1.0 WORLD BANK AND DEVELOPMENT AID
1.1 Introduction
In this analysis I intend to look at the decisions of the World Bank in relation to aid. The point of reference to my arguments is Craig Burnside and David Dollar’s work of 2000 on Aid, Policies and Growth which is a review of the World Bank Report, Assessing Aid 1999. Time and again I will make some references on Sub-Saharan Africa. Generally, Sub-Saharan Africa is considered to be the poorest region in the world, suffering from the effects of economic mismanagement, local corruption, political and inter-ethnic conflict. The region contains many of the least developed countries of the world (Wikipedia).
In 1998 the World Bank produced a report known as Assessing Aid that attempted to study the effectiveness of aid. This report assessed aid in terms of “what works and what does not work.” Assessing Aid provided evidence that aid actually works where the environment is conducive, good policies and where there is a good balance between the interests of donor nations and the needs of developing countries. Hence aid works best when it supports local governments that practice “good management” of their social, political and economic institutions. The report concludes that aid should be a mix of ideas and money that is tailored to the conditions in recipient countries.
1.2 Aid and Sub Saharan Africa
Foreign aid has been a spectacular success in some instances and unmitigated failure in other occasions. Botswana in 1960’s and Uganda in 1990’s are given as examples of countries that grew from crisis to rapid development. The successful programs have supported humanitarian relief efforts, improved child immunization rates, reduced the burden of specific diseases (e.g. river blindness and Aids), reduced infant mortality rates, supported agricultural advancement, improved access to schools, access to clean water, sanitation, power and health.
On the other hand aid has had the effect of supporting bad and illegitimate governments. Ayitteh 1992 advices the donors to make a fundamental distinction between the African governments and the African countries. Some of the governments in Africa are not only illegitimate but woefully out of touch with reality and their own people. During the “cold war” era, some bad governments shifted their allegiances according to the level of assistance received.
In other situations development aid has been disbursed repeatedly to countries such as Tanzania, Zambia and DRC. There is little evidence that aid has made a difference in the plight of the citizens of those nations. Generally, aid to Africa has had a particular poor record. Even the World Bank has acknowledged that 73% of its African aid programs have failed. Several studies too are confirming a poor relationship between the aid received and the amount of growth experienced in many African countries over the years.
1.3 Criticism of the World Bank and Donor Agencies
In the last twenty years, the World Bank, International Monetary Fund (IMF) and other institutional aid agencies have been harshly criticized on the way they conduct business. Some popular criticisms were made in “The Road to Hell” by Michael Maren (1997) and the “Lords of Poverty” by Hancock G. (1989). The two authors depicted an aid culture in which corruption is rampant, donor agencies lacking in basic expertise, lack of focus and clear intentions, poor communication skills and cultural understanding. They argued that the aid community is more concerned with competing to lend money and disburse aid than it is with holding governments, managers, programs, governments and its own institutions accountable for failure. Dollar 1998, also point out that there are conflicts of interests on both sides of the donor-recipient equation. These interests might include the voting pattern in the UN, colonial history, donor countries strategic interests and other important relationships developed over time.
As early as 1992, The International Bank of Development and Reconstruction (IBRD), acknowledged what it referred to as an approval culture with a pervasive preoccupation with new lending. This overemphasis on the approval and disbursement of loan led to poor design, poor management and poor implementation of programs. Also noted was lack of institutional transparency, and financial accountability on the part of lenders placing aid risks entirely upon the recipients.
1.4 Difficulties of the Aid Business
All aid is ultimately aimed at promoting growth and reducing poverty. However one big drawback is the lack of cohesive agenda between the lending institutions and the recipient countries. This lack of cohesive agenda fosters miscommunication, distrust and may even be used as rationalization for corruption. The perception that each party is serving its own self-interests could play a big role in promoting corruption. For example a peculiar situation is mentioned in 1990 to 1996 where under mysterious expensive games between Kenya and its donors, USD 7.1 billion was approved for development aid. There is little to show for this money.
