NEW YORK – Protracted economic stagnation in rich countries continues to threaten the development prospects of poorer countries. Globalization and economic liberalization over the last few decades have, of course, helped to integrate developing countries into the world economy, but now that very integration is becoming a threat as developing countries are hit by the knock-on effects of the rich world’s troubles.
As a consequence of increased global integration, growth in developing countries relies more than ever on access to international markets. That access is needed, not only to export products, but also to import food and other requirements. Interdependence nowadays truly is a two-way street.
Unfortunately, the trade effects of the crisis have been compounded by its impact on development cooperation efforts, which have been floundering lately. Four decades ago, OECD countries committed to devote 0.7% of their GDP to official development assistance (ODA) to developing countries. But the total in 2010 reached only $128.7 billion, or 0.32% of GDP – less than half of what was promised.
Likewise, in 2000, United Nations member states adopted the Millennium Development Goals to provide benchmarks for tackling world poverty. But the UN’s MDG Gap Task Force Report 2011 highlights serious shortfalls in international efforts to achieve the goals, a sober reminder of the need to step up efforts and meet longstanding international commitments, especially in the current global financial crisis.
Individual countries’ promises of aid to the least developed countries (LDCs) have fared no better, while the G-8 countries have failed to fulfill the pledges of debt forgiveness and aid for poorer countries that they made at their 2005 summit in Gleneagles, Scotland.
With the turn of the millennium, development aid seemed to rise as a priority for richer countries. But, having declined precipitously following the Cold War’s end two decades ago, ODA flows picked up again only after the September 11, 2001, terrorist attacks and the Monterrey Consensus – the outcome of a 2002 UN conference that is now the major reference point for international development financing.
But, as before, much bilateral ODA has been “tied,” or used for donor projects, rather than for national budget support. Tied aid requires the recipient country to spend the aid received in the donor country, often on overpriced goods and services or unnecessary technical assistance.
As a result, prominent economists, including senior staff at the International Monetary Fund, have become increasingly critical of ODA in recent years, claiming failure to contribute to economic growth. But UN research clearly shows that if blatantly politically driven aid is excluded from consideration, the evidence points to a robust positive relationship. Unfortunately, despite recent efforts to enhance aid effectiveness, progress has been modest at best, not least because average financing for projects has fallen by more than two-thirds.
Debt is another side of the development dilemma. Over the last decade, the joint IMF-World Bank Heavily Indebted Poor Countries initiative and its extension, the supplementary Multilateral Debt Relief initiative, have made significant progress on debt sustainability. But debt relief still is not treated as additional to ODA. The result is “double counting” – the same funds are counted first as a concessional loan and again as a debt write-off.
Similarly, at the 2001 LDCs summit in Brussels, developed countries committed to providing 100% duty-free and quota-free (DFQF) access for LDC exports. But actual access is only available for 80% of products, and anything short of full DFQF allows importing countries to exclude the very products that LDCs can successfully export. China’s Cannes promise to extend 100% DFQF market access to LDCs is testament to how much the world has changed.
Unfortunately, many of the poorest countries are now back in debt following the recent crisis. Of course, the same is true of much wealthier countries, underscoring the overdue need for an equitable and effective sovereign-debt workout framework.
In addition to the facing export obstacles, weakening aid flows, and unsustainable debt, the poorest countries are far behind developed countries technologically. The decline of public-sector research and agricultural-extension efforts, stronger intellectual-property claims, and greater reliance on privately owned technologies have ominous implications, especially for the poor.
Affordable and equitable access to existing and new technologies is crucial for human progress and sustainable development in many areas, including food security and climate-change mitigation and adaptation.
The same is true of affordable access to essential medicines, on which progress has been modest. By 2009, such medicines were available in just 42% of poor countries’ public facilities and 64% of private-sector facilities. Meanwhile, median prices in the public sector were 2.7 times the international reference prices and 6.1 times higher in the private sector!
With the increasing likelihood of protracted stagnation in most rich countries, the resulting fiscal austerity measures, creeping protectionism, and other recent developments are likely to make things worse for international development cooperation.
Jomo Kwame Sundaram is United Nations Assistant Secretary-General for Economic Development.
Project Syndicate, 2011.