Department of Economic & Social Affairs

CDP Background Paper No. 39 ST/ESA/2018/CDP/39

March 2018

Development cooperation to ensure that none be left behind

José Antonio Alonso*

ABSTRACT

Te development cooperation system is undergoing a dramatic process of change. New actors are on stage, new instruments (beyond ODA) are being used, and the felds of work have been clearly widened. Te enlargement of the development cooperation system is in line with the ambitious and comprehensive 2030 Agenda. However, those changes also imply massive ten- sions and challenges to the current development cooperation system in terms of its objectives, procedures and narrative. Tis paper presents some of these challenges in light of the “leaving no-one behind” mandate. Te paper discusses, frstly, how the development cooperation system can be brought up to date, taking into account massive changes in the international landscape; secondly, it argues why development cooperation may be still useful and efective in supporting an Agenda that goes beyond ODA; and fnally, it discusses some dilemmas around the way in which resources should be allocated in order to preserve the distributive purpose of develop- ment cooperation.

Keywords: foreign aid, development cooperation, South-South cooperation, fnancing for development, 2030 Agenda

JEL Classifcation: F02, F35, O10, O15, O19, O20

* Professor of Applied Economics (Universidad Complutense de Madrid), member of the Committee for Devel- opment Policy (CDP) ([email protected]). I would like to thank comments from Marc Fleurbaey, Margarita Flores, Sakiko Fukuda-Parr, Jesse Grifths and Rashid Hassan. All errors remain those of the author, CONTENTS

1. Introduction...... 1 2. Reshaping the development cooperation system ...... 2 A new international landscape ...... 3 New actors in the field ...... 3 New fields of action ...... 6 Rebuilding development cooperation policy ...... 8 3. Is still ODA required? ...... 9 The role of ODA ...... 9 The evolution of official financing resources ...... 11 Allocation of resources ...... 14 4. Some dilemmas on resources allocation ...... 17 Quantity vs. quality ...... 17 Poor people vs. poor countries ...... 18 Efficiency vs. equity ...... 20 Social sectors vs. productive sectors ...... 21 5. Final considerations ...... 21 References ...... 23

CDP Background Papers are available at https://www.un.org/development/desa/dpad/ cdp-background-papers/. Te views and opinions expressed herein are those of the author and do not necessarily refect those of the United Nations UNITED NATIONS Secretariat. Te designations and terminology Committee for Development Policy employed may not conform to United Nations prac- UN Secretariat, 405 East 42nd Street tice and do not imply the expression of any opinion New York, N.Y. 10017, USA whatsoever on the part of the Organization. e-mail: [email protected] Typesetter: Nancy Settecasi http://cdp.un.org 1 Introduction rather vertical decision-making structures (all char- 3 Te 2030 Agenda for Sustainable Development acteristics of ODA) seems to have come to an end . obliges the international community to move Te emergence of new ofcial providers from the towards a radically new Financing for Development South, the more active involvement of private actors framework. Tentative estimates put the amount in development activities, the advent of new instru- of resources required for meeting the Sustainable ments in felds heretofore insufciently considered Development Goals (SDGs) at between one and four (such as environmental fnance), and the shrinking trillion dollars annually1, a magnitude unattainable relative weight of ofcial funds in total development from current ofcial fows (SDSN, 2015; UNCTAD fnancing are all factors in the tectonic process of 2014). In accordance with its ambition and com- change that the system for development coopera- plexity, the 2030 Agenda will require a mobilizing tion is currently undergoing (a process analysed by of resources and capabilities from highly distinct Severino and Ray, 2009, Alonso, 2014, Kharas and sources, public and private, domestic and interna- Rogerson, 2012 and Lin and Wang, 2017, among tional. Te Addis Ababa Action Agenda, approved others). In the presence of emerging actors, new pri- at the Tird International Conference on Financing orities, procedures, and narratives have won traction for Development, follows in this line when stating in development cooperation policy, challenging the that achievement of the Agenda “will require an traditional discourse and practices of ODA. equally ambitious, comprehensive, holistic and Te aforementioned changes ofer a valuable oppor- transformative approach with respect to the means tunity for building a more open, inclusive, and of implementation, combining diferent means complex system of development cooperation that of implementation and integrating the economic, embraces all providers across more horizontal and social and environmental dimensions of sustainable cooperative relations, aligning resources and eforts 2 development”. around a set of shared goals. Tat is what the 17th In this holistic approach, development cooperation Goal of the 2030 Agenda proclaims when it seeks policy (a concept wider than, and distinct from, of- to “revitalize the global partnership for sustainable cial development assistance, or ODA) is expected to development”. However, making this change a real- play a modest but relevant role (see Box 1 for a clari- ity will further imply massive tensions and challenges fcation of these concepts). Its contribution could be for the current development cooperation system. signifcant, particularly if resources and policies are As the number of involved agents and instruments to address the demand of those social sectors and increases, the process of international coordination countries most in need, to guarantee that “no one will become more difcult, and the defnition of is left behind”. But in order to do that, the devel- common standards and rules for shaping individual opment cooperation system will have to undergo actions more arduous. Moreover, the enlargement of radical changes, given the new levels of complexity the development cooperation ecosystem is making it and interdependency in the world. Te realm of more difcult for recipient countries to govern the “donors and recipients”, unilateral transfers of con- fows of international support received. Additionally, cessional funds frequently under conditionality, and severe trade-ofs can emerge between the objectives of engaging new actors in the development cooper-