The other difficulty has been the fact that recipient governments do not buy the policies and conditionalities of the World Bank. One argument advanced in this area to defend not buying the policies of the World Bank has been the issue of sovereignty. Economists and other theorists too have argued against conditionalities. Arguments for conditionalities include making governments focus on the interest of their populations, guarding against unrealistic political expectations and guarding against specific interest group agendas. Countries would borrow under the World Bank Policies and discard them when it comes to project implementation.
Fungibility of aid causes a lot of problems to donors and recipients alike. Fungibility describes a situation where it is very easy to divert the aid to other purposes other than what was formerly approved. Some World Bank reports also show that there is a positive correlation between the receiving of aid and the increase in government expenditure. This becomes a major difficulty as countries continue this process of aid diversion and the World Bank cannot do anything to pin them down. However, the problem is that once aid has been disbursed, the World Bank has little influence on how it is used by recipient governments.
1.5 Environments Conducive for Aid
Assessing Aid argues that economic growth is the most effective mechanism to reduce poverty. Countries with good policies given infra-marginal amount of aid are able to promote some satisfactory growth levels. Hence aid, does the most to support economic growth and reduce poverty when local governments practice good management of social, political and economic institutions. Good management policies are those that promote low inflation, small fiscal deficits, trade openness and liberalization, private investments, political stability, the rule of law and democratic institutions. In this case therefore aid policies recommendations are as follow:
Aid should be allocated more effectively to good policy and high poverty countries
Policy based aid should be used to nurture policy reform in credible reformers
Aid activities must take into account local policy weaknesses and strengths
Donors should impose aid restrictions to nations with distorted policy environments.
2.0 ANALYZING THE WORLD BANK’S AID DECISIONS FROM RATIONAL ACTOR PERSPECTIVE
2.1 Introduction: The Rational Actor Model
In this analysis I evaluate the World Bank in its aid decisions as a rational actor. The theory of organizations as rational actors has four important dimensions
The organization is seen as a unitary actor
It has clear alternatives in its choice set
Its values are clear
The organization has clear casual models
This classical model of decision making is straightforward. There is one best solution to a problem the most important thing would be to find this solution, select it and implement it. The process involves a series of sequential steps as follow:
Determine goals and objectives: This is done well by clearly understanding the problem that confronts the decision maker. The interests and values are translated into a payoff or utility or preference function which represents the desirability or utility of alternative sets of consequences. The decision maker then ranks each possible set of consequences resulting from a particular action.
Define the alternatives: Here the rational agent develops all the options that are potential solutions. In essence he or she chooses among the set of alternatives before him or her.
Examine the Consequences: The agent anticipates the probable effects of each alternative.
Make a choice or decision: Evaluate and choose the best alternative, the one that maximizes the goals and objectives.
Implement the decision: Simply do what you have decided to do.
2.2 World Bank Aid Decisions and the Rational Actor Model
2.2.1 Clear Goals and Objectives
The World Bank is an internationally supported bank that provides loans to developing countries for development programs (e.g. bridges, roads, schools, etc.) with the stated goal of eliminating poverty and promoting sustainable development.
In its endeavor to eliminate poverty and promote sustainable development, the World Bank focuses on the Millennium Development Goals (MDG’s) developed by the United Nations in the year 2000. The MDG’s are as follow:
Eradicate extreme poverty and hunger
Achieve universal primary education
Promote gender equality and empower women
Reduce child mortality
Improve maternal health
Combat HIV/AIDS and other diseases
Ensure environmental sustainability
Develop global partnership for development
From a rational actor model the World Bank has a clear goal; Poverty elimination and sustainable development. This goal has further been broken down into specificities in the MDG’s. From a classical decision making perspective, there is one best solution to a problem. The problem presenting itself here is poverty. The solution proposed by the World Bank is poverty elimination and sustainable development. Another way the World Bank could approach the poverty problem would be to do nothing. Translating Doing nothing and eliminating poverty into a payoff function, eliminating poverty represents the desired alternative set of consequences to the World Bank.
