REFORM OF THE INTERNATIONAL AID ARCHITECTURE:

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REFORM OF THEINTERNATIONAL AID ARCHITECTURE

• A COMMONWEALTH ACTION PROGRAMME

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1. Introduction

• The Report before us is a compilation of 8
  Briefing Papers in summarised form.
• These Briefing Papers, each of which covers key
  issues that were discussed in Colombo in
  September 2006, seek to identify a Commonwealth
  role in each area.
• Presentation of the summary of the 8 Briefing
  Papers is preceded by a Charter of Best Practice
  based on priorities identified in Dhaka and
  Yaoundé in March and May 2006 respectively.

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• The Briefing Papers
• We will consider these BPs in two clusters
• CLUSTER I
• BP1 Development Assistance Committee
• BP2 Harmonisation and Alignment
• BP4 Independent Evaluation
• BP5 Mutual Accountability
• BP6 Ten Year Development Partnership
• Agreements
• CLUSTER II
• BP3 IDA 15 Replenishment
• BP7 UN Reform
• BP8 Voice and Representation in the Bretton
  Woods Institutions

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• In considering these BPs, you may wish to address
  the following questions in relation to the issues
  raised
• Which issues are of most importance to
  Commonwealth members and should have the highest
  priority?
• In which areas IS there the most potential for
  movement and impact?
• Where can the Commonwealth have the most impact?
• What are the priorities for action for the
  Secretariat?

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Charter of Best Practice

• The paper presents a set of criteria for a
  charter of best practice to guide the reform of
  the aid architecture and act as the basis for
  developing collective action between developed
  and developing nations both inside and outside
  the Commonwealth.
• The table identifies a series of characteristics
  which, taken together, help to build a picture of
  the ideal profile of an aid agency and the
  overall aid system.
• The characteristics were proposed by participants
  drawn from Commonwealth and La Francophonie
  Finance Ministries and civil society
  organisations.
• The table provides an indication of the number of
  groups of participants which proposed each
  criterion.
• You may wish to discuss the criteria and select a
  set of them as a Charter of Best Practice which
  is submitted for approval by CFMM and
  subsequently endorsed by CHOGM.

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BP1 Development Assistance Committee

• Background and Issues Involved
• The DAC is a key forum for the major bilateral
  donors. It concentrates on two areas
• (1) how international development co-operation
  contributes to the capacity of developing
  countries to participate in the global economy
  and
• (2) the capacity of people to overcome poverty
  and participate fully in their societies.
• Decisions taken and standards set by the DAC have
  a profound impact on how aid is disbursed.
• All this happens without any formal voice and
  participation of either recipient governments or
  southern CSOs.
• However, DAC has now started conversations with
  some non-DAC donors.

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• Despite this, the paper suggests its lack of
  inclusiveness and legitimacy makes it unsuitable
  to play the apex role in aid policy and improving
  aid effectiveness.
• A number of international agreements, including
  MDG Goal 8, call for genuine partnership in
  development co-operation, not policy-making and
  standard-setting in exclusive fora.
• In addition, non-DAC donor flows of development
  assistance are increasing significantly.
• It is unlikely, however, that the OECD Acts will
  be reviewed to widen membership of the
  organisation to include new donors and a
  representative group of aid recipient countries.
• There is, therefore, a strong case for aligning
  the DACs work with the new UN Development
  Co-operation Forum.

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• Options for Commonwealth
• Secretariat should seek to attend formal DAC
  ministerial meetings
• Request Commonwealth attendees to provide
  informal briefings that could be made available
  to all Commonwealth members
• All donors, including non-members, should
  participate in DAC meetings where feasible
• Request DAC to invite developing countries to
  participate in peer reviews
• Support the alignment of the DACs work with the
  UN Development Co-operation Forum.
• Build analytical capacity of Commonwealth
  developing countries to engage better with
  individual bilateral donors, the DAC and UN
  Development Co-operation Forum.
• The paper provides a list of for a where these
  recommendations can be pursued by Commonwealth
  members, individually and collectively . (This
  has been done in each of the BPs.)