1 Te estimates are still too rough, although they coincide ation system and preserving its focus on people and in placing the resources required for meeting the SDGs in countries most in need. Finally, in the new interna- an order the magnitude of “trillion” dollars annually. For tional context, certain dilemmas arise around how example, the Sustainable Development Solutions Network resources and means of support should be allocated (2015) estimated this amount in 1.4 trillion dollars; and the UNCTAD (2014) climbed this amount up towards a fgure among countries and sectors. between 3.3 and 4.5 trillion dollars. 2 http://www.un.org/esa/fd/wp-content/uploads/2015/08/ 3 Te Paris Agenda has tried to transform these kinds of rela- AAAA_Outcome.pdf (par. 11) tionships with very partial success. 2 CDP BACKGROUND PAPER NO. 39

Tis paper attempts to present some of these dilem- (a big push) to break out the “low-level equilibrium mas and challenges in light of the “leaving no-one trap” and achieve self-sustained growth. International behind” mandate that the 2030 Agenda advances. fnancing (mainly through ofcial channels) was Te text is organized into three main sections fol- thought an essential ingredient in funding the lowing this introduction. In the second section, we investment required for enabling the world’s poorer discuss how the development cooperation system countries to escape poverty. In accordance, aid was can be brought up to date, taking into account considered temporary: once a country overcame massive changes in the international landscape; the the poverty trap, aid would become unnecessary; third section is oriented toward answering whether additionally, aid transfers were left to discretionary ODA is still useful and necessary; and the fourth decisions by donors, conditioned only by voluntary section considers certain dilemmas related to the standards agreed to within a committee of the way in which resources and means of support should OECD (the Development Assistance Committee, be allocated. A brief concluding section ofers some DAC). Finally, aid was designed mainly as a bilateral fnal remarks. policy, in accordance with the understanding that, in a somewhat fragmented world, development was the result of nationally based strategies (see Annex 2 Reshaping the development for a description of these characteristics). cooperation system A majority of these assumptions have been shaken by A new international landscape changes in the international landscape. Five changes deserve to be underlined here. First, the level of Over the past 15 years, countries have made serious heterogeneity in the developing world has grown eforts to reform the development aid system. Tey signifcantly. Te North-South divide has given way have established a shared agenda of minimum social to a more diverse and heterogeneous world where standards (MDGs and SDGs); they have revised international inequalities remain, but along a more their practices to improve the efectiveness of aid graduated spectrum of development levels (Alonso, (the Paris Agenda); they have brought innovation 2014). As a consequence, development problems and to the governance architecture of the system (the capacities are diverse in accordance with countries´ Global Partnership and Development Cooperation conditions; and, consistently, any inclusive develop- Forum); and they have launched a process of ment agenda must be more complex and comprehen- reviewing ODA and creating a new and wider sive than ever before. complementary concept: Total Ofcial Support for Sustainable Development (TOSSD). While most of Secondly, poles of international economic growth these changes move in the right direction, taken as a have moved as result of the dynamism of new powers whole they still fall short of what is needed for facing from the developing world, creating a more multi- the development challenges of the 21st Century. In polar world (Spence 2011; Subramanian, 2011, a word, the international reality is changing more among others). Tis process challenges the existing deeply and rapidly than development aid has been global governance structures and demands a more able to do. equitable distribution of voices and responsibilities among countries at the international level. Te Conceived as a policy exclusive to rich countries, emergence of South-South cooperation is part of ‘aid’ was born as a response to a world characterised this rebalancing in the distribution of political and by a deep North-South divide. National poverty was economic power worldwide (Mawdsley, 2012). considered a self-perpetuating phenomenon, with low income countries caught in a vicious circle of Tirdly, there has been a notorious enlargement of the poverty, being required a massive investment efort international capital markets, in a context of highly DEVELOPMENT COOPERATION TO ENSURE THAT NONE BE LEFT BEHIND 3 deregulated fows. Tis has increased the risks of New actors in the field episodes of fnancial instability and, in a context of Important mutations in the development cooper- low international tax cooperation, has made more ation system have accompanied these changes, as difcult to combat tax avoidance, tax evasion and a consequence of the arrival of new players. Tree illicit fows. On the other hand, the process has emerging actors are particularly relevant here. also diversifed the sources of development fnanc- First, there has been an increase in the number of ing. Many (not all) developing countries now have ofcial providers, widening the spectrum of adopted easier access to private fnance. As a consequence, models and practices of cooperation. Some of these the weight of ODA among international resources providers include new European Union and OECD received by developing countries has shrunk signif- members (for example, some Eastern European cantly (OECD, 2014). countries) that have adhered to the DAC (which has Fourth, extreme poverty has been markedly reduced enlarged its membership by a third, from 22 to 30, at the global scale, and its location has changed, in the last ten years). Other providers (numbering with the bulk of the world’s most impoverished now about 20) are not part of the DAC but report to that found in middle-income countries (MICs) (Sumner, institution regularly: many bring long-term experi- ence as donors (as do some Arab countries) and some 2017). As a result, poverty has become an increasingly of them assume categories and standards defned by national responsibility, since some (not all) of those the DAC. But the most innovative group is formed afected countries may have sufcient policy space by a