2.2.2 Clear Alternatives
In making its aid decisions the World Bank chooses amongst the following three alternatives
Growth Promotion
Poverty reduction
Supporting Political objectives
These alternatives are clear and in essence provide a clear guidance in the decision making process of the World Bank as far as aid is concerned. The World Bank concern over the years has been to make aid effective. Effectiveness can also be measured on whether immediate project objectives are achieved or not. Achievement of projects becomes problematic where aid is fungible. Many times aid that is given for growth promotion or poverty reduction ends up supporting government expenditure or stashed into corrupt deals.
2.2.3 Clear Consequences
Each of the alternatives above has a set of probable consequences. Growth promotion would invest in the improvement of the gross national product (GNP) of the poor countries. The savings that would accrue as a result would be used for poverty reduction. Poverty reduction on the other hand provides for pro-poor targeted expenditure this basically means that allocations are made and directed on poverty reduction. Supporting political objectives in essence would provide for ensuring institutional development that would be conducive for growth and development.
As can be seen the consequences of each of the alternatives above, is mainly geared to make the whole business of aid quite effective.
2.2.4 Making a Choice or a Decision to Disburse Aid
As can be seen the World Bank has clear goals, alternatives and set of consequences. Problems however creep in at the decision making level. Decisions to extend aid are affected by many factors amongst them
· Much aid is given with political rather than economic reasons. During the cold war Roosevelt comment on Somoza of Nicaragua “he may be a bastard but he is our bastard.” Same applied for Mobutu of Zaire.
· Aid is also associated with donor interests. These interests would include the voting patterns at the UN or other international forums, former colonial links or any relationships that maybe between a donor and a particular government.
· Aid may also be given for purposes other than growth promotion, poverty reduction or institutional development. It may be given to support government budget deficits etc.
· Aid at times has also been used to sustain corrupt governments as long as they are seen to preserve the strategic interests of the donors.
Because of the problems associated with aid the recipient governments on the other hand may use it with the following effects:
· Support public consumption and not investment
· Public investments crowd out the more productive private investment
· Results in appreciation of local currency hence crowding out growth promoting exports
3.0 CONCLUSIONS
3.1 Conditions Effective for Aid
Assessing Aid (1999) advances the view that aid is effective in the presence of good policy and good institutions. Good policy entails fiscal prudence, independent monetary policy, openness to trade and a good attitude towards FDI. Good institutions on the other hand entail clear and enforceable property rights, reliable and fast legal system, lack of corruption and well functioning civil service.
3.2 Problems with Applying the Rational Actor Model to the World Bank
Applying the Rational Actor Model in the World Bank case has obvious problems. First we realize that the World Bank decision makers are human beings with a variety of interests and capable of compromise. While it is true that there is one best overall goal, organizational goals are many and often conflicting and that does suffice too for a great organization like the World Bank. Hence the notion of simple and clear goals for an organization constitutes an oversimplification.
Other issues that affect the clarity of goals include issues such as:
· Uncertainty: It is difficult to make choices with clarity when the situation is rather obscure.
· Best solution: This is more easily said than done. The rational actor model is an ideal rather than the way decision makers function.
3.3 Could things have been better For Sub Saharan Africa given the Massive Aid?
The Rational Actor Application to the Later
Sub Saharan Africa so far has been a big recipient of multilateral aid. This aid has not helped Africa find solutions to its poverty problem. It has made Africa dependent and not creative. Governments shamelessly borrow to finance budget deficits with no clear means of repayment. This has had the effect of encouraging poor and bad policies amongst African governments. A practical example being Kenya where the cabinet that could have been effective at less than 12 is inflated to 42. This structure will certainly find help from the World Bank.
Can the World Bank do anything about the deficit problem? The answer is no because aid is fungible. Governments claim to be sovereign states. Some of these governments do not care about the quality of life of both their present and next generation citizens. The next generations will certainly inherit debts incurred by their parents not on account of investment but on account of consumption.
In their 2002 paper on Aid, Investment and Growth in Sub Saharan Africa (SSA), Gomane, Girma and Morrissey analyze panel data of 25 Sub Saharan Africa from 1970 to 1997 and they find that there has only been growth in real terms of 0.6%. They conclude that this dismal growth rate does not connote aid ineffectiveness but certainly showed that aid had little or no effect on growth SSA’s. The effect on growth however was seen in the terms of aid financed investment. Their concern was based on the fact that the growth performance has not matched the aid receipts. They conclude by maintaining that aid should be maintained while addressing factors that explain poor growth performance. This is such a long period and one certainly asks, how could World Bank continue to lend despite this dismal performance? The answer boils down to the dynamics of the decision making process.
