Multilateral aid

Multilateral aid is delivered through international institutions such as the various agencies in the United Nations, the World Bank and Asian Development Bank.
Flint Duxfield/AID/WATCH Adios Asian Development Bank Action

About 30% of Australian aid money is channelled through multilateral institutions and funds.   

Australia gives more money to the World Bank and the Asian Development Bank (ADB) than to United Nations agencies and programs.

The World Bank and ADB in particular have been criticised for conditionality of their loans, undemocratic governing structures, and funding large-scale projects that undermine people’s lives and livelihoods.

                                                            Take Action!

 

Next page

Last updated 12 November 2010

What is multilateral aid?

Multilateral aid is delivered though international institutions such as the various agencies in the United Nations, World Bank and Asian Development Bank.

A multilateral organisation is an international organisation whose membership is made up of member governments, who collectively govern the organisation and are its primary source of funds. The OECD estimates that in 2008 around 40% of ODA or nearly US$50 billion from DAC countries was channelled through multilateral institutions and funds.[1]

There are a number of reasons why donor countries such as Australia give aid through multilateral institutions:

  • multilateral aid is generally seen as a less political form of aid than bilateral aid, encouraging international cooperation rather than strategic and commercial interests of respective donor countries;
  • multilateral aid pools resources enabling the implementation of large-scale programs that are beyond the capacity of individual donor countries through bilateral aid;
  • multilateral aid can help coordinate donors to address issues at regional and global levels and harmonise their efforts, thereby reducing donor burden in recipient countries. 

One of the biggest problems with multilateral aid is the lack of accountability to the people aid is intended to assist. Furthermore many donor countries favour certain multilateral organisations and funds over others. For example, Australia gives more money to multilateral development banks such as the World Bank and the Asian Development Bank, where voting is weighted according to financial contributions,[2] and less to the United Nations agencies where voting is equal and less of the money is returned to the donor countries.

 

 

 

Next page

Last updated: 12 November 2010


[1] OECD DAC (2010) DAC 2010 Report on Multilateral Aid, p.11. http://www.oecd.org/dataoecd/23/17/45828572.pdf

[2] Voting rights are tied to capital subscriptions or shareholdings, which do not necessarily come out of the aid budget. The recent capital increase to the ADB (estimated US$197.6 million over 10 years from 2010-11) did come out of the aid budget, see: 2009-10 aid budget, p. 66. http://www.budget.gov.au/2009-10/content/ministerial_statements/ausaid/download/ms_ausaid.pdf 

World Bank and Asian Development Bank

Multilateral development banks (also known as international financial institutions or IFIs) play an influential role in shaping development policies and practices of less wealthy countries.

Firstly, multilateral development banks (MDBs) are the largest source of development finance in the world. According to the Bank Information Center, MDBs typically lend $30 to $40 billion dollars a year to low and middle income countries.[1]

Secondly, MDBs also strongly influence the direction of development policies through the generation of technical research, analysis and statistics concerning aid and development.[2] Many donor countries and development institutions, including Australia, take the lead from MDBs, especially the World Bank.

The 2006 White Paper on Australia’s aid program, for example, draws almost solely on World Bank-generated knowledge.[3] In discussing the extent of poverty (and therefore how poverty is defined), the place of aid versus trade, lessons about the appropriate role of aid, and the focus on fragile states, the White Paper cites World Bank sources and articulates the World Bank’s neoliberal framework on poverty and economic growth, globalisation and the role of institutions and private investment in development.

The vast majority of Australia’s funding for MDBs is channelled through the World Bank and Asian Development Bank.[4] In 2007-08 over $500 million of Australian aid money was given to and through the two banks, which accounted for 50% of money delivered through international and regional organisations. As the 2010-11 aid budget states “The World Bank and Asian Development Bank continue to be central partners for Australia's aid.”[5]

The table and graphs below provide some information on the structure and operations of the World Bank and ADB, with a particular focus on their concessional lending arms, that is, the International Development Association (IDA) and Asian Development Fund (ADF).

