Planning For Success

Boring as it may seem, we need to fix the "plumbing" of international development assistance in order to be effective in helping the well-governed countries. Aid flows through certain pipes—bilateral donors, the World Bank, the regional development banks {such as the African Development Bank)—but these pipes are clogged or simply too narrow, not able to carry a sufficient flow of aid. If we are to get agreement by the rich world's taxpayers to put more aid through the system, we first have to show that the plumbing will carry the aid from the rich countries right down to where the poorest countries need it most—in the villages, slums, ports, and other critical targets. Let me describe how that plumbing can be put right. I focus my attention on the period until 2015, when the Millennium Development Goals are to be met. Similar principles will apply for the second decade, from 2015 to 2025.

The UN secretary-general, overseeing the UN agencies and the Bretton Woods Institutions (which are also part of the UN family), should oversee the entire effort. Working through the United Nations Development Program—the economic development arm of the UN system— the secretary-general, on behalf of the member nations, should ensure that the global compact is put into operation. Much of the work will take place at the level of the individual country, where plans will be devised and investments made on the basis of national financial resources and increased donor aid.

To organize country-level work, each low-income country should adopt a poverty reduction strategy)' (PRS) specifically designed to meet the Millennium Development Goals. Most poor countries today already have some form of a poverty reduction strategy—usually a poverty reduction strategy paper or plan—that it has developed in cooperation with the IMF and World Bank. The existing World Bank poverty reduction plan lays out the country's goals, targets, policies, and strategies to cut poverty. Introduced a few years ago to give more coherence to each country's efforts to fight poverty, and to provide a framework for official debt relief, the existing plans are not yet designed with enough rigor or ambition to enable the countries to achieve the MDGs.

The poverty reduction strategy papers, incidentally, are all publicly available on the IMF and World Bank Web sites, so one can read for oneself what the countries have deemed to be their poverty reduction strategies. The programs are often ingenious, but are all chronically underfunded compared with what is needed to achieve the Millennium Development Goals. As a result they are often forced to shortchange entire areas of public investment (such as public health). Five recent poverty reduction strategy plans of notable quality in Africa are:

• Ghana's Poverty Reduction Strategy (GPRS)

• Ethiopia's Sustainable Development and Poverty Reduction Program (SDPRP)

• Kenya's Economic Recovery Strategy for Wealth and Employment Creation (ERS)

• Senegal's Poverty' Reduction Strategy Paper (PRSP)

• Uganda's Poverty Eradication Action Plan (PEAP)

Why Today's System Is Incoherent

Alas, the international community's approach remains incoherent in practice. On the one side, it announces bold goals, like the Millennium Development Goals, and even ways that the goals can be achieved, such as the pledge of increased donor assistance made in the Monterrey Con sensus. Yet when it comes to real practice, where the rubber hits the road, in the poverty reduction plans, the Millennium Development Goals are expressed only as vague aspirations rather than operational targets. Countries are told to go about their business without any hope of meeting the MDGs. The IMF and World Bank reveal split personalities, championing the MDGs in public speeches, approving programs that will not achieve them, and privately acknowledging, with business as usual, that they cannot be met!

Here is how the aid actually makes its way through the plumbing today. When Prime Minister Meles Zenawi or his counterparts in Africa, Asia, and Latin America lead their country's preparation of the poverty reduction plans, they are told to be "realistic," meaning that they should take as a given the limits of today's constricted donor resources.

Operationally, the IMF and World Bank staffs make rounds of calls to canvas the "bilateral" donor community, that is, the aid agencies of the rich countries. They contact the aid agencies to get a forecast of the level of aid that each agency is likely to provide in the coming year. These sums are totaled up and then conveyed to the recipient country. Ethiopia is told, for example, "You can expect around $1 billion next year. Please tell us what you plan to do with that aid."

Knowing that a certain amount of aid is likely, the recipient country is expected to engage in a broad-based public consultation to prepare the poverty reduction plan, including how the aid will be deployed. The international community's insistence on broad public participation in the design of these plans is designed to achieve four main goals: (1) better prioritization of investment plans, (2) increased public awareness about poverty reduction programs, (3) mobilization of NGOs and community groups in the fight against poverty, and (4) fostering more political "antibodies" against corruption.

All of this is fine; indeed, it is reasonably successful in eliciting public participation. What is missing in the process are the practical linkages between the Millennium Development Goals and the poverty reduction plans. In today's arrangements, the country is presented with a fait accompli— "Here's the amount of aid you will receive." Instead, the process should be turned around. The first step should be to learn what the country actually needs in foreign assistance. After that, the IMF and World Bank should go out to raise the required amount from the donors!

To show how straightforward it would be to adopt this approach, let me provide another recent example, Ghana's poverty reduction plan.

Ghana is one of the best governed and managed countries in Africa. It is a stable, multiparty democracy with relatively high literacy (92 percent of youths aged fifteen to twenty-four) and modest levels of corruption compared with other countries at a comparable income level. Ghana suffers from considerable extreme poverty. Like other African countries, Ghana has been unable to diversify its export base beyond a narrow range of primary commodities, mainly cocoa beans. It lacks the domestic resources needed to finance critical investments in health, education, roads, power, and other infrastructure. It fell into a sharp debt and financial crisis in the early 1980s, and since then the government has been hard pressed to pay its monthly bills, much less to expand the levels of public investment.

The government of Ghana reached these same conclusions when it presented the Ghana Poverty Reduction Strategy (GPRS) in 2002, its version of the poverty reduction plan. Ghana took seriously the Millennium Development Goals and presented a strategy based on the investments that it would need to achieve the MDGs. The plan called for a major scaling up of public investments in the social sectors and infrastructure, estimated to require donor aid of around $8 billion over five years, or roughly $75 per Ghanaian per year during the five-year period. The Ghana strategy was exceptionally well designed and argued, but the donors balked. The first draft was rejected by the donors. The government cut back on its ambitions, and slashed the aid request to just $6 billion over five years. The donors balked again. The plan was slashed again. By the end of this excruciating process, the poverty reduction plan was funded at around $2 billion for the five-year period.

When I was recently in Accra, Ghana, a very pleasant representative of the European Commission said to me, "But Professor Sachs, the original plan was simply not realistic." "What do you mean by realistic?" I responded. "Do you mean that it was not realistic because the program was poorly designed, or do you mean that it was not realistic because the donors wouldn't foot the bill?" "Oh, I mean only the latter, Professor Sachs. The strategy was fine, but we couldn't come close to the $8 billion request." Realism, it seems, is in the eye of the beholder. I would have thought that the original plan was realistic because it aimed to accomplish the very goals that the world had endorsed. The final plan seemed unrealistic to me, because it can no longer achieve the MDGs. The donors, evidently, meant something else about realism. For the donors, realism meant convenience, and specifically shoehorning Ghana's financial needs into the tight fit of an insufficient aid package.

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