Dollar 1999 in his Assessing Aid finds that aid has positive impact on growth in countries that have good policies. And some of the good cases study that he provides is Botswana, Ghana and Cote d’Voire that have performed very well. A positive point that he ends up making is that there is a marked trend towards better policy among poor countries which means that the climate for aid is improving.
Certainly things would have been better for Sub Saharan Africa if the World Bank had concentrated on the effectiveness of aid from the onset of aid. However many issues that the bank has been dealing with makes it more of a satisficing decision maker rather than a rational actor. Aid would not have gone to corrupt pockets and there would be at least something to show for it.
3.4 A Compromise
From the analysis, it must be acknowledged that any single aid decision takes into it so many considerations. Despite criticisms and dismal performance, aid will thus continue to be disbursed to governments that will not use it well. The World Bank is aware of the weaknesses of recipient countries such as underdeveloped system of fiscal management and also in its aid business it is now more aware of the fact that there will be varying degrees of performance. There are however countries which are heavily indebted and their capability to service their debt is an issue. These countries too will continue to receive aid. The World Bank despite its massive finances, is a human institution.
Hence the rational actor model can not fit in a World Bank Scenario.
REFERENCES:
1. Craig Burnside and David Dollar (2000) Aid, Policies and Growth
http://www.jstor.org/stable/pdfplus/117311.pdf
2. David Ayitteh, Somali Crisis: Time for an African Solution (1994), http://www.cato.org/pubs/pas/pa-205.html
3. Gomane K., Girma S. and Morrissey O. (2002), Aid, Investment and Growth in Sub Saharan Africa,
http://www.eadi-online.org/fileadmin/WG_Documents/Reg_WG/morrissey.pdf
4. World Bank and Milenium Development Goals http://www.worldbank.org/html/extdr/mdggame/
1.1 Introduction
In this analysis I intend to look at the decisions of the World Bank in relation to aid. The point of reference to my arguments is Craig Burnside and David Dollar’s work of 2000 on Aid, Policies and Growth which is a review of the World Bank Report, Assessing Aid 1999. Time and again I will make some references on Sub-Saharan Africa. Generally, Sub-Saharan Africa is considered to be the poorest region in the world, suffering from the effects of economic mismanagement, local corruption, political and inter-ethnic conflict. The region contains many of the least developed countries of the world (Wikipedia).
In 1998 the World Bank produced a report known as Assessing Aid that attempted to study the effectiveness of aid. This report assessed aid in terms of “what works and what does not work.” Assessing Aid provided evidence that aid actually works where the environment is conducive, good policies and where there is a good balance between the interests of donor nations and the needs of developing countries. Hence aid works best when it supports local governments that practice “good management” of their social, political and economic institutions. The report concludes that aid should be a mix of ideas and money that is tailored to the conditions in recipient countries.
1.2 Aid and Sub Saharan Africa
Foreign aid has been a spectacular success in some instances and unmitigated failure in other occasions. Botswana in 1960’s and Uganda in 1990’s are given as examples of countries that grew from crisis to rapid development. The successful programs have supported humanitarian relief efforts, improved child immunization rates, reduced the burden of specific diseases (e.g. river blindness and Aids), reduced infant mortality rates, supported agricultural advancement, improved access to schools, access to clean water, sanitation, power and health.
On the other hand aid has had the effect of supporting bad and illegitimate governments. Ayitteh 1992 advices the donors to make a fundamental distinction between the African governments and the African countries. Some of the governments in Africa are not only illegitimate but woefully out of touch with reality and their own people. During the “cold war” era, some bad governments shifted their allegiances according to the level of assistance received.
In other situations development aid has been disbursed repeatedly to countries such as Tanzania, Zambia and DRC. There is little evidence that aid has made a difference in the plight of the citizens of those nations. Generally, aid to Africa has had a particular poor record. Even the World Bank has acknowledged that 73% of its African aid programs have failed. Several studies too are confirming a poor relationship between the aid received and the amount of growth experienced in many African countries over the years.
