OECD-DAC chief wants more donor attention to fragile states

Eckhard Deutscher has a direct line to most of the key officials participating in this week’s Millennium Development Goals summit in New York. Since becoming OECD-DAC chairman in 2008, he has sent them a clear message: “Just do it.”

“Countries need to stick to the commitments they’ve made,” Deutscher said during a recent interview with Devex in his office at the Organization for Economic Cooperation and Development’s Paris headquarters. “Unfortunately, a lot of governments are lagging.”

As chairman of OECD’s Development Assistance Committee, which groups 24 of the world’s leading donor nations, Deutscher is in a good position to say who is doing what when it comes to development financing. He oversees data collection and reporting on DAC’s official development assistance, which topped $120 billion in 2009. Perhaps more importantly, he also leads continuing work among DAC members on improving both the quantity and quality of aid.

Deutscher brings strong credentials to the table. He has a deep background in academia, including a doctorate in social science, philosophy and development studies from the University of Frankfurt and teaching stints across Europe and Latin America. He also has high-level experience setting development policy, first as director from 1991 to 2000 of the German Foundation for International Development - now known as Inwent – and later as German executive director to the World Bank, from 2002 to 2008.

The combined experience of teaching development theory and seeing how agencies and institutions work from the inside has opened Deutscher’s eyes to the need for real change.

“This [the current aid system] is an obsolete structure we’re working with,” Deutscher said.

Ahead of the High-level Plenary Meeting on the Millennium Development Goals, Deutscher discussed with Devex about the need for stronger focus by donors on helping fragile states meet the MDGs. The conversation also covered the importance of improving governance and transparency, the growing resistance to development financing in many donor countries, and what the DAC chairman wants the development community to do to address these concerns.

Much of the summit declaration has been negotiated in advance. What’s left to actually discuss in New York?

>> UN MDG Declaration: What’s In, What’s Out

One of our main jobs here in the DAC is to bring together all the data on donor countries, the amount of aid that actually follows political declarations. And I think it’s fair to say that development financing remains a major challenge. Without specific investment in the different MDG areas, we will have difficulty achieving the goals. Five years is not a long time, and I am concerned that the financing commitments for 2015 may not be fulfilled. So, we definitely have to discuss new sources of development financing and innovative methods of raising new resources.

The situation facing fragile countries and those in conflict is what concerns me most. We know we are lagging on most of the MDG objectives in these countries, and more has to be done. We also have to work harder on aid quality and aid effectiveness. There’s an ongoing debate worldwide as to whether money is really that important, and whether it’s not more important to have higher aid quality. The discussion cannot play out simply on the quantitative side anymore. Aid effectiveness is as important as financing levels. I suppose we can talk about all of this in New York.

We’ve heard that U.N. Secretary-General Ban Ki-moon wanted an action-oriented summit declaration. Can you use this sort of meeting to take stock on what works and push those types of actions? Or is it too hard to talk about what works and what doesn’t work in this setting?

I think it’s very hard to do that. I’ve been staying informed about work on the draft declaration. This is from this morning (he holds up a stack of printed documents). We’re working with the usual language of the United Nations, so it’s going to be difficult to reach a result that clearly points out what works and what doesn’t. That said, the MDG summit should be more than a stock-taking exercise. We need to define an action plan for going forward. And the more concrete, the better! We need to lay out the specific actions, where they should take place, and under what time frame. There are already discussions in some circles on where we go after 2015. I think we need to think about where we are today and where we’ll be if we don’t achieve what we promised. It’s a question of credibility. Unfortunately, a lot of governments are lagging.

There has been a lot of discussion about funding targets and pledges that may or may not be made during the summit. But before we talk about what will or won’t be promised, do you think that DAC members have made good on their previous commitments? According to your latest reporting, total net ODA from DAC members in 2009 represented 0.31 percent of their combined gross national incomes. And only five countries exceeded the U.N. ODA target of 0.7 percent of GNI. Is that good enough?

In the latest draft of the declaration, when talking about aid financing, the language calls on countries to fulfill all ODA commitments. The draft says that this is crucial, including the target of 0.7 percent of GNI, for those countries that have not yet reached it. When looking at ODA levels, I think we can say that there’s a bright side and a shadow side. We need to recognize first that ODA has risen by 55 percent over the past decade. And that’s not a small detail; it is huge. In 2009, we had net disbursement of $120 billion from the DAC members, the highest amount ever.

