Does health aid to governments make governments spend more on health?

If you’re not an economist, you might reasonably assume that the answer to this question is yes. The story might go something like this: aid agencies give money to poor country governments to distribute bed nets or give vaccinations, and those additional funds are added to whatever money the country was able to scrape together to spend on health before the donor came along. As a result of the health aid, the total amount of money spent on health increases. There is new evidence, from a study from the Institute for Health Metrics and Evaluation published in the Lancet last week, showing that this story doesn’t describe what’s really going on. Overall, global public health financing shot up by 100 percent over the last decade, but the study’s authors found that on average, for every health aid dollar given, developing country government shifted between $.43 and $1.17 of their own resources away from health. The trend is most pronounced in Africa, which received the largest amount of health aid.

The finding that health aid substitutes for rather than complements existing government health spending has caused a miniscandal in the press precisely because it runs so counter to people’s optimistic expectations, perpetuated by aid agencies’ fund-raising campaigns, about the level of control that donors can exert over the spending of developing country governments.

Economists, on the other hand, have been beating the dismal drum for a long time on this issue. In 1947, Paul Rosenstein-Rodin, then a deputy director at the World Bank, famously said, “When the World Bank thinks it is financing an electric power station, it is really financing a brothel.” Economists expect that aid will be at least partially fungible (that is, that aid money intended by donors for one sector or project can and will be used by governments interchangeably with funding for other priorities), and this prediction is borne out by empirical studies from the late 1980s on. The authors of a 2007 paper in the Journal of Development Economics observed, “While most economists assume that aid is fungible, most aid donors behave as if it is not.”

You might argue (as Owen Barder does in depth here) that recipient governments are acting rationally in response to erratic donor funding, which ebbs and flows according to donor priorities and how well the global community mobilizes fundraising around a particular issue in any given year. After all, doesn’t the donor community’s insistence on country ownership mean that they want poor country governments to be able to set their own budget priorities?

The problem is that aid agencies have long used the argument that earmarking aid for a specific project or sector is a credible way to force recalcitrant recipient country priorities into line with donor priorities—to coerce bad governments into making good decisions.

If  governments that don't prioritize their people's welfare respond to an influx of aid money by simply shifting their existing resources around to circumvent donor priorities (and we don’t know what is happening to the resources shifted away from health—they could be going to private jets and presidential palaces, or to education, infrastructure, or loan repayments, or really anything at all),  then the aid agency argument for project aid falls apart. The burden of proof correctly lies with the aid agencies to show that aid isn’t freeing up funds for bad governments to use badly.

The Lancet findings are scandalous, relative to the naïve but widespread belief that donors can use earmarked aid to force bad governments to behave.

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The coming collapse of the aid system?

There are signs of coming collapse all around us.  The complexity of the system is accelerating, despite the good intentions of the Paris and Accra declarations, as the system struggles to cope with change.  Here is a graph showing the number of individual aid projects recorded in the AidData database:

This comes from the blog of Owen Barder. His apocalyptic musings were inspired by NYU professor Clay Shirky blogging about Joseph Tainter’s book, The Collapse of Complex Societies, which describes how advanced societies (the Romans, the Mayans) become inflexible and collapse rather than adapt in the face of stress.

Owen sees evidence for impending implosion of the aid system in the proliferation of aid projects (pictured above), the popularity of anti-aid views from figures like Dambisa Moyo and Andrew Mwenda, and emerging actors like China and the Gates Foundation that work to some degree outside the existing aid system.

The post is full of great examples illustrating the development bureaucracy truism that it is perversely much easier to make something more complex than it is to make it simpler. The most succinct: “Senegal has 82 individual aid coordination forums.” He also describes a recent donor meeting in Ethiopia intended to simplify and streamline the aid landscape in which each donor came prepared only to make the case for their essential involvement in every single sector.

Why should this be so? Owen observes that “the bureaucratic and political need to be involved in many sectors in every country is a far more powerful force than the intangible development benefits of simplification.” A new paper presented at the recent Aid Data launch conference argues that bilateral donors fractionalize their aid into smaller and smaller projects order to increase their control over aid expenditure.  Once again, it’s all about control and what makes good politics for the donor, not about what’s most effective for the recipient.

These examples and new research make it easy to follow the argument that the sector is doomed to become more and more complex. But what the apocalypse will look it – or if it will happen – is very unclear.

