With the debate on development attaining a certain maturity and international funding practices having come under the microscope like never before, three conclusions are emerging. Firstly, the impact of aid on recipient countries is largely undocumented and even when it is done, the results remain unpublished; secondly, the way international aid is currently managed, with little or no accountability or coordination, it is little wonder that it often fails to achieve its ends; and thirdly, if things are to improve, greater accountability has to be worked into the system.
Critics of foreign aid, both from the left and the right, challenge the efficacy of aid with multiple arguments. From the left perspective, one of these is that foreign aid gives rise to a ‘dependent bourgeoisie’ that sustains itself on Western grants, support and scholarships, as well as on the lucrative jobs that donor agencies offer to trained people of the South. Meanwhile, the right holds that aid gives governments in developing countries excessive control over the economy, allowing resources to be distributed as political favours, one effect of which is the diminishing of private capital flow into the national economy. The point at which these two arguments overlap is in bringing into focus the bureaucracy as it affects and is affected by aid. Three recent court cases in Bangladesh concerning the alleged abuses of a United Nations development agency and a Bretton Woods lending organisation illustrate an empirical convergence of these critiques.
Altruism and egoism
In 2001, three separate cases were filed against donors in Bangladesh. Two were against the United Nations Development Programme (UNDP), one on policy issues and the other having to do with personnel procedures; and one against the World Bank involving a mix of personnel and general issues. A forthcoming collection of essays, Rotting from the Head: Donors and LDC Corruption (University Press, Dhaka), takes its cue from these cases where, for a change, donor corruption in a Least Developed Country (LDC) has been exposed. While the focus of detail is Bangladesh, the essays also show the international relevance of the aid problem by shedding light on the workings of the three foremost international aid agencies, the World Bank, the International Monetary Fund (IMF) and the UNDP.
What is revealed in the chapter on the IMF by Ayse Evrensel, is that stabilisation programmes provide balance of payments relief that is restricted to the short term of the programme period. IMF support mostly does not lead to lasting improvement in the economic policies of the programme countries. As they receive IMF support, it seems, recipient countries implement even more unsustainable macroeconomic policies than before. Where governments may not have been able to afford wrongheaded pet projects and foolhardy populist programmes, the flow of aid allows them to proceed with them. Not surprisingly, the periods between programme cycles when the support is not there see a drastically worsened macroeconomic performance. As for the question of preparing countries for the era of economic globalisation, all that IMF and World Bank lending seems to do is to replace private capital markets. These private sector markets, consisting of competitive firms, lose business against this low cost loan duopoly.
Based on empirical research, Evrensel concludes that there are no internal incentives for drastic reform for either the IMF or its clients: the IMF is too keen on the survival of its own programmes, and borrowers get addicted to low cost funds available to them in the face of their credit unworthiness. Lenders are just too driven by an unhealthy blend of altruism and egoism, writes Evrensel.
Robert McNab and Steve Everhart, who author a chapter in Rotting from the Head on the role of corruption in development, study whether international assistance has actually hindered economic development in developing and transitional countries — whether statistically there is an explicit, causal linkage between aid, the quality of governance, and economic growth. Using a newly developed formula, they explore empirically the existence and magnitude of such linkages for a sample of developing and transitional countries. If donor activity actually encourages rent-seeking behaviour, forestalls economic and political reform, and diverts resources to debt service, then it is possible that such aid presents, at a minimum, an additional obstacle to economic development.
McNab and Everhart suggest a re-evaluation of the entire structure of donor assistance if evidence demonstrates a significant and negative correlation between international aid, governance and economic growth. “Only if we find that international aid significantly and positively influences governance and, in turn, economic growth should we promote the provision of international aid”. The two contributors’ findings in this regard will not be comforting to the international development set. They reveal that “international aid directly increases corrupt activities and retards the rate of economic growth”, and, further, that it “increases levels of corruption, lowers the quality of governance”. They also draw attention to “an indirect channel from international aid and corruption through governance to economic growth [, providing] some of the first evidence on the detrimental impact of international aid on corruption, governance and growth”.
Judging the evidence
The three petitions alleging serious improprieties on the part of the UNDP and World Bank, which inspired the book under consideration, were filed in the Dhaka courts in 2001-02. The first, filed in the Supreme Court as Writ Petition No 2529 of 2001, sued the government for having prematurely retired its second most senior civil servant because he obstructed certain donor dealings and exposed the corruption involved in the activities of some aid recipients. This case was an obvious attention grabber, involving as it did a major environmental project valued at USD 26 million, and exposed an unsavoury nexus between aid and domestic politics. The court decided against the government on 31 October 2001.
