Foreign aid, policy reforms, and accountability

FFYP
The FFYP was prepared within one and a half years of the birth of Bangladesh. The government then was in its early stage of formation. It was primarily beset with the problem of rehabilitating a war-ravaged economy. The FFYP had, as one of its major objectives, reduction in the dependence on foreign aid over time through expansion of exports and substitution of imports.

Viewed from this perspective, the theme of the roundtable referred to, is an age-old theme. The FFYP got off to a difficult start because of global inflation and depression in the leading world economies. The target set in FFYP was to reduce dependence on foreign aid from 62.2 percent in 1973-74 to 27 percent in the terminal year. In reality, aid dependence increased so much that foreign capital inflow financed about 81 percent of development outlay by the end of the period.

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Refrain on aid dependence
Since the FFYP, the refrain on aid dependence continued. The two-year plan (TYP) had, as one of its objectives, reduction of dependence on foreign aid in financing the development programmes in line with the national drive towards self reliance. Other plans that followed repeated the same theme.

Difficulties in reliable data
It is difficult to get reliable data on the quantum of reduction in aid dependence. The fifth five year plan provides some information on this, covering the period of fourth five year plan, 1990-91 through 1994-95. According to this document, the dependence appeared to have reduced significantly to about 57 percent. It is difficult, however, to say how much has been reduced due to declining flow of foreign aid. This issue is important because government policy makers often say that the aid climate is adverse.

Very recently, media reports indicated that domestic resources now finance about 50 percent of the development programmes. Since the government, apparently under pressure from the donors, has abandoned the formulation of five year plans and gone for what is called three year rolling plan (TYRP), no statistics from the government other than stray public statements, are likely to be available. Viewed in this context, the issue raised by CPD is well-timed. In fact, the outcome of the roundtable, as reported in the press, indicates that although our dependence on foreign aid has been reduced, the strings attached to aid have increased. These strings mostly relate to reforms in various sectors of the economy. On this issue, divergent views appear to have been articulated at the roundtable.

The views
A former finance minister held the view that many of the reform measures undertaken by the government from time to time were under pressure from the aid giving countries/agencies. It was further pointed out by him that although some successes could be achieved, failures were many.

The newspapers report did not provide details about the failures and in what way these were harmful to our interests, or alternatively, whether it was the Bangladesh government's failure to effect donor-induced reform measures that caused harm to the economy. It is the latter aspect that the aid giving agencies appear to continuously harp on. Is it possible to prepare a balance sheet of the reform measures including revisiting the reform programmes, which, with faulty design, caused more harm than good?

Example of agriculture subsidy
Bangladesh agreed to the removal of subsidy on agricultural inputs, in particular fertilizers and small irrigation equipment, during the late eighties and early nineties. This was done at a time when other South Asian countries, also recipients of foreign aid, declined to do so. This was done under different aided projects like Fertilizer Distribution Improvement Phases I & II funded by USAID, Food Crop Development Programme Loan funded by ADB, and National Minor Irrigation and Agriculture Support Services projects funded by WB. All the major donors, as mentioned above, attached identical conditions for effectiveness of aid disbursement.

The then chairman of BADC fought a losing battle on the issue of abrupt withdrawal of public sector support to minor irrigation. He similarly lost on the question of maintaining buffer stock of fertilizer at public cost to meet any unforeseen shortfall in supply, specially in the northwest. In case of buffer stock of fertilizer, at least two government constituted committees consisting of experts recommended maintaining buffer stock, but that was not done until after the fertilizer crisis of 1995. In case of minor irrigation, at the insistence of the then chairman of BADC, a three-member team visited the state of West Bengal. The team reported that there was subsidy in minor irrigation even under WB aided projects. But the government of the day yielded to pressures.

Now after the lapse of a decade, we are talking of external competitiveness. A dialogue arranged by CPD pointed out that to achieve this competitiveness, it would be necessary to provide subsidy to irrigation, because in other grain exporting countries there was subsidy that added to their competitiveness.

At the other end, the WTO allows LDCs to provide subsidy upto 10 percent of the total crop value. Experts from BIDS calculated that it was not even three percent while developed countries did not remove subsidy. Although the four-party coalition government announced subsidy on fertilizers and irrigation, farmers are yet to get it.

A former finance secretary told the roundtable that many times the government had agreed to aid effectiveness conditions knowing full well that the conditions could not be fulfilled. Examples of such cases include jute sector adjustment credit project supported by the WB. The credit had to be cancelled. Industrial sector adjustment credit funded by ADB is another example. Examples like this only point out that the objective is to get access to funds. It is seen as an end in itself and not as a means to achieve what needs to be achieved.

View from WB
The country director of the WB, as reported in the press, expressed the view that now the stress is not so much on policy reforms, but on institutional reforms. What has been left unsaid is that in stressing on policy reforms in the past, the aid givers have put the cart before the horse so that there was no movement or progress. Equally missing from the statement is the point of whether institutional reforms will also include conditions on policy reforms.

Private sector and reform measures
A leading industrialist from the private sector told the roundtable that in spite of policies, there were difficulties in implementation which hurt the private sector development. The point made is well-taken. Some of the newspaper columns indicate that many of the incentives for export promised in the budget speech of the finance minister are yet to reach the beneficiaries.

Accountability of the government and the donors
Exhortations are often made by the aid-giving agencies that there must be accountability for all actions of the government. The point is well-taken, but the mechanism of accountability by the government is well laid down in the constitution. At the same time, it has to be recognised that accountability of the executive organ of the state remains weak at best and nearly absent at worst. There is need for an independent mid-term review of the impact of donor-assisted projects in such areas as parliament and the judiciary.

What about the donors? The question is if ill-conceived policies or institutional reforms are imposed leading to negative outcomes, to whom are the donors accountable? And they are asking for immunity from the law of the land in which they are working. Should it not be a top agenda for policy and institutional reforms within the donor community to recognise the substantive principle that everyone should be accountable?

AMM Shawkat Ali, PhD, is a former Secretary, Ministry of Agriculture.