Marco Vieira's List: emerging powers

Whose aid? Whose influence?

China, emerging donors and the silent

revolution in development assistance

International Affairs 84: 6 (2008) 1205–1221

© 2008 The Author(s). Journal Compilation © 2008 Blackwell Publishing Ltd/The Royal Institute of International Affairs

NGAIRE WOODS*

The world of development assistance is being shaken by the power shift occurring

across the global economy. Emerging economies are quietly beginning to change

the rules of the game. China, the United Arab Emirates, Saudi Arabia, Korea,

Venezuela, India, Kuwait and Brazil, among others, have been increasing their aid

to poorer countries. They are giving aid on terms of their choosing. None of these

countries belong to the donors’ club established within the OECD, called the OECD

Development Assistance Committee (DAC). Conservative estimates suggest that

the official development assistance provided by some of these countries will at least

double to a little over $1 billion by 2010.1 Others have estimated that non-DAC

donors’ disbursements were already around US$8.5 billion in 2006.2 At the head

of this group of emerging donors is China, combining loans, credits and debt

write-offs with special trade arrangements and commercial investments. Common

to most of these donors is a quest for energy security, enlarged trading opportunities

and new economic partnerships, coupled with rapidly growing strength and

size in the global economy. As these emerging powers build aid programmes and

forge stronger relationships with poor countries, no existing development assistance

programme will be immune from the effects. This article analyses the likely

consequences for aid, multilateral institutions and conditionality.

The term ‘emerging donors’ is used as a shorthand to contrast these states with

OECD DAC members, who are also referred to here as ‘established donors’.3 It is

worth emphasizing that although they are often labelled ‘new donors’ most of the

emerging donors are not in fact ‘new’ to development assistance. For example, it

* I am grateful to the International Development Research Center for funding this research. I would like to

acknowledge the excellent research assistance of Joanna Langille, Jake Benford and Robert Wood, and the

extremely useful comments of Bruno Versailles, Rosemary Foot, Rohinton Medhora, Brent Herbert-Copley,

Bruce Currie-Alder and the anonymous reviewers for International Affairs.

1 IMF/World Bank, ‘Applying the debt sustainability framework for low-income countries post debt relief ’,

IMF Staff Report, 6 Nov. 2006 (Washington DC: IMF, 2006); Helmut Reisen, Is China actually helping improve

debt sustainability in Africa? (Paris: OECD Development Centre, July 2007).

2 Matthew Martin and Jonathan Stever, ‘Key challenges facing global development cooperation’, discussion

paper prepared for launch of Development Cooperation Forum (London: Debt Relief International, 2007).

3 The OECD DAC’s 23 existing members are: Australia, Austria, Belgium, Canada, Denmark, Finland, France,

Germany, Greece, Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal,

Spain, Sweden, Switzerland, the United Kingdom, the United States and the Commission of the European

Communities. Against a background of enlarging OECD membership, negotiations are currently under way

to bring into the DAC Chile, Israel, Estonia, Russia and Slovenia.

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has been estimated that in the period 1974–94 Arab countries’ foreign aid constituted

on average 13.5 per cent of all such aid.4 The People’s Republic of China

began giving aid to other countries virtually from its birth in 1949, with an aid

programme to Africa commencing in the 1950s. However, in recent years, in the

face of increases in aid from these countries, western commentators have become

more anxious and vociferous about the emerging donors and their impact on the

pattern of aid provision.

The first section of this article examines these fears about the emerging donors.

It assesses the claims that emerging donors are encouraging poor policies, lowering

standards and increasing debt burdens in countries to which they are offering aid.

To foreshadow the argument, the available evidence does not fully bear out these

anxieties. China is at the forefront of the new anxiety; yet some evidence suggests

that, as a result of intensified trade links with China, states in Africa have enjoyed

higher growth rates, better terms of trade, increased export volumes and higher

public revenues. There is no clear evidence that China is re-indebting the highly

indebted poor countries (HIPC) en masse. In respect of standards (on, for example,

the environment, resettlement, good governance and so forth) the article finds

that there are indeed new challenges; but here it is clear that the established donor

community is most successful in promulgating standards when it closely engages

with other actors—including both governments and private sector actors from

emerging donors.

The second section of the article analyses the background against which the

emerging donors are increasing their aid—the ‘established’ development assistance

regime—and what has happened to recent pledges by donors to increase aid,

to reduce conditionalities, to enhance coordination and alignment, and to reform

the aid architecture. To a large extent these promises have remained unfulfilled:

a situation that to some extent explains the increasing attractiveness of emerging

donor aid.

The conclusions point out that emerging donors are not overtly attempting

either to overturn the rules of multilateral development assistance or to replace

them. Rather, the revolution taking place is a silent one. By quietly offering alternatives

to aid-receiving countries, emerging donors are introducing competitive

pressures into the existing system. They are weakening the bargaining position

of western donors in respect of aid-receiving countries, exposing standards and

processes that are out of date and ineffectual. The result is a serious challenge to

the existing multilateral development assistance regime.

The rise of emerging donors: a cause for alarm?

A great deal of adverse comment has been generated by the rise of emerging

donors. ‘What’s wrong with the foreign aid programs of China, Venezuela, and

Saudi Arabia? They are enormously generous. And they are toxic’, opined Moises

4 Espen Villanger, ‘Arab foreign aid: disbursement patterns, aid policies and motives’, Forum for Development

Studies 34: 2, 2007, pp. 223–36.

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Naim in Foreign Policy in 2007.5 The emerging donors, we are told, will elbow aside

established aid institutions that protect the environment, such as the World Bank,

regional development banks and other donor agencies. Important standards and

conditions for loans are being shredded. China, Venezuela, Saudi Arabia and others

are supporting rogue states such as Sudan and Zimbabwe, making regional and

global security and stability more precarious. Furthermore, they are introducing

and pushing ‘toxic ideas’ that will harm both poor countries and established

donors.

In a more measured tone, in 2006 the then head of the OECD DAC reflected on

the possible risk that loans from emerging donors to low-income countries may

prejudice

their debt situation (because the terms are inappropriate), may postpone

necessary adjustment (because there is so little conditionality) and may waste

resources on unproductive investments.6 These concerns are all worth exploring.

Emerging donors and unconditional support of rogue states?

The most obvious critique of emerging donors focuses on their support for rogue

states, or, as they would put it, their determination not to involve themselves in

the politics of countries with which they deal. Zimbabwe is one such case. China

has long delivered both aid and military equipment to Zimbabwe,7 and after the

Zimbabwe elections fiasco in July 2008 it joined Russia in vetoing a US-sponsored

UN Security Council resolution to impose sanctions on Zimbabwe. However, the

evidence does not fully bear out the ‘blind support for rogue states’ critique. China’s

relationship with Zimbabwe has not been immune to the views of other states. In

particular, China has responded quietly to concerns voiced by other African states,

taking a tougher line with President Mugabe, meeting with opposition politicians

and, most recently, turning around a Chinese shipment of arms to Zimbabwe.

Sudan is another ‘rogue’ state to which China is regularly accused of giving

blind support. In 2002 pressure was put on Swedish and Canadian oil companies

to withdraw from the country and Chinese, Malaysian and Indian oil companies

stepped in to take their place.8 Sudan is now one of China’s main oil suppliers: it

shipped 4.7 million tonnes of crude oil to China in January–May 2007, a fivefold

increase over the same period in 2006.9 Western commentators vociferously

complain that Chinese aid and trade have undermined pressure on the Sudanese

government to end the crisis in Darfur, and that Chinese support has permitted

this ‘rogue’ state to enjoy strong economic growth, reaching 11 per cent in 2007.10

Further investment in Sudan was announced on 1 July 2007 by China’s major

5 Moises Naim, ‘Rogue aid’, Foreign Policy, online, March–April 2007.

6 Richard Manning, ‘Will “emerging donors” change the face of international cooperation?’, Development Policy

Review 24: 4, 2006, pp. 371–85.

