Transparent donors and development dogma

In recent years, the donor-led chorus on good governance (i.e. reduced corruption) has been gathering unprecedented momentum. "Transparency" and "accountability", the twin mantras of this new orthodoxy, are being relentlessly pushed in developing countries as the ultimate remedies for all their socio-economic ills. Adhering to the "good governance" gospel, developing countries are repeatedly told, could get them a place in the hallowed halls of the "civilised, democratic" Western world. Not unexpectedly, this new gospel has come with fantastic paraphernalia: global anti-corruption fora, good governance conferences, special governance policy units and fancy measurement indexes. On the surface, all the major interpretations of "governance" reflected in the ideologies and mandates of international aid agencies appear to critique mainstream international development policy. For neo-liberal and other proponents, the new emphasis on "good government" marks a decisive shift in development policy from unfettered market competition, on the one hand, and complete command and control, on the other, to "facilitative, enabling, participatory, incentive-based" policies. But all that glitters is not gold. Deeper insights and country experience with "governance reform packages" point to a thin disguising of the old wine of neo-liberal development prescriptions in the new bottle of governance. To decipher the real meaning, scope and impact of this new dogma on the course of political and socio-economic development in developing countries, however, one must delve into its intellectual origins.

From adjustment to governance By the late 1970s, the apparent failure of the statist models of industrial development in the Third World and the concomitant success of the "export oriented" Asian economies had bolstered a dominant neo-liberal consensus which squarely apportioned the responsibility for Third World underdevelopment on misguided and excessive government intervention in the economy. Hence the state had to be rolled back as it promoted rent-seeking opportunities by creating distortions in the market. The blanket solution: Structural Adjustment Loans (SALs) for "getting the prices right" through wholesale privatisation, trade liberalisation and deregulation. A decade of stabilisation and structural adjustment programmes under the auspices of the IMF and the World Bank, however, turned out to be an unmitigated disaster. Far from removing the so-called "market distortions", these policies worsened poverty and income distribution in many developing countries.

Fortuitously for donors, this widespread disappointment with policy lending coincided with the end of the Cold War. With the rigid East-West ideological divide dissolved and strategic considerations ostensibly put on the back burner, it became possible for international aid agencies to pry into hitherto sensitive policy issues, besides laying the blame once again at the door of the aid receiving countries. Weak institutional capacity, corruption, lack of regulatory frameworks and the rule of law in these countries, it was forcefully argued, were primarily responsible for the failure of donor interventions. In other words, weak "governance" was the prime suspect preventing sustainable growth in the developing world.

The term "Good Governance" (later "Democratic Governance" and a legion of other variations) was coined to emphasise the normative aspects of donor interventions and to provide the unmistakable prerequisite, based on political and economic conditionalities, for aid allocation to developing countries. In other words, foreign aid was to be directed to countries that were willing to reform the state, that is, reduce corruption, democratise politics and liberalise the economy. Strong empirical evidence (pointing to the harmful effects of corruption and institutional ineffectiveness on investment and growth) was thrown in for good measure.

To say the least, this new 'universal' development consensus on "getting good government" has fundamentally altered the rules of engagement between donors and recipients. With their repackaged prescriptions ranging from wholesale public sector reforms to fiscal decentralisation, financially hardpressed developing countries have had to swallow one bitter pill after another in the name of governance reforms. But country evidence suggests that this new form of governance aid has further weakened governmental accountability, as governments are increasingly answerable for critical policy decisions to foreign donors rather than to the – public. In aid dependent countries like Nepal, Bangladesh and Pakistan, this could undermine the development of a locally-rooted civil society as it short-circuits the evolution of democratic institutions by reducing the government's dependence on the public. Policy lending frequently aids political instability as it puts an extra premium on the control of the government, on the one hand, and forces governments to take politically volatile decisions under donor pressure, on the other.

The good governance agenda pushed vociferously by international aid agencies has placed heavily indebted developing countries at a severe disadvantage as most of these governments find their resources and energies devoted to fulfilling harsh policy conditionalities with little else to spare for allocation to social and human concerns. As these powerful donor agencies become the sole authority on financing development in developing countries, the excuse that issues like corruption are politically sensitive does not hold. Hence, the onus of bridging the glaring gap between the "one size fits all" good governance (i.e. less corrupt governments) discourse and its practice is on donors. But before any new policy prescriptions are churned out by yet another "expert review committee on reassessment of aid priorities", a good starting point will be to cut the self-important "good governance" rhetoric. It is one thing to pursue vested organisational interests, and quite shamefully another to be self-righteous about it.