heterogeneous array of Southern providers (of and taxation power to redistribute wealth. Tis fact South-South cooperation, SSC) that call for new reinforces the role that fghting national inequalities principles, priorities, and procedures, diferent from should have on strategies to reduce poverty (not only those adopted in North-South cooperation. Loosely in developing countries). On the other hand, current based on the 1955 Bandung Conference Declaration, trends suggest that higher intensities of poverty will and on the 1978 Buenos Aires Plan of Action, these be increasingly located in fragile states, where inter- providers defend more balanced and horizontal rela- national support faces more challenging contexts tionships among partners, rejecting the application (Kharas and Rogerson, 2012 and 2017). of policy conditionalities, demanding respect for the national sovereignty of partners, and insisting that Finally, globalisation has expanded the reach of action be based on the principle of “mutual benefts” international public goods, some of which are closely (as opposed to charity). linked to development goals. Tis means that national development agendas have to consider the It is not clear that these characteristics ft well with international collective action necessary to defne what the Southern providers actually do, but the claims and activities of this group of countries chal- new global rules and governance. Of all public lenge the monopoly that OECD donors have enjoyed goods, those linked to environmental sustainability in development cooperation policy up to now, are perhaps the most challenging, because to a large improving the bargaining power of recipient coun- extent they call into question the very idea of con- tries and widening the available options they have for vergence that frst inspired development theory. Te international support (Waltz and Ramachandran, issue is no longer one of developing countries ‘catch- 2011; Zimmerman and Smith, 2011; Chaturverdy et ing up’ with developed countries; instead it is about al., 2012; Muhr, 2016; Santander and Alonso, 2017). developing and developed countries taking diferent At the same time, they have incorporated interesting (and not well defned) paths toward an inclusive and innovations into their procedures, operating in a sustainable model of development. more resolute manner and with lighter bureaucracies 4 CDP BACKGROUND PAPER NO. 39 than traditional donors. Moreover, they are prone to working. Especially concerned with practical results, sharing experiences and technical capacities, and to they operate under management criteria closer to employing a wide range of means that go beyond those applied by private companies, and the instru- the narrow perimeter of ODA. An infuential ments and procedures they employ are more fexible exponent of this group is China, which implements and resolute than those used by traditional develop- development cooperation through a complex mix of ment actors. instruments including investment, turnkey projects, Additionally, in recent decades, companies have debt cancellations, loans with low or zero interest, directly supported development initiatives through scholarships, and grants (Xu and Carey 2015; Zhou diferent means, such as Corporate Social Respon- et al., 2015). sibility programmes, investment in goods and It is worth mentioning that beside their contribu- services adapted to the needs of the poor (base of tions, the new providers have also raised some crit- pyramid, BoP, markets), and other activities with icism, basically for their lack of transparency, their social or environmental impact (impact investment). limited concern about recipients´ ownership and Moreover, some companies are increasingly locating their tendency to use diferent kinds of “tied aid”. development goals much closer to their core busi- Tis last problem particularly afects some Chinese ness strategies, more willing to use blended fnance investment projects, in which inputs, managers and in their business activities, and to see public-private sometimes workers come from China, limiting the partnerships as opportunities. Tis holds particu- spillover efects of the development cooperation larly true regarding the investment in areas (such initiatives on the recipient country; but the prob- as green technology, infrastructure or energy provi- lem could also afect some training and technical sion) where such partnerships appear to be based on assistance programmes promoted by other providers win-win approaches. As a consequence, a growing (Brazil, for example). As a consequence, some recip- number of CEOs have adopted the SDGs as a useful ient countries have begun to demand greater space framework for their business. Te report of the for decision-making and more balanced outcomes in Business and Sustainable Development Commission South-South cooperation interventions as well. ofers arguments and experiences from this segment 4 Secondly, the private sector has also become a more of the business sector. While many see this process important actor in the development cooperation with positive eyes, as a way to overcome traditional system. Traditionally, the private sector has been limitations of public development agencies, others directly implied in the provision of goods and underline the risks that the process may involve, in services for development investments and more terms of subordinating public resources and pur- indirectly in funding development projects through poses to private interests. the activity of corporate foundations (such as the Finally, the range of multilateral actors has also Bill and Melinda Gates Foundation, the Rockefeller widened in the last decade. On the one hand, new Foundation, and many others). Resources mobilized regional development banks (RDBs, such as the for these foundations have followed a clear upward Asian Infrastructure Development Bank or the New trend in last years. Te latest data confrm that pri- Development Bank) created by developing countries vate philanthropy accounted for close to $64 billion have appeared, with promising projection, alongside in 2015, nearly half of what DAC donors channeled already existing multilateral banks from emerging as net ODA ($137 billion) (Hudson Institute, 2016). economies that have strengthened their activities Along with their fnancial contributions, these actors have brought to the development feld new priorities, 4 http://report.businesscommission.org/uploads/Better- a diferent organizational culture, and new ways of Biz-BetterWorld_170215_012417.pdf DEVELOPMENT COOPERATION TO ENSURE THAT NONE BE LEFT BEHIND 5