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Getting unstuck from the boring rut of aid debates

This aid debate is starting to sound rehearsed. People really need to move on to different questions, and stop running the same conferences and forums.

This is the very sensible opinion of Chris Blattman on an aid discussion just published in the Yale Journal of International Affairs, which included yours truly and other better people. I am bored as anyone else with endlessly repeating the same arguments, and would dearly love to move on.

Hope flared briefly with yesterday’s story: Aid agencies announce they will be accountable to independent evaluators. As soon as this happens, I would be very happy to close Aid Watch and move on to other things.

By all means, let’s all try to find new arguments, new tactics of persuasion, new satires, new promises to not do satire, anything that will work to get out of this rut.

But when the actions you criticize continue unchanged, you have to keep criticizing those same actions. And when the people you are debating keep making the same arguments, you have to keep repeating the counter-arguments.

Professor Collier, in your contribution to YJIA, you do offer hope to spice up the discussion. In response to the question about “the risks …[of] military intervention as an acceptable development policy tool,” you say:

We need clearer international rules of engagement. By defining the circumstances in which international intervention is legiti­mate, we also define those in which it is not.

Maybe we could move the debate to a more exciting level if you would clarify who is included in “We”?

You also add a very welcome dose of realism:

Everybody is happy to propose the aid architecture appro­priate for the best-case scenario, but there has been political reluctance to think through the architecture appropriate at the other end of the spectrum.

I totally agree with you, now we are getting somewhere!

Oops,  now I am a little bit puzzled by this recommendation:

I would like to see an explicit process of mutual commitments covering the post-conflict decade made by the Security Council (for the provision of security), the aid agencies …and the post-conflict government …I would like to see the Special Representative of the Secretary General of the United Nations given greater powers of coordination over other actors during this decade, in effect as the neutral supervisor of these mutual commitments.

So, all the Great Powers on the UN Security Council will give up all their foreign policy interests and agree to universal and benevolent neutrality, and everyone else in the world will now recognize them as neutral and benevolent? Wouldn’t this qualify as a “best-case scenario”? Perhaps if this scenario doesn’t work out then it's time to accept your suggestion to "think through the architecture appropriate at the other end of the spectrum”?

(I hope these last two blog posts don't violate my satire probation!)

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Is “Delivering as One” failing to deliver? The case for a market-based approach to UN reform

The following post is co-written by Sandra Sequeira, Professor of Development Economics at the London School of Economics and visiting scholar at DRI, and Christian Schornich, who works for the United Nations. The proportion of aid channeled through the UN system shrank from ten percent to five percent over the last eight years. And yet the UN’s massive bureaucratic machinery is not being downsized accordingly. In fact, a complicated web of programs and agencies with a whopping 7,000 overlapping mandates—sometimes even working at cross-purposes— have in recent decades defied numerous bouts of reform.

Three years ago, the UN launched a new initiative entitled “Delivering as One,” meaning that in each country there would be one leader coordinating all agencies in the field, one budgetary framework, and one operational support system. The goal was to increase efficiency, cut waste and pass on administrative savings to programs.  Eight countries from Mozambique to Cape Verde volunteered to pioneer this reform. While cutting the fat out of the UN system is a commendable goal, a deeper issue failed to make it to the discussion table: should reform only represent a centripetal force towards becoming one, or a centrifugal force that propels multiple agencies to compete in the market for aid and justify their relevance?

Since the beginning of “Delivering as One,” no departments have been merged and not a single program has been cut. Three years into the process, administrative savings are yet to be calculated because there is no budgetary framework that clearly accounts for the overhead costs of the different agencies and programs.

There is a real danger that the search for “Oneness” has already become just another episode in a series of floundering reforms, where “harmonization” and “integration” really mean covering up inefficiencies and keeping underperforming agencies and programs afloat. But here’s an alternative: the UN could seize the opportunity to rethink its mandate based on its comparative advantage in the current market for aid, and stick to it.

What would happen if the UN stopped thinking of itself as a world government in the business of only providing public goods, where cost-effectiveness is not necessarily the bottom line, and started thinking of itself as an organization actively competing with other agencies in the market for aid? The landscape of aid agencies has changed dramatically since 1945—the UN is now forced to compete against McKinsey when providing technical support to Latin American governments, with the Gates Foundation when fighting HIV/AIDS in Africa, and with the US military when building schools in the foothills of Afghanistan.

