The Hindu Business Line : Monterrey Consensus: Chaff or grain?

THE final communiqué of the United Nations' Financing for Development Conference, held in Monterrey, Mexico, was adopted on March 22 by the heads of state and government who attended the conference. Commonly referred to as the Monterrey Consensus, the communiqué has drawn mixed reviews. Some view the attendance of the US President, Mr George W. Bush, at the Conference as an indication of the commitment of the US to the concept of foreign aid as a benign instrument of development. Others feel his attendance required the dilution of several parts of the communiqué, so that it ended up being largely banal. The optimists are excited by Mr Bush's announcement that, beginning 2004 and over the following three years, annual aid levels would increase by $5 billion over current levels.

The pessimists, on the other hand, wail that even 30 years after the pledge was made, many developed countries are far short of the target of 0.7 per cent of their GNPs as foreign aid committed and disbursed. The Consensus is also criticised as prescribing for the poor countries of the world a development paradigm based on Washington's world view — of free trade and private international capital flows, especially foreign direct investment, being the primary engines of growth.

The dominant role assigned to the IMF, the World Bank and the WTO in bringing about this new world order is cited as evidence of new aid imperialism. All this and much more are factually correct. So, what does one make of this conference and the final communiqué?

The UN suggested the aid target of 0.7 per cent of GNP in 1970. As of 1998, only four countries reached or exceeded that target. Denmark leads the pack with 0.99 per cent, followed by Norway at 0.91 per cent. The Netherlands takes third place with 0.8 per cent, followed by Sweden, which barely clears the bar with 0.71 per cent. All other developed countries fall woefully short of the prescribed target. Japan, which in absolute terms provides the largest quantum of official aid, has only reached a level of 0.28 per cent of GNP.

The world's richest country, the US, is at the bottom of the heap with an unimpressive 0.1 per cent of its GNP given as development assistance. It may not be out of place to state that, in development aid circles, the Scandinavian countries are often jocularly referred to as the "bleeding-heart, North European do-gooders."

To be fair, it must be noted that as a kind of advance action, EU countries met in Barcelona ahead of the Monterrey meeting and committed themselves to reach an average Official Development Assistance (ODA) level equivalent to 0.39 per cent of GNP by 2006, with individual countries reaching at least 0.33 per cent. This commitment represents at least an extra $7 billion by 2006 and some $20 billion during the period 2000-2006 (total EU ODA was about $25 billion in 2000).

In 1970, when this target of 0.7 per cent of GNP was prescribed, the global cooperation agenda was made up of only two items — economic development and poverty alleviation/reduction. But, in the thirty odd years that have passed since, the global agenda has become much longer, with sustainable development, environmental protection, education for all and women and child development being added to the list. In the current context, the probability of anti-terrorism being added to the list is very high.

Against this backdrop, a mature approach to development aid should be firmly anchored in the realisation and appreciation of certain eternal truths:

Altruism does not underlie external aid. The rationale is always enlightened national interest.

There is no economics in foreign aid, only politics.

Bilateral aid mechanisms are always preferred over multilateral modalities, as they facilitate the full play of "national" considerations.

Multilateral aid agencies, such as the World Bank and the regional development banks, would be "used" by the developed countries to impose their "agenda" on the borrowing countries. In particular, changes to the policy framework, which are unpalatable on domestic considerations, of the borrowing country would be sought as "conditionalities" that accompany multilateral aid.

The advantages of such reliance on multilaterals are two — one, it avoids messing up bilateral relations and two, and it vests the recommendations with an objective and professional aura.

Arising out of the above, it is not surprising that the World Bank, IMF and the WTO are the preferred vehicles to bring about the paradigm change. These are institutions in which the US has near-veto powers. In the Regional Development Banks there are other powerful regional players, who may not always toe the American line. Fashions in development theology change as often as sartorial fashions. The current flavour of the day is liberalisation, privatisation, globalisation, foreign direct investment, and free and unimpeded trade to be facilitated by removal of all tariff and non-tariff barriers.

