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The worst-kept secret in aid: aid-receiving governments run the aid agencies

Source: ABC News

see UPDATE at end of this post

Thomas Friedman had a good NYT column about Karzai yesterday. [1] His column cleared up the puzzlement created by a Dallas News editorial and other very similar stories about how Obama’s visit to Afghanistan to get Karzai to clean up corruption was great for “seizing Karzai’s attention.” Now we know why there’s corruption in Afghanistan: Hamid Karzai just FORGOT to deal with it. Could one of our army doctors give him A.D.D. medication?

Friedman is more realistic about a phenomenon that has been long known in donor-government /recipient-government relationships:  the recipient is the one who runs the donor government’s policies towards the recipient government. The same happens in multilateral aid agencies. We saw this all the time at the World Bank, where the corrupt autocrats receiving our loans would let us know what conditions we should put on the loans to them.

Friedman has a pithy rule that donors routinely break:

Never want it more than they do.

Of course, when the donors want something more than the recipient, and the donors know they MUST continue the aid relationship, the recipient is in a strong bargaining position to ignore that something, and no amount of attention-seizing is going to work. As Friedman says:

If we want good governance in Afghanistan more than Karzai, he will sell us that carpet over and over. How many U.S. officials have flown to Kabul — the latest being President Obama himself — to lecture Karzai on the need to root out corruption in his administration? …. he believes he has us over a barrel and, in the end, he can and will do whatever serves his personal power needs because he believes that we believe that he is indispensable for confronting Al Qaeda…

Even in less fraught situations than Afghanistan, the donors have an extremely poor record enforcing conditions on recipients. Not only do they break the Friedman Rule, but the department for Country X in the aid agency MUST disburse its budget for Country X this fiscal year (or else it won’t get any budget next year). The recipient knows this and so can ignore the conditions. (For a more careful and technical development of this argument, see the classic paper on why aid conditions don’t work by Jakob Svensson).

The solution to the problem is as logically simple as it is politically difficult: give aid only to country governments who want IT more than we do.

UPDATE (4/1, 12:14PM): Karzai says to luncheon guests  that America is an obstacle to peace in Afghanistan. Well, THAT would really simplify the problem — just remove the obstacle! 

FOOTNOTES
1. Just for the record, I usually think that whatever Friedman writes about economics is nonsense while what he writes about Middle Eastern/Central Asian politics is good. This may be because I know something about the former and nothing about the latter.

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9 Comments

  1. B. R. Pill wrote:

    This dynamic – the recipient not the donor controlling the aid – is going to be played out on a massive and tragic scale in Pakistan in the next couple of years, as the US government desperately tries to figure out how to “responsibly” give Pakistan the $7.5 billion Holbrooke promised.

    Posted April 1, 2010 at 3:15 am | Permalink
  2. Ted wrote:

    I’m sure Obama knows that he can’t really force Karzai to deal with corruption. Karzai knows that politically, and more broadly strategically, (if we assume establishing a functioning democracy in Afghanistan is our strategic goal) Obama can’t cut off aid or troops or interfere with his government too strongly so he has no real incentive to listen to Obama. But Obama pretty much has to do the dog-and-pony show because it doesn’t really look good if he doesn’t.

    Our strategic goals can’t really be met if we eliminate aid to the government / country and / or remove troops since the weak government will surely topple. Unless we decide we don’t care if Afghanistan is a functioning, stable democracy in the future and decide to pull out, I don’t really think there is much we can do except plead with Karzai to try and reign in corruption.

    As a side note, looking at history, there has almost never been a newly formed government that didn’t have at least moderate corruption (and most have a huge amount). The only one I can think of that was a reasonably uncorrupted, as least by comparison to most new governments, newly formed state was the United States (our big corruptions and grafts really started popping up around post-1850s) , and even then there were political kickbacks and corrupt deals, many of which probably will never even be known.