The aid market is segmented by fields, and competition varies significantly across them. There are "natural monopolies" which require agencies like the UNHCR to secure the rights and well-being of refugees across political borders, UNRWA, the International Atomic Energy Agency, the International Court of Justice or the WTO. In these fields, a UN monopoly is justified by the high political and fixed costs of setting up an inter-governmental cooperation mechanism, by decreasing marginal costs of providing the service, and by positive network effects.

Other agencies like the United Nations Industrial Development Organization (UNIDO) and the United Nations Development Program (UNDP) operate in highly competitive markets. In more extreme cases, the UN even competes against itself via the International Fund for Agricultural Development (IFAD), the Food and Agriculture Organization (FAO) and the World Food Program (WFP); the United Nations Development Fund for Women (UNIFEM), the Joint United Nations Program on AIDS (UNAIDS), and the United Nations Population Fund (UNFPA); the United Nations Conference on Trade and Development (UNCTAD) and the International Trade Center (ITC), among others.

The UN's search for comparative advantage could be compared to a government deciding which services to provide directly and which services to privatize. Areas in which the benefits of competition can be high through the creation of incentives to deliver high-quality services at the lowest cost possible are prime fields for “privatization.” In these segments of the market for aid, the UN could act as the "aider of last resort" instead of a frontline participant. This would mean specializing in areas in which there is a clear need for large-scale interventions, but where no private corporations, NGOs, civil society or development consulting agencies dare to go. While this would be the path less traveled, it may be the only one that leads to meaningful reform.

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If hotels were aid agencies...

Me: Hello, I have a reservation for this evening, for a non-smoking room with one double bed. Hotel: Yes, the Hotel Reconstruction and Development Bank has approved an Overnight Accomodation and Poverty Reduction (OAPR) grant for this purpose.

Me: So can I have my room please?

Hotel: The OAPR committed the room, but in order for the room to be disbursed you have to present an Overnight Accomodation and Poverty Reduction plan, to be approved by our board. Here is the OAPR Preparation Guidelines and Best Practices Sourcebook (hands over thousand page document).

(hours later)

Me: Thanks for approving my OAPR plan, now can I have my key?

Hotel: The OAPR is a collaborative effort involving many donors. The keys are provided by the Swiss. Thanks to our improved coordination efforts, the Swiss aid office is only 60 kilometers away, and can help you complete the Swiss room key procurement guidelines.

(hours later)

Me: Hello, is this the front desk? I just got into my room, and there is a stranger who says that he also is sleeping in my room.

Hotel: The OAPR is available to all eligible beneficiaries. Best practice guidelines try to maximize the utilization of all available beds.

Me: But neither he nor I want to share a bed. In our culture, it is not usually considered acceptable for male heterosexual strangers to sleep in the same bed.

Hotel: All our programs are culturally sensitive and context-specific. I will refer your comment to our Oversight Committee on Safeguard Policies, which addresses fully both of the issues you raised: involuntary resettlement and cultural mores of indigenous peoples.

Me: Will this get the man out of my room?

Hotel: The Oversight Committee on Safeguard Policies will consider new guidelines affecting future Overnight Accommodation and Poverty Reduction grants. In order to hear all stakeholders, they are permitted one fiscal year from the filing of an initial comment to a consideration of a new guideline.

Me: I am extremely unhappy with how my hotel reservation has turned out, to whom can I complain?

Hotel: the Hotel Reconstruction and Development Bank is working with the local authorities on improving Local Empowerment and Accountability for Results.

Me: &*()%#$!@@#$%^&!

Hotel evaluation report: The Overnight Accommodation and Poverty Reduction program met its Fiscal Year benchmark for progress on increasing Commitments of Hotel Accommodation Facilities.

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USAID funding Iraqi insurgents? Well, on the plus side, they finally answered one of our emails

USA Today ran a story this week on a $644 million program in Iraq suspended by USAID four months short of its end date. The program was launched three years ago to create jobs and infrastructure in cities throughout Iraq. The Community Stabilization Program, said one hopeful report from 2006, “will provide safe and productive alternatives to insurgent activities while reinforcing democratic values and processes.”


Baghdad billboard for CSP job skills program Source: USAID/Iraq

So why was CSP suspended? According to a USAID statement, an external review begun in February discovered “inconsistencies” in the implementation of the project in one of the target cities. This deadpan response from USAID leaves aside just a few other reasons to be concerned about the project, namely a 2008 audit that found evidence of fraud, phantom workers, and money being diverted to insurgents through trash collection contracts.