7 See Chris Alden, China in Africa (London: Zed, 2007).

8 Human Rights Watch, Sudan, oil and human rights (New York, Sept. 2003), www.hrw.org/reports/2003/

sudan1103/, accessed 26 Aug. 2008.

9 Associated Press, ‘China’s CNPC OKs deal on Sudan oil block’, 1 July 2007, www.forbes.com/feeds/

ap/2007/07/01/ap3875543.html, accessed 26 Aug. 2008.

10 A. S. H. Smyth, ‘China masters the African game’, The First Post, 6 Feb. 2007, www.thefirstpost.co.uk/index.

php?menuID=1&subID=1117, accessed 26 Aug. 2008.

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oil company (CNPC).11 However, here too the argument that blind support is

being given to a rogue state is exaggerated. In 2006 Chinese President Hu Jintao

announced at a Chinese–African summit that he was urging the Sudanese president

to work with the UN and other envoys to end the fighting, and in 2007 he

appointed a special envoy on Darfur. Chinese officials emphasize that the Chinese

approach focuses on negotiation and dialogue, a respect for sovereignty, and the

use of tripartite mechanisms of the UN, the African Union and the Sudanese

government.12 China’s efforts to end the conflict and to ensure the presence of a

joint AU–UN peacekeeping force have been recognized by the United States as

very constructive.13

The ‘support for rogue states’ argument quickly slides sideways into a broader

critique about the economic model being exported by emerging donors. The fear is

that a new Beijing or Chavez consensus will replace the long-hallowed Washington

consensus on economic policy. For example, Naim (cited above) alleges that

Venezuela’s President Hugo Chávez is using his nation’s oil-fuelled international

reserves to recruit allies abroad, using large aid packages to ‘infect’ Latin America

with his model. According to this argument, ‘rogue aid’ permits countries like

Cuba (to which Venezuela has given about US$2 billion) to put off ‘opening up’

the economy, offering them instead an artificial lifeline that enables the recipients to

put off reforms that would bring prosperity. Similar arguments are made in respect

of China exporting its own model of economic policy which runs counter to the

policies long pressed by western donors. But the critics do not have evidence that

economic disaster has in fact followed acceptance of aid from emerging donors.

Indeed, there is now some evidence that countries with intensified aid and trade

links with China are enjoying higher growth rates, better terms of trade, increased

export volumes and higher public revenues.14 Clearly the general argument about

China’s impact on policy choices needs more careful analysis.

Free-riding on multilateral (and bilateral) debt relief?

Many western donors have voiced concerns about the potential for renewed

indebtedness

if emerging donors offer new loans to low-income countries that

have just been granted debt relief by established donors. The debts of poor

African countries have been alleviated principally as a result of the HIPC initiative

and the multilateral debt relief initiative (MDRI) which dealt with their debts

to multilateral

institutions. The result was the relief of US$43 billion of official

11 Associated Press, ‘China’s CNPC’.

12 ‘Interview with China’s special envoy on China–Sudan oil cooperation’, People’s Daily Online (English edn), 17

March 2008, http://english.peopledaily.com.cn/90001/90780/91342/6375027.html, accessed 26 Aug. 2008

13 See Edward Cody, ‘China given credit for Darfur role: US official cites new willingness to wield influence in

Sudan’, Washington Post Foreign Service, 13 Jan. 2007, p. A13.

14 Reisen, Is China actually helping?; A. N. Goldstein, H. Reisen and X. Chen, The rise of China and India: what’s in

it for Africa? (Paris: OECD Development Centre, 2006); OECD/African Development Bank, African Economic

Outlook 2007 (Paris: OECD Development Centre, 2007); Ali Zafar, ‘The growing relationship between China

and sub-Saharan Africa: macroeconomic, trade, investment, and aid links’, World Bank Research Observer 22: 1,

2007, pp. 101–30.

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debt.15 The fear is that China is now offering new loans to these debt-relieved

countries, free-riding on the established donors’ debt relief programme and

creating new problems for the future of the recipient countries.

In an attempt to prevent China from re-indebting poor countries, in April 2007

the G7 finance ministers announced that they would seek ‘principles for responsible

lending and seek to involve other interested parties’.16 The US Secretary of

the Treasury went a little further in his elaboration of how they hope to corral

all donors (particularly China, though these words were unspoken) into the same

framework: ‘Responsible lending policies and practices are fundamental to our

efforts to enhance support to low-income countries. The key to preserving debt

sustainability is to build upon and support the work reflected in the IMF/World

Bank Joint Debt Sustainability Framework, and for all creditors to incorporate the

framework into their lending practices.’17

Missing from the discussion of China and the previously indebted countries is a

sense of China’s own involvement in debt relief. Principally this is because China

does not report debt cancellation in aid figures (nor, indeed, does it report most

of its aid). Chinese aid takes several forms, ranging from grant aid (principally

through the Ministry of Commerce), aid in kind and zero-interest loans (some 90

per cent of which China claims to write off over time) to subsidized loans, as well

as commercial loans and investments.

According to conservative estimates, China has written off total debts of some

US$2.13 billion for 44 recipient countries, 31 of which are in Africa. A further debt

cancellation of approximately US$1.28 billion is being negotiated at present.18

Western reports suggest that China has been well in advance of the G8 in debt

write-offs, cancelling some $10 billion of the debt it is owed by African states and,

at the second Sino-African business conference in December 2003, offering further

debt relief to 31 African countries, as well as opening up the prospect of zerotariff

trade.19 China has also used debt relief to assist African nations, effectively

turning loans into grants. In 2000 China wrote off $1.2 billion in African debt;

in 2003 it forgave another $750 million. Ethiopian Prime Minister Meles Zenawi

has proclaimed that ‘China’s exemplary endeavor to ease African countries’ debt

problem is indeed a true expression of solidarity and commitment’. Debt relief

has been an excellent public relations tool for Beijing, because it not only garners

popular support but also allows for two positive press events: the first to provide

the loan, the second to relieve the debt.20

15 Reisen, Is China actually helping?.

16 Group of Seven, ‘Communiqué of G7 finance ministers’, Washington DC, 13 April 2007, at www.g7.utoronto.

ca/finance/fm070413.htm, accessed 26 Aug. 2008.

17 Statement by Treasury Secretary Henry M. Paulson, Jr, following meeting of G7 finance ministers and central

bank governors, Washington DC, 13 April 2007, www.g7.utoronto.ca/finance/fm070413-paulsen.htm,

accessed 26 Aug. 2008.

18 Qi Guoqian, ‘China’s foreign aid: policies, structure, practice, and trend’, paper prepared for Oxford and

Cornell universities’ conference on ‘New directions in development assistance’, Oxford, 11–12 June 2007.

19 Chris Melville and Olly Owen, ‘China and Africa: a new era of south–south cooperation’, Open Democracy, 8

July 2005, www.opendemocracy.net/globalization-G8/south_2658.jsp, accessed 26 Aug. 2008.

20 Joshua Eisenman and Joshua Kurlantzick, ‘China’s Africa strategy’, American Foreign Policy Council, May

2006, www.afpc.org/china-africa.shtml, accessed 26 Aug. 2008.