For more information and critiques on the structure, role and operations of the banks, see:

World Bank (IDA) and ADB (ADF) at a glance

Where do the banks spend the money?

Source: World Bank Annual Report

Source: Asian Development Bank Annual Report

What do the banks spend the money on?

The World Bank and ADB run a large variety of programs from infrastructure development to small loans often termed ‘microfinance’ to education and health programs. Despite the diversity of projects, in 2009 both the World Bank (IDA) and ADB (ADF) devoted about 40% of their lending towards economic infrastructure, that is the combined sectors of transport and communication, energy and mining, and tourism and trade.

 

 

 

 

 

Next page

Last updated 12 November 2010


[1] Bank Information Center, Institutions, http://www.bicusa.org/en/Institutions.aspx Accessed 8 November 2010

[2] Ibid.

[3] See especially sections 2.1, 2.3, 2.4 and 2.5 of the White Paper

[4] Australia also gives aid money to the International Monetary Fund (around $2.8 million in 2007-08)

[5] Australia’s International Development Assistance Budget 2010-11, 11 May 2011, p.59.

http://www.budget.gov.au/2010-11/content/ministerial_statements/ausaid/download/ms_ausaid.pdf

United Nations Agencies

UN Agencies

The structure of other multilateral organisations particularly the United Nations agencies is different to that of the World Bank and ADB. Many of the main agencies involved in multilateral aid such as the United Nations Children’s Fund (UNICEF), the World Food Programme (WFP), Joint United Nations Program on HIV/AIDS (UNAIDS) and the Office of the United Nations High Commissioner for Refugees (UNHCR) are answerable to the General Assembly, in which all member countries participate and have an equal vote. Many are also answerable to the Economic and Social Council which coordinates the economic and social work of UN agencies. However, most of these agencies are largely self-contained with their own executive heads, constitutions, budgets, and representatives from member countries.

 

 

Next page

Last updated 12 November 2010

Australia’s multilateral aid

One of the key pillars of the Labor Government’s foreign policy is enhanced engagement with the United Nations and multilateral institutions.

Until recently, however, there has been little in the way of a publicly articulated framework which explains how the Australian Government determines its funding relationship with the banks and other multilateral institutions.

In 2009 AusAID developed a draft multilateral engagement strategy which for the first time articulated a broad framework giving some direction to decisions about funding levels, priority partners and priority areas of concern.[1] Some key directions outlined in the strategy include:

  • maintaining aid channelled through multilateral organisations at between 25 and 35%
  • increasing core funding to priority multilateral institutions based on their effectiveness, relevance to Australia’s aid priorities and responsiveness to Australia’s interests
  • using multilateral funding to increase Australia’s profile and influence institutions to focus on areas that are of strategic importance to Australia, i.e. the Asia-Pacific region.

Since 2008, the Australian Government has also signed partnership framework agreements with 10 UN humanitarian and development agencies, which include commitments for increased multi-year funding. The partnership agreements include mutual commitments to: the Millennium Development Goals; increase aid effectiveness; support UN reforms; and increase public awareness of partnerships between AusAID and respective UN agencies.[2]

 

 

Next page Last updated 12 November 2010


[1] AusAID (2009) Draft Multilateral Engagement Strategy for the Australian Aid Program 2010 -2015. As at October 2010, it is unclear whether the draft strategy has been finalised as it is not publicly available.

[2] AusAID (2010) Multilateral Organisations http://www.ausaid.gov.au/partner/multilateral.cfm Partnership agreements with UN agencies are available at: http://www.ausaid.gov.au/partner/partnership_frameworks.cfm

How does Australia contribute to multilateral institutions?

How does Australia contribute to multilateral institutions?