BOX 1 CLARIFICATION OF DEFINITIONS

1. ODA

Originally, official development assistance was defined as flows from OECD countries to countries and territories that appear on the DAC List of ODA Recipients, and to multilateral development institutions, this assistance being: i) provided by official agencies, including state and local gov- ernments, or by their executive agencies; and ii) each transaction of which: a) is administered with the promotion of the economic development and welfare of developing countries as its main objective; and b) is concessional in character and conveys a grant element of at least 25 percent (calculated at a rate of discount of 10 percent). After 2018, concessional loans will be registered as ODA only through their grant equivalent (not through their facial values), using thresholds of concessionality and discount rates adapted to countries´ levels of income.

2. Development cooperation

As Alonso and Glennie (2015) suggest, development cooperation can be defined as those interna- tional interventions and activities (public and private) that: i) specifically intend to support devel- opment; ii) operate through actions that would not be promoted (or at least not in the same way) by the market alone; iii) differentiate in favor of developing countries, particularly the poorest, in order to widen their opportunities for progress; and iv) are based on cooperative relationships that try to enhance developing country ownership. Development cooperation includes flows of ODA, but goes further, embracing non-concessional funds and other in-kind activities oriented to development. Additionally, it considers not only official funds but also private resources provided under non-for-profit purposes (such as those channeled by foundations, NGOs and companies within their Corporate Social Responsibility programmes, for example)

3. TOSSD

TOSSD is a new measure, wider and complementary to ODA, proposed by the OECD. It includes all officially supported resource flows to promote sustainable development in developing countries and to support development enablers or to address global challenges at regional or global levels. Regarding ODA, TOSSD is a wider concept because it includes all official flows, concessional or non-concessional, as well as private resources mobilized with official support (probably including export credits), while ODA only registers official funds that are concessional in character. At the same time, TOSSD is different from the concept of development cooperation, because the former includes private resources at market conditions if mobilized by official funds while the latter con- siders only those private resources (whether supported or not by official funds) outside the market (i.e., private grants from foundations, or CSR programmes). Even though the process of defining TOSSD is still open, some of the initial criteria on which the concept was based have been subject to criticism (Alonso, 2016; Griffith, 2016). 6 CDP BACKGROUND PAPER NO. 39