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Equally important to an evaluation of the claim that China is imperilling debt

relief efforts is a breakdown of where its financing is going. It has been estimated

from unpublished World Bank data that Chinese new financing commitments for

infrastructure have gone to Angola (40 per cent), Nigeria (24 per cent), Ethiopia

(15 per cent), and Sudan (12 per cent).21 It is worth noting that neither Angola nor

Sudan has benefited from debt relief. Nigeria has had its own special debt relief

deal outside the HIPC initiative. Only Ethiopia has been dealt with under the

HIPC provisions.

Fears that new loans from China will have negative effects on the capacity of

low-income countries to support their debts are not unfounded. That said, there

is no clear evidence that China is re-indebting—en masse—the HIPCs. A precise

assessment of this risk would require more precise data about to whom China is

extending which categories of aid, and with what likelihood of write-off. China

does not publish this information and it is extremely difficult to assemble.

What is clear is that the main multilateral discussions under way on highly

indebted countries are being held in the G7 and in the OECD DAC, which do

not include China, other Asian donors, the United Arab Emirates, Saudi Arabia

or other OPEC donors among their members. This poses a serious challenge for

any policy aimed at forging shared principles and/or a multilateral approach to

debt relief.

Bypassing good governance and environmental standards?

A further western concern about emerging donors is that their offers of ready

money permit poor-country governments to turn down aid that comes with

demands that they work to improve good governance, and incorporates adequate

environmental

and social protections within development projects. For example,

China is said to have pushed aside the World Bank and its efforts to tackle corruption

by stepping in with a no-strings-attached loan to fund railways in Nigeria.

Similarly, in Indonesia, Beijing agreed to expand the country’s electrical grid by

building plants that use a highly polluting, coal-based Chinese technology when

‘no international agency would have signed off on such an environmentally

unfriendly deal’.22 In the Philippines, the Asian Development Bank, having agreed

to fund Manila’s new aqueduct, found itself supplanted by China offering lower

rates and asking fewer questions. In 2005 Angola broke off its negotiations with the

IMF, which was trying at the time to put into place a staff-monitored programme

to oversee Angola’s economic policies, and subsequently cancelled them altogether,

a decision facilitated by a $2 billion package of soft loans from China.23

In this way the emerging donors are said to be weakening hard-won progress

made by the World Bank and other regional development banks, as well as among

OECD country multinationals, towards introducing codes and standards to

21 Reisen, Is China actually helping?

22 Naim, ‘Rogue aid’.

23 Lara Pawson, ‘Angola calls a halt to IMF talks’, BBC News, 13 March 2007, http://news.bbc.co.uk/1/hi/business/

6446025.stm, accessed 26 Aug. 2008.

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safeguard the environment, indigenous peoples and natural habitats, and human

rights.24 Given an alternative source of aid, poor countries choose to work less

with those who ‘burden’ aid or loans with such requirements, borrowing less

from the World Bank and other multilateral institutions (more on this below), and

so reducing the scope of these organizations to apply conditions directly. More

subtly, the influence of the established donors is eroding as their staff seek to avoid

projects which might bring adverse publicity on themselves, avoiding areas in

which safeguards would apply and deliberately leaving these areas to donors less

sensitive to such criticisms.

Overall, the argument that emerging donors are jeopardizing hard-fought-for

gains in health, safety and environmental standards and the fight against corruption

overestimates the extent to which these goals have been furthered by direct

conditionalities imposed by OECD DAC donors. Raising standards is a much more

subtle and long-term process which is furthered by engagement at the global level,

as well as at the local and national levels, with a range of stakeholders including

governments, companies, the media and civil society. Multilateral organizations

such as the World Bank have provided an important forum within which governments

can discuss and debate standards. The Bank has also provided a focal point

for the activities of companies, the media and transnational activists. The World

Bank’s Inspection Panel has provided a tribunal to which affected groups within

states have been able to bring complaints, and this has in some cases mobilized local

capacity collectively to monitor standards and to act when they are not met, in

some cases even in the face of serious risks of political backlash.25 What does this

imply about the impact of emerging donors on standards?

China and other emerging donors are themselves members (China with its own

executive director) of the World Bank, the IMF and (in China’s case) the Asian

Development Bank. They have been parties to discussions over standards within

each organization. China has used multilateral standards (such as the World Bank’s

resettlement policy) in formulating its own national policies. So why the seeming

absence of conditionality in its own development assistance? Is this a particularly

Chinese phenomenon, reflecting China’s very vocal commitment to respecting

the sovereignty of those to whom it gives aid? This is too trite an answer. All

countries’ bilateral aid programmes are subject to nationally determined standards

which are often at odds with standards that those same countries promulgate in

multilateral institutions. Many countries that push for stringent procurement rules

and environmental standards within the World Bank do not apply these standards

to their bilateral aid programmes. Furthermore, the standards applied (or not)

in China’s overseas projects are not necessarily out of line with the standards set

within China.

National standards within China in some sectors are very low. Mining is one

such sector. The Chinese-developed Chambishi mines in Zambia have been a

24 For example, the World Bank’s safeguards are set out at http://go.worldbank.org/WTA1ODE7T0, accessed

26 Aug. 2008.

25 Margaret Keck, ‘Planafloro in Rondonia: the limits of leverage’, in J. Fox and D. Brown, eds, The struggle for

accountability (Cambridge, MA: MIT Press, 2000), pp. 181–218.

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recent lightning rod for criticism of its aid policies. Conditions in the mines are

poor, the area remains undeveloped and 46 miners died in an explosion in 2005.

Meanwhile China is benefiting greatly, importing 63 per cent of its base metals

from Zambia alone.26 China itself produced 35 per cent of the world’s coal in 2003,

but reported 80 per cent of all deaths in coal-mine accidents, according to statistics

with the State Administration of Work Safety (SAWS). The death rate for every

100 tonnes of coal produced was 100 times that of the United States and 30 times

that of South Africa. That said, improvements are occurring, albeit slowly, and

the government has developed a national surveillance system and earmarked funds

(in 2001 more than 4 billion yuan—over US$480 million) to help state-owned and

small local coal mines prevent and monitor gas explosions.27

The role of standards in development assistance is an important one. It is an

area in which multilateral, national and private sector actors from established

donors have been actively engaged but from which emerging donors have often

been absent—as, for example, in respect of negotiations taking place in the OECD

and among transnational companies forging industry codes of conduct. In those

organizations where emerging donors are represented (they would say underrepresented),

they have been quiet participants in discussions. We may well be

witnessing a dilution in the capacity of established donors to apply direct conditionalities

aimed at promulgating standards; but conditionality alone does not

improve standards. A more important conclusion about the aid system is that more

inclusive processes for setting standards need to be developed, so as to ensure that

emerging donor governments, private sector companies, media and civil society

groups are all engaged in generating standards that countries and communities are

in a position to implement.28

The hysteria surrounding the emerging donors is overplayed. That said, China

and other emerging donors do pose challenges for the existing development assistance

regime, particularly for standard-setting by both private sector actors and

multilateral institutions. These challenges are magnified when one contrasts the

attractions of what emerging donors are offering against what the established

donors are doing. Examined more closely, the rise of emerging donors highlights

several important deficiencies in the existing system of development finance.

Why is aid from the emerging donors so attractive?

The rise of emerging donors is occurring against a background of disaffection

among poor countries with the established development assistance regime.

This disaffection has been recognized by OECD DAC donors, which have been

grappling with a new agenda that is worth examining. Since around 2003 estab-

26 Smyth, ‘China masters the African game’.

27 Zhao Xiaohui and Jiang Xueli, ‘Coal mining: most deadly job in China’, China Daily, 13 Nov. 2004, www.

chinadaily.com.cn/english/doc/2004–11/13/content_391242.htm, accessed 26 Aug. 2008.

