Aid and Political Conditionality

Olav Stokke

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781136304279
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Foreign aid has increasingly become subject to political conditionality. In the 1980s some institutions made aid dependent upon the recipient countries' economic policy reforms. Market liberalisation was the primary instrument and objective. In the 1990s such conditionality was brought one step further; aid was now linked to political reforms, affecting recipient countries' governing systems, requiring democracy, human rights and 'good governance'. This volume looks at these developments and considers the conditionality policies of several European aid donors. Such policies are also considered from recipient perspectives, both from the Third World and Russia, and the issue is also considered from a historical perspective.

1

Aid and Political Conditionality: Core Issues and State of the Art

OLAV STOKKE

I. INTRODUCTION

In the 1990s, aid donors have increasingly made official development assistance (ODA) conditional on political and administrative reform in recipient countries. The stated objectives for this second generation conditionality have been to promote democratic reform, human rights and administrative accountability in the South. The first generation conditionality, related to structural adjustment programmes initiated and driven by the International Monetary Fund (IMF)/World Bank, in addition to administrative reform and budget balance, had market liberalisation as the prime objective. The main distinction between the two is that while the first generation aimed at reform of the economic policy of the recipient country, the second aimed, above all, at political reform involving both systemic and substantive aspects.

Conditions of various kinds have been linked to aid, explicitly or implicitly, throughout the Aid Age. Some have had as their primary purpose to pursue the systemic and private sector interests – economic, cultural, ideological, strategic and/or political – of the donor country. Others have shown concern for effective and efficient aid, achieving the objectives set for it by the donor, including the stated developmental ones.

For the donor governments, development assistance has been – and still is – an instrument to pursue foreign policy objectives. The stated ones relate to economic, social, cultural and political development with an emphasis on poverty alleviation and sustainable development in recipient Third World countries. However, for most donor governments the objectives have been less altruistic and related to the pursuance of more selfish interests. This applies, in particular, to the main powers during the Cold War. For these, aid has been driven by security motives and, for the superpowers, these motives have probably been the most important ones [Griffin, 1991; Love, 1992].¹ However, as argued elsewhere [Stokke, 1989abc], for some Western middle powers, developmental objectives have been – and still are – the primary motive for providing aid. For these countries, humanitarian objectives (relief operations) probably rank second.

In this chapter, it is my intention to identify the many faces of conditionality related to aid, with particular reference to the 1980s and 1990s, above termed first and second generation conditionality. The two generations have long roots which also will be considered.

The starting point must be to define the core concept: what exactly do we mean when referring to aid conditionality? Conditionality is not an aim in itself but an instrument by which other objectives are pursued. What, then, are these objectives? In this sequence of questions, the next to be addressed concerns the legitimacy of the policy, and relates both to the objectives and the ways in which they are pursued. To what extent are the various combinations of objectives and tools legitimate in the relations between the actors involved? These normative aspects of aid conditionality will be examined.

Effects and efficiency matter, too. Does the instrument work? Does it deliver the results asked for? Under which circumstances and for which objectives does it work and under which does it not? In addressing these questions, the main constraints have also to be identified. Since conditionality is not an aim in itself but basically a means to obtain a variety of objectives, the analysis would not be complete if alternative and supplementary strategies were not explored, both from instrumental and normative criteria. But first I shall briefly describe the evolving patterns of political conditionality – its coming to the fore among bilateral and multilateral aid donors, its rationale, major objectives and modalities.

II. AID AND CONDITIONALITY: EVOLVING PATTERNS

1. There is nothing new …

The origins of today’s foreign aid² – with its many open and hidden motives and objectives – are not easily traced. Gifts exchanged between sovereigns have a long tradition – and the real implications of such transfers have always been dependent on a wide variety of circumstantial factors. However, gifts have more often than not been used to buy and maintain friendship, forge alliances, in short, to pursue various objectives with a short- or long-term perspective. Such objectives have also varied in their more specific terms, according to the existing power relations between the parties to the transaction, whether these are characterised by hegemony and dependency, or equality and interdependence. In such relations, the gift, whether of a substantial or symbolic nature, has had as its primary function to secure or increase the power position of the donor or to fend off real or imaged threats – or both; in short, to promote what the donor perceives to be in its own interest.

Development assistance in its many and varied forms is a relatively new phenomenon, dating back to the late 1940s and early 1950s.³ North-South relations, of course, have a much longer history; for several of the major European aid donors, aid relations (along with trade) continued when the colonial relations ended in a more or less orderly way. In the 1960s and 1970s, particularly, the main recipients of bilateral aid from former colonial powers were almost without exception the newly independent countries which had previously been their colonies [Stokke, 1984a; chapters in Stokke, ed., 1984]. The relations between an imperial power and its dependency differ in certain important ways from those that pertain following the independence of the latter; this also has a bearing on the concessional transfers involved. However, there are similarities too, which should not be overlooked. Thus France, for instance, included its concessional transfers to its remaining dependencies (the TOMs and DOMs) in its aid statistics up to 1992.