1.3 Criticism of the World Bank and Donor Agencies
In the last twenty years, the World Bank, International Monetary Fund (IMF) and other institutional aid agencies have been harshly criticized on the way they conduct business. Some popular criticisms were made in “The Road to Hell” by Michael Maren (1997) and the “Lords of Poverty” by Hancock G. (1989). The two authors depicted an aid culture in which corruption is rampant, donor agencies lacking in basic expertise, lack of focus and clear intentions, poor communication skills and cultural understanding. They argued that the aid community is more concerned with competing to lend money and disburse aid than it is with holding governments, managers, programs, governments and its own institutions accountable for failure. Dollar 1998, also point out that there are conflicts of interests on both sides of the donor-recipient equation. These interests might include the voting pattern in the UN, colonial history, donor countries strategic interests and other important relationships developed over time.
As early as 1992, The International Bank of Development and Reconstruction (IBRD), acknowledged what it referred to as an approval culture with a pervasive preoccupation with new lending. This overemphasis on the approval and disbursement of loan led to poor design, poor management and poor implementation of programs. Also noted was lack of institutional transparency, and financial accountability on the part of lenders placing aid risks entirely upon the recipients.
1.4 Difficulties of the Aid Business
All aid is ultimately aimed at promoting growth and reducing poverty. However one big drawback is the lack of cohesive agenda between the lending institutions and the recipient countries. This lack of cohesive agenda fosters miscommunication, distrust and may even be used as rationalization for corruption. The perception that each party is serving its own self-interests could play a big role in promoting corruption. For example a peculiar situation is mentioned in 1990 to 1996 where under mysterious expensive games between Kenya and its donors, USD 7.1 billion was approved for development aid. There is little to show for this money.
The other difficulty has been the fact that recipient governments do not buy the policies and conditionalities of the World Bank. One argument advanced in this area to defend not buying the policies of the World Bank has been the issue of sovereignty. Economists and other theorists too have argued against conditionalities. Arguments for conditionalities include making governments focus on the interest of their populations, guarding against unrealistic political expectations and guarding against specific interest group agendas. Countries would borrow under the World Bank Policies and discard them when it comes to project implementation.
Fungibility of aid causes a lot of problems to donors and recipients alike. Fungibility describes a situation where it is very easy to divert the aid to other purposes other than what was formerly approved. Some World Bank reports also show that there is a positive correlation between the receiving of aid and the increase in government expenditure. This becomes a major difficulty as countries continue this process of aid diversion and the World Bank cannot do anything to pin them down. However, the problem is that once aid has been disbursed, the World Bank has little influence on how it is used by recipient governments.
1.5 Environments Conducive for Aid
Assessing Aid argues that economic growth is the most effective mechanism to reduce poverty. Countries with good policies given infra-marginal amount of aid are able to promote some satisfactory growth levels. Hence aid, does the most to support economic growth and reduce poverty when local governments practice good management of social, political and economic institutions. Good management policies are those that promote low inflation, small fiscal deficits, trade openness and liberalization, private investments, political stability, the rule of law and democratic institutions. In this case therefore aid policies recommendations are as follow:
Aid should be allocated more effectively to good policy and high poverty countries
Policy based aid should be used to nurture policy reform in credible reformers
Aid activities must take into account local policy weaknesses and strengths
Donors should impose aid restrictions to nations with distorted policy environments.
2.0 ANALYZING THE WORLD BANK’S AID DECISIONS FROM RATIONAL ACTOR PERSPECTIVE
2.1 Introduction: The Rational Actor Model
In this analysis I evaluate the World Bank in its aid decisions as a rational actor. The theory of organizations as rational actors has four important dimensions
The organization is seen as a unitary actor
It has clear alternatives in its choice set
Its values are clear
The organization has clear casual models
This classical model of decision making is straightforward. There is one best solution to a problem the most important thing would be to find this solution, select it and implement it. The process involves a series of sequential steps as follow:
Determine goals and objectives: This is done well by clearly understanding the problem that confronts the decision maker. The interests and values are translated into a payoff or utility or preference function which represents the desirability or utility of alternative sets of consequences. The decision maker then ranks each possible set of consequences resulting from a particular action.
