The Multilateral Donor Chaos Helmut Reisen, OECD Development Centre Fall 2008

The Multilateral Donor Chaos

Helmut Reisen, OECD Development Centre

Fall 2008

OECD Development Centre

The multilateral donor chaos

1. Mapping the multilateral development finance non-system

2. Normative & positive explanations of the rising complexity

3. The costs of multilateral chaos

4. Multilaterals & the Millennium Development Goals

5. Toward an efficient role assignment

6. Development Finance in a Deleveraged World

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1. Mapping the multilateral development finance non-system

• Paris Declaration,• 3 HLF Accra 09/08

• I Ownership

• II Alignment

• III Harmonisation

• IV Managing for Results

• V Mutual Accountability

• Multilateral Development Finance

• Neglected in Accra and in Paris Declaration as driven by World Bank & OECD/DCD staff.

• Representation & inclusiveness on radar screen (e.g. IMF reform)

• Neglected: Simplification of non-system

• Need for mapping as 1st step

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Rationale for Mapping Multilateral System

Such mapping identifies • overlaps - leading to reduction of multilateral remit or proposals for

consolidation; • rivalries - leading to clarification of roles; and • absences of co-ordination - leading to the design and implementation of co-

ordinating structure.

• => to help identify areas for consolidation, • => address fragmentation and poor co-ordination at country level,

and • => help identify comparative advantages for institutional role

assignments among multilateral agencies.

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The Current Multilateral Complexity

SectoralFunds and Agencies

World Bank

UNDP

GFATM& other health funds

Global EnvironmentFacility

Others, e.g. Islamic Dev. Bank

NGOs

InternationalNGOs (e.g. Oxfam)

Regionaldevelopment banks

and agenciesUN Specialised

Agencies

National NGOsin donorcountries

National NGOsin developing

countries

MultilateralDonors

Fast Track Initiative/ Education for All

IMF

Public Private

Private Philanthropy

Private Commercial

Sector

DAC donors23 members, including

the European Commission

Other OECDcountries (non-DAC)

Emergingdonors

(e.g. China, India)

BilateralDonors

Bilateral development banks and agencies

Sources (Taxes, Donations and Markets)Sources (Taxes, Donations and Markets)

Beneficiaries (Fragile States, Low Income Countries, Emerging EcBeneficiaries (Fragile States, Low Income Countries, Emerging Economies)onomies)Indicates observer status in DAC.

Foundations such as Gates, Rockefeller,

Ford, Wellcome Trust

Households (e.g. remittances and other

private transfers)

Firms (e.g. foreign direct investment, Corporate Social Responsibility)

Commercial Banks (e.g. loans, export credits, financial guarantees)

Private Investors (e.g. portfolio and equity

investments)

SectoralFunds and Agencies

World Bank

UNDP

GFATM& other health funds

Global EnvironmentFacility

Others, e.g. Islamic Dev. Bank

NGOs

InternationalNGOs (e.g. Oxfam)

Regionaldevelopment banks

and agenciesUN Specialised

Agencies

National NGOsin donorcountries

National NGOsin developing

countries

MultilateralDonors

Fast Track Initiative/ Education for All

IMF

Public Private

Private Philanthropy

Private Commercial

Sector

DAC donors23 members, including

the European Commission

Other OECDcountries (non-DAC)

Emergingdonors

(e.g. China, India)

BilateralDonors

Bilateral development banks and agencies

Sources (Taxes, Donations and Markets)Sources (Taxes, Donations and Markets)

Beneficiaries (Fragile States, Low Income Countries, Emerging EcBeneficiaries (Fragile States, Low Income Countries, Emerging Economies)onomies)Indicates observer status in DAC.

Foundations such as Gates, Rockefeller,

Ford, Wellcome Trust

Households (e.g. remittances and other

private transfers)

Firms (e.g. foreign direct investment, Corporate Social Responsibility)

Commercial Banks (e.g. loans, export credits, financial guarantees)

Private Investors (e.g. portfolio and equity

investments)

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The Current Multilateral ComplexityThe Current Multilateral Complexity

• Selected Multilaterals The CRS Directives for ODA Reporting Instructions list as ODA eligible:23 DAC members with a varying number of agencies47 UN agencies, funds and commissions4 EC bodies 2 IMF trust, 5 World Bank Group bodies12 regional development banks and funds other multilateral institutions (incl. GEF and GFATM)32 international non-governmental organisationsand 5 main public-private partnerships

.