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BP2 Harmonisation and Alignment

• Background and Main Issues
• The current international aid system consists of
  more than 150 multilateral agencies, over 40
  bilateral agencies (of which 33 are members of
  the OECD/DAC) and a growing number of vertical
  funds and innovative funding mechanisms.
• This situation is replicated at the national
  level where the most aid dependent governments
  can find themselves interacting with over 30
  donors.
• The result of this national and international
  complexity is increased transaction costs for all
  partners, an overburdening of the weak capacity
  of recipient governments, a lack of coordination,
  competing development objectives, and significant
  wastage.
• An effort to address these problems led to the
  Paris Declaration of April 2005.

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• While effective implementation of the Paris
  agenda should help to reduce some of the
  inefficiencies in the system, some argue that it
  will not be enough.
• For instance, high-level commitment to the Paris
  agenda has not yet translated into significant
  changes on the ground, particularly as far as
  alignment is concerned.
• Also, it has been argued that the connection
  between Paris and the expected development
  benefits is not proved and that four additional
  policy measures are needed.
• These include agreement aimed at having a better
  balance of allocations to different countries and
  purposes new funding mechanisms to augment the
  existing aid allocation to facilitate reaching
  the MDGs new instruments with longer commitment
  horizons (as discussed in BP7 below) and
  credible accountability mechanisms, with
  effective sanctions for non-compliance.

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• Options for Commonwealth
• Mandate the Secretariat to report to CFMM
  regularly on progress towards the Paris targets
• Assist developing countries to take advantage of
  the potential for empowerment built into the
  Paris Declaration by formulating National Action
  Plans to implement it
• Promote learning and information exchange between
  member countries about achieving the Paris agenda
  
• Organise a Commonwealth caucus before the Accra
  High Level Forum
• Reaffirm the importance of the Paris Declaration
• Request DAC to monitor Commonwealth performance
  against Paris targets
• Mandate the Secretariat to request opportunities
  to address various international fora
• Declare determination to meet, and if possible,
  exceed Paris targets (Annex 3 of the Report)

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BP4 Independent Evaluation

• Background and Main Issues Involved
• Currently, evaluation of recipient country
  performance is undertaken by each donor using its
  own system of monitoring and reporting.
• This places an unnecessary burden on
  capacity-constrained countries
• In addition, it reduces the independence of the
  evaluations, and the outputs provide limited
  benefits to recipient countries. On the donor
  side, the peer reviews, which take place at the
  DAC, lack developing country participation and
  enforceability (see BP5).
• There is currently no inclusive forum to develop
  an appropriate framework for independent
  evaluation or to review the comparative
  performance of donors. The establishment of an
  independent evaluation body or a Working Group
  would provide some significant advantages and the
  UN Development Forum could oversee this process.
  The paper makes some proposals about the
  functions of such a Working Group.

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• There is also a case for establishing a parallel
  capacity for independent evaluation at the
  national level reporting to governments, donors,
  parliaments and CSOs.
• Some pioneering evaluation attempts have been
  recorded at the national level.
• The Bangladesh Government has formed a high
  profile independent advisory committee consisting
  of experts, researchers and civil society leaders
  to provide guidance and advice and to commission
  studies for an annual assessment of the broader
  objective of progress made towards Poverty
  Reduction Strategy implementation and the
  attainment of MDGs.
• Tanzania has established an IMG Mozambique also
  has an annual independent assessment process
  which monitors donors progress on their
  commitments on the basis of a base-line for donor
  performance defined in 2003

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• However, despite the considerable potential that
  independent evaluations seem to offer, similar
  systems are not widely used.
• Furthermore, even the national systems that exist
  tend not to involve Parliaments and CSOs.
• Options for Commonwealth
• Secretariat act as depository for best practice
• Lobby individually and collectively for the UN
  Development Co-operation Forum to have
  responsibility for setting standards, developing
  frameworks and assessing outcomes of independent
  evaluations. (Work done by DAC can be fed into
  this Forum.)
• Assist in carrying out independent evaluations at
  country level