Define the alternatives: Here the rational agent develops all the options that are potential solutions. In essence he or she chooses among the set of alternatives before him or her.
Examine the Consequences: The agent anticipates the probable effects of each alternative.
Make a choice or decision: Evaluate and choose the best alternative, the one that maximizes the goals and objectives.
Implement the decision: Simply do what you have decided to do.
2.2 World Bank Aid Decisions and the Rational Actor Model
2.2.1 Clear Goals and Objectives
The World Bank is an internationally supported bank that provides loans to developing countries for development programs (e.g. bridges, roads, schools, etc.) with the stated goal of eliminating poverty and promoting sustainable development.
In its endeavor to eliminate poverty and promote sustainable development, the World Bank focuses on the Millennium Development Goals (MDG’s) developed by the United Nations in the year 2000. The MDG’s are as follow:
Eradicate extreme poverty and hunger
Achieve universal primary education
Promote gender equality and empower women
Reduce child mortality
Improve maternal health
Combat HIV/AIDS and other diseases
Ensure environmental sustainability
Develop global partnership for development
From a rational actor model the World Bank has a clear goal; Poverty elimination and sustainable development. This goal has further been broken down into specificities in the MDG’s. From a classical decision making perspective, there is one best solution to a problem. The problem presenting itself here is poverty. The solution proposed by the World Bank is poverty elimination and sustainable development. Another way the World Bank could approach the poverty problem would be to do nothing. Translating Doing nothing and eliminating poverty into a payoff function, eliminating poverty represents the desired alternative set of consequences to the World Bank.
2.2.2 Clear Alternatives
In making its aid decisions the World Bank chooses amongst the following three alternatives
Growth Promotion
Poverty reduction
Supporting Political objectives
These alternatives are clear and in essence provide a clear guidance in the decision making process of the World Bank as far as aid is concerned. The World Bank concern over the years has been to make aid effective. Effectiveness can also be measured on whether immediate project objectives are achieved or not. Achievement of projects becomes problematic where aid is fungible. Many times aid that is given for growth promotion or poverty reduction ends up supporting government expenditure or stashed into corrupt deals.
2.2.3 Clear Consequences
Each of the alternatives above has a set of probable consequences. Growth promotion would invest in the improvement of the gross national product (GNP) of the poor countries. The savings that would accrue as a result would be used for poverty reduction. Poverty reduction on the other hand provides for pro-poor targeted expenditure this basically means that allocations are made and directed on poverty reduction. Supporting political objectives in essence would provide for ensuring institutional development that would be conducive for growth and development.
As can be seen the consequences of each of the alternatives above, is mainly geared to make the whole business of aid quite effective.
2.2.4 Making a Choice or a Decision to Disburse Aid
As can be seen the World Bank has clear goals, alternatives and set of consequences. Problems however creep in at the decision making level. Decisions to extend aid are affected by many factors amongst them
· Much aid is given with political rather than economic reasons. During the cold war Roosevelt comment on Somoza of Nicaragua “he may be a bastard but he is our bastard.” Same applied for Mobutu of Zaire.
· Aid is also associated with donor interests. These interests would include the voting patterns at the UN or other international forums, former colonial links or any relationships that maybe between a donor and a particular government.
· Aid may also be given for purposes other than growth promotion, poverty reduction or institutional development. It may be given to support government budget deficits etc.
· Aid at times has also been used to sustain corrupt governments as long as they are seen to preserve the strategic interests of the donors.
Because of the problems associated with aid the recipient governments on the other hand may use it with the following effects:
· Support public consumption and not investment
· Public investments crowd out the more productive private investment
· Results in appreciation of local currency hence crowding out growth promoting exports
3.0 CONCLUSIONS
3.1 Conditions Effective for Aid
Assessing Aid (1999) advances the view that aid is effective in the presence of good policy and good institutions. Good policy entails fiscal prudence, independent monetary policy, openness to trade and a good attitude towards FDI. Good institutions on the other hand entail clear and enforceable property rights, reliable and fast legal system, lack of corruption and well functioning civil service.