Source:The Economist5th July 2008

Number of staff

Budget$ bn, 2007

World Bank(IDA/IBRD)

10,000 (+ IFC staff)

(2.1) 26.8

IMF 2,500 0.9

WFPFAOIFAD

10,600 3,600 430

3.0 0.8 0.1

UNDPUNCTADUNIDO

5,300 450 650

4.9 0.1 0.2

UNESCO 2,100 0.7

WHOGFATM

8,000 450

1.6 0.2

AfDB 1,500 0.2

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Proliferation of International Organisations- IOs by founding decade and sector-

• 263 IOs are ODA eligible in 2008 (no info for 13!!).• Before Bretton Woods (1944) and UN (1945), only 15.• High fragmentation in health sector: 34 IOs. • Source:DAC Report on Multilateral Aid, 2008 7


Proliferation & Size

• Core & non-core funding commitments, 2006

• Total: $ 43 bn; of which• 2/3 for 5: EC, IDA,

GFATM, ADB, AfDB• 100 agencies < $ 20 mn/yr• Source: DAC Report on Multilateral Aid, 2008

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Normative & positive explanations of the rising complexity

Normative• Multilateral instruments needed for a global

response to:

• climate change; food ,water & energy shortages;

• rising disparities between the world’s richest and poorest countries;

• terrorism, ethnic conflict, and social fragmentation;

• financial risk, the threat of protectionism, and job insecurity.

• Unilateral action fails because each country has an incentive to under-reveal demand for a nonexcludable good (Buchanan 1968).

• Undersupply of public goods if each member state reduces expenditures as allies increase theirs (Olson and Zeckhauser 1966).

Positive• A public choice analysis of voters’ behavior :

fiscal illusion & majority voting explain inadequate finance for international cooperation.

• Two-stage principal-agent problem:

• Multilaterals receive more aid money when populations’ support for aid low (Milner 2005).

• Bureaucrats take advantage of asymmetric information in requesting annual budgets greater than optimal from a taxpayer perspective (Niskanen 1971).

• Agency slippage has a tendency to increase with the number of principals (Olson1965).

• Development agencies can’t control big organisations such as the World Bank as the bilateral to multilateral staff ratio is too low.

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Net debt flows to developing countries, % of net capital flows

•IMF, World Bank and development banks crowded out of international lending by a decade of abundant bank credit.

•In strong contrast to rising complexity.

•Any other financial institution with those results might be wound down.

•Recipients complain about “the cost of doing business” (a term borrowed from IFC) with multilaterals: paperwork, standards, PRSPs.

•Yet the IFI’s shrunken loan book may soon be a big asset –as countries’ own balance sheets deteriorate , yet not sufficient.

•Suggestion: Introduce peak-load pricing as holding on to IFIs is akin to electricity utilities,

•Peak-load pricing: ‘costs of doing business’ with IFIs: conditions, benchmarks, rates.

•=> more efficient use of– and lower – IFIs capacity.

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The costs of multilateral chaos

Fragmentation cost is high when LDCs have to deal with a large number of donors that provide a small share of CPA. This may weaken ownership and burden limited institutional capacity.•38 countries had 25 or more multilateral and DAC donors in 2005-06.

•Highest potential to focus aid is in the 35countries, where 9 or more IOs are providing cumulatively less than 10%of a country’s total aid.

•Fragmentation is reduced when a donor provides above its average share of global CPA to more of its partners.Source: OECD/DAC, AID FRAGMENTATION, AID ALLOCATION AND AID PREDICTABILITY, 2008

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Donor fragmentation and bureaucratic quality

• In principle, competition is to be welcomed as it undermines donor cartels, which should be good news for recipients.

But: Donor fragmentation is associated with low-quality administrations in recipient countries. One explanation: the best are poached away from local bureaucracies to work for donor projects.

→ Aid agency competition may be fine, but bundle service delivery on the ground.

Source: 'Donor Fragmentation and Bureaucratic Quality in Aid Recipients', Journal of Development Economics, 2007, 83: 176-197

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MDGs: Multilaterals claim a role in their annual reports, but none is accountable.

(Convenient excuse: problems are home-made; but then what role for mutilaterals?)

• Unclear institutional assignments to the MDGs

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Multilateral fragmentation

• Scope for more country focus

•Table shows multilaterals with least country focus.

•A high percentage indicates that the agency’s co-operation programme is more concentrated.

• Top level of concentration ( 100% )for regional agencies such as IDB.

