Super Typhoon Yolanda

9.7 million People Affected by Typhoon Yolanda/Haiyan in the Philippines Government of the Philippines (GPH)

23,200 Houses Damaged or Destroyed by Typhoon Yolanda/Haiyan in the Philippines –

Source: NDRRMC – November 11, 2013

• 615,770 People Displaced by Typhoon Yolanda/Haiyan in the Philippines

• 792,000 People Evacuated in Advance of Typhoon Yolanda/Haiyan in the Philippines

• 1,774 Deaths Associated with Typhoon Yolanda/Haiyan in the Philippines NDRRMC – November 11, 2013

Source: NDRRMC – November 11, 2013

Who will help us?

Foreign Aid and Development

Billy Jay N. Pedron, PTRP, MSHSMPh. D in Development Administration

Foreign Aid

Foreign Aid

Foreign aid is favored by developing countries as a source of development finance due to its concessional nature.

Despite an on-going dispute regarding its impact on economic development, developing countries continue to depend on foreign aid to combat poverty.

First World

Country

Developing Country

The Organization for Economic Cooperation and Development (OECD) defines ODA ( official development assistance) as “flows of official financing administered with the promotion of the economic development and welfare of developing countries as the main objective, and which are concessional in character with a grant element of at least 25 percent”.

• ODA’s particular objective is to support developing countries in the attainment of their economic development and social welfare.

2 TYPES OF OFFICIAL DEVELOPMENT ASSISTANCE

• Bilateral ODA

• Multilateral ODA

BILATERAL ODA

• Bilateral ODA – refers to ODA provided on a government to

government basis.

Example : Japan’s ODA to the Philippines

The pie chart indicates the breakdown of ODA for the Philippines by donor in all the forms (loans, grant aid, and technical assistance), based on the statistics of DAC (Development Assistance Committee) of OECD in 2008.This pie chart shows that Japan continued to be the top ODA donor in 2008, accounting for 33.1%.

Japan's Contribution to Economic Assistance Received by the Philippines ( LOANS 2008)

The pie chart shows the breakdown of loans for the Philippines by donor in 2008, based on the statistics of NEDA. The statistics of NEDA include not only the loans categorized as ODA by DAC, but also the loans that are not as concessional as Japanese loans and are not categorized as ODA by DAC.These statistics of NEDA show that Japan is the top donor of loans in 2008, accounting for 42%.

• Bilateral Assistance is given directly to the recipient government, without passing through a third institution. Bilateral assistance can be divided into the two main categories of (1) bilateral loans and (2) bilateral grants.

There are various kinds of grant aid, including project and non-project aid, grant aid for increased food production, debt relief grants, and grassroots grant assistance. Grants are usually smaller in amount than loans.

Technical Assistance

• Technical assistance involves providing equipment or services for a project, rather than funds. This could include sending Japanese experts to the recipient country, or bringing people from the recipient country to Japan for training programs. Development surveys are also included in technical assistance.

MULTILATERAL ODA

• Multilateral ODA – refers to grants or loans provided by international

or regional institutions such as the World Bank, the Asian Development Bank, or the United Nations. It is important to note that military assistance are not considered as ODA

ECONOMIC JUSTIFICATION FOR FOREIGN AID

• The importance of foreign aid derives from the usual constraints to development such as lack or insufficient capital, foreign exchange, and technical knowledge.

• Typically, the main constraint to attain self-sustained growth for a developing country is the lack or the insufficiency of capital.

• Domestic savings and exports from goods and non-factor services are usually inadequate to finance investment and import requirements, respectively.

• The insufficient domestic capital thus generates a resource gap and a foreign-exchange gap. Foreign aid can be tapped to close those gaps.

• Developing countries can either utilize foreign private capital, or it can avail of official capital to close the resource gap and/or the foreign-exchange gap, instead of private commercial loans with high interest rate and short repayment period.

• Empirical studies have shown that aid helps recipient countries to achieve national economic development goals. Chenery and Strout (1966) suggested that the Philippines is one of several countries where foreign aid have made a positive contribution.

THE CONCEPT OF ABSORPTIVE CAPACITY

• When donor countries decide to commit ODA to developing countries, concerns about the recipient’s ability to absorb large amount of aid are invariably raised.

• The reason is that the potential benefits from additional aid may often be constrained by weak capacity in the recipient country, frequently failing to meet intended objectives.

• Absorptive capacity derives from the ability to use capital productively in general. When it is used in the context of foreign aid, it refers to the recipient’s capacity to use aid for projects with acceptable returns.

CONSTRAINTS OF AID ABSORPTION

2005 Overseas Development Institute (ODI) Briefing Paper 7 proposes a useful framework for identifying the constraints to the capacity of a recipient country to absorb foreign aid. It classifies constraints into four types:

• (1) macroeconomic constraints, • (2) institutional and policy constraints, • (3) technical and managerial constraints, • (4) constraints generated by donor behavior.

MACROECONOMICS CONSTRAINTS

• Abrupt increase or decrease of foreign aid can have an adverse impact on the recipient country’s economy.

• Sudden increases in the supply of foreign currency can cause an appreciation of the exchange rate and a negative effect on the exports sector. This is often referred to in the economic literature as the “Dutch disease” problem.

Dutch Disease• The mechanism is that an increase in revenues

from natural resources (or inflows of foreign aid) will make a given nation's currency stronger compared to that of other nations (manifest in an exchange rate)

• Resulting in the nation's other exports becoming more expensive for other countries to buy, and imports becoming cheaper, making the manufacturing sector less competitive.

