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flying albatross International Conference on Financing for Development, Monterrey, Mexico, 18-22 March 2002 United Nations
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Media Information : Media Kit-English

Media Kit: Addressing the quantity and quality of development aid

The dollar value of development assistance may have to double to more than $100 billion a year to achieve the internationally agreed goal of halving extreme poverty by the target date of 2015. A perceived lack of aid efficiency is an obstacle - but improvements in aid design and delivery are underway.

Official Development Assistance (ODA) is one of the most important issues to be discussed in Monterrey, Mexico, at the March 2002 International Conference on Financing for Development - not only for cash-strapped recipient countries, but as a vital investment in financing a more secure future for all countries.

Levels of development assistance currently are on an overall thirty-year downward trajectory.

On average, ODA as a percentage of donor countries' Gross National Product (GNP) was already falling when the international community first adopted in 1970 the target of contributing 0.7 percent of GNP. The ratio did stabilize at between 0.3 and 0.35 until the early 1990s, but then began to fall again. In 2000, the average ODA of the 22 member countries of the Organization for Economic Cooperation and Development's Development Assistance Committee was 0.22 percent of their GNP. Even excluding the United States, which has never committed itself to the 0.7 percent target, the average was only 0.33 percent.

In terms of absolute dollars (uncorrected for inflation), the amount of aid rose steadily until 1992. But even in absolute terms, total aid has yet to regain its 1992 peak of over $60 billion. ODA fell from $56.4 billion in 1999 to $53.1 billion in 2000, a decline of 6 percent in nominal terms, or of 1.6 percent taking into account inflation and changes in exchange rates [UN World Economic and Social Survey 2001].

The decline in ODA in the 1990s sometimes has been attributed to fiscal deficits in donor countries. However, since the mid 1990s fiscal balances of most donor countries have greatly improved. Other main factors cited as reasons for the decline of aid in the 1990s are the loss of motivation after the end of the Cold War, persisting doubts about the effectiveness of ODA-supported programmes and projects, and bigger flows of private capital to developing countries. (The last point is highly debatable: private capital does not undertake most of what ODA is usually asked to finance, and the countries that are most dependent on ODA are not often viewed as good prospects by private foreign investors.)

For the 49 least developed countries (LDCs) (all of which have per capita GDP of less than $900), ODA remains crucial. In 1998, it accounted for 84 percent of total resource flows to 48 least developed countries. In the same year, the LDCs received less than 4 percent of long-term capital inflows going to all developing countries.

Meeting the Millennium Development Goals Recently, there have been signs that the 30-year drop in aid may be about to reverse itself. The United Kingdom has made a commitment to increase its aid from 0.26 percent of GNP in 1997 to 0.33 percent in 2003-04, and in November 2001 European Union development cooperation ministers agreed to set a target date for meeting the ODA target of 0.7 per cent of FNP. In the aftermath of the terrorist attacks on the United States, there has been a general upsurge in public discourse about the need to invest more in development.

However, as some donor governments have announced intentions to cut back on ODA, it is unclear how large the net increases will be. The Zedillo Commission of high-level experts appointed by the Secretary-General of the United Nations in 2001 called for an additional $50 billion in aid to meet the Millennium Development Goals, or roughly double the current ODA level. This will require a concerted effort of the donors.

According to the World Bank, the target for halving income poverty in developing countries by 2015 - adopted by Member States during the Millennium Summit in September 2000 - is in grave danger of being missed. In some developing countries, poor policies reduce the effectiveness of development programmes and thus of aid. There is increasing reluctance to provide more than humanitarian aid in such cases. But other countries have stronger policies and can make good use of additional assistance. The question is whether it will be supplied in sufficient amounts.

"[The] Monterrey [Conference] must mark a turning point in the history of Official Development Assistance," UN Secretary-General Kofi Annan told the January 2002 session of the Financing for Development Preparatory Committee. "We simply cannot allow the decline in ODA to continue, if we want our commitment to the Millennium Development Goals to be taken seriously at all."

Aid effectiveness Considerable progress has been made in recent years in understanding the preconditions for aid effectiveness. It is judged to center on two basic principles: that it should reduce poverty, and rely on policies that recipient countries' governments and civil societies helped to formulate and in which they feel a sense of ownership.

Studies show that aid can have a direct impact on poverty when it is targeted to programmes such as those for children, nutrition and emergency relief. More importantly, aid can play an important supportive role in countries where the domestic environment is conducive to reform. This underscores the importance of a national commitment to the reform process. Rather than conditioning assistance on the visions and priorities of donors, it is increasingly accepted that domestic-initiated reform efforts are key.

Some problems hampering aid effectiveness originate in the donor countries.

One widely criticized practice is "tied" aid, which requires that project procurement must draw on firms in the donor country. A positive step was taken at a Paris meeting of the Organization for Economic Cooperation and Development (OECD) in May 2001, at which donor countries agreed to "untie" an additional $2 billion in aid to LDCs.

Confusing and sometimes contradictory aid standards present another problem. Each of the 22 OECD donor countries and a wide range of international institutions maintain their own decision-making, monitoring and evaluation systems. A blizzard of paperwork and staff are needed in recipient countries simply to meet reporting requirements. Better donor coordination is recognized to be crucial, and efforts to merge requirements and reporting formats are underway.

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