The audit also found “short-term employment generated by the program was inadequately substantiated.”

Surely any reasonable understanding of transparent and honest reporting practices would require USAID to indicate in some way on their website that there were questions being raised about the transparency and efficacy of the CSP program.

We brought this to the attention of the USAID press officer in an email on Monday:

Dear Mr. Edwards,

Here at Aid Watch we read USA Today's article … we noticed that the text currently available on the USAID website (among the press releases or on the Iraq page) gives no information about investigations into the CSP projects or the decision to suspend the program.

The CSP accomplishments page still lists: "Almost 45,000 long-term jobs created; Nearly $80 million in grants approved for almost 10,700 businesses; More than 40,200 Iraqis graduated from vocational training courses; More than 9,900 apprenticeships awarded; About 316,000 young people reached through sports and arts program" as highlights of the CSP.

In light of the March 2008 audit and subsequent investigations, reported by USA Today in today's paper, is USAID planning to modify the claims on its website?

Many thanks,


USAID responded promptly:

Ms. Freschi,

This is the response from USAID as to your questions.

1) USAID suspended payments and new commitments under CSP to allow the IG to conduct and complete an investigation of allegations uncovered in the course of a USAID evaluation of the program. At the time, CSP was only operating in two cities and was on a path towards being phased out entirely as the program was nearing its end.

2) The accomplishments listed on the USAID website are from completed projects that were previously audited by the IG. We implemented all of the recommendations of the IG to their satisfaction, including doing a data quality assurance exercise.

Please contact me if you have more questions.



Harry Edwards

USAID Senior Press Officer

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The aid agency nobody knew existed is even worse than nobody realized

I recently saw a June 2009 World Bank (Independent Evaluation Group) evaluation of the Global Forum for Health Research, an 11-year-old international organization that had received $56 million (through 2007) in official aid funding, about half from the World Bank. The Global Forum’s mission is “demonstrating the essential role of research and innovation for health and health equity, benefiting poor and marginalized populations.” The evaluation report is 162 pages long, but two sentences in it would have sufficed:

About half of the respondents to a survey of 400 key researchers undertaken by the evaluation team indicated that they were unaware of the work of the Global Forum. For an organization concerned to raise awareness, this finding in itself raises questions about its effectiveness.

An 11-year-old health-research-awareness-raising organization of which half of the world’s leading health researchers are unaware – yes, I would agree that “raises questions.” I ground-truthed this finding with my own informal check of well-known people that I look up to on health issues – four of them had never heard of the Global Forum, and three others had heard of them but didn’t know enough about them to have an opinion about their effectiveness.

The evaluation has lots of other things to say about them, both positive (they have a lot of meetings!) and negative (“absence of an agreed results framework”).

So the World Bank seems to be following a disturbing trend. It is financing economic research publications that hardly anybody reads, and financing health awareness efforts that hardly anybody is aware of.

This also creates a new challenge for aid watchers – how can we hold accountable an aid agency we don’t know exists? What other dark matter in the aid world is awaiting discovery?

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Are the best aid agencies the ones about to die?

Recently the acting CEO of the Millennium Challenge Corporation, Rodney Bent, invited a group of development bloggers for a congenial chat over breakfast pastries about their new monitoring and evaluation website and “results” portal. This is in contrast, mind you, with another aid organization which shall remain nameless but which has the initials U and N, which told us a couple weeks ago that they “didn’t have a communication policy for blogs” and weren’t sure whether they could give us the document we were requesting (to their credit, they eventually did.) To say nothing of another agency that emailed us: “Hello. I have received your emails and phone call. However, WHO does not participate in blog discussions. Thank you.” And let's not even mention the other US aid agency, USAID, who responds to requests for information by demanding that we talk only to the USAID press rep whose full-time job is not responding to requests for information.

So the bar here is low. And the MCC isn’t perfect. But hey, it’s nice to be given a cup of coffee every once in a while and treated like you exist.

The personable Bent started the meeting with a little story: he recently visited a university classroom and completely disarmed the students—who were eager to rip apart any self-serving propaganda he served up—by being the first to enumerate the MCC’s own failings and weaknesses. The original MCC design team was too tactless about implying that USAID had been a failure, he said, “too optimistic,” too “eager to sign things.” Not to mention the problems MCC has run into in Armenia, Nicaragua, Honduras and Madagascar…to name a few.

