Aid Effectiveness - Historical Background

Historical Background

The international aid system was born out of the ruins of the Second World War, when the United States used their aid funds to help rebuild Europe. The system came of age during the Cold War era from the 1960s to the 1980s. During this time, foreign aid was often used to support client states in the developing world. Even though funds were generally better utilized in countries that were well governed, they were instead directed toward allies.

After the end of the Cold War, the declared focus of official aid began to move further towards the alleviation of poverty and the promotion of development. The countries that were in the most need and poverty became more of a priority now. It is against this background that the international aid effectiveness movement began taking shape in the late 1990s. Donor governments and aid agencies began to realize that their many different approaches and requirements were imposing huge costs on developing countries and making aid less effective. They began working with each other, and with developing countries, to harmonize their work in order to improve its impact.

The aid effectiveness movement picked up steam in 2002 at the International Conference on Financing for Development in Monterrey, Mexico, which established the Monterrey Consensus. There, the international community agreed to increase its funding for development—but acknowledged that more money alone was not enough. Donors and developing countries alike wanted to know that aid would be used as effectively as possible. They wanted it to play its optimum role in helping poor countries achieve the Millennium Development Goals, the set of targets agreed by 192 countries in 2000 which aimed to halve world poverty by 2015. A new paradigm of aid as a partnership, rather than a one-way relationship between donor and recipient, was evolving.

In 2003, aid officials and representatives of donor and recipient countries gathered in Rome for the High Level Forum on Harmonization. At this meeting, convened by the Organization for Economic Co-operation and Development (OECD), donor agencies committed to work with developing countries to better coordinate and streamline their activities at country level. They agreed to take stock of concrete progress before meeting again in Paris in early 2005.

In Paris, countries from around the world endorsed the Paris Declaration on Aid Effectiveness, a more comprehensive attempt to change the way donor and developing countries do business together, based on principles of partnership. Three years on, in 2008, the Third High Level Forum in Accra, Ghana took stock of progress and built on the Paris Declaration to accelerate the pace of change. The principles agreed upon in the declarations are however still not always practiced by donors and multilateral bodies. In the case of Cambodia, two experts have assessed donor misbehaviour.

Efforts to improve aid effectiveness have gained significant momentum in the health sector, due in large part to the work of the International Health Partnership (IHP+). Created in 2007, IHP+ is a group of partners committed to improving the health of citizens in developing countries. These partners work together to put international principles for aid effectiveness and development cooperation into practice. IHP+ mobilizes national governments, development agencies, civil society and others to support a single, country-led national strategy in a well-coordinated way.

Critiques of the impact of aid have become more vociferous as the global campaigns to increase aid have gained momentum, particularly since 2000. There are those who argue that aid is never effective. Most aid practitioners agree that aid has not always worked to its maximum potential, but that it has achieved significant impact when it has been properly directed and managed, particularly in areas such as health and basic education. There is broad agreement that aid is only one factor in the complex process needed for poor countries to develop, and that economic growth and good governance are prerequisites.

For aid to be maximized efficiently and most optimally, donations need to be directed to areas such as local industries, franchises, or profit centers in third world countries. By doing so, these actions can sustain health related spending and result in growth in the long run.

The OECD has explored—through peer reviews and other work by the Development Assistance Committee (DAC)—the reasons why aid has and has not worked in the past. This has resulted in a body of best practices and principles that can be applied globally to make aid work better. The ultimate aim of aid effectiveness efforts today is to help developing countries build well functioning local structures and systems so that they are able to manage their own development and reduce their dependency on aid.