(such as CAF, Latin American Development Bank, Firstly, there is among donors an interest in pro- or the Islamic Development Bank). Te increasing moting a stronger engagement of the private sector in profle of these institutions shows not only the new development policy (Benn et al., 2016). Some of the balance of power at the international level, but the eforts in this feld have been carried out through frustration from emerging economic powerhouses fnancing mechanisms (such as credit, quasi-equity in the global South with the incapacity of more tra- investment, collective investment vehicles, guaran- ditional RDBs to deliver change (Bhattacharya and tees, and blended fnance) that are only partially rec- Kharas, 2016; Prizzon et al., 2017). ognised by the ODA framework. Many signs show the central role that donors want to give to these On the other hand, new vertical funds have emerged mechanisms in the future development fnancing for encouraging public-private partnerships at the landscape. Te AAAA includes extensive references international level, and channeling resources towards to blending along the document; blending is a central some specialized purposes in a more operative way part of From billions to trillions5, the document that (particularly, in the felds of health and environ- seven international fnancial institutions launched ment). Some of these initiatives (like the Global with their plans to fnance the 2030 Agenda; and Fund and GAVI) have shown a capacity not just for encouraging the use of blending and other private managing a large volume of resources, but also for sector instruments is a core part of the process of the application of innovative initiatives. reviewing ODA that the OECD is carrying on. Te emergence of all these new actors has brought Additionally, traditional donors have set up spe- new resources and capacities to development cooper- cialist bilateral institutions to promote this type ation policy, but at the cost of hindering coordination of action: the Development Finance Institutions among players, and of increasing the complexity of (DFIs), including the CDC, Proparco, FMO, and the system as a whole. As a consequence, it has made KFW, among others. Multilateral fnancial institu- it more difcult for recipient countries to govern the tions operate alongside these in this feld, the most fows of development cooperation received. In spite active being the International Finance Corporation of their diferences, all the aforementioned “new” actors present two additional common features: i) and the European Bank for Reconstruction and their activity and procedures challenge the dominant Development. Other new development suppliers position that traditional ofcial donors have held in have involved similar institutions that frequently the development cooperation system; and ii) their adopt the form of a development bank, operating instruments frequently go beyond those registered nationally as well as internationally (for example, as ODA. Brazil’s BNDES or the China Development Bank). Tere are reasons to justify that part of ofcial New fields of action funding be oriented to mobilize private resources through blended fnance or public-private partner- At the same time, there has been a diversifcation ships. In some areas (such as big infrastructures in the fnancing instruments of development coop- or energy plants) this is probably the only way to eration. Tis process has been driven in part by the muster sufcient resources for flling investment mentioned emergence of new players in the feld, gaps in most developing countries. But there are and by enlargement of the development agenda also threats that should be taken into account. As as it discovers new areas insufciently attended to by ODA in the past. Among these new areas with 5 http://siteresources.worldbank.org/DEVCOMMINT/ potential impact on the 2030 Agenda, four deserve Documentation/23659446/DC2015-0002(E)Financing- to be underlined. forDevelopment.pdf DEVELOPMENT COOPERATION TO ENSURE THAT NONE BE LEFT BEHIND 7 some studies suggest, it is doubtful in many cases cooperation. Te emergence