This little anecdote seems to represent the MCC’s current savvy outreach strategy: be honest about your failings before others can beat you to it! Hence, the chat and the coffee.

The MCC says many of the right things. Publishing economic rates of return for their projects, providing M&E data for each MCC country in two formats, adding in data visualization and more collaborative feedback tools (all currently available or in the works over the next few months) is MUCH more than many other aid agencies are willing or able to do at the moment.

You can visit the new site here, and use the feedback form to get in touch with Shiro Gnanaselvam, the MCC’s senior director for monitoring and evaluation.

Still the most interesting question to me is, why is the MCC so proactively courting bloggers when other aid agencies tell us to drop dead?

Maybe it is because the MCC—a Bush administration initiative that has never been fully funded—has been predicted to face extinction if it can’t get broad support from the public and from some key power brokers in the new administration.

Could this be a tiny piece of evidence in favor of the theory that effective accountability sometimes requires a threat to your very existence (as with private firms or with the political careers of elected officials)?

The organization with the least vested interests supporting it may be the one that will perform the best. At least, they actually invite their critics to breakfast.

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We want your feedback, as long as you speak English

Community groups in Yemen wrote to the local World Bank office asking if they could get an Arabic translation of the conditions the World Bank imposed on the Yemeni government for a $51 million loan. Sorry, the Bank rep told them, English is “the official language to be used in all the transactions and contracts between the Government of the Republic of Yemen and the World Bank.” As Rebecca Harris of the independent Bank Information Center first told the story in an oped on the FP website, the understandably dissatisfied Yemeni activists have now taken their case to the Inspection Panel, the Bank’s dispute mechanism. Lack of interest in translation at the Bank is a symptom of a deeper problem. As our Aid Watch conference in February 2009 discussed, the most direct way to know whether aid is reaching the poor is to find out in some way: what do the poor themselves say about aid? This is going to be a lot more difficult if the poor have to speak in English!

The World Bank has made a lot of noise about consulting with “civil society.” The Bank brags on its web site: "The World Bank has learned...that the participation of [civil society] can enhance their operational performance..."

Further they claim that the Bank's engagement with civil society ("the Bank dialogues and consults with CSOs on issues, policies and programs, by listening to their perspectives and inviting suggestions") allows the Bank to:

Give voice to stakeholders – particularly poor and marginalized populations – and help ensure that their views are factored into policy and program decisions; Promote public sector transparency and accountability...; Promote public consensus and local ownership for reforms...; Bring innovative ideas and solutions, as well as participatory approaches to solve local problems; Strengthen and leverage development programs by providing local knowledge, targeting assistance, and generating social capital at the community level.

Although the Yemeni community groups could not get critical Bank documents in Arabic, they would presumably be glad to know that the above statements about how the Bank will consult them ARE available in Arabic.

This suggests a new objective test of how serious the Bank really is about consulting local populations. How many critical Bank documents are available in the local language? How many “locally owned” Poverty Reduction Strategy Papers are actually prepared in the local language? How many translators does the Bank employ in the field so they can listen to local people? Or best of all but probably a hopeless cause, how many Bank staff working on a project themselves speak the local language? (We may cut them a little slack if the local language is Ucayali-Yurúa Ashéninka, spoken by only seven thousand Peruvians.) Let’s call it “the Rebecca Harris language test” in honor of her raising the issue.

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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."

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USAID Responds to 'Life in the Aid World'

Kudos to the USAID press office for replying to us quickly when we sent them our post on the USAID Inspector General’s report of misuse of funds in Afghanistan. They replied with this statement: The USAID IG severely criticizes the United Nations Development Program (UNDP) and the UN Office for Project Services (UNOPS) for their management of the Quick Response Program in Afghanistan, conducted between 2003-2006. We recognize that Afghanistan is a difficult place to work, but we still expect all of our partners to maintain recognized standards of accountability and transparency.

We have implemented additional control and oversight mechanisms to ensure this type of activity does not occur again. We are also seeking reimbursement for $7.6 million of unsubstantiated UN expenses.

Q) How much money was lost to "contractor abuses"?

USAID is seeking reimbursement of $7.6 million in funds drawn-down by UNDP in 2007 that have not been fully substantiated. A bill of collection for that amount was referred to the U.S. Treasury for action.