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BP5 Mechanisms for Mutual Accountability

• Background and Main Issues
• Two main sets of issues need to be addressed to
  strengthen mutual accountability, how to give
  developing countries more voice, power and
  capacity to keep donors accountable for their
  commitments and create better mechanisms for
  promoting shared goals and reciprocal commitments
  and goals.
• Strengthening mutual accountability requires a
  clear and effective framework within which both
  donors and recipients can agree, the shared
  objectives of their aid relationship, the
  reciprocal commitments that they are willing to
  undertake, and a monitoring process that allows
  both parties to assess each others performance
  in a transparent manner and address lack of
  compliance through agreed redress mechanisms.

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• Various efforts have been made to give the
  concept of mutual accountability meaning and
  effect.
• At the international level, these include the
  Cotonou Aid and Trade Agreement the Paris
  Declaration the Global Monitoring Report etc.
• At the national level, Tanzania and Mozambique
  have already been cited. In addition Afghanistan
  and Vietnam have set hard conditions for the
  acceptance of aid, both expressing willingness to
  forgo ODA which does not meet certain conditions.
  
• However, both the international and national
  level initiatives are bedevilled with a number of
  fundamental challenges, as discussed in the
  Report.

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• Options for Commonwealth
• For Donors
• Facilitate peer learning to empower recipient
  governments to set rules for donor engagement and
  abide by them
• Promote recipient-led monitoring both at the
  global and country level
• Invest in capacity building for aid management,
  supporting recipient government institutions in
  charge of aid co-ordination to better negotiate
  with donors and monitor their behaviour
• For Recipient Countries
• Seek co-operation with other recipient countries,
  as a way of sharing lessons and resources on
  mutual accountability mechanisms and experiences,
  and building a more effective collective voice
  for recipient countries in international arenas
• Identify and implement best practice in donor
  management units

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• All Commonwealth Members
• Promote the definition of clear mechanisms for
  monitoring indicators, targets and sanctions for
  poor donor performance and country-level mutual
  accountability assessments during the follow-up
  process to the Paris Declaration
• The Commonwealth Finance Ministers Meeting can be
  used as a forum for developing consensus within
  the association on these specific measures.
• These can also be pursued by Commonwealth
  countries, individually and collectively, through
  the High Level Dialogue on Financing for
  Development, the Financing for Development
  follow-up International Conference in Doha, Accra
  Forum, UN Development Forum, Development
  Committee and DAC.
• The senior management of the Secretariat could
  assist in this process.

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BP6 Ten Year Development Partnership Agreements

• Background and Main Issues Involved, using DfID
  as a Case Study
• Predictability of aid flows are an important
  determinant of their effectiveness by enabling
  recipient governments to plan better and to
  achieve greater stability in their policies and
  programmes.
• DFID has pioneered 10 year development
  partnership agreements which have been signed
  with a number of countries including Afghanistan,
  Pakistan, Rwanda, and Vietnam.
• These agreements set-out the shared commitments
  on which the partnership is based as well as
  recipient country commitments UK commitments
  indicative levels of UK development assistance
  duration provisions for monitoring and review
  and responses to breaches of partnership
  commitments.

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• Commitments shared by the recipients and donors
  include reducing poverty with the objective of
  achieving the MDGs respecting human rights and
  other relevant international obligations and
  strengthening financial management and
  accountability which reduces the risk of funds
  being misused through weak administration and/or
  corruption.
• Monitoring and review process involves holding
  annual partnership talks which mutually review
  the performance of each side against agreed
  benchmarks, and jointly commissioning periodic
  external reviews conducted by independent experts
  on the implementation of commitments made by both
  sides in the Partnership Agreements, drawing on
  relevant indicators and benchmarks.
• Concerning responses to breaches of the
  agreement, DfIDs Agreement with Pakistan
  stipulates that this decision should be based on
  reviews by independent experts.
• Such breaches include moving significantly away
  from specific commitments, significant violation
  of human rights or other international
  obligations, and significant breakdown in
  financial management.