INSTITUTIONAL AND POLICY CONSTRAINTS

• the transparency and efficiency of budget system, the efficiency in the allocation of the aid resources, the effective delineation of the responsibilities among institutions responsible for aid management, and the systematic approach to the setting of the development priorities are the main factors that would determine aid effectiveness.

TECHNICAL AND MANAGERIAL CONSTRAINTS

• The lack of human resources with the right skills at the technical and managerial level can also be a major constraint.

• Skilled manpower is usually necessary to implement foreign aid projects, along with an effective enabling environment for a transparent process of project preparation and implementation, anchored on economically and financially sound evaluation criteria and competitive procurement procedures.

CONSTRAINTS GENERATED BY DONOR BEHAVIOR

• In general, donors have two motivations in giving aid to recipients.

1. One is to support recipient country’s development.

2. The other is to protect or advance the donor’s economic and political interest.

• If donor’s purpose is the latter, aid is usually given in the form of loans rather than grants and its use is tied to the donor country as a source of procurement.

• When aid is tied to procurement, the recipient country must procure goods and materials only from the donor country. This causes import dependency of ODA funded projects thereby reducing the recipient’s capacity to absorb aid.

Classification into short-and long-term constrains

Short Term Long Term

•‘Dutch disease’ effects •Aid volatility • Inadequate public expenditure management system • Perverse incentives in public officials performance • Lack of adequate infrastructure and equipment • Post-conflict and post-emergency constraints • Uncoordinated donor interventions

•Debt sustainability • Major deficiencies in institutions and policy process • Levels of aid-dependency • Technical and managerial skills of public officials (doctors, teachers, accountants) • Social/cultural factors determining demand for services • Difficulties in full donor shift to improved practices

COMILLA MODEL OF RURAL DEVELOPMENT

• The Comilla Model was a rural development programme launched in 1959 by the Pakistan Academy for Rural Development (renamed in 1971 the Bangladesh Academy for Rural Development).

• The Academy, which is located on the outskirts of Comilla town, was founded by Akhter Hameed Khan, the cooperative pioneer who was responsible for developing and launching the programme.

Origins and Purpose

• The Comilla Model was Khan's reply to the failure of Village Agricultural and Industrial Development (V-AID) programme, launched in 1953 in East and West Pakistan with technical assistance from the US government. The V-AID was a governmental level attempt to promote citizens participation in the sphere of rural development.

• Khan argued that for Comilla to develop rapidly, the farmers in its villages must be able to rapidly expand their production and sales The main constraint they faced was inadequate local infrastructure, especially roads, drains, embankments and irrigation.

Implementation • To simultaneously address problems caused by the inadequacy of both

local infrastructure and local institutions, the Model integrated four distinct components in every thana(sub-district) where it was implemented:

1. establishment of a training and development centre,2. a road-drainage embankment works program,3. a decentralized, small scale irrigation program, and4. a two-tiered cooperative system, with primary cooperatives operating

in the villages, and federations operating at thana level.

• Considerable emphasis was placed on distribution of agricultural inputs and extension services, for example by helping farmers to grow potatoes in the sandy Comilla soil, and using cold storage technology.

FeaturesThe main features of the Comilla Model were:

• The promotion of development and of refining of various institutions, both public and private, and establishing a system of interrelationships between them;

• Involvement of both public and private sectors in the process of rural development;

• Development of leadership in every village, including managers, model farmers, women organizers, youth leaders, and village accountants, to manage and sustain the development efforts;

• Development of three basic infrastructures (administrative, physical and organisational);

• Priority on decentralized and coordinated rural administration in coordination with officials of various government departments and the representatives of public organisations.

• Integration and coordination of the various developing services, institutions and projects;

• Education, organisation and discipline;• Economic planning and technology;• Development of a stable and progressive agriculture

to improve the conditions of the farmers, and provide employment to rural labour force.

Difficulties• For various reasons the Comilla Model was unable to

achieve its goal. It had particular troubles with government relations and efforts to build strong cooperative institutions. According to Dr Khan:

• … in actual practice, the four programs suffered from distortion, mismanagement, corruption and subversion. After Independence of Bangladesh, while the First Five Year Plan gave general endorsement, both theoretical criticisms and practical difficulties became more severe.”

Lessons From Comilla Experience

• Comilla Model provided an experience to be profited by later practitioners.

• In the early years of BRAC (NGO) and Grameen Bank in the 1970s, both Dr. Muhammad Yunus and Fazle Hasan Abed tested cooperative approaches to delivering credit to poor people. They concluded that the cooperative strategy could not work in rural Bangladesh. Instead, both directly targeted the poorest people, while attempting to keep out those who were not poor.

• Dowla & Barua recently summarized the thinking at Grameen Bank:

• A major reason for the prior failure of credit cooperatives in Bangladesh was that the groups were too big and consisted of people with varied economic backgrounds. These large groups did not work because the more affluent members captured the organizations

FOREIGN AID ISSUE

The quality of aid

• Aid quality is assessed using 31 indicators grouped in four dimensions that reflect the international consensus of what constitutes high-quality aid:– Maximizing Efficiency– Fostering Institutions– Reducing Burden– Transparency and Learning

Reviewing Aid Effectiveness• Aid effectiveness is the impact that aid

has in reducing poverty and inequality, increasing growth, building capacity, and accelerating achievement of the Millennium Development Goals set by the international community.

• Indicators here cover aid received as well as progress in reducing poverty and improving education, health, and other measures of human welfare.

Looking Back…

Where did Yolanda aid go?

OR

Thank you very much for listening

God Bless Us All!