The Roles of Aid in Politics Putting China in Perspective



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USAID (2002), Foreign Aid in the National Interest: Promoting Freedoms, Security and Opportunity, Washington, DC: USAID.

The world has changed dramatically over the past two decades. Of the world’s 200 countries in 2001, 124 were democracies—the highest number ever. Nearly 6.0 billion people live in market economies, up from 1.5 billion in 1980. Globalization has integrated the world’s markets for goods, services, finance, and ideas. Population growth rates are down, and in most parts of the world health and education have surpassed where the U.S. stood 50 years ago. And remarkable advances in biotechnology are bringing the promise of new cures for the sick and new seeds for the hungry.

But these bright prospects also have dark sides. Many new democracies are fragile, others fake. Many market advances are reversing in stupendous losses of confidence—as with Enron and Argentina. Several billion people remain mired in poverty—and stranded across a gaping digital divide, blind to what could be free for all. Weapons of mass destruction using modern technology could unleash irreversible disasters on people and the planet. And for many people, especially Americans, the terrorist attacks of September 11, 2001, breached the sense of security offered by geography.

In September 2002 President Bush introduced his National Security Strategy. For the first time development has been elevated as the third pillar of U.S. national security, along with defense and diplomacy. Under the leadership of Secretary of State Powell, the U.S. development community is redefining its own strategic priorities to meet this challenge.

These changes have altered the landscape for global development. Within this new landscape U.S. foreign assistance must move in new directions. To inform the debate on future assistance, the U.S. Agency for International Development (USAID) commissioned this analysis of the main trends—and the related challenges—now unfolding. This follows in the tradition established more than a decade ago by then USAID Administrator Alan Woods, whose similar report on development trends changed USAID and the debate on foreign assistance.

The main message of this report: foreign assistance will be a key instrument of foreign policy in the coming decades. The report does not address all the issues of development assistance. Instead, it focuses on six:

• Promoting democratic governance.

• Driving economic growth.

• Improving people’s health.

• Mitigating conflict.

• Providing humanitarian aid.

• Accounting for private foreign aid.

Of these six issues, four articulate key development concepts driving the President’s proposed Millennium Challenge Account, a major new initiative announced by President Bush in March 2002, just the third major foreign aid policy statement since the second world war. The Millennium Challenge Account is based on the proposition that countries ruling justly, investing in their people, and encouraging economic freedom will receive more U.S. aid.

Around the world one of the most pressing needs is to advance democratic governance—no small task. At a superficial level the state of global democracy appears highly encouraging. Over the past quarter-century democracy has become the world’s most common regime. But swirling beneath this expansion is growing disenchantment with political leaders seen by their people as corrupt, self-serving, and unable or unwilling to address economic and social problems. In many developing and postcommunist countries, people are losing confidence not just in elected officials but also in democratic institutions. So, promoting democratic governance must become a higher priority in U.S. foreign aid. Democracy and good governance are required to spur development and reduce poverty in poorly performing countries. It is also vital to U.S. security.

Also essential is boosting economic growth in developing countries. The United States can get global agriculture moving by restoring the budgets of global agricultural research centers, training scientists in basic biology and applied agriculture, and pressing to reduce the damage from industrial countries’ agriculture policies. The United States can also promote trade and investment in developing countries by better coordinating its policies and programs. And it can help countries develop their microeconomic agendas, improving the climate for business.

Fundamental to this growth is improving people’s health and education. Because of changing demographics, most developing countries will have larger workforces over the next two decades. As a result more resources will be available to invest in economic endeavors. But for that to happen, workers must be productive—and to be productive, they must be healthy. Diseases that cause illness and premature death must be identified, prevented, and managed—including future health problems, which will be more diverse. If foreign assistance continues to rely on long-standing definitions of public health priorities, it may be unable to address this diversity. Responding to changing health challenges will require different budget allocations and more flexible programs.

Global markets are also changing as developing countries shift from low-cost labor to higher-end manufacturing. That change requires new types of workers, able to learn new skills and use new technologies. A primary school education is no longer enough for workers to take part in the global economy. Moreover, higher degrees—academic and technical—are needed to adapt global technology to local settings and to keep up with new advances. So education systems in developing countries must broaden their sights—and U.S. foreign assistance must offer more support for secondary education for the global marketplace.

