What to do with foreign aid, and what to do without it? I have wrestled with this question in the Nepali context for a major part of my working life, both as a public practitioner of the art and science of foreign aid, and as an independent analyst of Nepal´s political economy. I am nowhere nearer to a practical answer now than when I was Nepal´s Head of the Foreign Aid Division or, later, Finance Secretary in the 1970s. Nor did the answer become clearer in 1983, when I helped organise the first-ever seminar on “Foreign Aid and Development in Nepal” on behalf of the Integrated Development Systems (IDS). When democracy finally dawned two years ago, I got an opportunity to serve briefly as the Finance Minister, This role, too, passed without any success in aligning the course of foreign akt with that of the expectations of the long-suffering people of Nepal and the needs of sustainable development. Aid is not simply a resource that which bridges the investment-savings gap, as economists understand it. Nor is it simply a resource that policy-makers of recipient countries would channel into investment as they see fit. It is more than mere capital inflow, even if we were to concede that, broadly understood, such capital includes technology and transfer of skills. Aid derives its complexity from its symbiotic, if paradoxical, relationship with the totality of societal forces, where the influence of these forces on the process of development can be positive as well as negative. Foreign aid is thus something that is critically needed in a poor country like Nepal, and yet it is something that is better avoided, at least in part, if its counter¬productive influences outweigh the productive ones.
OF BUMS AND BEGGARS
What is amazing is not that critical analyses of the motive and mechanisms of aid have not made a visible impact on the utilisation of foreign aid for its stated purpose, but that the major issues regarding aid management remain almost the same now as they were in the 1960s, though they might now be presented in different forms to suit current priorities.
All this as if to show that an obnoxious remark in 1962 by Hans Morgenthau, a respectable political scientist at the University of Chicago, on the poverty of nations, could be correct: “As there are individuals whose qualities of character and level of intelligence make it impossible for them to take advantage of economic opportunities, so are there nations similarly handicapped.” He went on to put it bluntly that, “as there are bums and beggars so are there bum and beggar nations.”
Is Nepal, together with many other nations of South Asia and Sub-Saharan Africa, really like what Morgenthau believed it to be? And when does a nation become a “bum” or a “beggar”? Certainly, not when the poor and the handicapped are also hungry and deprived. In such a context, a nation means no more than the social, political and commercial elite of a country. Can it be possible, then, that the elite in Nepal have developed “qualities of character and level of intelligence” more suitable for bum or a beggar? I do not know if Morgenthau ever regretted his remarks. But he was wrong then and is wrong now. Yet, how do we explain the persistent and growing poverty in Nepal and in most of the “recipient world”? What is the difference between a beggar and a country that continually receives aid to finance current consumption or to fuel the greed of a few? This is where we have to emphasise the issues that are fundamental, albeit controversial, and stubbornly relevant.
The first point to note is that aid is not, and has never been, a one-way affair. In a real sense, there are no givers and takers of aid at the level of the State, where admittedly debts accumulate unmatched often by the creation of new productive assets. Aid transactions take place among professional and occupational cohorts of individuals. Though they might reside in different countries, their understanding of State boundaries is conditioned only by the constraint of national interest articulated by the ruling elite.
In recipient countries where the representative character of the Government is doubtful, or where the political power is arrogated by a governing elite whose priorities are different from those of the public, the State only becomes a conduit for activities whose output is a foregone conclusion. In this sense, official aid is little different in character from the currently eulogised and expanding role of transnational capital.
• This is all the more true when the donor´s national interests do not depend on the approval of the majority in the recipient constituencies. In contrast, aid has worked well in societies where the consensus at the elite level is generally representative of the national interest. Some of the South-East Asian countries, now basking in i well-deserved reputations of success, pointedly ™ declined certain categories of official aid long g before they could apparently afford to take such 5 a stand. Because they knew what they were doing, these countries had realised that acquiring more expensive resources from the world capital markets was more productive from their standpoint.
