2006/11/10

Ghana: Social Watch Report Calls for the Separation of Multilateral And Bilateral Aid

Isabella Gyau Orhin
AllAfrica.com

The 2006 Social Watch report has suggested the separation of bilateral and multilateral arrangement for development as a first step towards reforms for financial independence for poor countries.

The 262 page report prepared annually by a coalition of international Non-Governmental Organizations which was first launched in Singapore in September and relaunched recently in Ghana said "it is up to sovereign nations to enter into bilateral agreements on debt financing but these should be kept outside the multilateral system."

The report dubbed Impossible Architecture also suggested that consideration should be given to pooling and allocating aid through a development fund placed under the United Nations and run by a competent secretariat without day-to day interference from its contributors.

This according to the report means ceding the International Development Association IDA from the World Bank and the Poverty Reduction and Growth Facility (PGRF) from the International Monetary Fund (IMF). Though the amount involved is quite small, the report says the impact on the governance of these institutions could be important.

Already the European Union has announced its intention to create a trust fund to disburse European aid to Africa without depending on the World Bank. Their argument is that European money should be spent according to European policies and since their influence in the World Bank is not that much, they would like to disburse their own funds.

"This demonstrates once again the predominance of political considerations in the provision of aid," the report said and added that, "it is a welcome initiative in so far as it helps separates bilateral from multilateral lending."

However the Social Watch report said such initiative should also accompany steps aimed at making the World Bank an independent multilateral development finance institution.
The report further said any serious reforms of the global arrangements for provision of finance to developing countries should also include mandate, operational modalities and governance of the Bretton Woods' institutions. "There is no justification for the IMF to be involved in Poverty alleviation," the report said adding, "The Fund should focus on the provision of short term liquidity to countries experiencing temporary payments shortages."This, the report said should include poorer countries that are vulnerable or susceptible to trade shocks.

"It should revive the Compensatory Financing Facility, as a concessionary facility and there should be greater automaticity in access to the Fund," it stated. Limits to the fund according to the report should also be based on the level of a country's need. "The Fund should stay away from structural conditionality and focus on macroeconomics," the report further noted.

The report moreover said the Fund should not be allowed to engage in financial bail-out operations but develop orderly debt workout mechanisms and focus on crisis prevention by helping manage unsustainable capital inflows to developing countries and through effective surveillance over policies in industrial countries. Besides, an appropriate source of funding for the Fund is the Special Drawing Rights (SDR).
According to the report the case for creating SDRs to provide funds for current account financing is much stronger than the case for using them to back up financial bail-out operations.

"Current arrangement would need to be changed to allow the SDR to replace quotas and General Arrangements to Borrow (GAB) and New Arrangements to Borrow (NAB) as the source of funding for the IMF.

On the World Bank, the report said many of the problems encountered in multilateral development finance and policy advice could also be addressed if the World Bank went back to its original operational modalities where it is expected to facilitate capital investment through project financing rather than trying to fix all kinds of policy and institutional shortcomings in developing countries through structural adjustment and development policy loans.

On the UN's role in aid disbursement, the report said a secretariat in charge of disbursing aid should be established and made to report to the General Assembly and audited regularly by an independent body.

"Such a course of action will be desirable not only because of increased involvement of the UN in development goals and social issues closely linked to world peace but also because of its democratic nature", the report affirmed.

It said poverty reduction has been declared a global public good in several UN summits and conferences. This it said means there is a strong case for establishing global sources finance which could be achieved through agreements on international taxes including environmental taxes and various taxes such as those on arms trade.

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