28 For an analysis of the conditions under which corporate self-regulation is likely to be effective in developing

countries, see Dana Brown and Ngaire Woods, eds, Making self-regulation effective in developing countries (Oxford:

Oxford University Press, 2007).

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lished donors have promised to double their aid to Africa, to deliver it in ways that

ensure more space for recipient government ownership, and better to coordinate

among themselves. How have these pledges played out?

Broken promises of more aid

In recent years wealthy countries have made dramatic pledges to increase aid, such

as the commitment made to double aid for Africa by 2010 at the G8 meeting in

Gleneagles in 2005.29 However, although there has been some significant debt

relief, new net aid flows from the G8 countries have not increased since this

commitment was made. To quote the OECD DAC itself, ‘aid to Sub-Saharan

Africa has stalled’.30 In the World Bank’s assessment net official development assistance

(ODA) disbursements overall declined by US$3 billion in 2006, following a

record increase in 2005.31

Aid flows have been greatly influenced by the wars in Iraq and Afghanistan, and

by the post-9/11 security ‘imperatives’. These have had a huge diversionary effect.

In the early days of the so-called ‘war on terror’, aid flows were not diverted.32

Instead, funding for military action was procured through supplementary appropriations.

However, over time aid budgets have been reallocated to reflect the new

priorities. This is most obvious in the case of the United States—the world’s largest

provider of global development aid, accounting in 2004/2005 for 25.4 per cent of

official development aid.33 By 2004 the top recipients of US aid had become Iraq,

Afghanistan, Egypt, Sudan, Ethiopia, Jordan and Colombia.34 Yet the wider US

aid figures are more telling. For example, although the Near East (which includes

Lebanon, Morocco and Middle East Regional) received some US$10 million of

ODA from the United States, 600 times this amount was spent on other forms of

aid—from the economic support fund and foreign military spending, which do

not qualify as ODA under the OECD DAC definitions.35

A similar diversion of development assistance has occurred in the UK’s aid

budget—the fastest growing in the world, increasing from £5.9 billion in 2005 to

£6.8 billion in 2006.36 By 2005, 16.4 per cent of total net UK bilateral ODA was

going to Iraq (as opposed to 0.39 per cent in 2002). Alongside this was an imputed

UK share of multilateral assistance to Iraq equal to 13.6 per cent in 2004, dropping

to 4.5 per cent in 2005.37

In sum, while G8 politicians have aspired to increase aid to the poorest countries,

these promises have not translated into new net aid flows. The current financial

crisis and economic downturn among OECD countries are likely to have further

29 G8, ‘Gleneagles G8 communiqué’, 8 July 2005, www.g8.gov.uk, accessed 26 Aug. 2008.

30 OECD DAC, 2006 Development Co-operation Report, Summary, February 2007 (Paris: OECD, 2007).

31 World Bank, Global Development Finance 2007 (Washington DC: World Bank, 2007), p. 55.

32 Ngaire Woods, ‘The shifting politics of foreign aid’, International Affairs 81: 2, March 2005, pp. 393–409.

33 OECD DAC, 2006 Development Co-operation Report, table 8.

34 OECD DAC, 2006 Development Co-operation Report.

35 USAID, Fiscal year 2008 budget request (Washington DC: USAID, 2007), pp. 92–9, www.usaid.gov/policy/

budget/cbj2008/, accessed 26 Aug. 2008.

36 Department for International Development, DFID Annual Report 2007 (London: DfID, 2007).

37 Department for International Development, DFID Annual Report 2007, p. 263.

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negative eff ects on promised increases in aid. At the same time, aid from other

sources has been increasing. China plans to double aid to Africa by 2009 and there

is some reason to believe it will.38 Other emerging donors have been increasing

aid, although it is very diffi cult to compile an accurate picture of this: although

non-DAC aid is going up overall, almost no data are available about individual

emerging donors.39 Many of the new aid fl ows are not being offi cially reported:

for example, India, China and Brazil do not report to the OECD DAC, whose data

as a result suggest that non-DAC fl ows of aid are rising but still not signifi cant.40 A

similar picture is given by the Net Aid Transfers Data Set compiled by the Center

for Global Development.41 That said, while newspaper reports speak of billions

of dollars’ worth of aid from China to Africa, many such reports confuse investment

and other external fl ows, such as export credits, with ‘aid’ as defi ned by the

OECD DAC.

While there are few offi cially reported data on Chinese aid, fi gure 1 was presented

by a Chinese Minisstry of Commerce (MOFCOM) offi cial at a conference in

38 United Nations Integrated Regional Information Networks, ‘China to double aid to Africa’, published by

Worldpress.org on 6 Nov. 2006, http://www.worldpress.org/Africa/2554.cfm, accessed 26 Aug. 2008.

39 An excellent breakdown of the increases in aid from non-DAC donors is provided by Peter Kragelund, ‘The

return of non-Dac donors to Africa: new prospects for African development’, Development Policy Review 26: 5,

2008, pp. 555–84.

40 Of those emerging donors that do report to the OECD DAC, the largest are Saudi Arabia (US$2,095 million

in 2006), Turkey (US$714 million in 2006), Chinese Taipei (US$513 million in 2006) and Korea (US$455 million

in 2006): OECD DAC, 2007 Development Co-operation Report (Paris: OECD, 2008), table 33.

41 David Roodman, Net aid transfers data set 1960–200 (Washington DC: Center for Global Development, 2005),

www.cgdev.org/content/publications/detail/5492/, accessed 26 Aug. 2008.

!

Figure : China’s foreign aid expenditure increases, 8–8 (RMB

million)

Source: Qi Guoqian, ‘China’s foreign aid: policies, structure, practice, and trends’, paper

prepared for Oxford and Cornell universities’ conference on ‘New directions in development

assistance’, Oxford, 11–12 June 2007. The fi gures cover aid in the form of grants,

interest-free loans, preferential loans, cooperative and joint venture funds for aid projects,

science and technology cooperation, and medical assistance, on a bilateral basis. Note that

Chinese aid fi gures do not include debt relief, unlike DAC donors’ reported ODA.

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Oxford in June 2007. What we do know about China’s aid is that—unlike a lot of

established donor aid to sub-Saharan Africa—it is strongly supported by investment

and trade policies.42 China’s trade with Africa has grown dramatically to

the point where China has become Africa’s third most important trading partner

(behind the United States and France). In the 1990s Sino-African trade grew by

700 per cent. From 2002 to 2003 trade between China and Africa doubled to $18.5

billion. In the first ten months of 2005 it jumped a further 39 per cent to US$32.17

billion. Most of the growth was caused by increased Chinese imports of oil from

Sudan and other African nations. China’s foreign direct investment in Africa represented

$900 million of the continent’s $15 billion total in 2004.43 In 2006 trade

between China and Africa reached $55.5 billion, up more than 40 per cent from

2005, according to data from China’s Ministry of Commerce.44

Other emerging donors are also increasing aid and trade relations. India’s trade

with Africa has been increasing dramatically.45 Aid from major Arab donors is

difficult accurately to track; that said, the annual reports of Arab aid agencies

suggest that new commitments by both bilateral and multilateral funds have

increased since around 2003 and especially since 2005. This is true of both bilateral

and multilateral funds. The Islamic Development Bank’s new commitments

for the period 2001–2006 are roughly double those for the period 1996–2001.

Similarly, new commitments from the OPEC Fund for Development each year

since 2001 have been on average one-third higher than the annual average in the

preceding decade, and new commitments of the Arab Fund for Economic and

Social Development in 2005 were almost 20 per cent higher than those in 2001.

