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A Modest Return on Investment for a Life Well-lived

January 20, 2012

Secretary of State Hillary Clinton delivered an address at the Fourth High Level Forum on Aid Effectiveness in Busan, South Korea on November 30.  She commented on the shift in foreign aid, saying:

“But today, because of private sector growth and increased trade, domestic resources, remittances, and capital flows, [ODA] is just 13 percent [of total U. S. resource flows]—even as development budgets have continue to increase.”

Her comments were consisted with those of the OECD/DAC’s September report of the Paris Declaration on Aid Effectiveness. It found that only one of thirteen targets that had been set and agreed upon by 100 nations in 2005 had been met, albeit “by a narrow margin”.

Not only was the September report of the OECD unable to move the needle on aid effectiveness after surveys in 78 countries over a three year period, but it also found that “as much as $0.28 is lost for every $1 of ODA, and the high velocity of aid adversely impacts patients and health systems.” Beginning in 2006, the initial study year of the OECD’s evaluation, the combined total ($578 billion) of all ODA lost at this rate through 2010 would equal $162 billion—more than the total of all US ODA alone ($131.3) over this same time period.

Alongside mis-directed and wasted funds for development assistance, a World Bank evaluation of its $17 billion expenditures on health, nutrition and population programs since 1997 found that “despite the Bank’s raison d’etre to end poverty, that was the specific objective of only 6% of projects and a secondary objective of 7%. Even when this was a stated objective, there was little monitoring of outcomes. Where monitoring was done, few projects had achieved that goal … and much of the spending aids [the] richest 20% of people”.

How much of the aid dollar by donors in bilateral agencies actually reaches the poor? An Oxford economist tracked an IMF grant to the Ministry of Finance in Chad to build rural health clinics. A survey followed the money released with the extremely modest purpose of finding out how much of the money actually reached the clinics—not whether the clinics spent it well. “Amazingly, less than 1 percent reached the clinics—99% failed to reach its intended destination.”

The statement from Secretary Clinton, set alongside the other evaluations mentioned above–all pose serious arguments for the continuation of foreign aid as we know it. They make an achingly obvious indictment that the intended beneficiaries are those who have rather than those who have not.  In 2005, debt cancellation accounted for more than 20% of ODA from Austria, Germany, Italy, the U. K., France, Japan and Spain. Although the OECD permits this to be counted as ODA, not one new Euro or yen leaves these countries for the developing world: those who have play a shell game with the poor to keep it.

The transaction cost to move an aid dollar overseas is increasingly expensive. In USAID’s 2012 budget, its Operating Expenses are $1.5 billion for staff and benefits. (In 1961, total ODA from the U. S. was $2.7 billion, with development aid being about 50% of that amount.) That’s the first bite out of this ripe melon of foreign aid. Subsequent bites are taken by aid contractors along the Beltway, then from taxes, duties and tariffs levied by recipient governments on goods entering the country–even for humanitarian assistance, then from expenses charged by host government agencies. What little is left most certainly doesn’t justify a foreign aid program with the avowed purpose of alleviating poverty.

The recently concluded Fourth High Level Forum on Aid Effectiveness was supposed to have explored “the different circumstances under which aid today is delivered”. Yet, it issued only a litany of 30 remedies to correct the “dismal record” on the past 13 targets in the Paris Declaration. A startling example:  “progress has been made in advancing the aid effectiveness agenda”!   However, none echoed Secretary Clinton’s admonition “to think differently about how we use it [ODA] … to serve as a catalyst to spark self-sustaining progress”. Neither did the High-Level Forum itself, nor any of its proposed remedies, address the staggering losses of ODA.

These authoritative evaluations present a vivid portrayal of ODA’s ineffectiveness; rightfully, they should be considered the beginning of its end.  One of the Paris Declaration’s findings: “aid for the government sector is not captured systematically in country budgets”. How, then, can the billions being spent on impact evaluations hold any meaning for future ODA allocations—when so much of ODA is expended before it gets into country budgets!

In ending her presentation, Secretary Clinton remarked“we need to say that out of Busan we really made a difference … a commitment that every person should have a right to fulfill his or her God-given potential in the world of the 21st Century. That is, after all, the purpose of development.” If so …

We are now well into our 3rd generation since 1961 of retired aid professionals, with those from UN agencies pensioned-off—until recently, on 100% of their base salaries.

Those of us in the aid community—all of us, are caught up in a whirlwind, its insatiable velocity feeds off of ever more funding drawn in by the centripetal forces of a self-serving advocacy which don’t allow an escape from the antiquated origins of development assistance. The Secretary’s sentiments can be put into operation by using them to create a new metric for global evaluations of aid programs. For every paladin of the poor that is retired after a life well-lived on development assistance, it must be demonstrated that twelve impoverished families were released from their captivity to want. If development programs are unable to demonstrate this modest “difference”, then aid is truly all about us rather than about them.

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