Morína O Neill and Dr. Eileen Connolly 1 Good Governance and the New Aid Agenda in the Context of Aid Harmonization

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1 Morína O Neill and Dr. Eileen Connolly 1 Good Governance and the New Aid Agenda in the Context of Aid Harmonization Introduction There is currently a consensus within OECD bilateral and multilateral aid donors in relation to what progress needs to be achieved in the field of development, and what approaches need to be taken to make this a reality. The eight target-driven Millennium Development Goals provide the internationally agreed framework for development, while the Rome Declaration on Harmonisation (2003) and the associated Paris Declaration on Aid Effectiveness (2005) reflect and formalize the cohesion of ideas expressed amongst key donors about how these can best be achieved. A concern about the threat to this consensus posed by China was voiced in 2006 by the Chair of the OECD Development Assistance Committee (DAC) who argued that funding from China may undercut standards to which traditional donors aspire and encourage unsustainable policies in some developing countries. That China is perceived to be such a threat is an indication of the extent to which there exists a unified and cohesive approach to the aid relationship with sub-saharan Africa within the OECD donor community and the International Financial Institutions. At the centre of this unified consensus is a general agreement that economic liberalization and market globalization represent a positive development path (Stone, 2003). This paper examines the evolving concept of good governance in the discourse of the World Bank and its impact on individual state donor agencies. Since the new aid agenda of the post-cold War period, when it began to be possible for aid donors to impose much more stringent conditions on development aid without fear of losing allies to Communist influence (Abrahamsen, 2000:3), governance has become a prism through which the World Bank seeks the solutions to the development challenge and a central component of its conditionalities. What the Bank thinks about governance is important given the Bank s role as a generator of accepted development knowledge. The Bank has increasingly referred to itself as a knowledge bank, and 1 Centre for International Studies, School of Law and Government, Dublin City University 1

2 World Bank policy is used as a benchmark by international donors (Mawdsley and Rigg, 2003). The paper then considers the extent to which the World Bank s view of governance is shaping donor policy through an examination of Irish Aid s 2006 White Paper on Development Aid. The World Bank and Governance In the 1980s, Structural Adjustment Programmes (SAPs) were imposed on developing countries as a condition of financial assistance, aimed at re-structuring their economies in line with World Bank and IMF principles. The programmes were highly interventionist, and based on neo-liberal policies (Willis, 2005), the effect of which was devastating for large numbers of people 2. It is widely acknowledged today that these programmes did not work 3. Much of the World Bank s discourse on the reason for the failure of the SAPs attributes the failure to factors internal to the developing countries, as opposed to the nature of the policies themselves. In particular, the Bank s analysis has focused on the lesson that strong institutions are needed to implement policies successfully. According to the World Bank the SAPs had depended upon a strong, determined and relatively autonomous state, whether democratic or not, for effective implementation, and it was in those countries where the state did not have this capacity that the programmes failed. An acknowledgment of this failure by the International Financial Institutions led to a rehabilitation of the role of the state in development in the 1990s. It was within this recognized need for a state that was administratively and bureaucratically strong that the good governance agenda emerged. The importance of the role of governance in the Bank s discourse can be traced back to its 1989 report Sub-Saharan Africa: From Crisis to Sustainable Growth. This report stated that what was needed was not just less government but better government - government that concentrates its efforts less on direct interventions and more on enabling others to be productive' (World Bank 1989: 5). What is notable about the Bank s approach to governance is that it makes it almost exclusively an internal affair, pointing to the need for domestic reforms while not acknowledging the impact of the nature of dominant international governance structures, such as the multilateral trading system. This approach to governance is 2 For further reading on the effects of the SAPs, see Green, Ibid. 2

