There are some worrying aspects to the G8 summit's pledge to increase the amount of aid to developing countries.
PERHAPS the most significant agreement reached at the G8 Summit was a pledge to increase the amount of aid.
The G8 communique is actually quite weak on exactly how much aid will be made available, noting that 'the OECD estimates that official development assistance from the G8 and other donors to all developing countries will now increase by around $50 billion a year by 2010, compared to 2004'.
Though this increase should be welcomed, it is in no way a done deal and there are some worrying aspects to it.
For the European G8 countries (UK, Germany and Italy) the rise in aid reflects money already pledged at the European Union Development Ministers' meeting in May. At the May meeting, however, both Germany and Italy issued statements warning that their budget problems may hit EU borrowing limits and stop them meeting the target, making the rise dependent on budget matters.
Also, it is not clear whether the US Congress will embrace President Bush's commitment to increase funds to the Millennium Challenge Account. In June, the House Appropriations foreign aid sub-committee approved only $1.75 billion for the MCA next year, well below the administration's request for $3 billion, for example.
If aid does rise, it is going to take a long time to actually come into effect, with most aid increases set to happen over a five-year period.
There is also the likelihood that some of the funds will be raised through borrowing against future aid commitments, meaning that it will not be new money.
For example, the EU countries have committed to consider innovative new financing mechanisms like the International Financing Facility, and a working group will be set up by the EU, Germany, France, Italy and the UK to take work forward.
Reading between the lines, the G8 communique hints that it is acceptable to count debt relief efforts as official development assistance (ODA) - and that debt relief will continue to be an important component of ODA.
The communique reads: 'G8 countries and other donors have made substantial commitments to increase aid, through a variety of means, including traditional development assistance, debt relief and innovative financing mechanisms.'
Statements like these fly in the face of commitments made at the Financing for Development Summit in Monterrey, Mexico in 2002 to which all G8 governments have signed up. The Monterrey Consensus states that it is 'critical' that debt relief efforts 'be fully financed through additional resources'.
Yet, increasingly, debt relief is used as a tool to try to reach the commitment of allocating 0.7% of the donor country's GDP to ODA. In France, for example, almost one-third of the aid budget is devoted to debt cancellation efforts.
Regarding aid conditionality, there is little information about what conditions countries will have to meet to receive new aid increases. The communique makes clear that good governance will be high on the future agenda, noting that G8 countries 'will focus aid on low-income countries, which are committed to growth and poverty reduction, to democratic, accountable and transparent government, and to sound public financial management'.
The failure to identify details is probably because aid will be disbursed by individual countries and as such will be subject to differing sets of conditions. Worryingly, much of the new aid increases by the US will be given through specific funds, like the Millennium Challenge Account, which is set to provide $5 billion in new money a year. The MCA has extremely tough conditions which countries have to meet in order to receive the money. In fact, up until April this year, the MCA has only released funds to one country, Madagascar, despite being in existence since 2002.
The communique makes a mention of the issue of ownership and economic policy freedom. 'It is up to developing countries themselves and their governments to take the lead on development. They need to decide, plan and sequence their economic policies to fit with their own development strategies, for which they should be accountable to all their people.'
However, there is a lack of details on what this would mean in practice. Civil society groups should use this to continue to campaign for a cessation of all economic policy conditions and in line with stopping bilateral donors tying their aid to IMF economic policy conditions contained within its Poverty Reduction and Growth Facility.
Regarding aid effectiveness, the communique acknowledges the need to make aid more effective, but the commitments put forward lack robustness. Much of the way the new money will be disbursed, via vertical or global funds, could pose a problem in ensuring greater country ownership and moving towards budget support, key tenets of the aid effectiveness agenda.
The communique refers to the OECD Paris High Level Forum on Aid Effectiveness, held in March 2005, which highlighted the need for greater untying of aid, more aid predictability and greater use of programme-based approaches.
The seeming G8 unanimity on this issue actually masks major differences, with Japan and the United States in the past vigorously opposing more detailed and ambitious indicators and targets on the aid effectiveness agenda which were being pushed by European governments.
Importantly, the communique notes that G8 countries 'will implement and be monitored on all commitments made in the Paris declaration on aid effectiveness'.
However, the communique fails to articulate what monitoring mechanisms should be put in place, particularly at the international level to ensure that donors are held to account on these commitments, something which the Paris Declaration also fails to do. As a result, this statement, though welcome, lacks credibility.
NGOs have been campaigning for strengthening international-level monitoring mechanisms on aid effectiveness. In the immediate future, the DAC working party should establish a tripartite technical forum (comprising donors, developing countries and civil society) to monitor implementation and review indicators and targets on a regular basis. In the long term it should be moved outside of the OECD and held in an international forum where donors and recipients are equally represented.
There is a tension between the aid effectiveness agenda which pushes for greater direct funding to government budgets, and the way much of the new money appears to be earmarked for disbursement.
A lot of the new money will be going to vertical or global funds for education and health issues.
However, some policy-makers have stressed the need to ensure that these funds are brought into the core aid architecture and do not produce parallel funding streams and implementation procedures outside of developing-country government structures. Some funds, like the Education for All initiative, have worked extensively to ensure that their programmes are conducive with sector-wide approaches, but others have a long way to go.
Another interesting development is a new lead role for the World Bank - coordinating donor activities. Not included in the communique, but highlighted in an opening statement on the official G8 website, G8 countries 'agreed that the World Bank should have a leading role in supporting the partnership between the G8, other donors and Africa, helping to ensure that additional assistance is effectively co-coordinated'.
The communique mentions a range of different sectors identified as priority areas for ensuring development. What is missing, however, is which of these areas will be given immediate priority and the sequencing of funding.
This article is based on a report 'G8 Communique: More and Better Aid?' by Eurodad (European Network on Debt and Development), a network of European development NGOs. It is reproduced from the South-North Development Monitor (SUNS, No. 5842, 14 July 2005).