    Posted April 1, 2010 at 9:52 am | Permalink
  3. William Easterly wrote:

    Ted, so how long will troops have to stay to keep the weak government from toppling? And is there any evidence that the government is getting less weak the longer we stay? Don’t recent trends seem to point in the opposite direction?

    thanks for your comment, Bill

    Posted April 1, 2010 at 12:09 pm | Permalink
  4. Dan Kyba wrote:

    Institutions (North’s def’n) follow the money. Initially, after the invasion, the combination in Afghanistan of weak national institutions and long time lines made it very difficult to initiate necessary public good investments. With no institutional guarantees or trust in receiving the benefits of any long term public good investments, it became rational behaviour to take the short term approach and steal before the other guy steals. In other words, many of the Afghan institutions that have formed after the invasion are extractive rather than investing.

    This is why for non-emergency aid, I believe in the matching fund approach. If you want to protect against sub-goal pursuits by aid recipients then those recipients must first invest their own money into a project before receiving any donor funding. This way, the recipients will have their own equity to protect and will be less likely to tolerate short-term opportunistic behaviour.

    Posted April 1, 2010 at 12:24 pm | Permalink
  5. Ted wrote:

    @ Bill

    To answer your three questions, in the order you stated them.

    (i) On the issue of troops, I have no idea. However, the conditions seem ripe for large government instability. Looking back on the histories of nearly every country on the planet (interesting, the U.S. is again a major exception) there has been rebellions, coups, overthrows, instability – and often more than once. Furthermore, these always seem to be more common in the presence of poor economic conditions; corrupt, ineffective newly-formed governments; and feudal lords with a great deal of regional power. This would seem to describe Afghanistan perfectly. History doesn’t always repeat itself, of course, but it surely must be some guide. More specifically about troops, as I said, I have no idea. In fact, I’m not even convinced we can assure the government doesn’t topple in the medium-term (5-10 years out) without large military interventions. While surely the government tries to keep the real amount of political instability out of the press as much as possible, but from what I’ve read it sounds like the military is the only thing keeping it in place. If short-term presence could create political stability, I’d likely be for that. But I feel a lot of the current conditions are something the military can’t “fix” in the short-term, so I think a long-term military presence is what would be necessary to assure that. Now, whether I think a long-term military presence is good policy is a different question and that I’m not so sure of. I’m not convinced our military can create a functioning, stable democracy in any reasonable time-span (if at all). I’m not sure if our military should be acting as political glue for a nation on the brink of cracking, with no short-term (or even medium-term) solution in sight.

    (ii) & (iii) I think that’s hard to know. It seems like it’s gotten worse, but I think it’s really hard to establish a baseline. But even if we assume it has gotten worse, which again is perfectly reasonable, it doesn’t diminish the point that our military is the glue holding the pieces together. I don’t think there is a causal link between U.S. military presence and the weakness of the government, but I could be wrong. I think the government would have toppled a long time ago if we weren’t there. Also, on Karzai’s comment, I think he’s kidding himself if he believes Afghanistan would be a beacon of peace without U.S. presence.

    On a final note, one lesson I can take from economics is that centrally planned economies tend to end in disaster. That leads me to the natural followup question in this context, why are we so confident centrally-planned states by outside governments will be glowing successes?

    Posted April 1, 2010 at 1:08 pm | Permalink
  6. William Easterly wrote:

    Ted, these are very good comments, who are you?

    Your points seem to reinforce my own much less well-informed instincts — we didn’t know enough to centrally plan nation-building in Afghanistan and should not have tried, and now we should withdraw as soon as possible compatible with not triggering an explosion of violence or betraying the people depending on us.

    Posted April 1, 2010 at 3:15 pm | Permalink
  7. Ted wrote:

    @Bill

    Just a high school kid who likes economics (I like macro the most, but your blog has turned me onto development literature now) too sick to go to school trying to find something to do besides watching TV. I’m nobody special !