But again, the prescriptions above are largely for the developing, borrowing countries. The massive subsidies, amounting to about $350 billion a year, given to domestic agriculture by the US, Japan and the EU's CAP (Common Agriculture Policy) continue unchanged.

As a matter of fact, a new farm bill, expected to be cleared soon by the US Senate and signed into law by President Bush, will substantially increase price guarantees for crops such as corn and wheat and create new subsidies for other commodities such as soybeans, adding an additional $20 billion a year to the subsidy payouts.

Even the barriers to import into developed countries of textiles, shoes and even steel, would be periodically "adjusted" to reflect domestic political conditions.

Is all this "oh, so unfair"? Welcome to the real world. He who has the gold will make the rule. To blame all underdevelopment on colonialism and to thunder "I am poor because you are rich" is puerile. Development needs hard work and focussed attention. Resources are no doubt important but the will to succeed is vital. As the Tamil proverb says: you cannot cultivate with dew; you need rains. External aid is dew. Domestic effort is the rain.

Moreover, it is a sad fact that in much of the developing world, the ruling classes are so corrupt that the bulk of the funds meant for development are diverted to line their pockets. Indira Gandhi's Garibi Hatao programmes, the much-vaunted direct assaults on poverty, ended up as monumental failures largely due to the yawning gap between promise and performance.

And in the face of such failures, the remarkable success of NGOs and SHGs (Self-Help Groups) in ushering in development in select pockets reinforces the fact that dedication and commitment are more critical than money and authority.

The Monterrey Consensus rightly asserts that "each country has primary responsibility for its own economic and social development, and the role of national policies and development strategies cannot be overemphasised". The recipe for success is formulating the right kind of policies and implementing them without leakages.

Personal and institutional integrity of the highest order are a sine qua non for real development to take place. So, should the developing countries pull the shutters down and keep the foreigners and their money out? That would not be an intelligent response either.

It is an undeniable fact that today the countries of the world are much more interconnected than ever before. And to try to lead an autarkic economic life in this scenario would be counterproductive. Prudence lies in adjusting to the ground realities and utilising the opportunities, limited though they may be, in the best possible way for national development.

As the Monterrey Consensus observes `Globalisation offers opportunities and challenges'. The Chinese, better than anybody else, have fully exploited these opportunities to successfully meet the challenges. Perhaps it is not a coincidence that the Chinese pictorial script for both the words "opportunity" and "challenge" is the same!

Instead of raising the bogey of the flag following trade, a throwback to the 18th and 19th centuries, the developing countries should put in place appropriate regulatory mechanisms to ensure that foreign investors play the game according to the rules.

And the private sector in the developing countries should get ready to face competition in an adult fashion, rather than whine like schoolboys and continue to demand props from their national governments.

In this context, one should note with approval, the clause in the Monterrey Consensus, which states that `Good governance is essential for sustainable development. Sound economic policies, solid democratic institutions responsive to the needs of the people and improved infrastructure are the basis for sustained economic growth, poverty eradication and employment creation'.

The Consensus also rightly cautions that `Fighting corruption at all levels is a priority. Corruption is a serious barrier to effective resource mobilisation and allocation, and diverts resources away from activities that are vital for poverty eradication and economic and sustainable development'.

Empirical studies have shown that the money stashed in foreign shores by the corrupt ruling classes of the developing world is several times the cumulative development assistance received by those countries!

In conclusion, the Monterrey Consensus, like all consensuses, is a cocktail. That is the result of compromise that plays an important part in such global jamborees. Prudence lies in selectively choosing and operating on parts of the Consensus that subserve national interests best.

(The author is a Former Secretary, Asian Development Bank.)

Send this article to Friends by E-Mail

Stories in this Section
Giving up Maruti

India's economic and fiscal policy -- II: Reforms need a big and final push

Internet trends

Monterrey Consensus: Chaff or grain?

Industrial sloth

Excise evasion