Are aid donors now running Haiti?

This post is written by Daniel Altman Who will determine Haiti’s future?  Probably not the Haitians.  With aid groups enlarging their presence on the ground and foreign governments exercising control through their wallets, Haiti’s future may be out of the hands of the Haitians for years to come.

Nowhere is this clearer than in the recently convened Interim Committee for the Reconstruction of Haiti (CIRH), which will set the nation’s priorities during an 18-month state of emergency.  The committee has more seats for foreigners than for Haitians, and voting power is determined in part by amounts of aid money committed.  Donors offering more than $100 million have their own votes; those offering less must share one vote.  Non-governmental organizations operating in Haiti share one seat on the committee but don't have any voting power.

The World Bank will dole out the donors’ money at the instruction of the CIRH, but it is not alone in holding the purse strings.  Haiti has also accepted a loan of over $100 million from the International Monetary Fund, which includes lengthy conditions and benchmarks for Haiti’s economic policy.  Meanwhile, the United Nations Development Program is poised to become the country’s biggest employer through its Cash-for-Work project, and UNICEF is moving forward with a long-term plan to build a national education system.

How did this happen?  After the earthquake, with its people in desperate need, Haiti’s government was ripe for coercion.  Donors could set their own terms, and the government was not in a position to negotiate, even if it wanted to.  Three months later, this continues to be true.  Haiti’s president, René Preval, can in theory veto the CIRH’s decisions, but doing so might mean the freezing or loss of hundreds of millions of dollars.  And now his backers in the Haitian senate want to extend the 18-month state of emergency – and thus the CIRH’s mandate – to solidify their own grip on what’s left of political power.

“I believe everybody agrees this conference is a unique occasion to try to rebuild the Haitian economy,” said Dominique Strauss-Kahn, managing director of the International Monetary Fund, at the international donors conference for Haiti last month.  You could be forgiven for thinking that Strauss-Kahn considered the earthquake a blessing.  Yet he may have been echoing the views of many people in the aid community; finally, he seemed to say, we can go into this country with a free hand and do the things that we've wanted to do for a long, long time.

Daniel Altman is president of North Yard Economics, a not-for-profit consulting firm serving developing countries.  He is the author of three books, most recently Power in Numbers: UNITAID, Innovative Financing, and the Quest for Massive Good (with Philippe Douste-Blazy), and teaches as an adjunct at the Stern School of Business.

Fund for Unsolvable Problems: is the IMF the new UN?

Scarcely another G-8 handshake goes by without piling another responsibility on the International Monetary Fund. The communiqué after the latest G8 Finance Ministers’ meeting last weekend asked the Fund to help devise “exit strategies” from stimulus at the exact right time in the exact right manner, which nobody knows and the G-8 cannot agree upon. Then they asked IMF should do more concessional lending to poor countries. So the IMF is only being put in charge of (1) the rich countries, and (2) the poor countries. Of course, no G8 country would really yield sovereignty on policy to the IMF, or even allow it to determine its bilateral foreign aid policies. What seems to be going on is the same kind of shadow play the Great Powers have long played with the UN: (1) a terrible international problem appears, (2) the Great Powers do not want to commit any real capital to reach a solution, or they cannot agree on a solution, or they simply don’t know the solution, (3) but the Great Powers must appear to act anyway, (4) so they put the UN in charge of the unsolvable problem, and then (5) blame the UN when the problem remains unsolved.

This five-act shadow play has worked out so well for the Great Powers in places like Somalia, the Congo, and Darfur that the G8 appears to have decided to try the same thing with the global financial crisis. Here, they don’t want to commit real capital to international coordination or cushioning the blow to poor countries, they can’t agree what to do anyhow, and they really don’t know the solution in the first place. So let’s put the IMF in charge! And then blame the IMF when things continue to go badly!

In other news, the G8 Finance Ministers hid out during the meeting in a previously unknown place called “Lecce” somewhere in Italy in a medieval castle, but still couldn’t escape protesters who shouted out their own much shorter communiqué: "G8, economy, lies."

Thieves and Donors: Agencies Struggle to Respond to a Little Constructive Criticism on Tajikistan

Last month, the International Crisis Group came out with a report describing the "profound and all-pervasive nature of corruption in Tajikistan," and recommending that the international donor community "institute a totally new framework for the provision of aid to Tajikistan." Since "most" of the substantial amount of money provided by international donors (some $300 million in 2006) "is believed to be lost to corruption before it gets anywhere near its intended recipients" the ICG reasonably recommended that donors take another look at whether it is good idea to give Tajikistan direct budget support (that is, provide cash directly to the Ministry of Finance to go into the budget for public spending). If the government doesn't get into shape, they said, donors should keep on funding humanitarian relief but cut off direct budget support.

We wondered what Tajikistan’s donors would say about these recommendations. In an ideal universe of flexible, accountable aid, surely donors would welcome impartial, externally-funded research. They would have in place some mechanism to evaluate the recommendations and determine whether existing aid programs should be tweaked or even discontinued in light of new findings...right?

To their credit, the donors we spoke with were aware of the ICG recommendations, and all responded (though some more slowly and reluctantly than others) to our questions.

The IMF told us that the majority of the ICG findings didn’t apply to them: the IMF doesn’t give direct budget support, and it doesn’t fund specific projects. As it happens, though, a new IMF loan of $120 million was announced the same week the ICG report came out. The loan will go the central bank to bolster Tajikistan’s foreign currency reserves. "As is the case in all IMF programs, we will also conduct a safeguards assessment that seeks to confirm that IMF resources are used as intended" said the IMF rep in an email message. We just wonder if this is the same safeguards assessment that was conducted before the last six misreporting incidents between Tajikistan and the IMF, the most serious of which required Tajikistan to give back some $50 million dollars and hire Ernst and Young to conduct an independent audit of the National Bank.

So who is giving direct budget support to Tajikistan? The World Bank’s portfolio for 2006 to 2010 includes $30 million in direct budget support. A new agreement, also reached the same week that the ICG report came out, will add $20 million to that figure, bringing budget support to 30 percent of the World Bank’s total grants in Tajikistan.

Reached via email in Dushanbe, the World Bank rep said of the ICG report: “We do not find ourselves in a position to comment on those recommendations…what we can say though is that the World Bank is aiming to support the people of Tajikistan…and the monitoring and audit systems in World Bank-funded projects are carefully designed to ensure that the funds reach those whom they were intended for.”

At the same time, though, the World Bank rep sent us a case study commissioned by Brookings (forthcoming) on aid effectiveness in Tajikistan. This report’s key conclusions are worth quoting at length:

The existing aid coordination architecture and interaction mechanisms between the Government and development partners are unable to ensure efficient use of foreign aid resources being provided to Tajikistan. As a result, planned (or expected) results and impact are substantially different from those realized on the ground. External assistance...has resulted in the perverse situation of a lack of incentives and inability to focus on and pay attention to the long-term determinants of domestic growth and appropriate political and economic institutions.

What do you think? Are donors in Tajikistan and elsewhere doing enough to safeguard aid funds and make sure they reach the poor? Or are they taking the path of least resistance, responding to strong institutional incentives that require donor organizations to keep the money flowing? What more do you think can be done?