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by
Hilde F. Johnson
Minister of International Development and Human Rights, Norway
Washington, D.C., September 25, 1999

Imagine yourself behind the desk of – say – an African minister of finance. I guess most of us have some idea of what his or her day is like – especially those of you who, in fact, are African finance ministers. You want to do good for your people and country. Your primary tool is your budget. And you need foreign aid to fill a substantial financing gap. In order to do so, you will probably have to negotiate frequently with official donors, NGOs and others. Perhaps dozens of them. Perhaps as many as two hundred. They will all be eager to help you with loans and grants. But there are strings attached. Many donors tie the money they give you to build the hospitals, roads and other facilities that your country needs. They bring in entrepreneurs, technology and equipment from their own countries. To keep track of "their" money, they insist that aid funds be placed in separate accounts, beyond your control.

You know that tied aid increases the cost of your projects and activities by perhaps as much as 25 per cent. You know that the money you get in this way will put extra pressure on local wages. You know full well that this might spur inflation and drain skilled people from other priority tasks. But you need the grants and loans badly, and you are tempted to let the donors have their way.

You also realize that by agreeing to the donors’ conditions, you will have to devote a large part of your own administration’s sparse resources to donor-related, or donor driven, activities. You will have to produce quarterly reports to every single donor. They will insist on accounting that complies with the standards set by their headquarters, irrespective of yours. All of them will want to have annual and semi-annual meetings - with you personally and four or five of your closest associates. Your availability will be taken for granted. At any given moment in time, they will expect you to be well briefed and have a clear opinion on the past and future development of their projects. They will ask you about which way your defense budget is heading, your performance on human rights and how you prioritize social sector investments. They will expect qualified experts from your ministries to come to all their project and program assessments and evaluations, and to be closely involved in their country assistance and sector strategy work. The World Bank and the IMF will constantly send delegations to your country, with a voracious appetite for meetings. Donor representatives who want information or favors from you - or who want to tell you how to manage your country's economy - will often come to visit. Perhaps several times a day. And so on.

This, Mrs. Minister, is the price you might have to pay to get enough development assistance, or perhaps not even nearly enough. At the same time you are fully aware that, at the end of the day, up to 30 per cent of the money pledged will not arrive on time – if at all. Still, you let the donors have their way. Who would not?

Obviously, this (imaginary, or not so imaginary) minister and her staff is so tied up with donor-related activities that very little time is left to manage the economy of her own country. Too bad, since sound macroeconomic management is a precondition for sustainable growth and poverty reduction. And, too bad, because these are the very results the donors want to see, in order to defend their aid budgets to their constituencies.

What the picture of this finance minister’s overwhelming "donor burden" tells me – and I hope, you - is that we, the donors, need to change the way we work. Instead of keeping our developing partners tied up dealing with us, we should concentrate much more on giving them enough elbowroom to work on their own tasks. "Do their own thing". What they regard is important to create social and economic development.

In my view, governments’ narrow scope for action is one of the most important impediments to development today. Of course, the will and commitment to do what is required – "do the right thing" - are also essential. But if we are to stand any chance at all of getting lasting results from development assistance, we will have to re-fashion the way donors and recipients relate to each other.

Of course, international framework conditions are also part of the problem. The recent turmoil in the financial markets is still taking its toll on some developing countries. Many countries struggle with a crushing debt burden. Commodity producers, hit by falling prices, have a hard time in international markets. Trade restrictions prevail. Developing countries are the weaker party in WTO negotiations. And international business is mainly concerned with bringing home the bacon to their headquarters - in industrialized countries.

Now, please do not get me wrong! - By saying this, I am NOT implying that the failure of many developing countries to produce increased growth and reduced poverty is entirely the fault of countries in the North. Not at all! - The ultimate responsibility for development rests with the developing countries themselves. And some governments in the South quite frankly seem to have insufficient determination to create an enabling environment for viable investments and successful development. In countries where budget balances have been allowed to increase far too much, where investment in education is neglected, where democratic institutions and the rule of law are largely absent, where ethnic strife is frequent and human rights are grossly violated, the chances of attracting foreign and fostering private investment on a scale that matters are small. And the outside world is hardly to blame. This being said, some of the practices pursued by donors probably do more to sustain these national and international vices than to cure them. That is the point I want to make.

New knowledge should lead us toward more rational ways of organizing the cooperation between industrialized and developing countries, better ways of allocating aid, smarter ways of achieving economic growth and poverty alleviation. Allow me to make five observations or so, along these lines.