And while they are at it, donors might want to consider cleaning their own Augean stables first. At the height of the worst droughts in the history of Pakistan and Afghanistan, the head of a United Nations agency responsible for aid coordination and relief bought a brand new luxury Mercedes to celebrate his agency's spectacular failure in coordinating the relief operation.

Do more corrupt governments receive less aid? Critical academic interpretations of aid notwithstanding, have donors even put their money where their mouths are? In other words, how much aid has gone to countries based on efficient governance, policy performance and the level of democratisation? Hardly any, if we are to believe empirical evidence. Two studies by the American National Bureau of Economic Research [Alesina and Dollar 1998; Alesina and Weder 19991 show clearly that despite the end of the Cold War, the direction of foreign aid is still largely dictated by political and strategic considerations, much more than by the economic needs, political dispensation and policy performance of recipient governments. There is also no evidence that less corrupt governments receive more bilateral or foreign aid. On the , (t) contrary, more corrupt governments, Oos according to some measures of corruption and aid, receive more aid. 4/ \ This empirical indictment of donor policies is clearly borne out by the appalling gap in the rhetoric and practice of international donor agencies. It is (g well known in political and 1 a cademic circles that donor agencies fulfil their primary operational motive of timely budget disbursements through pre-packaged interventions regardless of the corcq ruption or political repression of the government in power. Sensitive to the mood of the governments, donors typically avoid the need to seriously address issues like corruption or wasteful military spending by shrouding their programmes in confusing buzzwords. While the role of donors in reducing corruption or rewarding good performance leaves a lot to be desired, many observer are voicing an equally valid concern: who guards these guardians of reform? Are aid agencies accountable and transparent in their own operations? In most cases, the answer is in the negative. The way in which donor agencies recycle aid by buying imported equipment and hiring expensive foreign consultants when local consultants can do the job equally well at half the price is just one example of the rot within. The rampant nepotism in recruitment policies, operational ineffectiveness, red tape, overlapping operations, centralised administrations and misplaced priorities are all damning indictments of those living in glass-houses, but ever-ready to throw stones. Almost every development report (including the two annual bibles from the World Bank and United Nations Development Programme) and governance conference on the donor circuit holds Third World governments responsible for corruption and inefficiency. From the much trumpeted World Development Report 1994 (euphemistically titled: Bringing the State Back In) of the World Bank to the most recent International Anti-Corruption Experts Conference held in Prague, conspicuous by its absence is mention of corruption, sloth and malfeasance in donor agencies. But evidence from South Asia suggests that all is not well on the home front.

Serious financial irregularities and management lapses are regularly reported in donor-funded programmes, even in situations where no one is really targeting them. A recent internal UNDP audit report leaked to the Pakistani press found financial misappropriation of USD 2.4 million in the accounts of UNDP Pakistan for the year 2000. In another UNDP project on solid waste management worth more than USD 10 million, widespread irregularities were detected by the auditors, who also alleged that they were pressurised to 'fix' books by UNDP staff in Islamabad. In early 2001, the Auditor General of Pakistan reported the embezzlement of USD240 million in the World Bank-led multi-donor Social Action Programme in Pakistan. Ironically, the day the misappropriation was reported in the press, another headline reported Bank approval of a USD 700 million credit line to Pakistan. Across the expanse of the Subcontinent, in Bangladesh, a recent public audit of the UNDP Sustainable Environment Management programme (SEMP) pointed to serious misuse of project money besides "inadequate management policies leading to non-fulfilment of project objectives, particularly the main target groups (i.e. poor men and women) did not receive the benefits as the project authority could not show any record of the number of poor men and women so far selected, grouped and funded". Insiders say the corruption and mismanagement reported in the press is just the tip of the iceberg.

