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Sunday, September 13, 2009

Dead Aid, By Dambisa Moyo - Reviewed by Paul Collier

Thanks to Bina Shah for indirectly raising this issue. The crux of Moyo's arguments are also applicable to any third world country that is afflicted with corrupt leaders. Paul Collier's suggestions are equally interesting. Suggest read the whole review~t

The first stage in her argument is that aid is easy money. If governments had to rely upon private financial markets they would become accountable to lenders, and if they had to rely upon taxation they would become accountable to voters. Aid is like oil, enabling powerful elites to embezzle public revenues . She catalogues evidence, both statistical and anecdotal. But the core of her argument is that there is a better alternative. Governments could find money for development through financial markets, both international and domestic. Historically, the governments of those countries that have successfully developed funded investment by recourse to international markets. In order to borrow, they needed decent credit ratings; to get the ratings, they had to be transparent and prudent. The discipline of transparency and prudence were as important as the money in promoting development. Some of the stronger African governments have at last started down this road. She also sees huge scope for innovations in micro-finance, such as the group borrowing pioneered by the Grameen Bank in Bangladesh.

However, cutting aid may not be the best response. My preferred alternative is to strengthen its potential for "governance conditionality": aid agencies should insist on both transparent budgeting and free and fair elections. That said, I have to admit that Moyo has a good retort. She shows how feeble aid agencies have been: when occasionally one gets tough, others compensate. Within aid agencies, performance is judged predominantly by short-term criteria such as how much aid is disbursed, rather than longer-term effects on accountability. Based on past behaviour, a government could assume that the aid would keep flowing more or less regardless of what it did.

Dead Aid, By Dambisa Moyo - Time to turn off the aid tap? - Reviewed by Paul Collier


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