nearly 30 years to get there. Recently five other European countries have set their ODA deadlines. Italy targeted 2006, Luxembourg and Ireland 2007, Belgium 2010 and France 2012 to provide 0.7 percent of their GNP as ODA.

The world leaders of 189 countries at the United Nations Millennium Summit in September 2000 agreed to a set of time-bound and measurable goals and targets to combat poverty, hunger, disease, illiteracy, environmental degradation and discrimination against women. Placed at the heart of the global agenda, they are now called the Millennium Development Goals (MDGs). The MDGs include a 50 percent reduction in poverty and hunger; achievement of universal primary education; reduction of child mortality by two-third; cutback in maternal mortality by three-quarters; promotion of gender equality; ensuring environmental sustainability; and the reversal of the spread of HIV/AIDS, malaria and other diseases. The leaders pledged to meet all of these goals by the year 2015.

Interestingly the international community set deadlines for the poor but not for the rich. They approved a target of 2015 for seven of the eight goals. But the eighth goal, a global partnership of rich and poor countries for development, has no clear-cut or rigid deadline. Goal 8 includes a substantial increase in developing aid, reduction or cancellation of developing countries' debts, removal of protectionist barriers for agricultural products and access for developing nations to western markets. It is five years after the Millennium Declaration and 10 years from the 2015 target. So it is the time for rich nations to honour commitments they made at Goal 8 and translate their promises into time-bound deadlines as echoed in the Second Summit Meeting in New York in September last.

A recent UN study suggested that MDGs could be met by 2015 if ODA were increased by $50 billion per year and sustained at that level, which represents only about 5 percent of what the world is now spending on arms and other means of destruction. Since 1998 global military spending has been increasing. On contrary, ODA release has been decreasing. In 1998, world military expenditure was $690 billion and rose to $784 billion in 2002. It increased to $900 billion in 2003, reached to a record $950 billion in 2004 and an estimated one trillion dollars in 2005. On the other hand, the ODA doled out by the rich nations to the poor has been rallying between $50-55 billion since 2000 and a substantial portion of the sanctioned ODA has remained in pipelines for years after years.

The G7 countries recently agreed to examine debt relief for the poorest countries on a 'case-by-case' basis. But the debts that were owed by the LDCs built up over 20 or 30 years are simply unpayable in the real term. In addition, the G7 countries are thinking over only the cancellation of multilateral debts of the 42 Heavily Indebted Poor Countries (HIPC) amounting to about $10 billion. The debt relief of other LDCs and less developing countries, the World Bank identified those as 19 in number, and most important bilateral debt relief issue are not yet discussed. According to an estimate, the HIPC countries' bilateral debt to the industrialised countries come to $30 billion which is equivalent to the cost of six months' occupation of Iraq or 5 percent of G7 annual military spending.

Another important component of the Goal 8 of MDGs is trade. UNDP's Human Development Report-2005 says, "More than two-thirds of some 86 billion people across the world surviving on less than $1 a day live and work in rural areas either as smallholder farmers or as agriculture labourers. Unfair agricultural trade practices systematically undermine the livelihoods of these people, hampering progress towards the MDGs in the process." Africa's cotton, Carribbeans' fruits and vegetable, Asia's rice do not get access to the developed countries' markets due to high tariff wall. As the poor countries do not have the ability to provide subsidy to their farmers due to serious local resource constraint, their products remain as simply uncompetitive with the heavily subsidised agriculturally developed countries' products in local markets also.The LDCs or more concretely the aid receiving countries' economies have been further marginalised due to distorted trade practices in non-agricultural products maintained by the stronger economies through applying non-tariff barriers like quality control mechanism, environment and labour standards, trade marks and property rights, country of origin and so on.

The agonies of poor countries have been reflected in the latest UN report on MDGs' prepared on the progress-reports of some 50 developing countries. It envisages that 'the world is making progress toward the MDGs - but it is uneven and too slow. A large majority of nations will reach the MDGs only if they get substantial support -- advocacy, expertise and resources -- from outside'. We feel that faster implementation of Goal 8 of MDGs and true implementation of ODA commitment would make MDGs target successful.

Bijan Lal Dev is a trade analyst.