Given the devastation caused by conflict, the United States needs to do much more to mitigate it—and when that is not possible, to help manage it. Conflict is the product of deep grievances, political and economic competition, irresponsible political leaders, and weak and unaccountable institutions. It does not occur simply because people are unhappy or greedy, or because a country has the resources to sustain violence. Nor does it happen where all state and social institutions are weak. It happens when causes at multiple levels come together and reinforce each other.

Preventing conflict requires long-term interventions that make states and societies better able to manage tensions. Whatever the causes, a crucial part of the solution is encouraging innovative institutions that can deal with problems—local, regional, and national. The most important principle when designing country programs is to apply a conflict lens to each major area of foreign assistance—from agriculture to economic growth to democracy and governance— and to have each area work in concert.

In the aftermaths of conflict and natural disaster, the United States must continue to provide humanitarian assistance—but much more effectively. The need for humanitarian assistance shows no signs of abating, and new dimensions of disasters will create new demands. Trends indicate a larger, more complex role for humanitarian assistance in the coming decades. The United States, the only national power with truly global reach, has a critical role in addressing current and future trends in disaster assistance. It must project a clear consistent message about addressing humanitarian needs in conflict settings and reducing vulnerabilities that transform natural and technological events into disasters.

U.S. assistance can do much to shape the 21st century. And as the Millennium Challenge Account ramps up, U.S. official aid is set to rise from $10 billion a year today to $15 billion in 2006 and thereafter. U.S. assistance is generally measured solely as the official development assistance that the government provides through USAID, the Peace Corps, multilateral institutions, and programs sponsored by the State Department and Department of Defense. But many nongovernment sources also provide foreign aid: foundations, corporations, private and voluntary organizations, colleges and universities, religious organizations, and individuals.

All these sources—providing nearly $60 billion a year, or six times the official assistance—must be taken into account to plan aid more effectively. With private assistance predominating, U.S. official assistance will have to develop stronger partnerships with the full array of private sources.

The dominant themes, then, are for foreign assistance to focus on political leadership, on policy, on people, and on partnership. Unless a country’s leaders make smart choices for national priorities and show their political will to work with outside donors, development—and development assistance—cannot succeed. Unless sensible policies are put in place, with the rule of law to promote good governance and individual freedom, development cannot be sustained, particularly for agriculture, the engine of growth for most poor countries. Unless countries invest in health and education, people cannot take on the demands of today’s competitive workplace, and development cannot even start. And unless the official development community works better with partners, both traditional and new, many development opportunities will be wasted. Too much is at stake in all this. We have to ensure that these themes suffuse the future of foreign assistance—all in the national interest.

- Andrew S. Natsios, Administrator, USAID

Voeten, Erik (2000), “Clashes in the Assembly,” in International Organization, Vol. 54, No. 2, pp. 185-215.

In this study I demonstrated that the underlying structure of conflict in the post–Cold War UNGA is one-dimensional. The position of countries along this single dimension is stable across time, issue area, and importance of issues. If global politics has become multidimensional and alliances have become ad hoc and issue based, this does not show up in the voting behavior of countries in the UNGA. This finding rejects the dealignment hypothesis.

The analyses also revealed a surprising degree of stability in the voting patterns of states. Much of the Cold War East-West conflict has carried over into the post–Cold War period. The evidence contradicts the structuralist hypothesis that North-South conflict has superseded East-West conflict. The results suggest that there is some truth to the stability hypothesis that argues that besides the countries belonging to the former Soviet bloc that are now aligning with the West, the behavioral voting alignments have changed little since the end of the Cold War. Moreover there is some indication that European countries have moved away somewhat from the United States, another prediction of the stability hypothesis.

However, the stability hypothesis does not tell the whole story. Some things have changed since the end of the Cold War. First, I found considerable evidence of an emerging “counterhegemonic voting bloc.” Whereas the United States and its Western allies occupy one pole of the main dimension of conflict, the other pole is occupied by a group of rising powers (China and India) and some other countries (for example, Iraq, Iran, Libya, and North Korea) that challenge the neoliberal world order and have been involved in clashes with the West, particularly the United States. The emergence of this bloc indicates that the positions of countries along the first dimension are at least partly explained by their degree of opposition to U.S. hegemony, as stated by the counterhegemonic hypothesis.