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• The Partnership Agreement can be terminated by
  three months written notice by either
  government. There is a strong case for arguing
  that any amendment or termination of the
  Agreements should be based only on independent
  evaluation by experts acceptable to both parties.
• Options for Commonwealth
• Mandate Secretariat to produce a paper on best
  practice in 10 year Partnership Agreements
• Request DFID to use the Commonwealth and other
  networks to facilitate learning by both donor
  (Commonwealth and non-Commonwealth) and recipient
  countries (including parliamentarians and civil
  society)

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BP3 IDA 15

• Background and Main Issues involved
• Negotiations have just begun for replenishment of
  IDA resources (IDA15) which will provide funding
  for the three years between July 2008 and June
  2011.
• Representatives of 40 donor countries (IDA
  Deputies) and nine representative borrower
  countries met in Paris on 5-6 March 2007.
• It has been agreed that IDA15 replenishment
  negotiations should focus on a select number of
  special themes.
• It is noteworthy that none of the proposals were
  put forward by any of the nine borrowing
  countries participating in the negotiations.

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• The proposals were grouped together as follows
• IDAs role in the international aid architecture
  (proposed by 14 Deputies)
• Fragile states (proposed by 13 Deputies
• Results (proposal by nine Deputies)
• Debt sustainability framework (DSF)
  implementation and debt management capacity
  (proposed by nine Deputies)
• IDAs resource allocation system (proposed by
  eight Deputies)
• IDAs financial strength (proposed by seven
  Deputies)
• Equity of growth (proposed by six Deputies
• Environment and energy (proposed by four
  Deputies)
• Private sector development and infrastructure
  (proposed by four Deputies)
• Decent work (proposed by two Deputies)
• Shocks and disasters (proposed by two Deputies)
• Access to IDA resources (proposed by one Deputy)

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• Options for the Commonwealth
• Agree a common position on share of resources to
  be used as grants effectiveness of IDAs
  allocation system, particularly through
  simplification of the PBA formula and reduction
  in distortionary impact of governance factor and
  the volatility of CPIA ratings and process for
  IDA15 Replenishment.
• Request Commonwealth IDA Deputies and observers
  to advocate agreed position at IDA15
  replenishment meetings

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BP7 Strengthening Multilateralism United
Nations Reform

• Background and Main Issues Involved
• At present, only 30 of total aid flows are
  channelled through multilateral sources.
• The multilaterals are likely to have difficulty
  in maintaining even their 30 share of total aid
  flows because they are constrained by
  burden-sharing formulas and they can grow no
  faster than their least enthusiastic large
  contributors desire.
• Increasing the share of ODA disbursed by
  multilateral organisations may be desirable
  because multilateral agencies have some distinct
  advantages over bilaterals, as discussed in the
  Report.

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• One way of accomplishing a higher share of
  multilateral ODA (though not in the Report) is
  for the donors to be encouraged by DAC, in its
  performance assessment of its members, to attach
  higher weighting to multilateral than bilateral
  ODA for determining the total ODA of each donor.
• For instance, in computing ODA contributions,
  every US1 given to multilateral institutions
  would attract full weight while it would attract
  only 50 percent weighting (i.e., treated as only
  US0.50) if made bilaterally.
• If the advantages from multilateralism are to be
  realised, strengthening the role of the
  multilaterals will need to be accompanied by
  reforms to make them more effective as well as,
  where necessary,effective governance reform to
  ensure greater recipient voice and
  representation.
• This is why the paper has focussed on UN and BWI
  reform.

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• The UN is a substantial source of development
  financing, providing on average around 10 of
  total ODA, more than the World Banks IDA.
• The UN has an extraordinarily complex structure
  with 14 funds and programmes, nominally under the
  authority of the Secretary-General, and as many
  as 13 other specialised agencies each with its
  own governance structure.
• This creates significant costs and inefficiencies
  at both the national and international level.
• In addition to ensuring that evaluation
  mechanisms are substantially strengthened and
  that full funding is secured, key recommendations
  by the recent UN High Level Panel (HLP) on UN
  Reform are
• One UN for development at country level with one
  leader, one programme, one budget and, where
  appropriate, one office.
• One UN for development at Headquarters.