There are various ways in which Australia channels money to and through multilateral institutions and funds:

Core funding: Core funding allows multilateral institutions greater control over how that money is spent. Because core funding arrangements are generally negotiated on a multi-year basis, they also provide greater security and predictability of funding for multilateral organisations. Noting that “multilateral organisations need secure, long-term funding to engage in strategic planning and reform and be responsive to developing country priorities,” AusAID’s 2009 draft multilateral engagement strategy makes a commitment to increase core funding to “priority multilateral organisations.”[1]

Non-core funding: According to an OECD report on multilateral aid published in 2010, out of DAC donors, Australia made the second highest level of non-core contributions or earmarked funding to multilaterals.[2] Non-core contributions give AusAID more control over how money is spent (e.g. by selecting which programs and projects to fund) but decreases the predictability of funding for the multilateral institution.

Multi-donor trust funds (MDTFs): One means by which Australia provides non-core funding is through MDTFs, which pools money from a range of donors for a common stated purpose (for example, the Afghanistan Reconstruction Trust Fund). These funds are held in trust by multilateral institutions and governed by joint committees comprised of representatives of donor countries. MDTFs have become an increasingly important mechanism for multilateral institutions to mobilise funds. From a donor perspective, MDTFs give more selectivity over the use of their funds than providing core contributions. In 2007-08, Australia contributed nearly $190 million to over 60 MDTFs, of which about $116 million went to funds administered by the World Bank.[3]

Parallel financing: Parallel financing typically occurs when a bank identifies a large project with multiple components and then seeks funding from other donors to deliver discrete components of the overall project.

 

 

Next page

Last updated 12 November 2010


[1] AusAID (2009) Draft Multilateral Engagement Strategy for the Australian Aid Program 2010 -2015, p.3.

[2] OECD DAC (2010) DAC 2010 Report on Multilateral Aid, p.39. http://www.oecd.org/dataoecd/23/17/45828572.pdf

[3] Senate Standing Committee on Foreign Affairs, Defence and Trade, Additional estimates 2008-2009; February 2009, Answers to questions on notice from AusAID, pp. 31-35. http://www.aph.gov.au/senate/committee/fadt_ctte/estimates/add_0809/dfat/ans_ausaid_feb09.pdf

Australia’s contributions at a glance

Australia’s contributions at a glance (2007-08)

In 2007- 08, approximately one billion dollars or 30% of Australia’s aid money was channelled to and through multilateral institutions and funds.[1] As the chart below shows, in 2007-08 the ADB and World Bank received 50% of Australia’s multilateral funding; with the World Bank alone receiving about 37.5%.

 Source: AusAID (2010) Statistical Summary

World Bank Group: $389 million

Australia contributes core and non-core funding to various organisations within the World Bank, including:

  • International Development Association, the concessional lending arm of the World Bank which provides interest-free loans to 79 countries;
  • Highly Indebted Poor Countries/ Multilateral Deb Relief Initiative, which provides debt relief for poor countries that have a demonstrated commitment to reform;
  • International Finance Corporation, the private sector lending arm of the World Bank, which provides financial services to businesses investing in developing countries.
  • In 2007-08 Australia contributed around $116 million to various MDTFs administered by the World Bank.[2]
  • In the 2010-11 aid budget the government announced that from 2011-12 it would contribute to a capital increase (about US$51.6 million over five years) for the International Bank for Reconstruction and Development, which lends money to middle-income countries.[3]   

Asian Development Bank: $140 million

In 2007-08, Australia contributed $140 million to the ADB of which $91.5 million went to the Asian Development Fund (ADF). The ADF works in a similar way to the World Bank’s IDA in that it provides interest-free loans to developing member countries in the Asia-Pacific region.

