Development Co-operation Directorate (DCD-DAC)

More aid brings opportunities - and risks - to the fight against corruption (DACNews Sept-Oct 2005)

 

Leading Governance, Peace and Security work at the OECD DAC Secretariat, Ben Dickinson gives his overview…

Weak governance, conflict and insecurity are binding constraints on the future prospects for development, and it remains unclear at this stage how more aid could have an impact on these intractable problems. 

But what does seem clear is that the prospects of very significant increases of aid will mean that corruption will take an even more prominent role on the international agenda, not only at the OECD and in developing countries, but at this week’s UN Summit.

It’s possible that if not enough is done, more aid could actually increase the risk of corruption in some countries where larger amounts of aid are disbursed quickly.

It’s no coincidence then that the Summit will focus on how to encourage better governance, and how to fight corruption and promote peace. An independent Democracy Fund is being established; a new Peacebuilding Commission is on the agenda; and global security is a cross-cutting theme.

As the main forum for bilateral donor countries, the risks and opportunities that come with increased aid is an area that the OECD DAC is taking very seriously.  We know for example that in many countries, systems may not be adequate to absorb large increases in available resources without increasing wastage or fuelling leakage and corruption. Donors may face pressures to disburse larger amounts of aid quicker. It would help to have an aggregate picture of future aid flows so that risks relating to absorptive capacity and corruption can be assessed, particularly in the so-called ‘donor darlings’.

But there are opportunities too. If increased aid is placed in a more predictable medium-term timeframe, donors will have a better chance of helping to address the long-term challenges relating to governance and conflict. More realistic time scales should allow donors to help states develop better relations with their citizens, rather than being locked into fragmented approaches that either support governments or civil society, to the exclusion of the other.

There are other opportunities that come with an increase in aid.  Much of what we have learned about capacity development over four decades points to a lack of a persistent and patient approach, with donors’ short-term project goals displacing longer-term incremental changes. The scaling-up of aid over a decade provides an opportunity to set more realistic timescales for the capacity development endeavour, backed up by more predictable aid flows.

For example, although risky, more aid could be directed at meeting recurrent costs, including public sector pay, an area in which the OECD DAC has begun to develop guidance.

But with new increases of aid on the table, now is also the time to look ahead more seriously at the risks of aid dependency, particularly in Africa. Some evidence suggests that where aid constitutes 10% or more of GDP as much as 10% of grant flows may be offset by domestic revenue reduction. There are fundamental questions as to whether aid creates the same problems of concentration and unchecked power that result from oil and other natural resources.

Donors need to make sure their increases in aid don’t damage domestic accountability, for example by taking the strain from efforts to develop revenue and taxation systems which provide the framework for social fiscal contracts between a tax-payers and their governments. This is an area we hope to look at in more detail over the coming months.

In all the debate around governance and anti-corruption, the needs of fragile states (many of which are prone to the outbreak or recurrence of conflict) remain difficult challenges. Important work is underway to provide the DAC with current information on aid flows to fragile states to help better inform resource allocation decisions and avoid pockets of exclusion, or ‘donor orphans’.  We need to look at the beneficial impact of regional organisations on economic growth and stability in these states. Perhaps more work is needed to test the view that, in certain cases, aid to fragile states should be seen as venture capital, where the risk of failure is great, but where the potential returns are very high.

In all of this, the OECD DAC’s draft iples for Good International Engagement in Fragile States will be a guiding document for donors increasing aid flows. They give clear indications on how international engagement in fragile states can have a positive impact and minimise unintentional harm.  Specifically, the Principles aim at guiding donors to develop a long-term vision for engagement in fragile states and in turn, help national reformers to build legitimate and resilient state institutions.

Recognising that all aid can influence conflict situations and create incentives or disincentives for peace, the DAC developed guidelines on Helping Prevent Violent Conflict. Violent conflict can undo years of positive development efforts.  Its outbreak or recurrence rapidly reverses the benefits of development assistance.

There is much to be hopeful about as the UN Summit gears up. But we cannot assume that increases in aid will necessarily mean a decline in corruption. To avoid creating an environment where corruption could even increase, we must be focused on results and the collective effectiveness of our aid dollars. 

Other useful links: The OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, 1997 is available at http://www.oecd.org/document/21/0,2340,en_2649_33693550_2017813_1_1_1_1,00.html