Rethinking Development

All over the world, developing countries are losing ground. A spate of natural disasters, high oil prices, dysfunctional governments, corruption, political instability and structural problems are increasing pressure on third-world economies struggling to catch up with the fast moving train of globalization.  Oil prices have more than doubled since late 2003 and this rise has hit developing countries hardest, who now use nearly 40% of world oil.

This increasing oil dependence means that in one year, China’s oil import bill jumped by 250%, Brazil’s by 150% and oil accounted for over 60% of Thailand’s energy consumption.

Much sharper financial pain is felt in the poorer developing countries of Asia and sub-Saharan Africa that are most dependent on oil imports and least energy efficient. Some of these countries have seen their foreign exchange reserves depleted by as much as 30%, such that many of the benefits of foreign assistance could be wiped out.

Without emergency funding, much of the Official Development Assistance to these struggling nations will have to be reallocated to fuel purchases, leaving health and education programs grossly under funded or scrapped altogether.

Economies like those in the U.S. and Western Europe are holding up better, with billions of petro-dollars recycled through imports of goods and investment in U.S. treasury bills, stocks and bonds.

Many developing countries are now looking for alternatives to oil, with natural gas a favorite, but many may not be able to find them fast enough. They are squeezed in time between finding alternative energy sources while struggling to keep their economies afloat in a rapidly changing global environment.

This dilemma is compounded by the status of the current development paradigm, which is contributing to the deterioration in the welfare of these developing countries. There are three sources at work eroding the effectiveness of development assistance.

1) The current styles of development cooperation, increasingly outmoded by globalization and change in technology and information flow;

2) The donors through the growing politicization of development assistance and their relaxed attitude to its misuse by political allies; and

3) The recipients through their ineffective use of assistance itself.

Concerning development cooperation, the debate is still heated among economists searching for new tools to handle the challenges of rapid change in the international environment, the effects of new information technology, globalization, population explosion and environmental degradation. And to make matters worse the aftermath of the events of September 11th has led to increased linkage of bilateral assistance to security concerns.

A number of economists including Gudrun Kochendoerfer-Lucius, the Director of the Development Policy Forum of DSE, Berlin and Klemens van de Sand, Vice President of the International Fund for Agricultural Development (IFAD) in Rome, argued that for "pro-poor" development strategies to be effective, they must tackle the constraints that cause poverty.  To achieve this, development assistance must be turned upside down by getting away from the project approach and aiming at local empowerment and the development of institutions that represent the poor.

These proposals, they emphasize, must be part of concerted global efforts to revisit the current development paradigm with the view of having an impact on the life of the poor particularly, as the current debate acknowledges that it is partly the lack of social mobility and bleak economic prospects that are the root causes of terrorism.

On the recipient side the lack of a voice and role for the poor in the decision making process, weak institutions, mismanagement, lack of accountability on the part of governments, absence of rule of law, have all contributed to poor implementation of development aid. Bilateral assistance, based largely on political considerations, is unlikely to heed the call for a new approach.

Multilateral assistance, on the other hand, extended by the World Bank and others, has a strong interest in refining its tools as their own relevance may well be at stake. Some in these agencies are already going through the kind of soul searching essential to change. It is here that we must look for a solution.

Overwhelmed by numerous global issues and regional conflicts compounded by the events of September 11th and their aftermath, the world leaders have been giving virtually no thought to the need for common criteria for the use of development assistance.

It is high time. The debate at the UN Conference on Aid and Development in Monterrey in March 2002 was a step in the right direction but remains even now, four years later, largely rhetorical.  Leaders need to commit to supporting recipient countries to carry out political, economic, legal, and administrative reforms that can improve efficiency, transparency and accountability.

Otherwise, we can expect dire consequences for the international cooperation system, for world peace and for the humanity at large.  This will be the end of development for most if not for all the developing countries.

The author was formerly Senior Economist at the World Bank, and the UN Regional Representative for the Middle East and North Africa.He is currently an International Consultant on Economics and Rule of Law, and Adjunct Professor at Webster University.