On the other side, there have been prior commitments, [at the 2005 G-8 summit] in Gleneagles, at various U.N. sessions, [at the 2008 International Conference on Financing for Development] in Doha, and they’re not being met. Everyone knows that the challenges are huge, so we need huge money. Despite these massive needs, there are already voices questioning the 0.7 percent target, even though it’s clear that without money and without investment we cannot achieve the MDGs.

The political value of the MDGs shouldn’t be underestimated. This is a U.N. agreement signed by heads of state and repeatedly re-confirmed. We have to stick to it. I understand that the politics surrounding aid delivery and performance need to be considered. We need to reflect within the aid community on the obstacles to meeting our funding requirements, and ask why we are so often criticized. We are constantly hearing, “What are you doing? Is the money invested well?” There’s growing criticism that we can’t just shut our eyes and close our ears to. We have to discuss it, we have to confront it, and we have to show that we are improving quality by paying more attention to aid effectiveness. The ownership issue will be a major point in this. Aid effectiveness is still donor-driven. I think developing countries should take much more of the initiative and show more accountability. They should be challenging the donors on aid they are delivering.

Do you expect to see new financing commitments in New York? From the U.S.? From Europe?

There’s really nothing set yet, and, as I’ve said, we can’t lose track of the financing question. But the bigger issue is climate change financing in the run-up to Cancun [where the next U.N. climate change conference will take place, from Nov. 29 to Dec. 10, 2010]. What I am concerned about here is that some countries want to integrate climate change financing into ODA, which would push their ODA levels well above the 0.7 percent target. Others are saying, “no,” that climate change financing should be additional funds, which can’t be integrated into ODA. This is an unsolved problem. Developing countries worry that a merger like this would allow donor countries to evade their responsibilities. There may be need for a new conference, a financing conference, where this issue can be fully addressed. In any event, it seems clear that donors should just stick to their commitments.

OECD and the U.N. Economic Commission for Africa plan to launch a new review of development effectiveness in Africa during the MDG summit. The review will evaluate the progress toward each of the eight MDGs in north and sub-Saharan Africa and discuss the future policy priorities for the continent. What does this really mean?

What we are doing conceptually in the [DAC Working Party on Aid Effectiveness] is looking at different states, including fragile states and those in conflict, and try to determine how partner countries can foster increased dialogue on peace and state-building. This dialogue has already improved the international understanding of what works and what doesn’t. But we have to be honest: The situation is very difficult in these countries.

It’s probably no surprise that fragile states and those in post-conflict environments are farthest away from achieving the MDGs. But what can the development community do about it?

The most fragile states are simply off-track to meet the MDGs, and they account for the majority of the MDG deficit. They are lagging 40 [percent] to 60 percent behind other lower- and mid-income countries, and no country in these categories have yet to achieve a single MDG. This is all obviously of major concern. These countries deserve special procedures, and they need different responses than those taken toward the better-performing countries. You can’t overestimate the impact of what development cooperation can achieve when circumstances don’t allow projects to go forward. Development is not a button you can push, and, in three months or even three years, everything just sprouts up. There’s a lot of trial and error with development cooperation in fragile situations, and everyone knows it.

Do you expect the MDG summit to take a strong stand on public-private partnerships for aid delivery?

Politically, if donor countries are unable to fully deliver on their commitments, they should obviously look for private capital to be engaged. The problem is that private capital normally only engages when it has assurances on the business environment. There is a lot of room for improvement on the famous [public-private partnership] concept, notably by engaging medium-sized firms in the process. The modernization of Africa’s economy, the economies in other developing countries, and their inclusion in the world trading system simply won’t be possible without private capital.

Development financing is impacted by all sorts of factors. Countries react differently to the financial crisis having different levels of economic growth and different political leaderships. There’s also a lot of diversity among DAC members, and then the European Commission plays its role, as yet another donor. Given all these, there’s a constant push and pull on aid. How can aid be better coordinated, especially in Europe?