Data on bilateral relations are more difficult to find and to assess, but the Saudi

Fund for Development provides an indicative illustration. In 2006, the figure of

around US$800 million for new commitments was some 70 per cent higher than

the average annual new commitments of around US$480 million for the years

from 1995 to 2002, and almost double the 2005 figure. The largest recipients of

Arab aid remain the ‘frontier’ states of Egypt, Syria and Jordan. However, in recent

years increasing amounts of aid have been directed to South Asia, especially to

Pakistan and Bangladesh, and to East Asia: for example, China has itself received

approximately 15 per cent of new Saudi Fund commitments since 2003 (before

which date it received none).46

42 A good overview is provided in Alden, China in Africa.

43 Esther Pan, China, Africa, and oil (New York: Council on Foreign Relations, 26 Jan. 2007), http://www.cfr.

org/publication/9557/,

accessed 26 Aug. 2008.

44 Reuters, ‘China defends oil trade with Africa’, International Herald Tribune, 12 March 2007, www.iht.com/

articles/2007/03/12/business/oil.php, accessed 26 Aug. 2008.

45 See Rhys Jenkins and Chris Edwards, ‘The Asian drivers and sub-Saharan Africa’, IDS Bulletin 37: 1, Jan. 2006,

pp. 23–32, esp. fig. 1, showing Africa’s rising trade with China and India from 1990 to 2003, and fig. 2, describing

the rising share of China and India in Africa’s trade over the same period.

46 I am very grateful to Robert Wood for compiling these figures; see also Robert Wood, ‘Riyal-politik or religious

duty: what explains the behaviour of the Islamic Development Bank?’, M.Phil. thesis, Oxford University,

2007.

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Clinging to discredited conditionalities

Established donors have long entrenched ‘conditionality’—meaning demands that

receiving governments adopt specific economic policies and targets—in their aid

programmes. The ‘Washington consensus’, which emerged as a response to the

debt crisis of the early 1980s, brought established donors into a system in which

one set of ideas about economic policy was cemented into the foundations of the

aid regime. Although different countries would have their own aid programmes,

they would all look to the IMF and World Bank to ensure recipient compliance

with that core set of policies.47

Subsequently, most donors have accepted that the conditionality model requires

radical reform. For one thing, donor conditionality has not been an effective way

to induce change in aid-receiving countries. In a worldwide survey of 305 IMF

programmes from 1979 to 1993, one scholar found implementation failure in 53

per cent of cases, where failure was defined as a country not implementing 20 per

cent or more of the programme’s conditions.48 This result is reinforced further

by an independent evaluation (commissioned by the board of the IMF) of the

IMF’s concessional lending facility for poor countries—the Enhanced Structural

Adjustment Facility (ESAF). The evaluators report that three-quarters of ESAF

programmes collapsed or were interrupted.49

Equally, doubts have arisen about whether there is a known recipe for success.

Officials in low-income countries have long been sceptical of the claim that if

they fully implemented the Washington consensus, economic growth would

follow.50 Yet for a long time their arguments fell on deaf ears. Only recently have

established donors themselves begun to grapple with what it would mean to put

aid-receiving governments ‘in the driver’s seat’, or at least to streamline conditionality.

51 But they have found this difficult.52 If anything, conditionality overall

seems to have increased in some countries. Debt relief has brought new layers of

conditions about poverty reduction and processes of national consultation. Budget

support is supposed to leave more room for governments to set their own priorities

and strengthen their own procedures; however, in many cases it has come

47 See Ngaire Woods, The globalizers: the IMF, the World Bank and their borrowers (Ithaka, NY: Cornell University

Press, 2006), ch. 2.

48 Tony Killick, ‘Principals, agents, and the failings of conditionality’, Journal of International Development 9: 4,

1998, pp. 483–95.

49 IMF, ‘External evaluation into ESAF: a report by a group of independent experts’ (Washington DC: IMF,

1998), p. 32.

50 Their scepticism was not unfounded. Early evaluations undertaken by the IMF and World Bank explored

whether conditional lending had effects on growth, and the results were at best ambiguous: see James Boughton,

The silent revolution (Washington DC: IMF, 2001); IMF, ‘External evaluation into ESAF’; and the World Bank’s

three published reports of 1989, Adjustment lending: an evaluation of ten years of experience; Africa’s adjustment and

growth in the 1980s; and Sub-Saharan Africa: from crisis to sustainable growth (Washington DC: World Bank, 1989).

The IMF’s external evaluators found that the Fund’s focus on reducing budget deficits was producing some

adverse long-term effects, very poor-quality privatization and overly contractionary approaches to foreign aid,

while failing to have an impact on the main goal, namely to attract investment flows.

51 IMF, ‘IMF invites comments on streamlining conditionality’, public information notice (PIN) no. 01/86

(Washington DC: IMF, 4 Sept. 2001).

52 Tony Killick, ‘The streamlining of IMF conditionality’, report prepared for Department for International

Development (London: DfID, 2002).

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with a new set of procedures, for example in Mozambique, where alongside their

general budget support donors have created a regular cycle of annual and mid-term

reviews based on 24 sectoral and thematic working groups which meet regularly

to accompany the formulation and implementation of government policies.53

Similarly, in Tanzania the new modalities of aid-giving have been accompanied

by new procedures.54 The result is that where previously governments were tied

down in projects and reporting requirements, in some cases they are now tied

down in donor consultative and oversight groups.

Disillusionment surrounds the conditions western donors have attached to aid

for the past quarter-century. The donor ‘consensus’ is seen by recipient countries

as having long been misaligned with their priorities. Every decade has brought

new donor priorities and conditionalities—and none of these have been aligned

with their own calls for developing the productive ‘supply side’ of their economies.

In the 1980s donors pushed for stabilization and adjustment, with contractionary

effects. In the 1990s the attention of donors turned to institution-building

and poverty reduction strategies, and yet again aid-receiving governments found

their arguments for investment and growth falling on deaf ears. More recently,

donors have focused on health and social spending, an emphasis magnified by new

institutions such as the Gates Foundation and other public–private partnerships.

Throughout this time western donors have treated criticisms of conditionality as

the unwarranted complaints of patients unwilling to take medicine which is good

for them. This attitude has magnified the resentment felt by aid recipients and

made them all the more receptive to the different approach taken by emerging

donors. In the recent words of the then President Festus Mogae of Botswana, ‘I

find that the Chinese treat us as equals. The West treats us as former subjects.’55

The disillusionment of developing countries forms a powerful and important

backdrop to the rise of emerging donors. While established donors are still

clinging to an economic policy conditionality about which their development

partners are sceptical, the emerging donors are keen to lend and give aid without

these kinds of specific economic conditions. They package their aid in a strong

rhetoric of respect for the sovereignty of other governments. China, for example,

since Premier Zhou Enlai’s visit to Africa in 1964, has framed its aid around eight

principles which emphasize sovereignty, equality and mutual respect. Likewise,

India’s aid programme, which began in the 1950s, has centred on respect for territorial

integrity, mutual non-aggression, mutual non-interference in domestic

affairs, equality and mutual benefit, and peaceful coexistence.56 Furthermore, the

emerging donors have their own economic success to tout, which some present as

53 Paolo de Renzio and Joseph Hanlon, ‘Contested sovereignty in Mozambique: the dilemmas of aid dependence‘,

GEG Working Paper 2007/25 (Oxford: Global Economic Governance Programme, 2007), www.globaleconomicgovernance.

org, accessed 26 Aug. 2008.