United Nations agencies and programs: $368.3 million

In 2007-08 Australia contributed funds to over 25 UN agencies and programs. The six largest recipients received over 80% of this funding:

  • World Food Programme – WFP (86.5 million);
  • United Nations Children Fund – UNICEF (60.3 million);
  • United Nations Development Programme – UNDP ($56.5 million);
  • World Health Organisation – WHO ($36.5 million);
  • United Nations Office for the Coordination of Humanitarian Affairs - OCHA ($26.3 million)
  • United Nations High Commissioner for Refugees - UNHCR (26.1 million)

Global Environment Facility: $19.7 million

Established in 1991, the Global Environment Facility coordinates key multilateral environmental agreements and funds projects related to biodiversity, climate change, international water systems, land degradation, the ozone layer, and persistent organic pollutants.[4]

Global Fund: $45 million

Created in 2002, the Global Fund to Fight Aids, Tuberculosis and Malaria has become the main source of finance for programs to fight AIDS, tuberculosis and malaria. The Global Fund provides funding for more than 572 programs in 144 countries to the tune of US$ 19.3 billion.[5]

Commonwealth Organisations: $12.9 million

While Australia contributes to a number of Commonwealth organisations, most of its contributions have been directed towards the Commonwealth Fund for Technical Cooperation (about $11 million or 85% in 2007-08), which provides small-scale short term assistance in a range of sectors.

Other international and regional organisations (including IMF): $66.5 million

In 2007-08 Australia contributed around $66.5 million to a range of other international and regional organisations including the South Pacific Islands Forum/ SPC ($23.7 million), GAVI Alliance ($5.2 million), International Monetary Fund ($2.7 million), and Mekong River Commission ($4.7 million).

 

 

 

Next page

Last updated 12 November 2010


[1] AusAID (2010) Statistical Summary 2005-2006, 2006-2007, 2007-2008, Australia’s International Aid Program http://www.ausaid.gov.au/publications/pdf/statsummary.pdf

[2] Senate Standing Committee on Foreign Affairs, Defence and Trade, Additional estimates 2008-2009; February 2009, Answers to questions on notice from AusAID, pp. 31-35. http://www.aph.gov.au/senate/committee/fadt_ctte/estimates/add_0809/dfat/ans_ausaid_feb09.pdf

[3] Australia’s International Development Assistance Budget 2010-11, 11 May 2011, p.61.

http://www.budget.gov.au/2010-11/content/ministerial_statements/ausaid/download/ms_ausaid.pdf

[4]  http://www.thegef.org/gef/whatisgef

[5] http://www.theglobalfund.org/en/about/?lang=en

Issues and Debates

This section provides a snapshot of some of the key issues and concerns around the policies and practices of multilateral institutions, focusing on multilateral development banks.

These include:

  • conditions attached to loans, programs and projects
  • undemocratic decision-making structures and processes
  • bureaucratic structures
  • social and environmental impacts of projects

Conditionality

A long-standing issue surrounding aid from multilateral development banks (MDBs) is what is known as conditionality. Conditionality refers to the conditions attached to aid money dispersed from MDBs like the World Bank and the Asian Development Bank.

While the conditions imposed on aid-recipient countries vary, common examples of the types of conditions in loans provided by MDBs include:

Cutting back on public spending and reducing the size of government departments and services. This is often concentrated in areas such as health and education where costs are high. This has major impact on people’s access to health care and schooling, particularly among the poorest.

Privatising key sectors of government and public services. Countries have been required to privatise key sectors such as water provision, essential infrastructure, hospitals, electricity, and transport. This puts control of key sectors into private (and often foreign) hands, which may not have the best interests of the country in mind. This has often resulted in the inequitable provision of key services as private providers tend to prioritise servicing of areas that are profitable.

Lifting essential subsidies. In many poor countries governments subsidise essential items such as rice, grain, oil, and even petrol. They do this so that the prices of essential items do not prohibit people from meeting their daily needs. Sometimes governments are required to lift these subsidies which can lead to increases in prices of essential items, making them unaffordable for many people.