    And I agree with your thinking. We are in a rough spot with Afghanistan and no result seems particularly appealing. Obama is in a really difficult position here. Our strategy (was there a real strategy?) was reckless going into Afghanistan. We clearly didn’t think about the long-term picture and plausible outcomes, we never really had an honest assessment before we went in. We basically showed up as idealistic idiots and this has been the result. I think the primary problem is that we, as a country, tend to be arrogant and over-estimate our abilities. The idea that we could plausibly centrally plan and, essentially, impose a well-adjusted democracy in Afghanistan on any reasonable time schedule (or really on any time schedule) can, I think, only be described as arrogance on our part. Like economies, governments should be planned by people – not a central planner.

    I think our best route is to try and pull out in the next few years and try to minimize the resulting damage as best as possible.

    Posted April 1, 2010 at 4:47 pm | Permalink
  8. Err. this might have been your perspective from the Bank’s side, but from Governments working in much less fraught situations that I have worked in (such as Malawi and Tanzania), the perspective is diametrically opposite. We felt we needed to accept what was proposed because we were desperate (rightly or wrongly – more likely the latter) for the funds.

    Posted April 2, 2010 at 8:28 am | Permalink
  9. Ashley St.Claire wrote:

    Afghanistan, color revolutions and the critical role of the Voice Of America.

    April 6, 2010 by politicalsnapshots.wordpress.com

    Afghanistan, color revolutions and the critical role of the Voice Of America.

    It is obvious that a huge political crack is appearing between Washington and Kabul. After the 2001 U.S. invasion of Afghanistan, the world knows that Hamid Karzai was installed as the President of Afghanistan by the U.S. So, when I heard President Karzai accusing the U.N. and the international community of “interfering with the outcome of last year’s presidential elections and attempting to weaken his authority”, and just so we would have clarity, when he stated to the BBC that the “U.S. and others played a role in perpetrating the fraud”, I thought this is the time to think in terms of a “color revolution”. But, Why?

    It seems that the U.S. was not too happy with Karzai’s re-election, since then, it has become U.S. policy to blame Karzai’s government of corruption and incompetence. In pursuing the agenda of sidelining Karzai, the U.S. has started dealing directly with Afghan provinces (e.g.Kandahar,Helmand) bypassing the central government. Regardless of the wishes of the U.S. it has no choice but to stick with Karzai for the time being.

    President Karzai also knows that the U.S. is not going to be involved in the affairs of Afghanistan for the long haul. At least, in terms of military involvement. Therefore, he does not want to be seen as an agent of a foreign power by Afghanis who have always been suspicious of foreigners through out their history. Moreover, he must think that the time is ripe for him to make amends with certain war lords and threaten the U.S. According to The Wall Street Journal, Karzai said: “that the U.S. was interfering with Afghan affairs and that the Taliban would become a legitimate resistance movement if it did not stop.” Interesting.

    As stated already, despite a serious U.S. aversion towards its original friend, Hamid Karzai, America has no choice but to call him a partner and plan a meeting with him in May,2010. This state of affairs between Washington and Kabul, leads one to think in terms of The Rose Revolution in Georgia, The Orange in Ukraine, The Tulip in Kyrgyzstan, The Cedar in Lebanon, The Grape in Moldova, The Green in Iran, and some unnamed ones, like in Ethiopia, (2005)etc. give credence to some when they raise the issue of U.S. government and certain NGO’s support and even planning in order to serve the interests of the west.

    Sreeram Chaulia wrote, “ transitional actors, comprising of international Ngo’s at the hub of advocacy networks capitalize on opportunity structures offered by internationalism, acting as vectors of influence and maintaining constant criticism of vulnerable target states.” Chaulia continues, “Transitional actors penetrate target states by harping on issue areas like human rights that enable coalitions with powerful state actors who favor such norms.” He concludes,” rarely has the US promoted human rights and democracy in a region when it did not suit its grander foreign-policy objectives”.

