Foreign Aids Impact on Governance - PowerPoint PPT Presentation

1 / 13
About This Presentation
Title:

Foreign Aids Impact on Governance

Description:

'Foreign Aid has long been justified as essential for development under ... Governance is the Traditions and Institutions by which Authority in a Country is ... – PowerPoint PPT presentation

Number of Views:67
Avg rating:3.0/5.0
Slides: 14
Provided by: rcray
Category:

less

Transcript and Presenter's Notes

Title: Foreign Aids Impact on Governance


1
Foreign AidsImpact on Governance
  • Maj Justin LeMire

2
Sources
  • Stephen Knack Aid Dependence and the Quality
    of Governance Cross-Country Empirical Tests
  • Sophal Ear Does Aid Dependence Worsen
    Governance?

3
Introduction
  • Foreign Aid/Aid Dependence - Definition
  • International Country Risk Guide (IRCG)
  • Positive Influences of Aid
  • Negative Influences of Aid
  • Policy Implications
  • Conclusion

4
Definitions
  • Foreign Aid has long been justified as essential
    for development under incomplete market
    conditions in which investment is missing (hence
    the need for aid). Boone (1996)
  • Aid Dependence - a specific condition that
    results from a pathology in the aid giving
    process
  • Quality of governance is measured by subjective
    indices from the ICRG

5
ICRG
  • International Country Risk Guide (ICRG)
  • Analyzes the financial, economic and political
    environments in over 130 developed and emerging
    countries
  • Provides insight into investment risks and
    business opportunities
  • Gages the impact of current and future worldwide
    events
  • Incorporates several economic risk factors to
    determine a countrys investment potential
  • including loan default, delayed payment of
    suppliers credits, political leadership,
    inflation and international liquidity ratios

6
Six Dimensions of Governance
Control of Corruption (CC) Perceptions of
corruption, conventionally defined as the
exercise of public power for private gain.
Despite this straightforward focus, the
particular aspect of corruption measured by the
various sources differs somewhat, ranging from
the frequency of additional payments to get
things done,to the effects of corruption on the
business environment, to measuring grand
corruption in the political arena or in the
tendency of elite forms to engage in state
capture
Voice and Accountability (VA) Measures various
aspects of the Process, civil liberties and
political Rights, and independence of the media
Political Stability(PS) Measures the perceptions
of the likelihood that the government in power
will be destabilized or overthrown by possibly
unconstitutional and/or violent means, including
terrorism
Governance is the Traditions and Institutions by
which Authority in a Country is Exercised
Rule of Law (RL) Perceptions of the incidence of
both violent and non-violent crime, the
effectiveness and predictability of the
judiciary, and the enforceability of contracts
Government Effectiveness (GE) Perceptions of the
quality of public service provision, the quality
of the bureaucracy, the competence of civil
servants, the independence of the civil service
from political pressures and the credibility of
the governments commitment to policies
Regulatory Quality (RQ) Measures the incidence
of market-unfriendly policies such as price
controls or inadequate bank supervision, as well
as perceptions of the burdens imposed by
excessive regulation in areas such as foreign
trade and business development
Source Adapted from Kaufmann, Kraay, and
Zoido-Lobaton (1999b).
7
Positive Influence of Aid
  • Aid is used for improving training and increased
    salaries for public employees Including police,
    judges, and tax collectors
  • As salaries increase, more competent bureaucrats
    can be recruited and bribe solicitation reduced
  • Improvements in the investment climate and higher
    tax collections in turn produce additional
    revenuesimproving the governments credit
    worthiness

8
Positive Influence of Aid
  • Programs to strengthen the legal system, public
    financial management, and other responsibilities
    of the public sector
  • Could also improve the quality of governance
    through conditionality effects
  • The World Bank lends about 6 billion/year to its
    poorest members on highly concessionary terms,
    with allocations based in large part on the
    assessments of the quality of policies and public
    sector institutions
  • These conditions can increase the incentives of
    aid-recipient governments to implement pubic
    sector reforms
  • Aid can relieve pressure on recipient governments
    to establish the efficient policies and
    institutions necessary for attracting private
    capital

9
Negative Influence of Aid
  • Aid can increase political instability
  • Making control of the government a more valuable
    prize
  • Political scientists argue that aid retards the
    development of a healthy civil society
    underpinning democracy and rule of law
  • For example Rule of law in the west was
    critically related to monarchs needs for tax
    revenues. In turn, those who provided the
    majority of taxes, demanded accountability from
    the government
  • Aid therefore reduces the governments dependence
    on its citizenry for tax revenues
  • Can weaken the state bureaucracies of recipient
    governments
  • Siphoning away scarce talent from civil service
    to be hired by the donor organizations

10
Negative Influence of Aid
  • Aid represents a potential source of rents
  • Creates adverse effects on the quality of the
    public sector and on the incidence of corruptions
  • Rent-seeking - Takes the form of increased
    public-sector employment. Aid is then used for
    patronage purposes.
  • Aid often times enables governments to undertake
    investments that would otherwise be made by
    private investors
  • As rents available to those controlling the
    government increase, resources devote to
    obtaining political influence increase
  • As aid expands, workers face incentive to
    reallocate time from acquiring knowledge and
    skills specific to manufacturing, toward skills
    useful for obtaining a share of aid revenues

11
Policy Implications
  • The conclusions of Stephen Knack Aid Dependence
    and Governance
  • Aid Variability If aid is highly variable over
    time within a country, dependence might be
    lessened in the sense that aid cannot be relied
    on as a stable source of funds
  • Aid should be directed at quality of governance
    Establishing more meritocratic bureaucracies and
    strong, independent court systems
  • Greater selectivity by donors Targeting aid to
    countries that take specific steps to reduce
    corruption, improve fiscal accountability, and
    implement merit based recruitment and promotion
    in civil service
  • Depoliticizing the distribution of rents from aid
    funds Selective allocation of aid would reduce
    its propensity to politicize life, and thereby
    reduce the extent and intensity of political
    conflict

12
Policy Implications
  • Emphasis on social capital Aid in the form of
    micro enterprise loans may improve government
    accountability in the long term by building up
    the private sector, thereby increasing the demand
    locally of r good governance
  • Aid directly targeted to the start-up of small
    businesses is less fungible and more difficult
    for governments to expropriate
  • Technological Advance The internet may mitigate
    the negative consequences of expensive technical
    assistance
  • Ex The World Bank is developing a
    Knowledge-Sharing Program
  • Interactive toolkits for governance assistance
  • The intent is to improve the capacity of client
    governments, through better knowledge, to use
    donor technical assistance effectively, and where
    necessary to challenge donor-proposed solutions

13
Conclusion
  • Foreign aid can help when used appropriately
  • As donors our responsibility is to ensure that
    funds are used, not for corruption, but
    stabilization of a recipients economy
  • Using the conditionality principle of aid does
    not seem to work because the lack of credibility
    of the punishment
  • Therefore, using loans instead of grants may help
    induce some discipline and effective use of the
    funds, since they have to be returned
Write a Comment
User Comments (0)
About PowerShow.com