There are more twists to this sordid tale. Authorities in Pakistan have discovered how aid can be used as an arm-twister to dissuade them from pursuing corruption charges against foreign firms. In 1998, the Nawaz Sharif government initiated investigations into allegations of kickbacks and overpricing in power purchase agreements signed by the previous Bhutto government with mostly western independent power producers (IPPs). The allegations were so serious that the World Bank had to dispatch an investigation team to Pakistan. The political motives of the government's investigations notwithstanding, several IPPs later confessed to paying off senior officials and politicians to win these contracts.

But instead of supporting the government's anticorruption efforts, the IMF and several donor countries including the United States, Canada and Japan withheld aid and investment on the grounds that the IPP issue be resolved first.

The donor and the dictator

The backing of corrupt western firms by donor agencies pales in comparison to their unflinching support for a military dictatorship in Pakistan, one which has ironically violated all the core norms of "good democratic governance". When the army took over in 1999, international donors were caught in an existential dilemma. On the one hand, field officers in Pakistan were desperately looking for new "strategic governance interventions" to hold onto their earmarked funds and programmes. On the other, their governments had frozen aid programmes for obvious political reasons. In this delicate political situation, the military under Pervez Musharraf and its hired civilian guns used a cleverly crafted "devolution plan" to secure external acceptance for the regime's reform process. Devolution was music to the ears of field officers who convinced their bosses in Western capitals of the importance of donor money to finance the "bottomup reconstruction" of Pakistan. Ironically, decentralisation of power became a donor obsession in a country where one General held in his grasp the offices of the President, the Chief Executive, the Chief of Army Staff, the Defence Minister and until recently that of the Joint Chiefs of Staff. As donors were enthusiastically engaged in building grassroots democracy from below, the military regime was destroying it from the top. Political rallies were banned, Parliament stood dissolved, the Constitution was put in abeyance and military officers were appointed to head almost every civilian institution. This was not all. The National Accountability Bureau (NAB), the army's draconian anti-corruption agency, was employed in a brazen witch-hunt targeting "corrupt" politicians opposed to the regime's illegitimate control of civilian affairs in the country. (And now, any thought of good governance is obviously thrown out the window in propping up Mursharraf on the Western home against Islamic fundamentalism.)

None of this "coercive, authoritarian, undemocratic" governance raised an eyebrow in the United Nations, World Bank, Asian Development Bank, CIDA, NORAD, DFID, the Asia Foundation and a host of other donors, who shamelessly continued to chant the virtues of good governance, electoral democracy and empowerment, as the General President made himself comfortable. To a question I asked the head of a donor agency in Islamabad, on whether donors realised that the Musharraf regime was using them to gain international legitimacy, the blunt retort was: "It is not that donors do not know what the motives of the government in power are, it is just not our business. We do what our bosses and TORs (terms of reference) tell us." There could not have been a flimsier excuse for shirking responsibility from the very individual who would be the first to give lectures on accountability and transparency. Amidst the donor euphoria over Pakistan's "last chance for reform", top aid agency officials and equally excited western diplomats were publicly heard making statements bordering on unabashed hypocrisy and blind naivete. "Pakistan needs a benevolent dictator", "Only the army can reform Pakistan", "Civilians are corrupt", "Devolution is the revolution Pakistan needed". Democracy and rule of law, they seemed to believe, was a luxury only the civilised West could afford. We were just not fit for it. This enthusiasm was short-lived though. All the grand illusions of "grassroots empowerment" held by aid agencies were laid to rest in the graveyard of district elections held in July-August 2001. The army high command handed the franchise for district mayorships to the pro-army faction of the Pakistan Muslim League.

Army officers were dispatched to each district with the mission to use the threat of corruption charges to coerce the union councillors, who formed the electoral college for the district mayor, into supporting the regime's favoured political groups. For a while, donors were ashen faced, embarrassed to even admit publicly they were supporting the military's devolution programme. But then 11 September happened. The Musharraf regime got a new lease of life from Washington and its 'democratic' allies. Aid agencies in Pakistan could not have asked for a better situation. Once the dust of the war in Afghanistan settles, and donors can resume business as usual, there will be more "children to save", more "poverty to alleviate", and more "power to devolve". In reality, this means new projects, bigger spending targets, more hardship allowances and numerous cushy jobs for kith and kin.