However, the traditions of today’s donors differ quite extensively, as does the origin of their aid. Many of the present donor countries have no colonial past. The North-South relations of several of these countries were based on trade and Christian missionary activities. For the Scandinavian countries and several others, aid emerged primarily as a consequence of their international commitment within the United Nations, although also with roots in commercial as well as humanitarian traditions, including relief operations [Stokke, 1984ab, Forster, 1984].

A parallel to today’s development assistance has also been traced to the Marshall Plan, involving huge financial transfers from the US government to a war-ridden Europe after World War II [Lancaster, 1993a]. This generosity was coupled with an enlightened self-interest in creating external environments that coincided with ideological aspirations, economic interests and, already at that time, the security interests of a great power aspiring towards a hegemonic position in an emerging bipolar world system.

This aid (though not termed development assistance at that time) was given on explicitly political conditions; the recipients had to commit themselves to a policy attuned to the objectives indicated above, with particular emphasis on an open market economy. More than that; as pointed out by Edward Clay [this volume], the Marshall Plan included most components of today’s first and second generation aid conditionality and the traditional form of aid conditionality (including aid tying) as well. It aimed at protecting both the general economic interest of the United States and special sectional interests within that country, and was explicit about making use of surplus production. However, the bilateral arrangements in East Asia were more similar to the aid conditionality of today than the arrangements in Western Europe where the OEEC made up the principal institutional framework to ensure that the objectives were met. Only in this unique framework, Clay argues, have recipient governments genuinely participated in the decisions about the allocations among themselves of bilateral US aid.

In the early 1950s, the US government also used the mutual defence assistance programme as a lever vis-à-vis the participating European governments, with the objective of raising the level of their military expenditure, involving a redirection of public expenditure away from investments in recovery [Clay, this volume].

Development assistance became, from the very beginning, an instrument in the international power play between the emerging superpowers in the bipolar world system that evolved after World War II. During the late 1940s and early 1950s, Western powers were quite open about the fact that containing communism in the Third World was the primary purpose of aid – at that time, the United States posed as the most generous aid giver not only in absolute terms but in relative terms as well. The convincing force of the argument at that time is perhaps best illustrated by the fact that elements of it could be found even in the policies of Western countries with a tradition of neutrality.⁴ However, it was not only the West which used aid as a foreign policy instrument; the USSR and the Eastern bloc used aid extensively, targeting it at strategically important governments and social structures. The fact that aid was used in this way contributed to a large extent to weaken this activity already during the USSR’s perestroika period in the late 1980s: foreign aid was considered ‘ideological’ and therefore discredited [Arefieva, 1990].

For several Third World governments, this situation left them with at least three options: to enter into an alignment with one of the two superpowers and pick up the reward in terms of foreign aid, or to remain uncommitted and play one against the other and, with good luck, nerve and craftsmanship, obtain rewards from both. The strategic position of the individual Third World government, in military, diplomatic and political terms, influenced the outcome. However, there was little secrecy about the kind of game and stakes involved.

However, the superpowers and other major powers with global or regional aspirations were not alone. Several other governments entered the scene as aid providers with different perspectives with regard both to primary motives and objectives. During the 1960s and 1970s, this new international commitment took on dynamics of its own. Two interrelated factors were instrumental.

The most important single factor was the new, manifest presence of the Third World at world councils; in the 1950s and early 1960s, a large number of newly independent nations changed the face of the United Nations, bringing with them a concern for world poverty and the development needs of the South. The development issue attained top priority on the international agenda; it became of equal importance to the security concerns for which the United Nations was originally created. In turn, this created a new alertness in the North – including the superpowers – to the prevailing needs of the South and a commitment both from governments and within the general public to assist in solving these problems. Development aid emerged as the primary mechanism designed to address the task.

This new concern was manifest in many ways. The international community committed itself to a set of objectives and strategies to bring development home. In the formative years, the strategies which the United Nations adopted for the first and second development decades (the 1960s and 1970s) in particular, were of crucial importance, providing the normative foundation and ideological base for this new activity. The report produced by an international commission [Pearson, 1969] represented a milestone in this regard. Although many roots may be traced even here, the new international commitment did not spring from the tradition of power politics, but grew out of the tradition of international humanism [Stokke, ed., 1989; Pratt, ed., 1989]. Poverty alleviation and development at the global level were identified as being a concern – and calling for a commitment – that transcended the boundaries of nation states.

