Speakers:

Oliver Morrissey

Felix Naschold

Judith Randel

Tony German

Chair

Simon Maxwell

1. Simon Maxwell introduced the meeting. He emphasised the importance and breadth of two speeches by Gordon Brown in late 2001, one in New York and the other in Washington, calling inter alia for a doubling of aid. He set this call in the context of the forthcoming UN Conference on Financing for Development (FFD), to be held in March in Moneterrey, Mexico. And he introduced the new series of ODI publications, ‘ODI Opinions’.

2. Oliver Morrissey acknowledged that many issues surround the assumption that aid is good, but asserted that giving aid is effective enough to justify an increase - and now is the time to make sure it is used effectively. While there may be inefficiencies in the allocation of aid, they are no reason to give up.

3. He tackled four myths regarding aid:

   1. Aid is wasted money. Most recent evidence shows that countries do, more often than not, benefit from aid. The position is complicated, because aid has multiple objectives and often contributes only indirectly. For example, aid effectiveness is often measured according to whether growth increases, but (a) most aid (2/3) is not used to finance investment, and so cannot be expected to impact on growth, and (b) even for the 1/3 that does contribute to investment, the effect is indirect. Still, there should be no doubt that aid works.

   2. Aid only works in a good policy environment. This is a much-advertised position, derived from World Bank statistical analysis. In fact, later independent analysis shows that aid can make a positive contribution even where (and sometimes because) policies are weak. There is no reason, therefore, not to provide aid to poorly-performing poor countries – indeed, the opposite might be the case. Donors should rethink selectivity criteria.

   3. Aid conditionality does not work. This is another much-advertised position, but equally hard to support with evidence. It is true that heavy-handed conditionality does not work, but research shows that aid can play an important role in supporting and encouraging the reform process.

   4. Aid supports bad governments. Donors may support 'bad' governments, but that should not be used as a criticism of aid per se.

4. Felix Naschold opened his presentation on 'Aid and the Millennium Development Goals' (MDGs) by making reference to the Zedillo report, which was one of the background papers for the FFD Conference. This report was the source of estimates that aid needed to double in order to achieve the MDGs. Felix Naschold explored the implications of increasing aid for allocation between sectors. For example, only 2% of aid was currently spent on basic education. The Zedillo report estimated that an additional $US9 billion per year would be needed to achieve the target: this was equivalent to 18% of additional allocations. It would obviously be a real challenge to spend money in this way, especially in difficult countries where the money was most needed. Indeed, if all aid was doubled, one result might be that more countries would reach crippling 'absorptive capacity'.

5. It was important not to focus on the quantitative target of increasing primary education, at the expense of quality issues, and the institutional development needed to deliver effective education.

6. Judith Randel began by speaking about public attitudes to aid. When asked whether aid should be increased, 30% of people say 'No'. However, the answers can only depend on what one knows about aid to begin with. Aid as a percentage of GNP is 0.22%; as a share of public expenditure, it is 0.58%.

7. Tony German showed a series of graphs (see link) and emphasised the moral case for increased aid. Acknowledging DfID's increased enthusiasm for this, ("a good start"), he noted that it is more significant to look at aid as a percentage of GNP. It was clear that those countries closest to the 0.7% target (aside from the UK) are largely Scandinavian.

8. As to whether we can afford to give aid, Tony German pointed out that we are wealthier now than ever, yet give less aid now. 'Where is this meanness coming from?', he asked, and 'Why are the G7 donors generally the meanest?'.

9. Judith Randel said aid suffers from too-high expectations while campaigners' expectations are too low. Donors are going in "never richer, never meaner". She concluded by saying that it is a moral imperative to improve the resources and architecture of aid - something we can do.

10. A number of points were raised in the discussion:

1. 1. Perhaps job creation is the only solution to poverty reduction.

   2. While it was agreed that it is impossible to double aid and have effectiveness with the way things are now, different modalities can be used and budget-handling improved. The ODI website contains many papers on sector-wide approaches and improved budget procedures.

   3. While loans can precede debt problems, grants can lead to an unsustainable culture of dependency.

   4. Educating the public of overseas development needs might encourage them to support politicians keen to donate aid. Perhaps this could be achieved by publishing 'success stories' domestically, (especially regarding Africa), outlining how aid works.

   5. Lobbying European countries such as France and Germany for donor support might currently be more effective than lobbying the US.

   6. The myths outlined in Oliver Morrissey's speech go deep into the public's psyche. It was said that governments need NGO help and that a twin-track approach to public expenditure might still reach the 0.7% target more rapidly.