Meanwhile, the other recipient developing countries of Asia have shown little improvement in the areas that matter most, namely, the building up of institutional capacity for policy formulation and administration of development programmes that respond directly to the need to alleviate poverty and sustain long-term growth. Because of this failure, these developing countries are regularly driven by their appetite far aid to formulate aid requests. Of course, these accompanied by frequent shifts in development strategies that are more apparent than real. The donors contribute to this process directly because they themselves have to justify their involvement in a non-performing country.
When a degree of rigour is required in the aid exercise, as when preparing a policy framework paper or some document needed for stabilisation or adjustment programmes, the concerned donor is happy to provide patronising tutelage. Even a Finance Minister of Manmohan Singh´s mettle in India suffered some embarrassment recently when his letter and memorandum to the International Monetary Fund appeared to have been drafted by Washington D.C. hands, with extensive use of American English in the construction, style and spelling, as against the British English normally used by the Indian bureaucracy.
APPETITE FOR AID
On the donor´s side, two considerations are always present: one at the level of the State, and another at the level of bureaucracy. At the State level, the donors might swear by Adam Smith, but most of them do not appear ready to sacrifice their national, or more specifically, commercial interests at the altar of classical or neo-classical economics any more now than they were earlier when a divine role was not conceded to the market forces in international aid dialogues.
The so-called international bidding for procurement that is not really competitive, the direct tying of aid to conditionalities, the creative packaging of mixed credits, and convenient parallel or co-financing arrangements — all point to the direction in which economic rationality might have minimum influence on decisions even without uninformed interference from the recipient government. Even technical assistance, which in the past has played a positive role in building whatever institutional capacity that exists in Nepal today, is sometimes directed at influencing the choice and the design of projects to suit the interests of the interests concerned.
At the bureaucratic level, the obsession continues to focus on the disbursement of aid regardless of its objectives. There may be no one to take the blame as to why an irrigation project, for example, is helping to collect sand instead of water at the mouth of the main canal under construction, but the disbursement has to go on: If not, watch out, the current and future allocations might be diverted to the resource-hungry States of eastern and central Europe! But such a threat is rarely carried out even in the case of non-performance of the dreaded structural adjustment programmes. As a study on the World Bank´s structural adjustment lending points out, “Cessation of disbursements is too strong a response by the Bank to banal acts of non-performance.”
In such a situation, neither the Government planners nor the market can play the role of an efficient resource allocator. The donor-recipient symbiosis works so well that those very elements in the aid system that need to be discarded for better efficiency and effectiveness of the total package in fact get preserved and nurtured. Voices of reason are drowned in the cacophony of profits and power, perks, and privileges, and joys and jealousies accompanying foreign aid.
The suppliers of goods and services procured under aid financing frequently influence decisions, as well as prices and quality of the supplies. The effective autonomy of these powerful individuals is in sharp contrast to the sorry state of the recipient Government, which has to face charges from political opponents and other critics that it is mortgaging the national sovereignty to the IMF-World Bank combine. To make good for lost opportunities and wasted resources, the swings in policy advice from the donors continue. This changing advice, as pointed out by the World Bank´s own World Development Report J991, “can add to the cost of aid for developing countries.”
So, in which aspect of foreign aid lies the enigma? Aid management as a problem is not an enigma. But, for a country like Nepal, the solution is; if only because almost all the players seem to be powerless by virtue of the role each plays in the game. Interests have to be protected and the game kept going.
I should try to end on a positive note. International assistance is finally related to the human rights records of recipient Governments. Despite criticism from many quarters, this must be considered a long overdue proposition as long as standards of verification and judge ment are not discriminatory to a country or a group of countries. It is also necessary that “good governance” is not understood simply as the capacity of a government to implement market-oriented policies. After all, Lewis T. Preston, the newly-appointed President of the World Bank, addressing the Annual Meeting in Bangkok last October, felt constrained to repeatedly mention that the Bank´s fundamental objective was to reduce poverty. If democracy and reduction of poverty are treated as two principle “conditionalities” of foreign aid,, there may still be something to be hopeful about in Nepal and other similarly-placed countries of the developing world.