At present we are working with the UNDP and UNOPS to fully account for the funds. USAID's Acting Administrator met with UN leadership in New York on Monday, April 13, 2009 to discuss this issue and the way forward.

Q) What programs does USAID still have with UNDP/UNOPS? What measures has USAID taken to ensure accountability and quality of work?

Now we have three active grants with UNDP and one with UNOPS. The active awards for UNDP include support for the 2009 Afghan Presidential elections.

UNOPS: Kabul School Construction Program – This program has been well managed from the beginning and is working well. Access to the schools here by inspectors and USAID staff has helped keep this program accountable with good quality of work.

Q) What changes have been made to the USAID/UNDP/UNOPS relationship?

USAID committed to continue working with UNDP to resolve questions over $7.57 million in unaccounted for USAID funds and to improve collaboration between these agencies in Afghanistan and elsewhere. Mr. Melkert pledged UNDP’s full cooperation with USAID in reforming UNDP’s project management practices, improving financial accountability and in recovering any missing QIP funds.

Q) What changes has USAID put into place as a result of the IG report?

Over the past year, USAID has adopted significant safeguards to protect U.S. taxpayer resources. Safeguards on our UNDP projects include:

- Amending the traditional Letter of Credit (LOC) method of financing by requiring additional financial documentation and USG review and approval prior to each disbursement;

- Mandating the hiring by UNDP of an additional dedicated financial management staff member on the project;

- Requiring that all USAID funds be separately tracked and reported on a monthly basis; and,

- Increasing technical oversight by Mission staff.

In addition, the Kabul Schools Program, implemented by UNOPS, has been carefully overseen by USAID. This program is under the advance/liquidation method of financing (as opposed to the traditional letter of credit), thus providing USAID with greater financial management oversight. Additionally, USAID has two full-time staff overseeing the Kabul Schools program. These engineers are at the worksite at all times when work is being performed.

Q) Is UNDP managing the 2009 Afghanistan Presidential elections?

The 2009 Afghan elections are being managed by the Independent Election Commission of Afghanistan with the assistance of the UN. USAID is working with the UN in preparing for those elections. It is critical that the upcoming elections be perceived as independent, so the donor community has agreed to pool funds in a UNDP-managed project to support the elections. USAID is participating in this pool, but is imposing significant additional safeguards on UNDP.

Summary of IG Report

  • In August of 2007, the USAID/Inspector General’s office received an anonymous complaint about abuses by the UN with regard to grants in Afghanistan. The subsequent investigation by the IG office was completed in the summer of 2008, and confirmed several serious problems with financial management and overall performance.
  • UNDP withdrew an approximate $6.7 million in 2007-after the Quick Impact Project ended and without consultation with USAID. No supporting documentation was provided to explain the reasons for these withdrawals.
  • UNOPS has provided a letter accounting for approximately $1.9 million of the amount drawn down in 2007.
  • Due to the refusal of the UN to cooperate with the investigation of the USAID, questions remain unanswered with regard to the overall conduct of UNDP and UNOPS in Afghanistan.
  • On February 5, 2009, USAID referred three Bills of Collection against UNDP and UNOPS to the U.S. Treasury Dept for a total of $7.6 million dollars. As of March 3, 2009 those Bills of Collection had been referred to a private collection agency which has 270 days to do collection efforts.
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Life in the Aid World: Caught Red-Handed, No Consequences

Last week, a report in USA Today brought to light a story of aid funds going badly astray. In case you have not followed the story, it seems that back in 2003, USAID contracted with the UNDP and UNOPS to complete a series of “quick impact” infrastructure projects in Afghanistan, to build badly needed roads, bridges, and community buildings. A US government report on the project, sparked by a tip from an anonymous complainant, found that many of the projects reported as “complete” by the UN were in fact unfinished or had such “life-threatening oversights” that they could not be used. The USA Today reporter filed a Freedom of Information Act Request to access the government report, which he then published along with the article.