We need to look at how we are delivering aid, the whole ODA system. There are discussions today as to whether it is out of order or dysfunctional. Here, within the DAC, we did a reflection exercise, and it was clear that we have to change behavior, change priorities, and do our homework better than we have in the past. There are at least 900 agencies working in development today, including both major public and private agencies. In a narrower sense, there are 280 public agencies from the DAC countries and 24 development banks. There are about 40 units within the U.N. dealing with development cooperation, and we can count more than 250 global programs.

We discovered that over 82 percent of all aid volume from these 250 global programs goes to six institutions, or clusters, like the U.N., the African Development Bank, or the Asian Development Bank, while only 17 percent of the funds are delivered by the 200 or so multilateral agencies. We have no idea on the policies or criteria used in decisions on whether funding is given to bilateral or multilateral agencies.

Donor countries burden developing countries with an excess of agencies distributing aid. There were 790 official missions in Vietnam in 2007. Why is that? This problem has to be taken seriously when we start addressing the qualitative part of problem. We’ve already designed part of the solution, in [the Paris Declaration on Aid Effectiveness of 2005] and [the Accra Agenda for Action in 2008]. So, I have to say, “We should just do it.” Just do what we have already agreed to do.

>> In Accra, More Talk of ‘Country Ownership’

DAC is doing more work on aid for trade. Is that the way forward? Because for every success story about trade-induced growth and development, there’s a counter-example of trade putting people out of work, of cheap imported goods replacing more expensive locally produced products.

It is a question of what kind of trade, in which conditions, and in which sectors. Obviously, destroying local markets is no good. But saying that is nothing new. There’s a famous example that’s 40 years old. One of the first German development ministers was unhappy to see that while he was funding a project to build up local cattle markets in West Africa, the EU was busy developing exports of frozen meat. He said the EU was destroying everything that German bilateral cooperation was trying to build up. There was no coherence then, and there is still little coherence today. We need to develop a comprehensive understanding of countries’ markets and circumstances, and not just for the present but for the future. Aid for trade is great if it promotes trade and development, but we know it’s not the golden route to immediate economic development results.

There’s probably a bigger question here, whether we’re not overestimating the importance of our ODA, the $120 billion we gave last year. Because look at remittances from migrants, which are three to four times higher than ODA at least, or look at foreign direct investment, which is also at least three to four times higher, and then try to decide if the aid and development industry isn’t just reproducing its tired concepts to stay in business, to keep the business going. The best development system – and what we should be trying to do – is take action so we will no longer be needed one day in the future.

The development system will have to change in the next five to seven years, and it will probably need to be radical change. Today’s ODA system will be adapted to fit into a broader, more coherent approach with other policy sectors. The stand-alone character of development will probably disappear. Humanitarian response may be the only thing that’s left of today’s design. We should probably avoid using the word “aid” altogether. It has a charity connotation, especially in donor nations, and that’s where the reluctance to support development cooperation comes from. There’s this notion: “Why are we giving away our good money to these other countries, when we have so many problems of our own?” We need to present development cooperation funding as a political investment, and we need to talk about it in plain clear language.

DAC recently stirred up the development community with a provocative report on the oversight and effectiveness of international development assistance. You pointed out the failure of existing governance structures and then asked: “Who’s in charge?” It’s a fair question. Is anyone in charge? And who should be in charge?

You can’t expect that there could possibly be a single body steering or governing all these issues. What we can do is talk about possible reforms, and the first one is reducing complexity. To do that, in simple terms, means that donor countries should shrink or reduce the number of agencies. This is as an especially important target for the Europeans, but not so much for the United States.

One place to start: Why not create a European Development Bank? National efforts can be combined with what the European Investment Bank in Luxembourg is doing, or what is being done by the European Bank for Reconstruction and Development in London. Why not merge all the parts, channel all the money to a new development bank, and give up bilateral approaches? Today, you have 36 percent of ODA from donor countries on average going to multilateral actions and the rest for bilateral aid. I think this ratio should be reversed. The Europeans should channel their funding via multilateral agencies and reduce bilateral aid. This would really reduce complexity.

It’s easier said than done, bringing about this sort of radical change at the Pan-European level.

That’s true. But it’s also true that the Europeans need to take a much stronger, combined approach. This may be the agenda for the next 50 years. We’re going to have to put on the table the question of what is politically possible and what’s not. Because today, this is an obsolete structure we’re working with.

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