of this area, important that ofcial funds are truly additional to private though it is, involves the risk of absorbing a portion ones – rather, they seem to support investments that of resources that donors had previously dedicated would have happened anyway –, there is the risk that to other components of ODA (Michaelowa and operations follow private interests rather than public Michaleowa, 2005). However, ODA has increased purposes and perverse incentives may arise if public in recent years at similar rates to the growth in cli- support for certain investors harms competition in mate funds, so such a crowding-out process does not markets, or provokes problems of moral hazard, appear to have taken place. thus encouraging less responsible behaviours among private investors. A recent analysis of three major Te fnal feld worth mentioning is related to the pro- blending facilities found that the majority are not motion of innovation and cooperation in science and designed in a way to contribute to the ownership of technology. Beyond fnancing, this sphere includes developing countries, they are hardly aligned with instrumental mechanisms to facilitate the exchange national plans and strategies and they lack of appro- of experience and knowledge, networking among priate mechanisms of participation of developing international teams, the mobility of researchers, and countries governments and other stake-holders in the joint implementation of capabilities for shared the decision-making process (Pereira, 2017) projects. Not all these initiatives lead to a mobiliza- tion of resources that can be counted as ODA, but all Another feld of work that has gained in profle is could prove useful for the new development agenda. connected to the promotion and management of sustainable infrastructure in developing countries One line of this last feld – the so-called Dev-Tech (Miyamoto and Chiofalo, 2015 and 2016). Te role revolution – has been particularly transformative, as of ODA in this area is minor, while other instruments new technologies widen the opportunity for inno- of development fnancing seem more appropriate vative responses to current development challenges. for mobilizing the magnitude of resources needed. Dev-Tech is associated with the use of big data, Multilateral development banks operate very actively mobile phones, smart cards, and satellite imagery in this feld, as do institutions specialized in mobiliz- applications, among others, employed in the interest ing blended resources and designing public-private of building development-oriented solutions. Taking partnerships. Te bulk of the fnancing that these full advantage of these new possibilities implies a seri- institutions channel is far beyond the scope of ODA ous challenge for development agencies, demanding but could play a crucial role in development cooper- a dramatic change in staf capabilities required and ation in support of the new 2030 Agenda. moving managers to place more strategic attention on the possibilities (and risks) of Dev-Tech. Te third feld where there has been a widening of public fnancing mechanisms is related to the Additionally, new technologies have opened space environmental sustainability agenda (Shine and for more direct and demanding relationships among Campillo, 2016; Drutschinin and Ockenden, 2015). development stakeholders, which should improve Here international commitments have been coupled levels of transparency and the efectiveness of with the creation of new funds or fnancial facilities interventions. For example, funders are now able in areas such as climate change, water and sanita- to choose initiatives that they want to support and tion, preserving fragile ecosystems and protecting to transfer money directly to the projects chosen the ozone layer and biodiversity. A broad range of (through internet sites such as globalgiving or kiva6). “environmental fnancing” has been created that is only very partially in the feld of ODA, but which 6 See https://www.globalgiving.org/; and https://www.kiva. fts largely within the parameters of development org/ 8 CDP BACKGROUND PAPER NO. 39