54 Graham Harrison and Sarah Mulley, ‘Tanzania: a genuine case of recipient leadership in the aid system?’,

GEG Working Paper 2007/29 (Oxford: Global Economic Governance Programme, 2007), www.globaleconomicgovernance.

org, accessed 26 Aug. 2008.

55 Smyth, ‘China masters the African game’.

56 G. Price, ‘India’s official humanitarian aid programme’, Humanitarian Policy Group background paper

(London: Overseas Development Institute, 2005).

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an alternative to the sequence of policies established in the Washington consensus

and its successors. China and India are promoting development assistance deeply

entwined with trade and investment strategies. For some this smacks of a new

mercantilism. However, for aid-receiving countries it responds to a long-expressed

wish for support aimed positively at directly promoting growth.

The inability to deliver on better coordination and alignment

The multilateral aid system created by established donors looks increasingly dysfunctional.

A proliferation of agencies—governmental and non-governmental—

within and among established donors has led to a system that is fragmented and

duplicative, and places too heavy a burden on aid-receiving countries. A relatively

small number of donor countries manage to present themselves to poor countries

in a dizzying array of separate multilateral organizations, special funds, new

agencies and bilateral aid programmes. Each aid agency requires local officials to

meet, to respond to their demands, to report to them (in formats only they use)

and sometimes to alter course at the whim of the donor. The result is an overriding

of local needs, priorities and institutions, and the imposition of heavy transaction

costs which sometimes outweigh the value of the aid.

The problem has been widely recognized. A solution is being sought among

established donors through a process of negotiation and consultation aimed at

better coordination among donors and alignment with recipient government

priorities. The OECD DAC is overseeing this process and has produced indicators

and benchmarks that allow progress to be monitored at both international and

country level. The most recent high-level meeting of countries taking part in this

process took place in September 2008 in Accra.57

How much progress has been made? A 2004 survey identified serious shortcomings

in donor efforts to implement pledges made in the 2003 Rome declaration

on harmonization.58 It found ‘not enough evidence that harmonization initiatives

have helped curb transactions costs. Indeed, over the short term at least, they may

actually have increased these costs.’59 The obstacles to greater harmonization are

substantial.60 These findings highlight the yawning gap between the talk about

coordination and ownership on the one hand and, on the other, actual donor

practices, which are neither coordinated nor linked to instruments or institutions

within aid-receiving countries.

The paradox about coordination is that established donors have created so many

institutions to enable better coordination among themselves, and yet have simultaneously

sidelined them. The World Bank is at the centre of an international

57 OECD DAC, report of the ‘Third High Level Forum on Aid Effectiveness’, Accra, Ghana, 2–4 Sept. 2008,

www.oecd.org/document/31/0,3343,en_2649_33721_41165727_1_1_1_1,00.html, accessed 26 Aug. 2008.

58 OECD, ‘Survey on harmonisation and alignment: preliminary edition’ (Paris: OECD, 2004). For the declaration,

see www.aidharmonization.org/ah-overview/secondary-pages/why-RomeDeclaration, accessed 26

Aug. 2008.

59 OECD, ‘Survey on harmonisation and alignment’, p. 9.

60 Paolo de Renzio with David Booth, Andrew Rogerson and Zaza Curran, ‘Incentives for harmonisation and

alignment in aid agencies’, ODI working paper 248 (London: Overseas Development Institute, 2005).

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development assistance regime that is notoriously cluttered with a large number

of supposedly multilateral donors tripping over each other’s bilateral efforts. In

theory, the World Bank, by pooling information and resources, should be able to

reduce transaction costs vastly on both sides of the aid relationship.

Perversely, the major donors who created the World Bank do not rely upon

it. Instead, they sustain and expand their own separate aid agencies and processes,

creating a cacophony of donors making different demands on overstretched

aid-needy governments. The governments of the United States, Britain and

Canada speak daily to developing countries through dozens of megaphones,

including their own national agencies and special initiatives alongside several

multilateral agencies—the UNDP, World Bank, IMF, WHO, WTO and so forth.

The result is that scarce personnel and other resources in poor countries are used

up in maintaining and strengthening external relations with donors and undertaking

externally demanded actions, many of which are contradictory.

More perversely still, even when donors do use the World Bank they encumber

it with special demands, special funds and additional procedures. One example is

the increasing use of ‘trust funds’ in the World Bank. These are funds given to the

Bank for a particular use—often supplementary to the institution’s core work.

As described by a former UK government aid official, ‘we construct an elaborate

mechanism for setting priorities and discipline in the Bank, and then as donors we

bypass this mechanism by setting up separate financial incentives to try to get the

Bank to do what we want’.61

The fact remains that in recent years, in spite of calls for greater coordination,

most established donors are failing to increase the percentage of aid they channel

through international institutions. This is true even for the UK Department for

International Development (DfID), which is committed to increasing the share of

its aid channelled through multilateral institutions. In 2004 DfID reported that 45

per cent of its programme expenditures were being channelled through multilaterals.

62 By 2006 this proportion had in fact dropped to 38 per cent.63

Although some may see greater coordination as a way to handle the rise of

emerging donors, this idea faces two major obstacles: the weakness of progress on

coordination among established donors and the lack of an emerging donor voice

in the institutions of coordination.

The minimal reform of the aid architecture

The current multilateral system is not configured to offer sufficient incentives for

emerging donors to engage in it. As things stand, they do not have enough voice

or influence to make it worth their while to attempt to improve the running of

the multilateral system. They are not members of the OECD DAC or G7/G8, and

61 Masood Ahmed, ‘Votes and voice: reforming governance at the World Bank’, in Nancy Birdsall, ed., Rescuing

the World Bank (Washington DC: Center for Global Development, 2006), p. 90.

62 Department for International Development, DFID Annual Report 2004 (London: DfID, 2004).

63 Department for International Development, DFID Annual Report 2007, p. 140.

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have only a limited voice in the IMF and World Bank. The gravity of this problem

has been recognized, but little progress has been made towards resolving it.

In February 2005 the OECD DAC and UN Development Programme began to

meet with non-DAC member donors.64 A new Development Cooperation Forum

has been launched by the UN Economic and Social Council with the aim of better

engaging all donors. Its first meeting was held in New York in 2008.65 In respect

of the IMF, detailed negotiations are under way about changes in quota shares—

alterations that are palpably inadequate to alter the incentives for China and others

to engage in the institution.66 The World Bank seems to have remained immune

even to these small changes. Unaddressed is the more obvious issue of the headship

of each institution, including which countries are genuinely engaged in appointing

and holding to account the person who sets priorities, determines staffing and

promotion structures, and chairs the board of each organization. The status quo

in which the United States and powerful west European countries continue to

appoint their own representatives further disenfranchises emerging donors who

could become significant contributors of both resources and ideas.

In sum, the international development assistance regime in which established

donors work is suffering multiple stresses. Security expenditures have diverted

budgets away from much-publicized pledges. A declared determination to enhance

‘ownership’ and improve the effectiveness of aid is proving difficult to implement.

Efforts to coordinate operations among donors are not being reflected in concrete

shifts towards more multilateralism. And the existing multilateral system is poorly

structured to respond to these challenges. In Africa and elsewhere, governments

needing development assistance are sceptical of promises of more aid, wary of

conditionalities associated with aid, and fatigued by the heavily bureaucratic and

burdensome systems used for delivering aid. Small wonder that the emerging

donors are being welcomed with open arms.