 

 

 

 

Next page

Last updated 12 November 2010

 

Undemocratic and Bureaucratic

Issues and Debates continued...

Undemocratic decision-making

Multilateral development banks have been criticised for being undemocratic due to the disproportionate power and influence wealthier member countries have in decision-making. Since voting power is weighted according to the financial contributions of member countries, the wealthy countries who contribute more money have the greatest say and influence over decisions at these institutions. For example,

-         In the IDA of the World Bank 12 countries control more than 50% of the vote, which is greater than votes held by the remaining 158 member countries;[1]

-         In the ADB, seven countries control more than 50% of the vote, which is greater than votes held by remaining than 60 member countries.[2] 

While in 2010 the World Bank implemented reforms to its voting power, the Bretton Woods Project notes that high-income countries will still control over 60% of the votes. [link to: http://www.brettonwoodsproject.org/doc/wbimfgov/wbgovreforms2010.pdf]

Furthermore, the ways in which MDBs prioritise and implement programs and projects have been characterised by lack of participation and consultation with local communities and lack of accountability to affected communities.[3]

Bureaucratic culture

A common criticism of MDBs is that they are overly bureaucratic and often prescribe a single set of policies as solutions, without sufficient regard to local needs and contexts. This can result in inappropriate projects and programs which at times can do more harm than good, as demonstrated in the section on conditionalites.

United Nations agencies have also been criticised for taking too long to respond to problems because of their complex bureaucracies, and also that much of the aid money is spent on the salaries of personnel in these organisations rather than on the actual programs and projects.

 

 

Next page

Last updated 12 November 2010


[1] http://siteresources.worldbank.org/BODINT/Resources/278027-1215524804501/IDACountryVotingTable.pdf

[2] http://www.adb.org/About/membership.asp

[3] For case studies of problem projects funded by the World Bank and ADB, see: http://www.bicusa.org/en/Institution.Projects.5.aspx; http://www.forum-adb.org/inner.php?sec=1&id=2

Social and environmental impacts of projects

Issues and debates continued...

Social and environmental impacts of projects

The ability of MDBs to mobilise sufficient funds for large-scale ‘development’ projects is often cited as one of their key advantages. However, their involvement in promoting, funding and implementing large-scale projects has also been a source of controversy.

Firstly, the technical expertise necessary to manage and build large-scale infrastructure has meant that much of the aid money has been channelled to companies, consultants and technical experts that oversee the projects.

Secondly, while these projects may generate revenue and contribute to economic growth, they can also have detrimental social and environmental impacts. For example, the World Bank and ADB have been heavily criticised for funding large dams  that have degraded rivers and destroyed local livelihoods.   

Whether some of the projects funded by the banks ‘alleviate poverty’ (as the banks claim) or further impoverish populations (as critics claim) is a matter of much debate. For an example from the Mekong Region in Southeast Asia, see Hidden Costs: The underside of economic transformation in the Greater Mekong Subregion

 

Australian Multilateral Assessment

AID/WATCH has initiated the ‘Tracking the Aid Review’ project in response to the Australian Government's ‘Australian Multilateral Assessment’.

Tracking the Independent Review: Measuring up the Multilaterals

The Australian Government’s Independent Review of Aid Effectiveness recommended an assessment of the multilateral organisations that the Government funds as part of Australia's aid program. In response AusAID implemented the ‘Australian Multilateral Assessment’. This process is designed to assess multilateral institutions by ranking them against a fixed set of criteria.

As part of our ‘Tracking the Aid Review’ project, AID/WATCH is releasing alternative profiles of multilateral agencies that consider criteria that AusAID is not looking at, including ecological impact and footprint, genuine pro-poor focus and commitment to working with the poor, not merely on their behalf.

AID/WATCH’s introductory analysis of the Australian Multilateral Assessment, Tracking the Independent Review: Measuring up the Multilaterals, looks at the criteria AusAID has used and questions the objectives and of the process and its capacity to deliver aid more effectively.