3 linked to the Bank s own thinking on the causes of underdevelopment and the role of governments, which has evolved since the early days of its development role in sub- Saharan Africa from varying degrees of acceptance of responsibility for global development on the part of developed states in the 1970s to the role of state failure on the part of African states in the 1990s (Mawdsley and Rigg, 2003). This shift also reflects the evolution in the nature of the desirable state: from the developmental state on the early years of the post independence development projects, to the rolledback state of neo liberalism, to the current focus on building a strong and efficient state which facilitates economic development. In the early 1990s the concept of 'good governance' had two parallel meanings in dominant development discourse. The first and more limited meaning describes governance primarily in administrative and managerial terms and is associated with the World Bank, while the second, more associated with Western bi-lateral donor governments, involves this concern for administrative improvement, but it also included an insistence on competitive democratic politics as well (Leftwich, 1993), and highlights issues of human rights, accountability on the part of the state, and the role of civil society in holding it to account. By the end of the millennium, in spite of critics who argued that that inadequacies in the area of governance were a product of poverty and not the other way around (Grindle, 2004; Sachs, 2005), ideas on the development failure of African states in particular and the need for good governance, particularly in its limited, administrative sense as a prerequisite for development in general were well established. These ideas found expression in the MDGs, which clearly place the responsibility on developing states for ensuring that the targets of the development goals are met, while also recognising the need for increased aid flows from donor governments to support this responsibility. Governance Reforms and Conditionality The structural adjustment approach has now been replaced by a policy based lending approach within the World Bank. Within this approach, governance reforms play a central role. A recent World Bank report, Review of World Bank Conditionality, states that in recent years, the content of conditionality has strongly emphasized improvements in public sector governance [which] now account for the largest share of conditionality (World Bank, 2005: 11). This Review of Conditionalities defines the 3

4 Bank s position on the role of governance in development, and the way in which governance is written into the Bank s conditionalities. The governance reform agenda, although politically neutral sounding in its bureaucratic context, has implications for domestic politics and democratic processes. Governance requirements demanded of developing states are contentious because they are considered by some to be overly intrusive, as they include such inherently domestic issues such as legal framework building, corporate governance, tax reforms, public procurement procedures and anti-corruption initiatives; and in addition their contribution to pro-poor policies is questioned (de Barra, 2005). The relationship between this governance agenda and the deepening of functioning democracy has also been questioned (Burnell, 2004; Stiglitz, 2003), as external intervention into domestic institutions has implications for domestic democratic processes. These implications are demonstrated in the poverty reduction strategy papers (PRSPs), the key framework promoted by the World Bank to address criticism of the structural adjustment approach. The PRSPs have also attracted widespread criticism as being an externally imposed process rather than a development plan which reflected an internal policy process and political priorities of developing states (Gould, 2005). Introduced in 1999 the World Bank aimed, through the PRSP process, to simultaneously address the issue of focusing aid primarily on poverty reduction along with this contentious issue of its practice of using externally generated blueprints and aid conditionality to set a policy agenda for developing states. In addition, progress on debt relief was also tied into this process as in order to qualify for debt relief countries were required to produce PRSPs using World Bank guidelines. The extent to which the PRSPs represent any real transformation in the aid relationship is both deeply contested and crucially important (Abrahamsen, 2004) and has clear implications for democratic institutions and processes in the country in question. According to their critics, the functioning of PRSPs means that donors have a high level of access to the everyday operations of the government in relation to fundamentally domestic affairs, such as public expenditure. This raises the question 4

5 of whether the PRSP process is in fact more, rather than less, intrusive into the domestic affairs of recipient countries than the SAPs they replaced. Interpreting Ownership In answer to the persistent criticism of World Bank policy, including the PRSPs, as externally driven, the idea of country ownership is one of the six good practice principles for conditionality that emerged from the World Bank review of conditionalities 4. Although country ownership may be a core principle of good development practice, the way in which ownership is conceived of by the Bank is counter intuitive as it does not enhance the autonomy of developing states as policy actors rather it is a measure of the extent to which they are already committed to the type of policies sponsored by the Bank. Policy ownership defined in this way is perceived by the Bank to be a necessary prerequisite for successful implementation of its development programmes. The Bank s assessment of ownership of the program of policy or institutional actions on the part of the recipient state will impact on the Bank s development policy lending to that state. The Bank uses the idea of internalisation of appropriate policy as a criterion for selecting counties for funding. To avoid the accusation of imposing an externally determined programme, it looks for evidence that countries have a history of what it considers to be correct policies, basing its assessment on the government s track record of reform (World Bank, 2005: 14). When the Bank does not see sufficient evidence of ownership, it normally chooses not to engage in development policy lending (World Bank, 2005: 23). For the Bank, reform of the public sector is the most important aspect of governance reform, as reform in this area is central to the Bank s wider project of embedding policy reforms in the political and institutional systems of developing states. In the World Bank s view, development depends on institutions that provide dependable property rights, manage conflict, ensure the rule of law, and align economic incentives with social benefits and costs (World Bank, 2005: 10). In order to achieve this type of institutional framework, the content of the Bank s 4 The five principles are ownership, harmonization, customisation, criticality and transparency and predictability. 5