During the formative years, a wide variety of conditions applied, in addition to those identified with the tradition of Realpolitik in the Cold War setting. Quite a few were associated with policy objectives within the donor society which competed with the developmental ones, particularly those emerging from private sector economic interests, as expressed in procurement tying of aid. Others were associated with the objectives set for aid, typically expressed in the project aid concept (which could easily coincide with the objectives driving the tying of aid), and others again associated with more lofty developmental objectives, such as poverty alleviation or even the promotion of social justice.

2. First Generation Conditionality: Economic Policy Reform

While conditionality, even political conditionality, therefore, is no new phenomenon, what may be seen as new since the late 1970s is that conditions prescribing reforms by recipients of aid are made open and transparent. What triggered this conditionality?

The causes explaining the first generation are different from those which gave rise to the second generation, although the architects and main proponents inhabited the same quarters. First generation conditionality focused on economic reform and came in the wake of the growing economic crisis of many Third World countries, particularly in Latin America and sub-Saharan Africa.

This is not the place for a detailed description of the deep-rooted economic crisis evolving in the late 1970s and early 1980s which has crippled the economy of many Third World countries ever since, nor for analysing the causalities involved. The sources were many and varied, with variations from one region to another, involving droughts (particularly in Africa), increases in the price of petroleum on which the economy of non-oil exporting countries had become dependent, the prolonged recession in industrial countries and the deteriorating terms of trade for raw materials. Early policy responses made the situation worse, not least by giving priority to short-term relief instead of what might serve these countries’ longer-term interest, and keeping up the spending by extensive borrowing – even beyond the level required from a balance-of-payments perspective – from commercial and multilateral finance institutions which had petro-dollars in abundance and a relaxed attitude to traditional banking norms involving safety and capital returns.

With heavy debts and increasingly onerous debt-servicing as a result of rising interest rates – as well as continuously deteriorating productivity, terms of trade and market opportunities – the economic situation for many Third World countries became desperate. As a result, commercial financial sources dried up; the financial institutions abandoned their ‘open purse’ policy and insisted that loans were paid back as quickly as possible. The situation threatened the international financial system involving, in particular, commercial finance institutions in North America and also some in Western Europe.

In this situation the International Monetary Fund (IMF), designed for short-term stabilisation of balance-of-payments crises in the North (and not as a development finance institution), was brought into the picture. Its approach and prescriptions vis-à-vis the crisis-ridden Third World governments were much the same as those earlier applied to Northern governments in temporary crisis: they had to observe certain conditions before the IMF would agree to assist with short-term credits.

According to the IMF analysis, the crisis of individual Third World countries was caused by excessive government spending (an unbalance between spending and revenues), resulting in budget deficits and inflation; over-valued currencies; disproportionate imports in relation to exports; and insufficient attention to factors on the supply side. The prescription, accordingly, was to correct these areas of neglect: the domestic economic policy of individual countries had to be reformed.⁵ Economic reform was made a condition of assistance through structural adjustment loans.

However, the recipe was not restricted to the conventional wisdom of domestic and foreign housekeeping: the mechanisms prescribed refleeted a neo-liberal economic perspective and were therefore highly political. Structural adjustments of international economic relations were not part of the perspective; by the early 1980s, the programme for a new internatio...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Introduction
• 1. Aid and Political Conditionality: Core Issues and State of the Art
• 2. Aid and Conditionality: The Case of Belgium, with Particular Reference to Burundi, Rwanda and Zaïre
• 3. Aid and Conditionality: The Case of Germany, with Particular Reference to Kenya
• 4. Aid and Conditionality: The Case of Dutch - Indonesian Relationships
• 5. Aid and Political Conditionality: The Case of Norway
• 6. Conditionality in Swiss Development Assistance
• 7. Determinants and Limitations of Aid Conditionality: Some Examples from Nordic-Tanzanian Co-operation
• 8. Aid Conditionality and Development Imperatives of Bangladesh
• 9. Conditionality, Structural Adjustment and Development: The Case of Egypt
• 10. Conditionality and Compliance: The Sustainability of Adjustment in Turkey
• 11. Aid Dialogue between Russia and the West: Climbing the Learning Curve
• 12. Conditionality and Programme Food Aid: From the Marshall Plan to Structural Adjustment
• 13. Political Conditionality: Strategic Implications for NGOs
• 14. State Formation Processes under External Supervision: Reflections on ‘Good Governance’
• 15. Conditionality, Democracy and Development
• Glossary
• Notes on Contributors