•Country overlap is most striking in Central Asia (IDA, EBRD, EIB, IMF, CE...).

•Aim:focus on fewer partners while playing a bigger role in each and concentrating on fewer sectors in each partner country.

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Multilaterals Effectiveness- Paris Declaration (2008) -

• 3 = Alignment, i.e. % of aid flows reported in partner budgets• 4 = Capacity strengthening, i.e. % of provided through coordinated programmes• 5 = Use of country's financial management (5a) and procurement (5b) systems• 6 = No. of paralel project implementation units• 7 = Predictability, i.e. % of aid disbursed during the scheduled year• 9 = Use of common arrangements & programmes• 10= Shared analysis (% field missions, analytical work) 15


Multilaterals Effectiveness-Other self-driven assessments-

• MOPAN: The Multilateral Organisations Performance Assessment Network was created in 2002

• as a network of like-minded donor countries.

• The Survey is based on the perceptions of MOPAN member embassies or country offices, arising from their day-to-day contacts with multilateral organizations .

• The MOPAN Annual Survey is not an evaluation and does not cover actual results on the ground.

• Avoids inter-agency comparisons => no basis for inter-agency decision making.

• Approach does not allow to draw firm conclusions about effectiveness.

• COMPAS: – The Common Performance

Assessment System

– The purpose of the COMPAS is to provide a common source of information on the results orientation of 5 MDBs – AfDB, AsDB, EBRD, IADB, WB.

– Focus on group synergies and not on individual comparisons across institutions, => not built to enhance inter-agency choice and multilateral coherence.

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Multilateral Assessment Frameworks → Performance

measures may help improve multilaterals' performance, hence raise x-efficiency,

but they will not improve multilateral coherence, i.e. allocative efficiency for donor funds.

Performance vs Coherence

MDG A

MDG B

1

23

4

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Toward Efficient Role Assignment

• Tinbergen Role Assignment: to achieve conomic goals effectively, there must be at least as many policy instruments at the disposal of the authorities, as there are policy targets to be met.

• Literature: Tinbergen (1952), Theil (1961), and Mundell (1962)

• n independent targets of policy => n effective and unbounded instruments of policy if the targets are all to be met.

• Suppose we had two targets, income Y and health H, and two multilateral instruments, IDA soft loans L and health grants G. We then have

• Y = α1L + α2G + A1 (1) • H = α3L + α4G + A2 (2)• A1 and A2 are all other influences on Y and H. If A1 and A2 are

known, L and G can be solved for target values of Y and H. • The instrument that produces the largest absolute change in the

other target is the one that ought to be assigned to that target.

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Toward Efficient Role Assignment

• The Tinbergen Assignment Rule calls for institutional specialisation

• Few countries are on track to meet their MDGs

• Many IOs claim to work on MDGs• => need for accountability• Develop quantitative and qualitiative

measures of IOs' contributions to each of the MDGs to prepare division of labour & responsabilities

• => 1st Step twd Coherence & Accountability for Multilaterals.

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OECD Development Centre 20

6. Development finance in a deleveraged world

Impact of deleveraging• Mid term: push 2/3; pull 1/3

– With global growth down, flows down

– “Hunger for yield’ satisfied

– Time to rebuild bank capital → less bank credit

• FDI picks up post-crises• Helped by SWFs (no debt leverage)?


5. Development finance in a deleveraged world

Multilateral ODA:

The Comeback Kids?

• Aid to be curtailed? – Deep slumps vs cycles

• IFIs will crowd back in…• …But will it be enough?• Can Asian FX reserves be leveraged

through IFIs?• Stimulate private-flow insurance Source: OECD Development Centre, based on

World Bank Global Development Finance, 2008.


6. Global Governance

• Less reliance on international soft law (EITI, DSF)?• Less influence for Wall Street/City → more regulatory

independence?• Less pro-cyclicality in bank capital regulation • Less relevance for rating agencies

• More emphasis on guarantees and MDBs• More emphasis on G20, less on G8, HDP, etc.• Who represents Small Poor Countries?


7. Positive aspects of the global credit crisis?

• Lower fuel & food prices→ More PP for poor, less government subsidies?

• Lower rents → less resource curse?• Less chavismo?• Tax heavens closed?• More intergenerational justice as asset prices go down• More talent allocated to real economy, less to finance

Documents

The Multilateral Donor Chaos Helmut Reisen, OECD Development Centre Fall 2008