Here are a few highlights of the report:

  • According to a former UNOPS employee, some $10 million of the USAID grant funds was diverted to projects outside of Afghanistan, in Sudan, Haiti, Sri Lanka and, most memorably, Dubai.
  • The UNDP withdrew $6.7 million of project funds in 2007, after the project had ended and without USAID’s knowledge. The investigators could not pin down how those funds were spent.
  • A bank was built for $375,000 without electricity, plumbing or proper drainage. The report found that the basement had flooded, destroying stacks of money, and the walls were rotting.
  • A $250,000 bridge, reported as “completed,” was dangerous and unusable, having been designed too small for the site where it was built.
  • An airstrip budgeted at $300,000 actually cost $729,000 to build. After a description of the major engineering flaws in the construction of the airstrip, the report concluded that military planes cannot safely land there and that “erosion rills or ruts will continue to expand until they reach the runway itself, destroying it completely.” In other words, USAID paid $729,000 for a patch of mud.
  • There may be more to come: “questions remain unanswered” because several UN officials refused to be interviewed and the UN failed to provide requested documents during the investigation.

USAID is also to blame for choosing such a bad contracting arrangement, and for not having procedures to catch this earlier and seek full compensation. USA Today reported:

Federal prosecutors in New York City were forced to drop criminal and civil cases because the U.N. officials have immunity. USAID has scaled back its dealings with the U.N. and hired a collection agency to seek $7.6 million back, Deputy Administrator James Bever said. The aid agency hasn't heeded its inspector general's request to sever all ties.

"There are certain cases where working with the U.N. is the only option available," Bever said in an e-mail.

At a UN briefing last week, the UNDP spokesman said that “there have already been a number of meetings, including at the highest level of UNDP and USAID, to work through this matter.” He said that he expected that the UNDP would have to pay USAID no more than $1.5 million.

A disastrous aid outcome, exposure in the mass media -- so what were the consequences? A number of meetings, possibly some money back, USAID disregards its own Inspector General’s request to break off ties with the UN (some unspecified “scaling back” except in other unspecified “certain cases”), and yet more meetings “at the highest levels.”

Since the initial reports, there has been no further media coverage or commentary except for an editorial critical of USAID in the Las Vegas Sun on April 17th. The USAID web site accessed on Monday, April 20, 2009 still listed as implementing partners UNDP (who announces it “remains responsive to the changing needs of a nation still in transition from conflict to peace”) and UNOPS (“we help our clients turn ideas into reality.”)

The USA Today story broke the same day that a USAID rep presented at a meeting in Washington called "Open Innovation for Government: Answering President Obama's Call for More Open, Effective Public Service."

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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?

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Everyone Should Be Responsible...(except the aid agencies)

Today, I foist a new blog called Aid Watch on the blogosphere. The objective is to be brutally honest when aid is not helping the poor, but also praising it when it is. Alas, there is far to go. Take World Bank President Robert Zoellick’s oped (A Stimulus Package for the World) in last Friday’s New York Times and another one in today’s Financial Times (It is Time to Herald the Age of Responsibility).

The more you promise, the more you are telling us you don’t expect to be accountable for promises

In the NYT, President Zoellick requests an additional $6 billion from the US in foreign aid, which will “speed up global recovery, help the world’s poor and bolster [America’s] foreign policy influence…facilitate fast and flexible aid delivery…create jobs while building a foundation for productivity and growth…increase demand for American-made equipment...[and] limit the depth and length of the international downturn, prevent the contagion of social unrest and help save a generation from a new poverty trap.”

The more actions you list, the less you are serious about each action

Right after saying “priorities” for actions in poor countries (NYT), President Zoellick manages to touch on agriculture, health, education, nutrition, infrastructure, banking systems, small-and-medium-enterprise development, microcredit, global warming, and private sector development. Mr. Zoellick (FT) also wishes for international action on the Millennium Development Goals, the Doha trade round, the Copenhagen climate change agreement, humanitarian food supplies, energy conservation, and more G20 meetings to agree on fiscal expansion and reopening credit market agreements.

It’s not about aid money to reach objectives, aid money IS the objective

NYT: “The United States could begin by pledging some $6 billion…0.7 percent of its stimulus package.” FT: “How we respond to the crisis…will set the course.” The “first step” is to give more aid.

President Zoellick does mention briefly the critical issue in both the NYT and FT: some “safeguards to ensure that the money is well spent,” which don’t currently exist. In the FT, he makes the inspirational call for an “Age of Responsibility,” but the Responsibility seems to apply only to rich donors, there is nothing about holding the World Bank responsible.

If you are not accountable for promises, if you try to do everything and focus on nothing, and if you obsess about aid money raised rather than results achieved, haven’t you already told us that the money will not be “well spent”?

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