The second case was filed in the High Court Division of the Supreme Court of Bangladesh vide Writ Petition No 519 of 2002. In it, the UNDP was sued for the non-renewal of the service contract of an employee “on arbitrary and malicious grounds through abuse of discretion, power and authority”. In the third case, Writ Petition No 225 of 2001 and No 22 of 2002, filed in the First Assistant Judge’s Court, the World Bank was accused of dismissing an employee on arbitrary and malicious grounds. The second filing (2002) cites a violation of a court injunction on the part of the organisation.
In the second case, the UNDP resident representative for Bangladesh was accused by a senior project staff member of irregularities involving a project costing USD 20 million. The documents now in court raise suspicions that the decision not to renew the service contract may have been made with the view of making the aggrieved staff member a scapegoat for UNDP lapses. It is also revealed that in an attempt to harass the said staff member, the resident representative improperly invoked UN staff rules against the individual, knowing full well that these rules, as is clearly stated in service contracts, are not applicable to project staff. Notwithstanding the immunity guaranteed to UN personnel under the archaic Convention on the Privileges of the United Nations, adopted by the UN General Assembly on 13 February 1946, and that not much may actually come of the proceedings in the Bangladeshi court, this episode is significant as only rarely has a project staff member taken the bold step of trying to expose the corruption and mismanagement that exists within donor bureaucracies.
Case three is remarkable in that the World Bank responded by claiming immunity from all prosecution. This defence had everyone sitting up and paying attention. The government stated its legal opinion in no uncertain terms, citing that while bank officials enjoyed some immunity in the discharge of duties in their official capacity, the bank itself was not above legal scrutiny. This interpretation was actually in consonance with the articles of agreement signed between the World Bank and Bangladesh, in which it is clearly stipulated: “Action may be brought against the Bank in a court of competent jurisdiction in the territories of a member in which the Bank has an office”.
Faced with this clause, the World Bank’s country director ‘suggested’ that the government sign an Establishment Agreement under which personnel would enjoy full immunity from litigation. The law ministry responded that signing such an agreement would require a policy decision that could only be taken subsequent to an appropriate scrutiny of all relevant facts and the examination of such agreements as they applied in other countries. After ignoring 14 summonses, the World Bank finally appeared in the court in April 2002 to file its objection and claim immunity. A hearing on the matter was held in June 2002. A court order is still pending.
These judicial proceedings and the book they have prompted have perhaps been long in coming in a country that has been a playground for the donor agencies for decades. The question that begs to be answered here is why so late? It cannot be that Bangladesh is the only LDC in which donor malfeasance occurs, nor can it be that this is only a recent phenomenon. Why then have more instances not reached the courts in LDCs – in South Asia or elsewhere – or prompted the kind of analysis and empirical study as in the case of Bangladesh? The reason, of course, lies simply in the very nature of aid operations in LDCs, where local bureaucracies and monitoring agencies as well as the press and audit offices are either co-opted or bought off by the aid-givers.
National and international players
In evaluating the nature and extent of donor malfeasance, consider an anecdote from Cassen, Robert and Associates’ well-respected report, Does Aid Work (Clarendon Press, Oxford, 1994):
Bangladesh has, on paper, a more impressive coordinating structure than most of the poorest countries, but was unable to prevent its railways, for example, from being saddled with a considerable array of equipment types: diesel locomotives from Japan, Canada and the US; shunting locomotives from Hungary, West Germany and the United Kingdom; and freight wagons from India, South Korea and the United Kingdom. This lack of standardised equipment compounded the training and maintenance problem of the railway.
This kind of occurrence begs the question: is such wastefulness deliberate or is it attributable to confusion and incompetence on the part of LDC bureaucrats for which there is an innocent systemic reason? A further matter to be investigated is whether aid is driven by the confused and uncoordinated requests of LDC bureaucrats or by the ‘needs’ of the officials in donor agencies? To answer these questions, it is necessary to delve into the source of the aid and investigate the links that are formed between donor and recipient bureaucracies.
The fact of LDC corruption has been widely publicised – more often than not by the donor agencies themselves – and the lack of competence of many LDC bureaucrats is certainly plain to those who have dealt with them. Indeed, there is no need to underplay the lack of accountability, graft and malfeasance within developing country bureaucracies. As the frontline party involved in trying to usher social and economic advancement into their societies, it is the virtues of bureaucrats that should be decisive. But accepting and understanding the weaknesses within the national bureaucracies should not have us turning a blind eye to the actions of donors. How much are the difficulties of LDCs, poor and undeveloped as they are, compounded by the actions of agencies that have the wealth and information-processing resources to know better?
