Issue 108 - The Failure of Development Aid

the failure of development aid

bilateral aid

There is a pervasive myth that governments give significant amounts of bilateral aid to the poor. However, nearly all of the rich nations consistently fail to meet their Official Development Assistance (ODA) target of 0.7 percent of GNP, most of them hovering in the area between 0.2 and 0.4 percent each year.

To a large extent, financing the demise of poverty is a matter of prioritizing. Kari Nordheim-Larsen, then Norwegian Minister of Development Cooperation, said in 1996 that “It has been estimated that the world would need to mobilize between 30 and 40 billion dollars annually for several years to achieve universal access to basic social services, including low cost water-supply and sanitation. While it definitely is a large amount of money, it only represents some 3 or 4% of what the world spends on the military every year.”

The quality of aid remains an area of concern as well, as a real danger exists of locking people into dependency rather than promoting selfdetermination and empowerment. In recent years, following a range of aid scandals, development agencies have tried to move away from financing large, inappropriate development projects that have wasted millions of public dollars and euros. There is now a growing tendency to listen better to local needs when designing aid programs. While this is welcome, it is just as important to remove structural barriers that impede people's opportunities to create longterm sustainable livelihoods for themselves.

Generally, transnational corporations fare well as a result of aid programs; the Australian aid program is even explicitly formulated to promote Australian commercial interests. Furthermore, a large part of the multilateral aid channeled through international financial institutions directly supports northern corporations.

multilateral aid

Much of the world's multilateral development aid is channeled through international financial institutions (IFIs) such as the World Bank. Although the mission of most of these banks is poverty alleviation, many of their projects and policies have the reverse effect.

By attaching conditions to their loans, the IFIs impose structural adjustment packages - liberalization, privatization and deregulation policies - on the world's poorest countries. In addition, they provide subsidies to transnational corporations for investments around the world. These policies and practices generally hurt the poor: the revenues that are supposed to trickle down are often minimal, end up in the wrong pockets and do not compensate for negative social and environmental impacts. It is a well thought-out package. Liberalization allows transnational corporations free reign to out-compete local and small scale businesses. The privatization of public services opens more markets for big business, but makes essential resources such as water and energy unaffordable for poor people. Simultaneous deregulation limits governments' possibilities to protect people and natural resources by prohibiting them from placing social and environmental requirements on corporate activities.

And to complete the picture, direct financing of megalomanic projects like oil pipelines, gold mines and large hydro dams directly destroys environments and livelihoods for communities around the world.

Cost overruns, displaced communities, devastated environments and useless constructions are the unhappy results. Communities are deprived of access to clean water, healthy forests and other natural resources they depend upon. And the few jobs created by these capital-intensive operations can not compensate for the livelihoods that are lost in the process.

The soaring debt burden, which increases as a result of these lending activities, makes it impossible for governments to invest in social and environmental sectors. Payment of interest on debt has created the unacceptable situation in which more money flows from developing to developed countries than vice versa. From Africa alone, the money transfer to the IMF and World Bank between 1986 and 1990 was US$ 4.7 billion. The poor are hit the hardest, all in the name of development.

It is no secret that these institutions are failing in their poverty alleviation missions. The World Bank's 2003 Extractive Industries Review report ‘Striking a Better Balance' found that: “Increased investments have not necessarily helped the poor; in fact, oftentimes the environment and the poor have been further threatened by the expansion of a country's extractive industries sector”; and that “the World Bank Group does not appear to be set up to effectively facilitate and promote poverty alleviation through sustainable development in extractive industries in the countries it assists.” In its March 2005 analysis of the reasons for Africa 's economic woes, UK Premier Tony Blair's Commission for Africa concluded that: “Evidence shows that IMF and World Bank economic policy in the 1980s and early 1990s took little account of how these policies would potentially impact on poor people in Africa .”

In short, Friends of the Earth International believes that steep increases in bilateral and multilateral development aid are necessary, but will only succeed in alleviating poverty when technocratic and top-down solutions are substituted for participatory, equitable and sustainable alternatives. We also believe that development agencies and international financial institutions must accept joint responsibility for the marginalization of communities and the destruction of natural resources that their projects and policies have caused, and ensure that the needs of the poor take priority over corporate interests.

Several of the case studies in this publication show how IFI policies and projects that were supposed to alleviate poverty have impacted the poor. The Shell and Exxon-led Sakhalin oil and gas project in the Russian Far East, which is awaiting funding from international financial institutions, illustrates how the health and livelihoods of communities can be threatened by exploitative projects.(see page 23 ). The Nam Theun II Dam in Laos , funded by the World Bank, the European Investment Bank and the Asian Development Bank, will displace more than 6,000 people and threaten the livelihoods of more than 100,000 farmers. (see page 24 ). Fortunately, many communities are fighting poverty by demanding control of their natural resources, including the Bagyeli pygmies of Cameroon whose livelihoods have been impacted by the World Bank funded Chad-Cameroon pipeline (see page 7 ).