Second, the results indicate that the regime type of countries affects their voting behavior. This effect occurs independently from the effect of the level of economic development on state behavior. Moreover, states that have become more democratic since 1989 have started to vote more with the “West,” even when I exclude Eastern European countries from the analysis. However, the effect of democracy on state behavior is not the same across issue areas. The evidence supports the Kantian hypothesis that democracies tend to vote with each other on issues concerning principles of political and economic liberalism. It is somewhat inconclusive about whether regime type has any general influence on the voting behavior of countries.

Third, the study clearly rejects the general claim that post–Cold War global conflict is dominated by “clashes of civilizations.” However, I do find some evidence of divisions between non-Western “civilizations.” Islamic countries separate from African and Latin American countries on the less-important and less-stable second dimension of conflict. Moreover, I find that in comparison to the Cold War period Islamic countries have moved away from the West.

Identifying the position of countries in global conflict by their relative position on a “Western–nonwestern” dimension is undoubtedly a simplification of global politics, but it is a simplification that explains voting behavior in the post–Cold War UNGA extremely well. The stability of the positions of countries along this dimension over time, issue area, and issue importance is truly remarkable. A one-dimensional explanation of global politics may not be as simple-minded as perhaps it first appears. It incorporates the emergence of a counterhegemonic bloc and the importance of levels of democracy and economic development as determinants of state behavior. Moreover it captures some regional distinctions that are considered important in world politics. Further research should investigate whether the relative positions of countries on this “Western–non-Western” continuum might accurately predict clashes and cooperation outside the UNGA.

Voeten, Erik (2004), “Resisting the Lonely Superpower: Responses of States in the United Nations to U.S. Dominance,” in The Journal of Politics, Vol. 66, No. 3, pp. 729-754.

The preference gap between the United States and the rest of the world widened considerably and at a constant rate between 1991 and 2001. The increase in the gap is not a phenomenon limited to states from particular parts of the world, and there is not much evidence that some states have chosen to bandwagon with the United States. It appears that U.S. hegemony has elicited almost universal resistance. One might interpret these results as evidence that the widening preference gap is purely a structural phenomenon and thus largely unaffected by apparent temporal variations in U.S. foreign policy. We should, however, consider some caveats before settling on such a conclusion too confidently. For example, I have only investigated the responses of states, not individual citizens. It may be that the more important consequence of unilateralist policies is that it turns world public opinion against the United States. This may have a lagged effect on the behavior of states through increasing domestic pressures. It may also increase support for nongovernmental activities targeted at the United States. Finally, the shift towards more unilateralist policies in the mid-1990s appears to have had a substantial impact on the agenda. States increasingly introduce resolutions to denounce unilateralist U.S. policies and drop resolutions supportive of U.S. purposes. This suggests a modification to the liberal-institutionalist perspective. States may punish uncooperative behavior by introducing multilateral initiatives that complicate Washington’s calculations, even though they do not adjust their perceived interests to policy fluctuations. The rationale is that U.S. policies are subject to change as new Administrations (or Congresses) are elected. Governments that realize this have little reason to adjust their policy preferences in response to policy fluctuations. By affecting the multilateral agenda they seek to affect policies more directly.

Although the finding that states have negatively adjusted their preferences to U.S. dominance is robust and applies to the vast majority of states, there is considerable country-specific variation in the extent of the changes. The results support the hypothesis that changes in the degree to which a state respects civil and political liberties domestically explains shifts in foreign policy preferences. Thus, a purely structural account of post-Cold War politics is inadequate. Just because this finding is consistent with the liberal paradigm and the previous finding better fits a realist framework does not imply that the two are logically inconsistent. States may well be influenced in forming perceptions of their national interests both by structural pressures and liberal concerns, which is exactly what the analysis suggests. On balance, the common shift away from the United States appears to be the most powerful force, which is mitigated only slightly by variation in domestic orientations. Future research with longer time series as well as alternative data sources should evaluate whether this main finding holds up. Finally, there remains considerable variation that is left unexplained by the model, implying that other variables may also help explain preference change. For example, future studies could test whether replacement of leaders with specific ideological or religious beliefs leads to changes in foreign policy preferences. It would also be useful to explore the use of alternative data. For example, the current data does not allow us to track movements in U.S. preferences as the U.S. votes consistently on the issues under investigation.