Assume for a moment that the hypothesis of donor-induced and -abetted corruption has merit. Does the charge tar all donors equally? Donors may be broadly categorised under ‘bilateral’ agencies, such as USAID (the US), NORAD (Norway), SIDA (Sweden) and CIDA (Canada), and ‘multilateral’, such as the UNDP and the World Bank. Is it possible to identify, based on this distinction, whether one kind of donor is more harmful than the other, and whether one is more liable than the other to manipulate LDC bureaucracies?
USAID actually has a brochure, tailored for domestic consumption, which states, “The principal beneficiary of American foreign assistance programs has always been the United States. Close to 80 percent of USAID’s contracts and grants flow back to American firms” (as quoted by Ruben Berrios, Contracting for Development: The Role for For-Profit Contractors in US Foreign Development Assistance, Praeger). This serving of foreign policy by ostensibly benign means is part of the avowed aim of the agency and is open to inspection. Indeed, of all major donor agencies, USAID is said to have procedures that render the greatest transparency.
One can usually apply the example of the USAID to most aid agencies that report to governments, as this means that the agencies are eventually answerable to the citizenry of their individual countries. The most likely violators of trust, therefore, tend to be those who have no direct constituency to which they must answer: the IMF, the World Bank and the UNDP. These are the three most powerful voices in the donor cartel, and their dealings are the least open to scrutiny. There is no parliament back in the donor capital to scrutinise activities (reports from which then would also be available to recipient countries should they choose to inquire), and the watchdogs in the recipient country either do not exist or are compromised from the start. Additionally, the multilateral donors come to the LDCs with agreements whereby potential misdeeds are exempted from national laws, secrecy agreements are secured, and often, as added insurance, funds are routed into the press and the audit offices so that the usual channels of discovery become redundant.
Blow the whistle
In so involving themselves with national political economies, international donors effectively have the power to direct (or misdirect) the economic and social development of LDCs. Whether this is good or bad is partly a question of ideology – should a people have the power to settle matters of economics and politics for themselves? – and partly of fact – what are the visible effects of such foreign direction? These questions sound familiar because the issue has been addressed in an enormous amount of literature on colonialism and imperialism. Evidently, donors really are ‘dictating’ the nature of development in the LDCs, and since this is not what their avowed purpose is, it is not surprising that convincing documentation of donor misbehaviour is hard to come by.
In order to prove any malfeasance, documents must first be found to show how donors manipulate LDC functioning. Such evidence is usually classified, and a state that does buckle under such pressure would only be undermining its position further if information of the same were to be made public. So states cannot be expected, at the official level, to provide the evidence. What about the top bureaucrats who are involved in the ‘negotiations’? If the thesis of donor manipulation is correct, only those who have already been seriously and effectively compromised are allowed to stay on in positions of power where access to such evidence is available. If the donors have done their background work right, and they cannot afford not to, they will have recruited sections of civil society, such as the media and political forums, to their ’cause’.
Any person who slips through this screening system and manages to reveal condemning evidence had better be in a position of economic independence, since the avenues of research and consultancies will effectively be closed once s/he blows the whistle. In summation, it follows that an attempt to document donor culpability requires finding individuals who are in a position to know, are not economically or politically dependent on the aid system, and are willing to face up to the powers-that-be in one’s own society, including political bosses and power brokers, compromised bureaucrats, and misguided civil societywallas. All international organisations have internal auditors but their unreliability is proven, if proof was needed, in the case of the UNDP and the World Bank in Bangladesh; indeed, this was why the cases had to enter the public domain via the national courts.
For all that is wrong with them, forgiveness could perhaps still have been found for the international agencies had it not been for their hypocritical habit of preaching syrupy sermons on “good government”, “governance and accountability” and “transparency” to the nonplussed “recipient community”. Those who preach morality so insistently also have the responsibility of setting an example, a responsibility they have not been fulfilling.
Fortunately, the practices of donors are quietly, though incompletely, coming under review from multiple angles. Court cases expose specific improprieties committed in the course of an agency’s work, and theoretical models and empirical studies of donor influence on LDCs heighten awareness of the often-duplicitous role played by the aid agencies. In time, one hopes that whistle-blowers in positions of access to vital information will step forward to provide the critical link between systemic critiques and individual empirical episodes.
The three Bangladeshi court cases, and the deliberations and examinations they have prompted, are hopefully the beginning of what will develop into a healthy public discussion of donor practices and foreign aid. However, this is contingent on there being a sustained and sincere willingness on the part of those with access to high-level decision-making to honestly enter such a debate.