The World Development Movement campaigning against $234 million in U.K. aid funding the Pergau dam project in Malaysia in 1994. Photo by: Global Justice Now / CC BY

The future autonomy of the U.K. Department for International Development is once again under the spotlight as the prospect of a Boris Johnson premiership grows. When he became foreign secretary in 2016, Johnson openly sought to persuade Prime Minister Theresa May to give him the aid department. He was unsuccessful then.

Three years on, as he emerges as a frontrunner to succeed May, there will be renewed shivers of anxiety amongst my erstwhile colleagues.

“[Pergau] was a seismic shock to our system and fundamentally altered the way we did aid.”

I worked in the aid department from 1988 until my retirement in March. I was there when DFID became an independent body. And I had a front-row seat for the episode that caused that transformation.

Today, one solitary word should caution against the remerging of DFID into other government departments, most likely the Foreign & Commonwealth Office.

Pergau.

The Pergau scandal encapsulated the risks — and temptations — that arise when there is no clear-cut distinction, in policy and thinking, between the interests of the beneficiaries of aid and the interests of the provider of that aid.

For 22 years, ever since it emerged out of FCO, DFID has exemplified that clarity and distinction. The risk of going back to a failed model is higher now than ever before. If we are not to repeat past errors, lessons need to be remembered.

Few will now remember Pergau. A full generation has passed since the crisis rocked the U.K.’s aid administration in 1993-4. Fewer still may realize that the autonomy and integrity of DFID as an aid provider is a direct consequence of it. It was a seismic shock to our system and fundamentally altered the way we did aid. The structural, legal, and policy changes that followed are widely held to have returned to U.K. aid a clarity of purpose that had been quietly eroded.

The facts of the debacle can be quickly told. The Pergau Dam in Malaysia, which involved around £230 million of U.K. aid — worth about double that in present values, or around $600 million — was assessed for its development objectives by the government’s aid experts, in the same way as all proposals. At that time, we were configured as the Overseas Development Administration, or ODA, and operated as a subsidiary department of FCO. ODA’s political head was a minister of state, a second-tier office in the British governance system, who reported to the foreign secretary.

ODA concluded that the project was grossly uneconomic. It would actually increase the cost to Malaysia of producing electricity and hence looked a bad deal for Malaysian consumers. The ODA minister at the time, Lynda Chalker, advised against support. But the ultimate decision rested with the foreign secretary, Douglas Hurd, who decided to proceed.

As this was going on inside government, press stories began to emerge that the project was linked to the sale of fighter jets to Malaysia. A campaigning NGO, the World Development Movement, took the government to court, arguing that it was unlawful to provide aid in these circumstances, when the government’s primary objective appeared to be another policy objective — trade — rather than development.

The poor economics of Pergau gave the judges a straightforward route out. They ruled that if a project imposed a cost like this, it could not be considered “aid” even by the broadest of definitions, and ruled the whole thing unlawful.

As a result, the court never had to decide whether aid can lawfully support multiple policy objectives — and, in such cases, which should predominate. In retrospect, this is a pity since in recent years the issue has become increasingly pertinent. The growth of the cross-Whitehall aid funds has led to more aid being spent by departments that have a multiplicity of policy objectives in doing so.

The subsequent hearings by the House of Commons Foreign Affairs Committee unearthed for the public an unsettling state of affairs: How ODA’s technical judgments had been steamrollered by FCO’s other priorities; how there were no tight legal criteria for the use of aid; and the fluidity with which other policy objectives — trade, military sales, the finer considerations of diplomatic relations — could govern aid-spending decisions.

Pergau challenged the construct of U.K. aid and prompted the fundamental rethink that still holds today. When Clare Short arrived as the U.K.’s first development secretary in 1997, she did so on the back of a Labour commitment, announced in the immediate aftermath of the case, that development aid should not be sullied by considerations other than poverty reduction. DFID became a separate department with a secretary of state in the Cabinet, and parity with FCO.

Short quickly abolished the unpopular Aid and Trade Provision, which used aid to subsidize otherwise commercial contracts and under which Pergau had been funded. She also moved to entrench the lessons of Pergau with the 2002 International Development Act, which put into law that all U.K. aid must pass a fundamental test that it contributes to poverty reduction.

Pergau was a tough lesson for the U.K. government. There’s almost no-one now left in DFID who lived through that turmoil. Perhaps the memories of one of those who did can count for something in the decisions that could soon be made.

About the author

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    Phil Mason

    Phil Mason served in the U.K.'s Overseas Development Administration, and later the Department for International Development, from 1988 until retiring in March 2019. His final role, between 2000 and his departure, was as senior anti-corruption adviser. At the time of Pergau, he was the department’s liaison officer with the National Audit Office, which first brought the Pergau decision to public light.