Besides its substantive implications, the analysis also demonstrates the merit of the multilevel IRT model. The integration of a measurement model with a structural model demonstrably leads to different inferences than when different indicators of a latent construct are combined using an arbitrary aggregation mechanism that ignores measurement error and characteristics of the items (resolutions) under consideration. The application of the IRT model to roll-call data is attractive because of its identity with the main behavioral model of legislative behavior: the spatial model. However, the IRT model can be used as a more general measurement model for latent constructs (e.g., Jackman and Treier 2002). Given the prevalent use of fallible manifest indicators to measure latent constructs such as democracy and ideology, the multilevel IRT model holds great promise for applications in political science.



Vreeland, James R. (2004), “The International and Domestic Politics of IMF Programs,” paper prepared for the Reinventing Bretton Woods Committee and World Economic Forum conference on The Fund’s Role in Emerging Markets: Reassessing the Adequacy of its Resources and Lending Facilities, Amsterdam, November 18-19, 2004.

The Influence of the United States

Protestors against the IMF are often surprised to learn that the United States only controls about 17 percent of the votes at the IMF. This gives the US veto power over certain important decisions that require an 85 percent majority, but it is a far cry from majority control of the Fund. The IMF, however, does not operate according to strict voting rules. Votes are rarely taken. Rather, the Managing Director, who usually chairs the Executive Board meetings, takes action according to the “sense of the meeting.” This may open the door for a member of the Executive Board who represents small countries to influence the meeting with a carefully turned phrase, but it also means that opposition to the US by smaller countries cannot be expressed through block voting but must be voiced individually. Moreover, the Managing Director has been reported to rarely act against the will of the US, perhaps as is fitting, since the US has veto power over his appointment (Lichtensztejn and Baer 1987, cited in Thacker 1999).

Scholars have therefore proposed that the US has the power to use the IMF for political objectives. There are many anecdotes, but when dealing with only one observation at a time, it is difficult to sort out economic explanations from political explanations. Strom Thacker (1999) undertook the first systematic study of a large body of evidence on the question of US influence at the IMF. To test whether the US uses the IMF as a tool of foreign policy, he considered voting patterns at the United Nations as a determinant of IMF programs. Thacker found that countries that voted along similar lines as the US were more likely to receive an IMF program than countries that did not. More specifically, countries that changed their voting patterns so that they became more similar to the US preferences were more likely to get an IMF conditioned loan, and countries that changed their voting against the US were less likely to get a loan.

At first blush, it may seem strange to consider voting at the United Nations as meaningful – many votes are symbolic and most are not of great importance to the US. But Thacker was careful to include in his study only those votes that the US State Department had identified as “key votes.” These were votes that the US state department had announced that it did care about.

By using statistical analysis of the experience of 87 countries (for a total of over 700 yearly observations), Thacker was able to control for other factors that determine IMF participation. He did find evidence that economic factors play an important role. But moving closer to the US in terms of voting on key issues at the United Nations plays a significant role as well. His variable is a straightforward measure: the change from one year to the next in the correlation between a developing country’s the UN voting record and the US voting record on votes identified by the US State Department as “key” – where the US exerted explicit pressure on how to vote. The variable predicts IMF participation well, even after one controls for economic variables predicting participation. (I will employ this variable below in Section 5.) Thacker concludes that the US uses IMF loans to reward countries that move towards it and punish those that move away.

Since Thacker’s systematic study of US political influence over the IMF, others have explored other ways of measuring and testing US influence. For example, Randall Stone (2002) has looked at the connection between US foreign aid and IMF punishment for non-compliance with the conditions attached to IMF loans. Stone considers the amount of foreign aid that a country receives from the US to be a proxy for how important the country is to the US. If the US can use the IMF to pursue its political objectives, countries that receive favorable amounts of US foreign aid are also likely to receive favorable treatment by the IMF.

Stone has undertaken two studies considering the effect of US foreign aid on IMF program punishment intervals – one on the Post-Communist countries of Eastern Europe (2002) and one on Africa (forthcoming). Both studies confirm his hypothesis: the more US foreign aid a country receives, the shorter the duration of punishment for IMF programs that fall into non-compliance. In addition to the statistical studies, which include data from many countries from Eastern Europe and Africa, Stone also presents detailed case studies. For example, he shows that Russia, a country that was considered to be of great strategic importance to the US after the fall of Communism, received much lighter punishments for non-compliance than Poland, which was considered to be of less importance to the US. Stone concludes, “Although the United States holds a minority of votes, it does indeed call the shots at the IMF, as critics allege” (2002: 62).