First: There is ample evidence that coordination breeds better resource management and ownership. Development resources are also far too scarce to be wasted. In our struggle to achieve poverty alleviation, we cannot afford to waste one single dollar. In no uncertain terms experience shows that better coordination and more selective aid can reduce wasteful spending and bring about more viable results. This demonstrates the fungible nature of aid money. If resource inputs are coordinated to solve a set of related problems, it does not really matter who pays for what. If the problems are successfully solved, everyone can take credit for the totality of results. We have to substitute parallel programs and wasteful rivalry with a division of labor based on competence and comparative advantage. This is putting results first, results in the country concerned, and not at home.

There is every reason to believe that well coordinated and government-led public finance reviews and sector programs will yield more lasting effects on growth and poverty reduction than the formerly donor-driven reviews and disorganized project funding. This may prove to be even truer for the Comprehensive Development Framework (CDF) initiative, which seems to have had a good start in Bolivia and in a number of other developing countries. We should support governments who want to work in line with the CDF principles and continue to test this framework as an analytical tool, as well as an instrument for setting priorities, improving coordination and using resources in a more results-oriented way. CDF implies creating "the big table", with all stakeholders involved, and the country concerned at the upper end of the table.

To underpin government ownership in development programs, I believe that coordination meetings, Consultative Groups (CGs) and Round Tables, should invariably be held in developing countries, and be led by the government in the country concerned. The same government should also be the main author of the background documents. To better mobilize stakeholders, some sessions of these meetings should include NGOs, the private sector and other parts of civil society. They, too, must be given an opportunity to take part in discussions, present their ideas and voice their concerns.

I have often heard the argument that it is too costly for donors to move busy and well-paid bureaucrats from industrialized countries to capitals in developing countries for the better part of a week. My question goes as follows: what is the alternative cost of moving half a government out of their capital for one week? What is the alternative cost of all the information that these delegates, however skilled, will never be able to bring back from Washington or Paris, and therefore will never reach the public back home. I think it is safe to say that the benefits of having CG meetings in the South far outweigh the costs.

In order to get improved results, we also need to better integrate our aid coordination mechanisms. CGs and Round Tables need to be revitalized and turned into fora for real dialogue. The majority of the separate meetings that donors and recipients have over more or less the same issues should be combined under a common framework. I advocate the creation of a common local development forum, encompassing CGs and Round Table sessions. The way I see it, this is, in actual fact, one of the important implications of the CDF - this is creating "the big table". I believe that this can become a very forceful instrument of development promotion.

A word of caution, though: A convergence of the donor community’s views on the development process can be felt as strong collective pressure by the government in question. "Ganging up" may be felt where "ganging up" was not intended. In order to steer clear of this pitfall, the donors should thoroughly re-examine their role in these processes. Perhaps some kind of guidelines or inventory of best practices is called for.

Another word of caution relates to the proposed Poverty Reduction Strategy Paper. With its strong poverty focus, this strategy may be regarded as a watershed in the cooperation between the IMF and the World Bank. However, we must avoid a top-down approach and assure national ownership and participation by the developing countries themselves.

Second: The World Bank’s "Assessing Aid" report fully demonstrates that development assistance can go to waste – and almost completely so - if invested in countries that do not pursue sound economic management and good governance. The report concludes that by targeting relatively more aid money at the good policy performers - as apart from the average or poor ones - we could lift three times as many people out of permanent poverty. Three times as many! I am not saying that we should only "pick the winners". We should be equally willing to assist countries to improve policies when they show a commitment to perform better. This further testifies to the fact that getting results in development is not mainly a matter of money or about aid – or even trade, for that matter. First and foremost, this is a matter of policy choices - about whether or not countries that receive development assistance honor the ideals of good governance.

Third: Research and experience tell us that traditional benchmark conditionality is inefficient in bringing about lasting results. This was also pointed out in a recent external evaluation of the IMF Enhanced Structural Adjustment Facility (ESAF). Why does traditional conditionality fail? - Because of the obvious fact that no government can be forced to take responsibility for a country's economic situation in a certain way. Nor can it be forced to feel empathy with their poor (- although it should!). If the government does not feel responsible, it will not act responsibly. If it does feel responsible, on the other hand, it will most likely make every effort to solve the problems itself. But if donors then set even stricter targets than the government thinks it can possibly achieve, this will have a demoralizing effect and undermine any sense of responsibility and ownership. This should not really come as a big surprise, should it?

We need criteria for disbursing money, but they should be performance-related, built on a more flexible assessment of the partner’s efforts and commitment. Partners who are really making an effort to implement sound policies should get the bulk of development money. And we should keep in mind that sound policies do not only include sound macro-economic policies and good governance, it should also include policies that are pro-poor.

Some donors are starting to take practical action in line with this reasoning. I have already mentioned the World Bank, its use of Sector Programs and the launching of the Comprehensive Development Framework. What meets the eye, however, at the operational level and in the field, is how much remains to be done to inform and motivate staff, to internalize this new approach and translate what is being said into practical action.