6 conditionalities has strongly emphasised improvements in public sector governance, support for government efforts to strengthen public financial management, fiduciary arrangements, public expenditures and public sector reform, with public sector reform now accounting for the 48% of all conditionality (World Bank, 2005: 11). While emphasising the role of public sector reform the Bank has de-emphasised policy conditionalities privatisation and user fees that had attracted strong criticism. Not that the Bank has abandoned these policies, but they are no longer expressed as conditions for receiving assistance (World Bank, 2005: 12). It is the range of conditionalities that the Bank considers essential to building the institutions of a state that forms the basis of its good governance agenda. As a result of these changes the governance conditionalities related to strengthening institutions, now reach deep into the details of the political and administrative processes of government in developing countries. One study counted 82 governancerelated conditions out of an average total of 114 conditions for each IMF/Bank agreement in Sub-Saharan Africa (Reality of Aid, 2007). The public sector governance conditionalities attached by the World Bank to development policy lending include some inherently domestic issues such as public financial management reform, procurement reform, pay reform and parliamentary reform (World Bank, 2006). Harmonisation and Policy Convergence In addition to their role in the World Bank s aid agenda, PRSPs are also the major vehicle through which donors and IFIs are harmonising aid to participating countries, and through which they expect progress towards the MDG targets to be made. Since the introduction of the PRSPs, and in the context of increased Direct Budget Support 5 as an aid modality, the World Bank and bilateral donors have strengthened the governance agenda as part of the allocation of aid, with improving governance as a key part of the donor focus on aid effectiveness and harmonisation, and recipient government accountability. While harmonization is a sensible endeavour in relation to cutting down on the administrative burden for recipient states, there is also the implication that harmonisation also means policy convergence, given that policies 5 Funding which is given to the general budget of a country, as opposed to a specific programme of work or sector. 6

7 need to be agreed by the range of donors involved. Policy convergence has a number of implications one being that as part of this process there may be a convergence towards, or at the very least a general acceptance of, the type of conditionalities used by the World Bank. If this is the case then the main frameworks for giving bilateral aid operated by donors impose a largely externally generated agenda on recipient states. If there is also a consensus on the detail of this agenda by donors, including policy content and also governance related aid conditionalities (as well as funding projects to assist states fulfilling these conditions), this will mean that the institutions of the state and its democratic processes will be subject to a high degree of external influence. Such a situation would have serious implications for the capacity of such states to improve the quality of democracy. This is especially so because the governance agenda of the World Bank does not have the emphasis on human rights, civil liberties and participation that were a feature of the earlier discourse on democratisation. The Case of Irish Aid To what degree is the World Bank s concept of governance is shared by the wider donor community? Taking the example of Irish Aid as a best practice donor, how is the idea of governance used in its discourse, and to what extent has the World Bank s narrow conceptualisation of governance replaced a broader interpretation incorporating concepts of democracy and equitable, poverty focused development. Irish Aid and the harmonisation agenda Like other OECD donors, Ireland has committed itself to the harmonisation process enshrined in the 2005 Paris Declaration. Irish aid is increasingly working with other donors in a harmonised way, including the mechanism of the PRSP, and other multidonor arrangements for direct budget support. Budget support is an aid modality in which Ireland has become increasingly engaged in some of its nine programme countries although in 2006 it only represented 3.3% of Ireland s overall bi-lateral aid budget 6. 6 Irish Aid Annual Report,

