Friday, 27 July 2012

Are governments willing to share the aid arena?

By Noshua Watson

On July 5 and 6, the United Nations ECOSOC hosted the Development Cooperation Forum. One of the most interesting sessions was a policy dialogue titled ‘How can development cooperation serve as a catalyst for other sources of development financing?’ Given the continuing entry of new actors into development finance, especially NGOs, foundations and businesses, the session was a welcome discussion.

Representatives from many sectors, government, private and social, believe that the need for development cooperation is being driven by decreasing official development assistance (ODA). At the same time, financing considerations need to include ‘aid exit’. There is a general sense that development finance consists not only of ODA, but many recipients and donors are not ready to move away from ODA.

I agreed with the general theme of the session that the key to generating other funds for development is increasing domestic resources. Representatives from government, NGOs and multilateral organisations said that ODA should be directed at developing local financial sectors, equity markets, bond markets and SMEs. At the national level, implementing policies to reduce corruption and tax avoidance and improve national budget accounting would generate additional domestic funds for development.

The main source of disagreement was over the extent to which new policies in this area are negotiated inter-governmentally rather than between the different types of actors on a bilateral basis. Many countries believe that the presence and activities of philanthropies, companies and NGOs in development finance should be entirely managed by the government.

The solutions seem to lie in the space between the public and private sectors, but these solutions are also complicated. There were a number of calls from NGOs to implement a financial transaction tax, but this was not taken up by representatives from other sectors. The observation that much of the funding from Development Finance Institutions goes to Western multinationals and private equity companies was better received along with the recommendation that development finance needs to be refocused on underfunded areas and developing country enterprises. Another keen observation was that trade barriers can also come in the form of product standards that exclude developing country producers, and are frequently set by the private sector, not governments.

It is clear that aid and trade (and FDI and microfinance) can coexist. But can they cooperate?