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Sick, but Not Dead Yet: A Prescription for Healthier Aid

Sick, but Not Dead Yet: A Prescription for Healthier Aid. Dr. Franck Wiebe Chief Economist, MCC July 22, 2009. Outline of Comments. A Diagnosis of the Problem with Aid A Quick Glance at the Wrong Medicine Three Steps to a Happier and Healthier Development Experience with Aid.

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Sick, but Not Dead Yet: A Prescription for Healthier Aid

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  1. Sick, but Not Dead Yet:A Prescription for Healthier Aid Dr. Franck Wiebe Chief Economist, MCC July 22, 2009

  2. Outline of Comments • A Diagnosis of the Problem with Aid • A Quick Glance at the Wrong Medicine • Three Steps to a Happier and Healthier Development Experience with Aid

  3. The Illness: Ineffective Aid • Symptoms: decades of foreign assistance with mixed evidence of having made local conditions better • Hard to dismiss argument that foreign assistance has contributed to a number of important improvements in welfare • Equally hard to dismiss the argument that we have not gotten what we paid for (or borrowed for) • Hence debate on aid effectiveness • But what are we looking for? “Aid effectiveness is the effectiveness of development aid in achieving economic development (or development targets).” • Thank you, Wikipedia! This lack of clarity is part of the problem.

  4. The Wrong Medicine:Beware of Doctors who say You’re Dead • The most extreme aid critics have an easy time with bad aid • They also do a much better job of describing: • The role of government (needs to be more focused, better not bigger) • The role of markets in growth (private investment needs to drive growth) • How aid, at times, has perpetuated big government and undermined markets • But burial is such a harsh treatment! • (Also the easiest – especially for those with such big shovels)

  5. The Wrong Medicine:Beware of Doctors who say You’re Not Sick • Very difficult for donors to admit and document failure • Even as they tweak processes, programs look and feel familiar • Focus on amounts (0.7 of GDP!) and budget support sounds like more of the same • Does anyone expect that the history of the next twenty years of aid will be different from the past twenty?

  6. The Wrong Medicine:Beware of Doctors prescribing Holistic Medicine • Unscientific ideas about development abound, even within the aid industry • Some tried and tested and (mostly) failed • Such as: Industrial Policy and Import Substitution • Sorry, but most LICs in Africa are not Korea, Japan, or Singapore • Some so grand that they are untestable and unimplementable • What does “development” mean? • Aid going to activities with no clear and tangible outcome accounts for too much foreign assistance and is part of the problem

  7. The Wrong Medicine:Rating Aid Agencies • A number of initiatives underway to rate and rank foreign assistance agencies according to their practices • The idea of public review and accountability is great, but … • We still haven’t agreed on what effective aid is! • OECD Aid Effectiveness Principles focus on process (MFR?) • Easterly and Pfutze (2008) system suffers from similar problem and • Critics still don’t identify healthy aid, even when institutions score well

  8. From Easterly and Pfutze (2008), with MCC numbers by Ben Yishay and Wiebe (forthcoming)

  9. The Cold Chain of Aid Effectiveness“Three Steps to Healthier Aid” • Pre-Investment Benefit-Cost Analysis • Requires a measurable and meaningful indicator of impact (MCC uses local incomes) • Represents a pre-investment estimate of impact • Incorporates promised institutional and policy reforms • Enables a comparison within sectors and possibly across sectors, as well • Monitoring and Assessment in Implementation • Appropriate baseline surveys are essential • Insist upon performance according to BCA targets • Rigorous Impact Evaluations, as appropriate • Expensive and sometimes difficult, but often essential • Establish expectation of experimentation under uncertainty

  10. Making Aid More Effective • Connect it to what we know: • Increasing economic growth is a powerful driver of poverty alleviation • Higher household incomes bring higher household welfare • Social safety nets are important and can be held to the same standard • Connect it to what we can measure: • Focus on tangible impacts • Worry about what is left out (if you must) • Insist upon transparency and accountability • Quantitative metrics are essential for transparency • Failure needs to be documented to contribute to better aid in the future

  11. Thank You for the Invitation Questions and Comments are Welcome Contact me at: wiebef@mcc.gov

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