8 Irish Aid funding to the World Bank is increasing. One of Ireland s largest contributions to the World Bank is to the International Development Association (IDA) within the Bank, which engages in development policy lending. Irish Aid s contribution to the IDA rose from 8.4 million in 2002 to 18.6 million in 2005, and to 38.9 million in , rising at a rate faster than Irish Aid s budget overall budget. This increased spending reflects Ireland s growing budget, and in relation to this the fact that increased contributions to multilateral organisations do not need an increase in capacity within Irish Aid to manage risk posed the larger funding flow. It also means that indirectly Ireland is increasing its support for the conditionalities attached by the Bank to its development policy lending. To date, Irish Aid has not been overtly critical of the World Bank s conditionalities. Governance in Irish Aid Policy Governance is now a cross cutting issue for Irish Aid that must be reflected in all the organisation s work and publications (Irish Aid, 2006). Although up until this year Irish Aid has had no detailed published policy on governance, positions on governance have been articulated in the Annual Reports and in the recent White Paper on Irish Aid (2006). In the Annual Reports up to 1996, strong associations were made between governance, human rights and democratisation. From this date onwards, although this broader view has continued, it has become increasingly less dominant and a more technical, efficiency related usage has emerged as more significant - in line with dominant international discourse including that of the World Bank. At the same time, the upward accountability to the Irish taxpayer has also become progressively more evident as a driver of the interpretation of governance, as the aid budget grows and the government has come to believe that continued public support for the aid programme rests on the capacity to demonstrate strong financial accountability. This shift became stronger from 2000 when the commitment to reach the 0.7% of GNP in the Aid budget by 2007 was made.. Governance in the 2006 White Paper on Development Aid The first ever White Paper on Irish Aid, published in September 2006, is an important indicator of the trend in priorities of the Irish aid programme. In line with the rest of the international donor community, it cites the MDGs as a the roadmap for 7 Ibid. 8

9 international development cooperation up to 2015 (p. 28) and the Paris Declaration as the roadmap for improving aid effectiveness (p. 100). Echoing the language of the World Bank the white paper states that, development planning must be to the greatest extent locally owned and led (Irish Aid, 2006: 9). It does not in the document unpick the meaning of ownership, but in the context of the support that Irish Aid is giving to the Paris Agenda is seems reasonable to assume that they accept the Bank s definition. In the discussion of partnership there is an emphasis on the narrower definition of governance: partner countries must work to combat corruption and ensure effective and responsible government and also promote democracy and protect human rights. There, it is notable that effective government is an absolute requirement in contrast to the need to merely promote democracy and human rights (Irish Aid, 2006: 9) a point that is emphasised with the assertion that we, rightly demand good governance in our partner countries in order to meet the responsibility to Irish taxpayers (2006: 30). In Ireland s vision for development the term governance is coupled with corruption and state failure is defined as a key development problem (2006:29). The White Paper describes governance as relating to the exercise of power in the management of a country s economic and social resources ; it further defines it as the political and institutional capacity of a country to elect accountable government, create and uphold laws, promote and protect people s rights, meet people s needs and effectively and fairly manage the resources of the state. This narrow view of democracy is elaborated under the heading Democracy and the Rule of Law where Irish Aid lists its priority actions as support for free and fair elections (e.g. through the provision of election monitors and support for electoral commissions), support for parliaments and parliamentary reform and empowerment of independent regulatory offices, such as ombudsman s offices (2006: 40). In relation to this sanitised view of the state, where governance is related to the technical capacity of the state to finance, plan and deliver key social services (p. 39), in the White Paper there is a tendency to conflate a lack of resources with a lack of capacity, as part of the justification for a focus on governance rather than more direct service provision. It quotes the example of Malawi where there is only one GP doctor for every 100,000 people, while in Ireland there are 237 and argues that 9

10 Malawi has neither the institutional capacity to train enough healthcare professionals and doctors nor the systems to adequately determine the true health needs of their populations and therefore they need assistance to build that [institutional] capacity (2006: 39). The centrality of a narrow vision of governance to the White paper is also emphasised by the terms on which it will support pan-african political institutions, such as the African Union and the New Economic Partnership for African Development, organisations that seek to improve the accountability and effectiveness of national governments and reduce levels of corruption (2006: 40). The stated purpose of Irish Aid s engagement with these bodies will be to determine how best to support the Peer Review Mechanism and how to support the implementation of recommendations at the national level (2006: 40). The idea of partnership as [e]ffective cooperation for development is described as a compact between donor and recipient countries and there are responsibilities on both sides (2006: 30). This use of the term compact mirrors the idea of developing state responsibility that is an integral part of the Millennium Development Goals. It also begins to unpick the concept of partnership, not necessarily as a relationship between equals, but as something akin to a social contract in which both sides have specified rights and duties, and it is perhaps the more powerful partner that determines what those rights and duties are. Running through the White Paper is the theme of governance as necessary to ensure accountability to donors, and also the view that evidence of good governance or a willingness to engage in the type of governance reform that is becoming part of the dominant development discourse will be a requirement for a future programme based aid relationship with Ireland 8. The emphasis on accountability, especially to the Irish taxpayer, and the linking of this accountability to aid to improve governance, is a particularly strong feature of the White Paper. It states that [w]e will safeguard Irish taxpayers money. We will take steps to ensure that resources are not misappropriated, that risks are minimised and ensure that funds channelled through the state in developing countries, effectively 8 This point is also emphasised in the most recent policy statement on Governance on the Irish Aid website dated March