3.2 Problems with Applying the Rational Actor Model to the World Bank
Applying the Rational Actor Model in the World Bank case has obvious problems. First we realize that the World Bank decision makers are human beings with a variety of interests and capable of compromise. While it is true that there is one best overall goal, organizational goals are many and often conflicting and that does suffice too for a great organization like the World Bank. Hence the notion of simple and clear goals for an organization constitutes an oversimplification.
Other issues that affect the clarity of goals include issues such as:
· Uncertainty: It is difficult to make choices with clarity when the situation is rather obscure.
· Best solution: This is more easily said than done. The rational actor model is an ideal rather than the way decision makers function.
3.3 Could things have been better For Sub Saharan Africa given the Massive Aid?
The Rational Actor Application to the Later
Sub Saharan Africa so far has been a big recipient of multilateral aid. This aid has not helped Africa find solutions to its poverty problem. It has made Africa dependent and not creative. Governments shamelessly borrow to finance budget deficits with no clear means of repayment. This has had the effect of encouraging poor and bad policies amongst African governments. A practical example being Kenya where the cabinet that could have been effective at less than 12 is inflated to 42. This structure will certainly find help from the World Bank.
Can the World Bank do anything about the deficit problem? The answer is no because aid is fungible. Governments claim to be sovereign states. Some of these governments do not care about the quality of life of both their present and next generation citizens. The next generations will certainly inherit debts incurred by their parents not on account of investment but on account of consumption.
In their 2002 paper on Aid, Investment and Growth in Sub Saharan Africa (SSA), Gomane, Girma and Morrissey analyze panel data of 25 Sub Saharan Africa from 1970 to 1997 and they find that there has only been growth in real terms of 0.6%. They conclude that this dismal growth rate does not connote aid ineffectiveness but certainly showed that aid had little or no effect on growth SSA’s. The effect on growth however was seen in the terms of aid financed investment. Their concern was based on the fact that the growth performance has not matched the aid receipts. They conclude by maintaining that aid should be maintained while addressing factors that explain poor growth performance. This is such a long period and one certainly asks, how could World Bank continue to lend despite this dismal performance? The answer boils down to the dynamics of the decision making process.
Dollar 1999 in his Assessing Aid finds that aid has positive impact on growth in countries that have good policies. And some of the good cases study that he provides is Botswana, Ghana and Cote d’Voire that have performed very well. A positive point that he ends up making is that there is a marked trend towards better policy among poor countries which means that the climate for aid is improving.
Certainly things would have been better for Sub Saharan Africa if the World Bank had concentrated on the effectiveness of aid from the onset of aid. However many issues that the bank has been dealing with makes it more of a satisficing decision maker rather than a rational actor. Aid would not have gone to corrupt pockets and there would be at least something to show for it.
3.4 A Compromise
From the analysis, it must be acknowledged that any single aid decision takes into it so many considerations. Despite criticisms and dismal performance, aid will thus continue to be disbursed to governments that will not use it well. The World Bank is aware of the weaknesses of recipient countries such as underdeveloped system of fiscal management and also in its aid business it is now more aware of the fact that there will be varying degrees of performance. There are however countries which are heavily indebted and their capability to service their debt is an issue. These countries too will continue to receive aid. The World Bank despite its massive finances, is a human institution.
Hence the rational actor model can not fit in a World Bank Scenario.
REFERENCES:
1. Craig Burnside and David Dollar (2000) Aid, Policies and Growth
http://www.jstor.org/stable/pdfplus/117311.pdf
2. David Ayitteh, Somali Crisis: Time for an African Solution (1994), http://www.cato.org/pubs/pas/pa-205.html
3. Gomane K., Girma S. and Morrissey O. (2002), Aid, Investment and Growth in Sub Saharan Africa,
http://www.eadi-online.org/fileadmin/WG_Documents/Reg_WG/morrissey.pdf
4. World Bank and Milenium Development Goals http://www.worldbank.org/html/extdr/mdggame/
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