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• Strengthen results-based funding, performance and
  accountability through a discretionary funding
  mechanism to provide multi-year funding for the
  Country Programmes, and promoting transparency
  and accountability.
• Enhance the UNs role in Humanitarian Assistance
• Strengthen multilateral action to promote
  environmental sustainability through
  strengthening international environmental
  governance.
• Improve the UNs delivery of gender equality and
  womens empowerment.
• Streamline co-ordination with other multilateral
  agencies (particularly the BWIs) by establishing
  a process to conclude formal agreements on their
  respective roles. The new UN Development Forum
  should emerge as the apex institutional
  arrangement for the aid system.
• Options for the Commonwealth
• Commonwealth should advocate for attaching
  greater weighting to donor contributions to
  multilaterals vis-à-vis giving of bilateral aid
  in the assessment of donor performance by DAC and
  (if and when it too starts assessment of donor
  performance) the UN Development Forum.

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• Commonwealth should declare commitment to open
  recruitment process for senior UN positions
• Commonwealth donors should consider a target for
  the share of aid that should be channelled
  through the UN (increasing from the current 12)
• Donors should agree to channel humanitarian
  resources through the Common Emergency Response
  Fund
• Provide financial, material and political
  assistance to member states involved in both the
  pilot and longer-term roll outs of the HLPs
  proposal.
• Support the proposed central funding mechanism.
• These recommendations can also be pursued both
  collectively and individually through the new UN
  Development Co-operation Forum.

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BP8 Strengthening Multilateralism - Voice and
Representation in the Bretton Woods Institutions
(BWIs)

• The problems related to the governance of the
  BWIs and the lack of voice of developing
  countries are well known.

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• Proposals for Reform include the following
• (1) Executive Board
• Proposals on the reform of the composition of the
  Board range from the addition of one or two
  African EDs, to electing all EDs with each chair
  representing at least three members and not more
  than 15.
• It has also been suggested the Europeans should
  be allocated one chair collectively creating
  space to increase the number of EDs for
  under-represented groupings.
• Additional Alternate EDs and Senior Advisers have
  also been proposed for chairs with the largest
  constituencies.
• (2) Quota Reform
• Any package of quota reforms should include an
  early and substantial increase on basic votes
  at least a tripling. Basic votes have fallen from
  11.3 to 2.3. The main beneficiaries of an
  increase in basic votes would be African members.
• It has been argued that the following elements
  should be included in any future quota formulae
  measurement of economies by PPP measurement of a
  countrys need for IMF support and safeguards
  into the quota formula through ring fencing, or
  setting a floor, to secure Africas share.

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• (3) Majority Voting
• Quota reform, even if accompanied by an increase
  in basic votes, risks further reducing the
  poorest countries influence.
• This can be addressed by the implementation of a
  double-majority voting system which requires two
  simultaneous majorities, one based on one country
  one vote and the other on economically weighted
  quotas.
• Super-majority decisions would require either 70
  or 85 of both the voting weight and membership.
• (4) Governance
• The selection of the Managing Director and
  President should be open and transparent.
• Implement principles of corporate governance to
  protect minority rights.
• An independent advisory body to agree the Funds
  research agenda should be created.
• Open the actions of EDs to scrutiny by
  parliaments, media and civil society.

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• Options for Commonwealth
• Continue providing briefing papers on current
  state of play
• Seek areas of agreement (e.g. increasing Africas
  representation and protecting its quota share
  and measurement of economies by PPP) and work to
  influence the outcome of the two-year programme
  of quota and voice reform.
• Advocate advisory groups, comprising small and
  low-income country officials, having regular and
  institutionalised meetings with the MD and
  President.
• Advocate open recruitment process for selection
  of the MD and President
• The senior management of the Commonwealth
  Secretariat could assist in this process.