Note that, in addition to the political motivations, the US may also influence the IMF to protect financial interests. Consider the findings of two unpublished studies by Thomas Oatley and Jason Yackee (2000) and Lawrence Broz and Michael Hawes (2004). Oatley and Yackee show that the amount of US bank exposure in a developing country is a determinant of the size of the IMF loans the country received. Broz and Hawes find that the total amount of US lending as a proportion of a developing country’s GDP is a significant predictor of both the IMF agreement and the size of the IMF loan. They take this as evidence of the influence of US banks operating through US political channels. This point of view is different from the arguments of Thacker and Stone. Rather than argue that the US uses the IMF to reward friends, Broz and Hawes, as well as Oatley and Yackee, argue that the US uses the IMF to protect US financial interests. This is a crucial difference with respect to conditionality because, when financial interests motivate the US, there may be an incentive to see policy conditions enforced.



Conclusion

The impact of politics on IMF arrangements has important implications about IMF conditionality. In an IMF agreement with a country favored by the US, conditionality may have no bite. Yet, in countries not particularly favored by the US conditionality may help to push through important policies of economic reform. Stone (2002) found in Eastern Europe that countries participating in IMF programs that were not favored by the US – thus, where the threat of punishment for noncompliance was credible – succeeded in curtailing inflation. IMF conditionality may be used in these situations, however, to push through unpopular policy changes that favor one constituency over another. Stiglitz contends:

There is…a process of self-selection of reforms: the ruling elite has taken advantage of the reform process and the asymmetries of information – both between themselves and the citizenry and between the international aid community and themselves – to push those reforms that would benefit them.

Partial compliance allows countries to avoid IMF punishment and to push through policies to protect elite interests while shifting the burden of austerity to labor and the poor. Systematic studies indicate that IMF programs typically exacerbate income inequality (Pastor 1987, Garuda 2000, Vreeland 2002, 2003). Pastor (1987) found that “the single most consistent effect the IMF seems to have is the redistribution of income away from workers” (1987a: 89). His finding has been confirmed in more recent studies with broader data and updated methods. Indeed, of all the areas where the IMF may have an impact, income distribution appears to be the one area where there is the most consensus in the literature on the effect of IMF programs.

Thus, we may imagine 4 sets of countries: (1) There are countries favored by the US for political reasons – conditionality has no bite. (2) There are countries not favored by the US whose governments agree with the policies prescribed by the IMF and face no opposition – conditionality is not needed. (3) There are countries not favored by the US whose governments use the IMF agreement to favor domestic elite interests – conditionality is abused. (4) There are countries not favored by the US whose governments agree with conditions but face opposition – conditionality helps push through Pareto improving reforms.

Whether or not IMF conditionality is a good thing depends on how common situation (4) is. Dollar and Svensson (2000) have argued that the IMF should specifically target such situations. This might be a wise move, but it may be politically unfeasible – both at the international and domestic levels. At the international level, how can the IMF resist the pressure to help US allies? At the domestic level, how can the IMF know the true intentions of governments? Yet, unless IMF conditionality is used for situation (4), conditions are useless at best and harmful at worst.

How common is it that IMF programs help to push through policies that are unpopular in the short-run but have positive effects in the long-run? Judging by the dearth of evidence of program success, this is probably not so common. So, perhaps the IMF should scale back its operations, lending only during times of severe crisis and providing policy advice without imposing conditions per se.

Yet, recall the argument of Gould. She finds that private financial institutions provide supplemental financing to countries in crisis only provided that “bank-friendly” conditions are included in IMF arrangements. Using the IMF to enforce developing countries’ commitments of to repay loans may be Pareto enhancing. Without the IMF, private financial institutions may be unwilling to loan to countries in crisis. With the IMF, however, crisis countries – who receive the loans – and private financial institutions – who receive a credible commitment of repayment – are both better off.

This suggests a scaling back of conditions to the level of debt repayment. This is something with which the IMF has been quite successful. IMF loans, for example, are almost always repaid. Governments would still have to make tough decisions about how to cut back domestic consumption to repay loans, but they would do so on their own terms.

Scaling back conditionality would have little impact where the IMF lends under political pressures from the US because conditions have never been strictly enforced in these situations. It would have a great impact on other countries, particularly where governments have sought out IMF conditions to push through unpopular policies. This would be a loss in the handful of cases where well-intentioned governments need IMF leverage to make policy changes that will help the country in the long-run. But it would prevent other governments from misusing IMF conditionality to push through policies that shift the burden of austerity on labor and the poor in the name of the IMF.


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