11 improve state capacity to benefit the poorest (p. 41). The issue of public support for the programme (phrased as ownership ), along with the public debate on corruption have influenced the language used in the document s interpretation of governance. It states that the assistance given must be as effective as possible. This is demanded by the scale of the problems we are trying to tackle and it is demanded by the public who fund these programmes (2006: 101). Here, governance is also being presented as a tool against corruption on behalf of the taxpayer. Irish Aid believes that the recognition that good governance is a condition for sustainable human development marks a significant shift in development thinking. It goes on to state that this change is influencing strategies for pursuing accountability reforms and improving institutional capacity and that associated with this, Irish Aid s spending increased considerably on governance related projects. Irish Aid also insists that the principles of governance are universal: they include respect for human rights; respect for the rule of law; political openness; participation and tolerance; accountability and transparency; and administrative and bureaucratic capacity and efficiency 9. The Irish government has the external pressure of a powerful international institution on the centrality of a narrow interpretation of governance in development practice. It also has domestic pressures, including the need to maintain public support for a rapidly increasing aid budget and some public criticism of its bilateral aid program based on a perception of corruption. It is significant that the framework within which it chooses to address these domestic issues appears to be largely within the narrower framework favoured by the World Bank. A broader interpretation of governance is still present in Irish Aid s discourse but increasingly it seems to be a technical view of governance that is informing its policy decisions in the context of aid harmonisation Conclusion There is currently a high level of consensus in the international aid regime, with little space for dissent. The now universally criticised structural adjustment approach of the World Bank has been replaced by the Bank s conviction that developing country governance reform is one of the core tenets of sustainable development. The donor 9 Available at 11

12 community has largely rowed in behind this conviction, and an emphasis on governance reform lies at the heart of this consensus. Irish Aid has formally associated the concept of governance with democracy and human rights. However, in its evolving interpretation and articulation of governance in public documentation, a trend toward a narrower interpretation is evident. An example of this is Irish Aid s interpretation of accountability, which increasingly fits within the World Bank s governance paradigm, emphasising an increased, upward fiduciary accountability to Ireland as a donor, and in turn to Irish taxpayers. In light of the large increase in the aid budget, the perceived risk to the programme posed by imputed corruption in African states is also currently a key driver in this focus on upward accountability, and is reinforcing the internationalisation of the World Bank s governance agenda. However, this increased accountability does not necessarily need to be of an exclusively fiduciary nature. Irish Aid, as a growing donor with self-identified good practice, can make different choices of emphasis within its use of the concept of governance and could relate accountability more strongly to the fulfilment by partner governments of the values which are embedded in Irish Aid s own principles, and articulated in the recent White Paper on Development Aid, values of human development, human security and justice, democracy, gender equality and human rights. It is not surprising, given its nature as a financial institution, that the World Bank has an economic and administrative focus, which serves its wider world view of economic liberalization and allows for a sanitised view of the state: one which provides the minimum guarantees for its citizens but satisfies the onerous administrative requirements of the donors. What is significant is an increasing policy convergence on the part of bilateral donors around the World Bank s position on governance. A bilateral donor such as Irish Aid can be a counterbalance to the increasing trend to manage development through a narrow range of externally driven policy prescriptions, enabling partner countries not just to be efficient administrations but self-determining actors in their own development. Government-to-government support provides an opportunity for a greater focus on the positive role of the state as an actor in development, and to support increasing policy space for both government 12

13 and civil society in recipient countries. The current focus of the World Bank on institutional development and public sector reform gives the Bank a high degree of leverage in how public institutions in recipient states are shaped through its governance conditionalities. In the face of this, there is a real need for strong alternative voices or positions from within the OECD donor community to support aid dependant states in the South in having the independent policy space to develop local solutions to their development needs. 13

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