FUNGIBILITY OF AID
Addressing a public ceremony in early December, Nepali Prime Minister Girija Prasad Koirala complained about the severe conditions imposed by donor agencies that often had debilitating effects on project implementation. Within a week, the World Bank announced its intention to pull out of the much-awaited and much-talked-about Melamchi water supply project which had been promoted for nearly a decade as the only solution to Kathmandu Valleys acute water scarcity. When soon after, a break-away faction of communists withdrew from the government necessitating a political realignment, the significance of the consecutive events wasn't lost to the cynics.
Donors continue to finance a substantial share of government expenditure. In fiscal year 1986/87, donors contributed about 54 percent of the development expenditure, a proportion which had gone up to 61 percent in 1995/96. Consequently, aid agencies have always had a definitive say in the development planning of the country. (Of late, they have even started intervening in the day-to-day management of projects by stalling transfers, approving pre-qualification of contractors and bypassing government channels by making direct payments.) Yet, they never want to share the blame for the failure of development aid to bring about the intended changes.
It is a sad reality that foreign aid has had marginal impact on the economic growth of recipient nations—a fact seen in the often-stagnant per capita incomes in poor countries. The impact of aid on other indicators of poverty alleviation is no less disappointing. In The World Bank Economic Review (Volume 12, Number 1), Farhan Feyzioglu, Vinaya Swaroop and Min Zhu argue that "There is no significant impact of aid on infant mortality", and that"… data do not support any significant links between aid to the education sector and primary school enrollment". However, in an attempt at rationalisation, the study puts all the blame on the "fungibility of aid", which is the impact aid has in driving away the indigenous investment in the sector where aid-money is infused. The study then calls for a more direct and assertive role for the donors—after having analysed the failure of their investment policy, more of the same medicine is prescribed. Which is not surprising since two of the three researchers work for the Brettenwoods institutions—the International Monetary Fund and the World Bank.
The effect of this study, at least in Nepal, has been all too visible. Kathmandu-based representatives of donor agencies have twice drawn the attention of government to what they have called the anomalies in aid utilisation and implementation. There is little to quarrel with the issues raised. Accountability, transparency and continuity in the management of donor-funded projects are indeed necessary. But the blame for the absence of all these has to be shared equally by the donor agencies and the government since donor-assisted projects are so designed that the government can do little to expedite their implementation.
Ultimately, there is only one option left. If the impact of foreign assistance on growth as well equity is so negligible, perhaps it would make better sense to scale them down to a more manageable level. To keep the meddlers away, the government has to be selective in accepting aid and develop the confidence to say "no" more often than it does now. For as long as the door is wide open for all kinds of 'assistance', there will be no respite from belligerent benefactors brandishing weapons like the "fungibility factor" to have their way.
Prime Minister Koirala says that he is tired of going around with a begging bowl. His finance minister observes that donors take away most of their aid in the form of grossly inflated consultancy fees. If such a rethinking starts, perhaps a donor cut-back threat is exactly what the country needs.