 

The $1.3b Question: Where Is Your Aid Money Going?

AusAID moved quickly to implement the ‘Australian Multilateral Assessment’ (AMA), a process recommended by the Government’s Independent Review. This process is designed to assess multilateral institutions by ranking them against a fixed set of criteria. As part of our ‘Tracking the Aid Review’ project, AID/WATCH has released alternative profiles of multilateral agencies that consider criteria that AusAID is not looking at, including ecological impact and footprint, genuine pro-poor focus and commitment to working with the poor, not merely on their behalf.

 

Changing the Paradigm or More of the Same?

Around 40 per cent of Australia's aid budget ($1.3 billion in 2009-10) goes to international institutions, also known as multilateral agencies. These agencies range from specialised United Nations divisions to development banks to a new breed of public/private partnership organisations. Their share of the aid budget is set to increase significantly as a result of the Independent Review of Aid Effectiveness, released in 2011. The Review recommended, among other things, that core funding (that is, unrestricted funding) be significantly increased as a percentage of the total aid program.

AID/WATCH has taken a strong interest in this process. It may lead to very large funding increases to agencies whose development philosophy and performance we have previously critiqued, such as the World Bank and the Asian Development Bank, as well as to more effective organisations such as the Global Crop Diversity Trust or the United Nations Population Fund. It will certainly involve an AusAID investment worth several hundred million dollars, which could make a massive difference to the life of the global poor – but it could also lead to ‘development’ projects that will perpetuate and deepen poverty.

 

An AID/WATCH Analysis

AID/WATCH has looked at four agencies likely to receive the most scrutiny in the process. Instead of narrowly based set of criteria, we looked at four holistic indicators that speak to their ability to end global poverty and take actions of relevance to the global poor. We consider these criteria to be the glaring omissions from the AusAID review. Two of them are among AusAID’s most favoured multilateral agencies, the Asian Development Bank and the World Bank. Together they represent the single biggest channel for Australian aid, some 17% of the total aid program. The other two agencies analysed are examples that have come in for significant criticism by both the UK review and preliminary comments by the, then, foreign minister, the International Labour Organisation (ILO) and the Food and Agriculture Organisation (FAO).

Our review looked at

  1. Human Development – what is the agencies development approach and how relevant is their mandate to human development.
  2. Ecological Impact – ecology is the long overlooked development challenge whilst at the same time ‘greenwashing’ is on the increase. Does the agency commit to conservation or just talk about it.
  3. Working with the Poor - too often, agencies work on behalf of the poor, without ever asking them. Does this agency genuinely work with poor people and their organisations on issues of importance to them?
  4. Development Politics – Where does the agency stand on fundamental issues such as trickledown effect, neoliberalism and the politics of development?

The attached profiles are not comprehensive, but show a snapshot of each agency in areas that AusAID won’t be looking. Whilst each agency has its flaws it is clear that there are significant problems that won’t be addressed by the multilateral review as well as significant strengths that won’t be picked up, illustrating the problematic approach of a uniform ranking system.

For example, in terms of representation the FAO and the ILO have structures where poor people’s organisations are able to debate policy and influence the organisation, whilst the World Bank and Asian Development Bank are highly state centric and centralise control of the organisation in the hands of the developed countries. Another factor looked at is development approach, some organisations take holistic views of development looking at human well-being whilst other take a purely economic point of view.

The purpose of these frameworks is not to recommend one multilateral agency over another, but to illustrate the complexities of rigid ranking systems and the variety of factors that influence multilateral agencies. AusAID must consider each multilateral agency on its own merits.

 

AID/WATCH Assessments

Read the AID/WATCH assessments of the four multilateral organisations attached below.

AttachmentSize
ADB_profile.pdf54.88 KB
FAO_profile.pdf50.33 KB
ILO profile.pdf49.14 KB
WB_profile.pdf48.27 KB