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June 12, 2005
REVIEWS: Boon or bane?
Reviewed by Nur Ahmad Shah
Donor organizations like the International Monetary Fund (IMF), the World Bank (WB) and USAID, to name a few, provide resources and technical assistance to developing countries with a view to improve the latter’s economic and political systems. In 2004, the aid provided by the IMF and the WB amounted to 79 billion US dollars.Is such aid a boon or bane for recipient countries? Who does it benefit more — the donors or the donees? There is considerable literature relating to these queries. The USAID brochure, for instance, candidly concedes, “The principal beneficiary of the American foreign assistance programme has always been the United States. Close to 80 per cent of USAID’s contracts and grants flow back to American firms.”
Rotting from Head: Donors and LDC Corruption, the book under review, is a collections of essays by various writers focusing on the wastage of foreign aid due to corrupt practices on the part of the donors. One paper occupying more than half of the space in the book discusses a 26 million US dollar UNDP-funded Sustainable Environmental Management Programme (SEMP) launched in Bangladesh in 1998. In just 18 months, the officers entrusted with the implementation of the programme were charged with “corruption, financial fraud, administrative anarchy and embezzlements”. In another case, also in Bangladesh, 80 per cent foreign aid was reportedly embezzled.
The book debunks the charge against the recipient countries that they fail to make proper use of aid money due to “bureaucratic ineptitude, corruption and lack of institutional development”. Instead, with the help of empirical evidence, it indicts the donor agencies for their complicity in the aid related corruption scandals.
The studies referred to in these articles pertain to the major donor agencies, namely, IMF, WB and USAID. The articles highlight the organizational and administrative flaws besides total lack of accountability as a result of which corruption proliferates in the aid giving agencies. In the paper dealing with the state of affairs in the USAID, it is stressed that its contracting process is open to abuse for want of transparency. The contracting firms to whom the USAID business is awarded are run by its former employees. They are paid at US rates for work that would cost the donor agency much less if was done through the local contracting parties in the recipient countries at the local rates. Some former public sector officials acting as lobbyists or high ranking executives in the contracting firms make fortunes by using their close contacts within the government. Such beneficiaries include the former US Secretary of State George Shultz and the current US Vice President Dick Cheney.
The thrust of the essays is on a linkage between international aid, the quality of governance and economic growth in the developing countries receiving such aid. Good governance and steady economic development, it is argued, assume the aid has no strings attached. The developed countries, however, provide funds for the aid only to pursue their own foreign policy agendas. The donors use the aid as a lever to dictate economic and social development policies in the so-called Third World countries. Even the projects are selected and designed in the manner as to serve the donors’ interests and they have no relevance with the economic and social needs of the countries being assisted.
The empirical evidence collected from sample countries suggests that corruption besides hindering economic growth negates the norms of good governance. The impact of corruption on the quality of governance is visible in “increased transaction costs, decreased economic efficiency and reduced economic growth”.
International aid, as is borne out in these articles, has the potential for corruption which takes varied forms. Its large chunk is wasted on the consultants whom the aid giving agencies engage on high salaries and hefty perks. This inspires the critics to accuse the World Bank of “performing the role of transforming incomes from the poor of the poor countries to the rich of the rich countries”.
An equally weighty reason for the wastage of international financial assistance in some developing countries, if not all, is the lack of skilled people. Many trained workers in those countries seek jobs abroad where their skills are in demand and the salaries are much higher. In order to make the aid more purposeful it would be preferable to provide technical assistance and training to improve accountability, transparency and reduce transaction costs and discourage direct financial aid which is susceptible to be siphoned off.
Although Bangladesh is a focal area from which the empirical findings discussed in the book have been collected, international aid elsewhere no less reeks of corruption. Only the other day, a US audit came out with a revelation that about 100 million US dollars disbursed from the UN approved fund for reconstruction projects in Iraq are unaccounted for by Iraq’s now defunct US administration. In Pakistan despite massive international aid, the poverty graph is on the rise and sustainable economic development remains a far cry.
Rotting from the Head: Donors and LDC Corruption
Edited by Salim Rashid
The University Press, Dhaka For info log on to
www.uplbooks.com
Email: upl@bangla.net Available at Oxford University Press, Plot #38, Sector 15, Korangi Industrial Area, Karachi
Tel: 111-693-673
Email: ouppak@theoffice.net Website: www.oup.com.pk
ISBN 984-05-1701-5
232pp. Tk550
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