    According to The Guardian, USAID, National Endowment For Democracy, the International Republican Institute, the National Democratic Institute for International Affairs and Freedom House are directly involved with supporting the color revolutions. One can add to this list, The Soros Foundation, Open Society Institute in which a number of Central Asian nations were forced to shut down OSI regional offices after the Orange revolution in Ukraine and, the U.S. based Albert Einstein Institution that activists from Serbia and Ukraine have claimed to be trained by in the formation of their strategies.

    Paul Craig Roberts, former assistant secretary of the U.S. treasury writing on Iran, said “according to Kenneth Timmerman head of the Foundation for Democracy, it was the U.S. money that funded Mousavi’s claims that Ahmadinejad stole the last Iranian election.” Moreover,”during President George W. Bush’s regime, it became public knowledge that American money is used to purchase Iranians to work against their own country. In 2007 The Washington Post reported that Bush authorized spending more than $ 400 million U.S. dollars for activities that included supporting rebel groups opposed to the country’s ruling clerics.”

    A number of people who have closely followed the successes of color revolutions concur, that the key to victory rests with the able work of The Voice Of America, (VOA). Without its positive coverage of the works of International NGO’s and its local agents, and its continuous denunciations of the policies of target countries, nothing would have been accomplished.

    The VOA which got its start in 1942 when it broadcast via shortwave to Nazi Germany is primarily a propaganda outlet for the U.S. government, which uses it to further its global political, military and economic interests. As a U.S. government propaganda outlet, the VOA is barred from broadcasting in the U.S. by the U.S. Information and Educational Exchange Act of 1948. “Information produced by VOA for audiences outside the United States shall not be disseminated within the United States”.

    The U.S. understands how potent the VOA is as a propaganda tool. No wonder, it lashes out rudely on countries that try to limit or control VOA’s dissemination of what they consider to be irresponsible propaganda that leads to incitements. Now, consider H.R. 2278 which was introduced by Rep. Gus Bilirakis (R-FL). The bill passed in the U.S. House of Representatives, by an overwhelming vote of 395 to 3 with 36 abstentions.

    The Bill entitled “Anti-American Incitement To Violence In The Middle East” States in its findings section:

    “(1) Freedom of the press and freedom of expression are the foundations of free and prosperous societies worldwide, and with the freedom of the press and freedom of expression comes the responsibility to repudiate purveyors of incitement to violence.”

    In the definitions section of the bill it defines Anti-American Incitement To Violence.

    “(1) ANTI-AMERICAN INCITEMENT TO VIOLENCE.–The term “anti-American incitement to violence” means the act of persuading, encouraging, instigating, advocating, pressuring, or threatening so as to cause another to commit a violent act against any person, agent, instrumentality, or official of, is affiliated with, or is serving as a representative of the United States.”

    In the Bill’s section of Statement of policy, it states,

    It shall be the policy of the United States to—

    “designate as Specially Designated Global Terrorists satellite providers that knowingly and willingly contract with entities designated as Specially Designated Global Terrorists under Executive Order 13224, to broadcast their channels, or to consider implementing other punitive measures against satellite providers.”

    Finally, the report section of the Bill directs the President of the United States to do the following:

    (1)” REQUIREMENT FOR REPORTS.–Beginning 6 months after the date of the enactment of this Act and annually thereafter, the President shall transmit to the appropriate congressional committees a report on anti-American incitement to violence in the Middle East.”

    (2) “CONTENT.–The reports required under paragraph (1) shall include—“

    (A)” a country-by-country list and description of media outlets that engage in anti-American incitement to violence; and”

    (B)” a list of satellite companies that carry mediums described in subparagraph (A) or designated under Executive Order 13224.”

    I am a firm believer in national sovereignty for all independent countries of the world (irrespective of where they are located, or their GNP). In this case, America’s supreme and independent authority to rule, and make laws that it deems is in the interest of its people is unquestionable. It only becomes the mother of all hypocrisies when the U.S. denies other sovereign nations not to do, what it believes is the right thing to do for itself.

    Professor Mekonen Haddis

    Posted April 6, 2010 at 10:28 pm | Permalink

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