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Kathmandu Friday February 22, 2002 Falgun 10, 2058.
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Aid bureaucrats and economic
development
By T R BASYAL
Multilateral Financial Institution Bureaucrats
(MFIBs), i.e, bureaucrats from multilateral development institutions like the World Bank’s
International Development Association (IDA) and the Asian Development Bank (ADB) move
around the underdeveloped world in search of greener pastures for their favoured
consultants/contractors. At the same time, the MFIBs are in search of problems and
weakness of governments in order to make them scapegoats in the most likely situation when
projects fail due to their own malpractices. To cite the World Bank Policy Research Report
on Assessing Aid, aid would be effective in good policy and institutional environment,
implying that the recipient county, and not the MFIBs, is responsible for the
ineffectiveness of aid. As another paradox, when such environment becomes good, the credit
for this is wholly assumed by the MFIBs. The MFIBs thus profit from the underdeveloped
status and short-term resource gaps of country by utilising the situation for practising
their inefficient loan operations and putting the blame on the country for the
unproductive use and ineffective outcome of such loans.
The government being the borrower, MFIBs do not
even consider it necessary to engage in a credible social/economic benefit-cost exercise
for assessing the effectiveness of a project. To make matters worse, the MFIBs initially
keep estimates for the project low so as to make it acceptable and feasible at the start.
They go on increasing the estimate and changing the components with the subsequent
editions of their aide-memoirs and assessments so as to eventually make the project most
favourable to themselves and their favoured consultants. If asked for the logic and
rationale, they attribute the change to different situations that would, in fact, be
either structural or irrelevant and also to reasons and factors that were already present,
but intentionally ignored, when the project details were first studied. To justify the
amount increase at their whim, they do not forget to cite the working of the markets,
forgetting that they are lending to a government in a resource crunch and not to a
competitive market. When the price and incentive structure of the economy gets distorted,
the level of production, productivity and quality naturally suffers.
Buying political and administrative influence
and reporting negatively on non-adherents to their dictates is another practice of the
MFIBs. Such a practice continues to guarantee the development of an administrative culture
that is most supportive of their machinations and that subordinates the genuine concerns
and issues of the government. When MFIBs criticise and condemn the government and threaten
to stop aid, they are doing it not for the development of the country concerned but mostly
for selling their unviable projects and promoting the interests of their consultants. The
concerns, choices and priorities of a democratically elected government and the people’s
genuine needs and aspirations are given least consideration by MFIBs in the choice of
projects and the determination of project components. The government is compelled to
follow the unrealistic and inappropriate profile and conditions for aid on the basis of
MFIBs dictates as otherwise they would threaten to work towards stopping the flow of aid
itself.
In matters of tax, when MFIBs give policy advice
to the government, they are found recommending the stopping of all sorts of tax
exemptions, privileges, rebates and concessions. But when it comes to their own
consultants, they threaten to stop aid to the government if the former are not
tax-exempted. The government is thus held to ransom by having to obey all sorts of
designs, prejudices and interests at the cost of the economy and the people.
MFIBs are least bothered about successfully
carrying out a project as they are not interested in reducing the need for further
borrowing for the government. They would rather be interested to increase aid-dependency.
Efficient private investments, both domestic and foreign, lessen when the environment for
productive investment is completely wiped out once the process of selling inefficient,
inflated and unproductive projects to gullible governments by the MFIBs increases.
Distorting the prices and suppressing the
development of efficient markets become hallmarks of MFIB-initiated project work. As
inflated money enters the domestic market and consultants start reaping windfall gains
unrelated to the structure of existing markets, the development of efficient domestic
markets suffers a serious setback. The existence of the MFIB-sponsored project process
also reduces the incentive, scope and capability of the government to mobilise domestic
revenue for development. Not only does current domestic resource mobilisation suffer, but
the foundation for the development of a viable domestic resource mobilisation strategy is
also jeopardised. The market-distorting practices of the MFIBs and their discretionary
raising of cost components to favour their consultants/contractors makes a mockery of the
fundamentals of efficient markets. The inflated loan amounts for carrying out
least-priority projects as dictated by the MFIBs land the economy in a debt trap as more
and more domestic resources need to be set aside for debt servicing. This reduces the
resources available for socio-economic infrastructure development and poverty reduction,
which further compounds the problem of underdevelopment and poverty.
In such an environment, not only do government
efforts for generating domestic resource and making maximum utilisation of available
resources become ineffective but the ownership, transparency, accountability and
effectiveness of the aid process will also be reduced. The consequences are socio-economic
underdevelopment, lack of a sense of accountability and responsibility in the aid process,
crowding out of efficient foreign and domestic private investments, lower levels of
domestic revenue mobilisation, increased debt servicing along with import and resource
dependencies, underdeveloped domestic markets, and inefficiencies in resource allocation.
In the end, the country gets impoverished, economic inequality rises, and the consequent
social tensions threaten political stability. Still MFIBs are found making artificial
statements like the necessity of putting the government in the driver’s seat for
effectiveness in aid management.
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