Donors in the dark on 'unprecedented' private sector critique

PARIS — Toward the end of last year, three former mandarins from the committee responsible for deciding how the world’s richest donors count their aid penned a letter warning that today’s “politically-motivated” approach, “guided by finance ministries,” risked eroding the whole system. The letter was sent to the office of the chair of the Organisation for Economic Co-operation and Development Development Assistance Committee — their former employer — with a request that it be forwarded to delegates days before a crucial meeting on the use of private sector instruments in aid.

But the letter did not get forwarded to delegates for two weeks. In the meantime, DAC’s 30 members — responsible for about 80 percent of global aid spending — failed to agree on how to count private sector instruments, such as equity investments and guarantees, in official development assistance. Instead, in early December, they settled for five provisional reporting arrangements, to be reviewed in 2021 unless permanent rules are agreed before.

Civil society groups panned the result, saying donors still had too much leeway to report private sector spending however they want, and calling for further negotiations on a long-term agreement. NGOs are not the only ones to think DAC can do better.

On Nov. 28, Brian Atwood, a former administrator of the U.S. Agency for International Development and DAC chair for two years to the end of 2012; Richard Manning, DAC chair from 2003 to 2008; and Hedwig Riegler, chair of the DAC Working Party on Development Finance Statistics from 2009 to 2013, wrote to the DAC chair’s office. They explained their concern that the OECD’s effort to modernize aid was now dominated by countries’ finance ministries, “placing the clarity, integrity, and credibility of ODA statistics at risk.”

“Not unnaturally, [finance ministries] aim to get maximum ODA credit from a minimum of outlays, and it is therefore not surprising that their current dominance of the debate is leading towards overly ‘generous’ proposed changes to reporting rules,” they wrote.

Each year, members including the United States, European Union, and United Kingdom must report their ODA spending to DAC, which provides official figures on how much was spent within the guidelines. But “excessive political influence” is jeopardizing the measurement role of DAC, the letter warned. “Although this role has continued for nearly 60 years, the OECD-DAC holds no mandate for it from the United Nations,” the experts wrote. “If members continue to expand the coverage of ODA in ways that violate its basic concept and definition, we see a clear danger that the U.N. may in future bypass the OECD-DAC and institute its own measurement system.”

Three NGOs — Eurodad, Oxfam, and the Centre for Research and Advocacy Manipur — said in a blog post that civil society has been making these points for years, “but to hear the same arguments expressed so explicitly by such senior, technically renowned insiders is an unprecedented development.”

Citing the debate over private sector instruments as an example, the former DAC chairs wrote that these are usually offered at close-to-market rates to avoid distorting competition, and so fail one of the tenets of ODA — that the assistance be concessional. 

“We are not against recording as ODA what passes the traditional test of ODA (including ‘concessional in character’),” they wrote, “but the financial flows generated by private sector instruments themselves should be recorded in the OOF (other official flows) category.”

Atwood said in an email to Devex that the issue dated back to his tenure when the European Investment Bank wanted to be credited for loans in the same way it claimed two bilateral donors had been. France and Germany “were making loans to relatively dependable middle-income countries at slightly under commercial rates and then revolving them back out after they were paid off with interest,” Atwood said. “They were thus making a profit by using an old discount rate (designed a decade earlier to compensate for a very high inflation rate that no longer existed), but counted the loans as ODA. We confronted them and came to a temporary solution that was based on full transparency. They were in my view abusing the system to make their ODA level look better than it was.” 

On today’s debate over private sector instruments, the trio wrote in their letter: “Our suggestion would be to take a step back, re-think and actually re-design the whole approach. This reengineering may take some time, therefore we would caution the DAC against letting the interim arrangement become ‘permanent’ simply for lack of a political consensus or the satisfaction of a few donors with interim reporting rules.”

‘Very, very sneaky’

In delivering the letter via email on Nov. 28 the authors asked the chair’s office to “be so kind as to distribute our attached letter to: The DAC Chair (acting), DAC Vice Chairs, DAC delegates,” and the Development Co-operation Directorate. After four weeks, the authors said they would treat it as an open letter, adding, “Thank you for taking care of dissemination on our behalf.”

But the chair’s office took more than two weeks to forward the letter to delegates. A source close to the DAC secretariat said despite the authors’ “request” to forward the letter, there was “no obligation to do so and nothing preventing the former DAC chairs from sending their letter directly to DAC delegates ahead of their posting it on Brookings [on Dec. 21].” The source also pointed out that the letter arrived when there was no sitting DAC chair, with Susanna Moorehead yet to take up the role. There was no conspiracy to withhold the letter, the source said, adding the delay was due to an oversight by the chair’s office.

At least one member of a DAC delegation did not buy that explanation. Speaking on condition of anonymity in order to speak candidly, they told Devex that had the former officials’ letter been forwarded straight to delegations when it was received in late November, it could have inspired national capitals to tell their representatives to return to the negotiating table to seek a more comprehensive deal on private sector instruments.

“It was very, very sneaky. The DAC vice-chairs like the EU, Canada and the Netherlands knew they were playing games withholding the letter,” the source said. “They were the ones that sat on it, then Germany, France and Japan. Those guys have whole teams working on these issues and know exactly what games they are playing.”

On Dec. 5 when the delegates met, 18 were ready to accept the provisional rules with five opposed — Denmark, Germany, Japan, Netherlands and Poland — according to the official summary. The rules were eventually passed, after Germany added a statement to clarify that these were voluntary, did not pre-empt later agreements found by consensus, had no sunset clause, and did not affect existing reporting rules on trade-related aid.

On Dec. 13, the DAC chair’s office forwarded the experts’ letter to DAC delegates in an email, which included the office’s reply the same day to Atwood, Manning, and Riegler. “Since the incoming DAC chair will arrive in mid-February, there is no chair in office at this moment,” the chair’s office told the authors in a short message pointing them to the public summary of the just-agreed provisions.

‘Half-heartedly unresolved’

Not everyone agrees the experts’ view would have changed the outcome on private sector instruments in December. Atwood told Devex that he and his co-authors were “more concerned that the interim solution not end up being final.” An EU official said the views contained in the letter were well-known anyway.

“I don’t think it would have changed anything,” a member of another DAC delegation said, noting that the committee was already in “execution mode” on an issue it had been trying to resolve for four years. Still, the source said they did not know about the letter until it was sent to delegates on Dec. 13.

Devex asked each DAC delegation about the experts’ letter, but the only country that answered comprehensively was Spain. A spokesperson said the Spanish delegation was aware of the letter prior to the Dec. 5 meeting, having learned of its existence “informally.” Asked whether Spain was satisfied with the explanation for the delay in forwarding the letter, the spokesperson said the vacant chair position “might have had an impact,” adding that “the composition of the bureau has members with different views and positions on [private sector instruments].” The spokesperson said Spain “would have preferred a more ambitious agreement” on the issue, which for now has been “left half-heartedly unresolved.”

DAC was holding a senior-level meeting on Friday, which could mandate the DAC with reaching a comprehensive agreement. Despite calls from Canada and Iceland for the issue to be discussed at the meeting, it did not feature on the agenda.