Conclusions

A silent revolution is taking place in the development assistance regime. This

article has argued that the development assistance offered by established donors

has become less generous and less attractive (on its own terms), while emerging

donors’ aid has become more generous and more attractive. Since the 1980s most

established donor aid has failed to address developing countries’ demand for aid

and investment which expands the productive parts of poor countries’ economies.

Recent trends seem only to have increased donor deafness to this call. Furthermore,

where changes in conditionality have been promised, donors seem to have been

unable to confer promised degrees of ‘ownership’ on aid-receiving countries.

64 A recent follow-up was the ‘Special session with non-DAC providers of development assistance’, 27 Nov. 2007

(Paris: OECD, 2007).

65 www.un.org/ecosoc/newfunct/develop.shtml, accessed 26 Aug. 2008.

66 Ngaire Woods, Governing the global economy: strengthening multilateral institutions (New York: International Peace

Institute, 2008), http://www.ipacademy.org/asset/file/361/Woods_Economy.pdf, accessed 26 Aug. 2008.

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By contrast, emerging donors robustly defend sovereignty and non-intrusion

in the politics of recipients of their aid—although in several cases there is a geopolitical

conditionality that accompanies their assistance, such as requiring support

for an emerging donor’s foreign policy. The emerging donors offer aid amid trade

and investment and against a background of flourishing growth within their own

economies. Alongside their aid they offer technology, advice and professional

assistance that many aid-receiving countries find more useful and more appropriate

to their needs than that offered by established donors. It is no surprise, then,

that emerging donors are stepping into relations with the ‘development partners’

of established donors.

This is a silent revolution because emerging donors are not overtly attempting

to overturn rules or replace them. Rather, by quietly offering alternatives to

aid-receiving countries, they are introducing competitive pressures into the

existing system. They are weakening the bargaining position of western donors

in respect of aid-receiving countries—with a mixture of implications. On the one

hand, the competition exposes standards that are either out of date or ineffectual.

It also highlights the extent to which some donor ‘standards’ are more about

aspirations

than reality. While DAC donors have agreed to meet standards to facilitate

coordination among themselves, they have said much more than they have

done. On untying aid (from the requirement that it must be spent in the donor’s

own economy), as the head of the DAC notes, not all DAC donors have made

requisite progress, while some non-DAC donors (such as Middle Eastern funds)

already meet the benchmarks.67 Better standards of donorship are important but

still very much in their infancy.

The silent revolution is unlikely to be manageable from within the existing

multilateral development assistance regime. While some hold up increased donor

coordination as part of a solution, this seems unlikely. Established donors are

finding coordination among themselves very challenging. Multilateralism in the

international development assistance regime is weakening; and there are very few

incentives in the existing governance structure of multilateralism to give emerging

donors an incentive to engage.

67 Manning, ‘Will “emerging donors” change the face of international cooperation?’, p. 378.

Rogue Aid

by Moises Naim *

What's wrong with the foreign aid programs of China, Venezuela, and Saudi Arabia? They are enormously generous. And they are toxic.

My friend was visibly shaken. He had just learned that he had lost one of his clients to Chinese competitors. "It's amazing," he told me. "The Chinese have completely priced us out of the market. We can't compete with what they are able to offer."

Of course, manufacturing jobs are lost to China every day. But my friend is not in manufacturing. He works at the World Bank.

His story begins in Nigeria. The Nigerian government operates three railways, which are notoriously corrupt and inefficient. They are also falling apart. The World Bank proposed a project based on the common-sense observation that there was no point in loaning the Nigerians money without also tackling the corruption that had crippled the railways. After months of negotiation, the bank and Nigeria's government agreed on a $5 million project that would allow private companies to come in and help clean up the railways. But, just as the deal was about to be signed, the Chinese government offered Nigeria $9 billion to rebuild the entire rail network—no bids, no conditions, and no need to reform. That was when my friend packed his suitcase and went to the airport.

It is not an isolated case. In recent years, a variety of wealthy, nondemocratic regimes have begun to undermine development policy through their own activist aid programs. Call it rogue aid. It is development assistance that is nondemocratic in origin and nontransparent in practice; its effect is typically to stifle real progress while hurting average citizens.

China has backed such deals throughout Africa; its funding of infrastructure there has boomed from $700 million in 2003 to between $2 and $3 billion for each of the past two years. Indeed, it is a worldwide strategy. In Indonesia, Beijing agreed to expand the country's electrical grid. Too bad the deal calls for building plants that use a highly polluting, coal-based Chinese technology. No international agency would have signed off on such an environmentally unfriendly deal. In the Philippines, the Asian Development Bank, which lends money at low interest rates to poor countries, had agreed to fund Manila's new aqueduct. It too was suddenly told that its money was no longer needed. China was offering lower rates and fewer questions.

What's behind this sudden Chinese drive to do good around the world? The three short answers are: money, access to raw materials, and international politics. The coffers of China's Central Bank are bursting with nearly $1.1 trillion in foreign exchange reserves—the world's largest. Beijing is increasingly leveraging this cash to ensure its access to raw materials while also boosting international alliances that advance China's growing global influence. What better than a generous foreign-aid program to ensure the goodwill of a petropower like Nigeria or a natural resource-rich neighbor such as Indonesia?

China is not the first country to rely on aid as a tool to advance its interests abroad. The Soviet Union and the United States spent decades giving "development aid" to dictators in exchange for their allegiance. Even today, American largesse to Egypt and Pakistan is rooted in geopolitical calculations. But, beginning in the 1990s, this system slowly began to improve. With greater media scrutiny, many developed countries were shamed into curbing these practices. Today, the projects of organizations like the World Bank are meticulously inspected by watchdog groups. Although the current system is far from perfect, it is certainly more transparent than when foreign aid routinely helped ruthless dictators stay in power.

Nor is China the only regime offering rogue aid. President Hugo Chávez has not been shy in using his nation's oil-fueled international reserves to recruit allies abroad. Indeed, Venezuela's ambassador to Nicaragua, explaining his country's large aid packages to the region, bluntly announced in early January, "We want to infect Latin America with our model." Thus, hopes for Cuba's opening as a result of Fidel Castro's demise and the island's bankruptcy will likely be dashed by the roughly $2 billion in rogue aid that Chávez supplies to Cuba every year. Worse, his generosity ultimately harms Cubans who, because of these artificial lifelines, will be forced to wait even longer for the indispensable reforms that will bring their society opportunities for true prosperity.

Iranian aid to Hamas in Palestine or Hezbollah in Lebanon is equally damaging to the people there. Clearly, this financial support has boosted Iran's influence in the region. Far less clear is whether average Palestinians and Lebanese will ever be better off thanks to Iran's generosity. The same can be said of Saudi Arabia's massive overseas educational aid program. Are Pakistani boys whose parents cannot afford to send them to school well served by attending Saudi-sponsored religious schools that fail to equip them with the skills needed to get a job? They are surely better off going to any school than being in the streets. But why should these be the only two options? Why can't the Saudis fund education, the Chinese pay for infrastructure, and Chávez help Cuba's economy without also hurting poor Pakistanis, Nigerians, or Cubans?

Because their goal is not to help other countries develop. Rather, they are motivated by a desire to further their own national interests, advance an ideological agenda, or sometimes line their own pockets. Rogue aid providers couldn't care less about the long-term well-being of the population of the countries they "aid."

What we have here—in states like China, Iran, Saudi Arabia, and Venezuela—are regimes that have the cash and the will to reshape the world into a place very different from where the rest of us want to live. Although they are not acting in concert, they collectively represent a threat to healthy, sustainable development. Worse, they are effectively pricing responsible and well-meaning aid organizations out of the market in the very places where they are needed most. If they continue to succeed in pushing their alternative development model, they will succeed in underwriting a world that is more corrupt, chaotic, and authoritarian. That is in no one's interests, except the rogues.