It seems that the lessons from "Assessing Aid", our experience of conditionality and the insights we have gained as regards ownership, control and coordination need to be better integrated into the Bank’s operational guidelines. When doing so, we should be fully aware that handing over more control to governments with low overall capacity means that disbursements may be slowed down, and output delayed accordingly. This may require adjustments in the way loans are managed and in the way the staff is being credited for their work.

What is true for the Bank is equally or even more true for other donors. Much still remains to be done in giving up control, which is what this is all about. To replace control with partnership. And the donors – the real "control freaks" - should be moving much faster. Again, I am NOT advocating that we should abstain from monitoring. I am NOT saying that we should stop evaluating, or stop fight corruption. Of course not. And quite the contrary! We must monitor the situation, be in partnership with the countries, and we must react accordingly when problems arise. And the money should follow results. What I am saying, though, is that we need to give people in developing countries a chance to really handle their own affairs, demonstrate their own ability to achieve results.

Fourth: There is increasing understanding and acceptance among industrialized countries that the poorest, most seriously indebted countries need additional debt relief. Without which social sector improvements and the development of a growth-enabling economic environment will be largely unattainable. The Highly Indebted Poor Countries Initiative – or HIPC - is a reflection of this understanding. I commend the G7 governments for coming up with some very positive proposals to improve HIPC. They are very much in line with what the Nordic countries have been advocating over a number of years, and what we from the Norwegian side presented in our Debt Relief Strategy more than a year ago. There is, however, an urgent need to secure the funding of these proposals. All of us must share in the financing of this refined and broadened initiative. The Norwegian government is ready to do so. Generously so. But it is no more than fair to expect that the G7 countries will contribute a substantial proportion of the resources required.

Fifth: Let me also refer to some "old" but no less important knowledge. Investment in many developing countries is obviously at a very low level. And most of the poorest countries are being bypassed by foreign direct investment (FDI). Private investment is one of the main preconditions for growth and also for providing a viable financial basis upon which the government can rely in order to fulfill its obligations. Foreign investment therefore needs to be encouraged. For all practical purposes, this means that the host country’s own policies must be sufficiently attractive to instigate investor confidence.

Financing arrangements for microcredits, small enterprises and firms bordering on the informal sector should also be further developed. We all, donors and recipients alike, have a job to do in this field. Some of us need to work harder than others.

Donors can assist in this process by helping to build capacity and institutions. In doing so we should, however, focus more on the needs of the developing countries than on the needs of our own industries. Incentives for investments are important. In my opinion however, private companies in the industrialized world can do well without export-subsidies from the aid budgets. This principle is one of the cornerstones in our new strategy for private sector development.

The OECD Development Assistance Committee (DAC) has worked hard to establish a consensus on untying, so as to ensure that the least developed countries get value for money. Today, a majority of the DAC members are in favor of untying aid to these countries. Unfortunately, a few OECD/DAC members still prevent consensus in this field. I hope they will reconsider.

What is being financed in the developing countries is important to bring about growth and development. However, for the time being I think donors need to focus even more on the way we work together with countries in the South. Putting developing country governments in the driver’s seat is one of the keys to achieving sustainable results from development assistance.

We have been through a colonial past and a long period of development cooperation. In both - yes both! – instances, we have learnt that taking the responsibility out of the hands of those who really are faced with and understand the problems does not really work. Without the dedication and commitment of the owners of the problems, sustainable results are almost inconceivable. At the risk of overly repeating myself: We need to place the responsibility for development where it truly belongs - primarily with the developing countries themselves. Provided they accept and act upon this responsibility, the donors should also give them more control over resources.

To produce maximum results, development aid needs to be well coordinated with the recipient countries’ own resources. To me it seems obvious that the best way of doing this - at least regarding aid to the public sector - is to channel it all through the national budgets at the receiving end.

There is just one alarm clock that I would like to set in this regard, and that is related to corruption. Development resources are too scarce to be wasted. This is true for donors, but it is also very much the case for the recipients. Corruption is wasting money. It is stealing from the poor. It undermines everything we do to achieve social and economic development. A precondition for continuous donor willingness, not only to provide resources, but also to accept loosing control, is a firm commitment to fight corruption in the recipient countries. In this area as in others, deeds speak louder than words. This is about a mutual commitment; a commitment to put results first. And at the end of the day, the definition of results in development is - and will always be - results for the poor.

As the developing countries have to address these challenges, donors need to change their practices. They must help bring real partnership and national ownership to life. And they need to prepare their domestic political and administrative environment for a new reality. In my opinion, there is no alternative to taking this new route. At first, it may slow us down. And it may look more costly than what we do today. But we have to endure it. It is the only way of achieving sustainable results in the poor countries.

So, let us lower our flags, pool our resources, stop tying our aid – stop tying our partners’ hands! - and accept developing country leadership. At the "big table", I hope.

Thank you very much.