* Moisés Naím is editor in chief of Foreign Policy.

Source: Foreign Policy

Brazil: truly global in its impact?

A Note by the Director (Ditchley 2006/04)

7-9 April 2006

We gathered on a bright and breezy early spring weekend to examine the next in Ditchley’s series of emerging countries, Brazil. The question in front of us, whether Brazil was already making an impact on the global scene, gave participants some difficulty: should we be looking for signs of global influence now, or should we be assessing Brazil’s internal strengths and weaknesses and calculating long-term potential? The answer in the end was both, but we were conscious of studying a complex, moving picture with all kinds of uncertainties. This Note will touch on a number of themes but cannot do justice to a rich, multifaceted discussion which itself indicated that Brazil is already a global phenomenon.

Some elements of this status were clearer than others. We were in no doubt that Brazil was a powerful player in agri-business and as a world food producer; a leader in the technology associated with that and with the production of alternative fuels from the agricultural sector; a central actor in world trade negotiations; and the largest member of an important regional bloc. Brazil stood at the heart of important environmental questions, discussed with great vigour at this conference: the Amazon and its forest; the production and use of fresh water; biodiversity; and technology for carbon reduction. Brazil was also becoming an important contributor in certain niche areas, such as research into the treatment of HIV/AIDS. And the country’s role as a football icon was not to be underestimated in a world where soft power counted. Underlying all of this was Brazil’s positioning in its international diplomacy as a skilful multilateral actor, committed to the rule of law and to collective approaches to the problems of globalisation.

Set on the other side of the ledger were a number of problems and challenges. Brazil was to be congratulated for consolidating its democratic base and stablising its economic performance, with an increasingly powerful manufacturing sector. But the key to sustained economic growth had not yet been found; reform of state structures and of fiscal policy had not yet been undertaken; inflation control had succeeded but interest rates were still high; a coherent energy policy was lacking; and there were a number of areas of micro-economic policy where forward momentum was poor and a huge amount remained to be done. President Lula’s four years in office so far had achieved a good deal of consolidation and, unlike its predecessors, had begun to address crucial and challenging social issues as a package. But party politics sometimes outweighed the need for sharply focused attention to the more difficult areas such as poverty, inequality, unemployment and crime. The recent corruption scandals did not help the image (though it was noted that the institutional handling of them was effective). In particular, the conference came back again and again to the poor state of primary and secondary education in Brazil, where huge improvements and new resources would be needed to establish a real advance for the country, domestically and internationally, over the next generation.

It was pointed out that Brazil had, historically (and history was proving more significant than geography in most of the areas we discussed), gone through a series of cycles of hope and disappointment. The last decade had generated more of the first than the second and progress needed to be sustained by the next government after October’s elections. Government had recently tended to grow in size, when Brazil’s real requirement was for better, rather than more, government. We did not discuss election prospects in detail, though we noted that Lula was ahead in most opinion polls and that he would gain from continued stability in the economy and from his popularity amongst the working rather than the middle classes. If poorer Brazilians began to lose faith in his approach and the media turned increasingly against him in the coming months, then the opposition, if it remained united, might just have a chance.

Within the region, we noted Brazil’s undoubted influence, though it could not yet be interpreted as a position of leadership accepted by its neighbours. Most participants viewed the region as being South America rather than Latin America: a strong Brazilian partnership with Mexico might in theory be a powerful catalyst for an increase in Latin American influence globally, but it was unlikely to emerge from current politics and relationships. This was regarded by many as a pity. Brazil’s diplomacy in the region, sensitive to others’ reactions, was quiet, almost tentative. Some thought that if Brazil was committed globally to a rules-based approach to international issues, then that should be the basis of its regional approach. Mercosur was an important factor in the region, but was struggling to achieve significant progress. Brazil suffered from being too dominant a presence in it. Others thought that this was too churlish an interpretation: time would be needed to grow regional partnerships and to develop the benefits of free trade; and Brazil’s weight and diplomatic skilfulness would increasingly tell. Brazil’s most important influence at this stage was in being a success story as a consolidating democracy, avoiding on the whole the temptation to follow populist policies.

We were unfortunate in this debate in having no representation from the US Administration, whose participation fell away at the last minute. The United States was seen as paying too little attention to the potential benefits of a forward-looking partnership with Brazil, while Brazil itself was considered over-sensitive to the dictates of sovereignty and independence. This made Brazil more comfortable in the multilateral theatre than in consolidating particular bilateral relationships. An understanding partnership with the United States could be an outstanding asset for both sides. Her initiatives with India and South Africa, her good trading and political connections with the European Union and her awareness of the competition which China represented gave her other good opportunities to combine the multilateral and the bilateral with more vigour. We discussed whether Brazil’s role in the World Trade Organisation, leading up to the climax of the Doha Round at the end of 2006, might lead her to greater activism. There was no doubt that Brazil’s export potential and her well developed institutional diplomacy within the G20 were important assets. But others felt that determinants of the Doha Round outcome lay in the scope for flexibility, or otherwise, in protectionist governments elsewhere rather than with Brazil.

In short, we found ourselves painting a picture of a Brazil displaying a justified degree of ambition in regional and global affairs, but not yet possessing all the necessary capabilities. The good news was that foreign policy was a vibrant area, with the connections between domestic and international well recognised and with Brazil already established on the global map, going well beyond issues of international trade. Less good was that this had awakened a perception in the region of Brazilian presumptuousness, not least over its bid for a permanent seat at the UN Security Council. Brazil appeared to recognise that there was a price to be paid for a strong collective approach to international affairs, but had not yet geared itself to pay that price when in most respects it had to be political.

The conference much enjoyed hearing a good briefing on environmental issues. In its ownership of the Amazon forest, Brazil possessed a world resource which gave it huge environmental status but also an obligation to establish domestic and international structures to preserve it. We understood Brazil’s frustration in being subjected to environmentalist lectures from outside and we accepted that it was the role of other governments and international NGOs to contribute resources to the right Brazilian programmes. In the end, preservation of the Amazon forest would be Brazil’s achievement or no-one’s and others would have to fall in behind Brazil’s policy decisions in this area. There was an undeniable urgency in getting this right.

In our conclusions, we came back to the question of what was the real Brazilian brand. The elements which impressed us were its cultural richness, its soft power strengths, its diplomatic affability and its status as the fourth largest democracy in the world and the largest country in South America. Those characteristics on their own were sufficient for membership of an enlarged Security Council. Yet it was still a picture with blurred edges. The keys to economic growth and a good education system had not yet been found and too few Brazilian products yet made a real impact on global markets, literally or metaphorically. In the end we tended to conclude that Brazil needed time. It was still an adolescent as an emerging power; and world trends, not least the diffusion of power away from the west and towards a larger number of global players, were sending things Brazil’s way. If her strengthening relationships in the southern hemisphere and with the other emerging nations could be sustained without an equal and opposite cost in the developed world, then Brazil would claim, and retain, a top table place for a long time to come.

Our conference was unlucky in losing its intended Chairman, the Brazilian Foreign Minister, Celso Amorim, who was diverted to more important duties at the last minute. But we were immensely fortunate in having a first-class replacement, who guided our discussions with an expertise and a lightness of touch which made the debate flow dynamically down all the right channels. Ditchley was also grateful that such a varied range of Brazilian voices could be heard. We all went away at the end of the weekend with a more accurate sense of the butterfly emerging from the Brazilian chrysalis.

This Note reflects the Director’s personal impressions of the conference. No participant is in any way committed to its content or expression