New technologies also allow benefciaries to moni- vital achievement of this line of action would be that tor activities and to assess results (via, for example, all people have access to universal social protection mobile phone), likewise encouraging the efective- programmes throughout their lives. Currently, 55% ness of interventions. of the world population (nearly 4 billion persons) are unprotected; and that proportion climbs to Rebuilding development 66% in the case of children (ILO, 2017). Building cooperation policy universal social protection programmes should be part of any national development strategy against All the aforementioned changes compel the inter- poverty. But even though national governments national community to move beyond the narrow carry the primary responsibility, the international sphere of ODA to the much wider and more diverse community is responsible for supporting national (albeit less precise and harder to measure) feld of eforts in this feld, particularly in countries with development cooperation (see again Box 1). Tus, fewer capacities and resources (Giovannetti, 2010). the frst step in driving international support to serve Te Recommendations on Social Protection Floors the 2030 Agenda would be to “upsize and democra- Initiative, launched by the ILO in 2012 and adopted tize” the development cooperation system; that is, to by governments, employers, and workers, provided transform it into a wider and more comprehensive a frst step. Tis was followed in 2016 by creation system that belongs to all countries (providers, recip- of the Global Partnership for Universal Social ients, and dual countries), rather than an exclusive Protection, for encouraging the eforts of public, domain of developed countries, based on ODA private, national, and international agents around categories. this purpose. In other words, the new development cooperation Another proposal in the same vein, oriented to guar- system should be able to embrace all countries and antee that people are free of poverty and vulnerabil- agents involved in developmental activities, through ity, is the notion of basic income. Te idea is that a more horizontal and cooperative relationships. monthly income should be paid, unconditionally, to Instead of being based on unilateral relationships of every citizen, thus avoiding costly processes of eligibil- a small group of countries, it should be an inclusive ity and the stigma associated with selective transfers. and global system oriented to incentivize collective Tis is a method of fghting chronic vulnerability, action in favor of sustainable developmental pros- promoting social justice, and extending economic pects. If ODA was seen as a temporary support to security to all people, without the dysfunctionalities countries trapped in poverty, development coop- that characterized certain social security systems. As eration policy must be conceived as a permanent this proposal is subject to controversy, several pilot mechanism of global governance, able to address the studies have been launched in both developed and distributive asymmetries and market failures that developing countries, wherein NGOs, governments, constrain development progress; those asymmetries and multilateral institutions jointly participate. As and market failures that are difcult for developing with the proposal on universal social protection, the countries to overcome by their own (see Annex). international community could (through fnancial and technical support) back national eforts for Going beyond the important goal of fghting pov- exploring and eventually applying this measure, erty, development cooperation should pursue three even if primary responsibility in implementing basic main purposes. Firstly, guaranteeing minimum social income remains with the national governments. standards for all people, wherever they live. Tis would be a way to reduce poverty and vulnerability, Te second general purpose for development cooper- promote social justice and realize human rights. A ation policy should be the reduction of international DEVELOPMENT COOPERATION TO ENSURE THAT NONE BE LEFT BEHIND 9 inequality, encouraging the process of convergence diferentiated benefts and responsibilities, moving in living conditions across countries. Tis was part from the logic of concessions towards the logic of of the original mission of ODA: give international mutual commitments, adapted to the conditions of support for developing countries to overcome pov- each country. erty traps (and middle-income traps), in order to At the same time, the system needs inclusive and accelerate the process of economic and social con- efective mechanisms of governance that do not as vergence to the standards of developed countries. yet exist. Clearly, being an exclusive body of the Environmental restrictions now require a change in OECD, the DAC lacks the required representative- this approach: reduction of international inequality ness. Te Global Partnership, an initiative born in remains the goal, but based on new models of pro- Busan in 2011, has a similar problem, being consid- duction and consumption compatible with sustaina- ered an OECD initiative by many developing coun- bility. Finally, reducing international inequality not tries. Finally, the Development Cooperation Forum, only implies transfers of income between countries located in the UN ECOSOC, is better placed to ofer (such as ODA traditionally promotes), but also the an inclusive body that can host providers, recipients, promotion of an international framework (rules and and dual countries. However, its level of efectiveness incentives) that contributes to better distribution of is low in terms of setting standards and monitoring development opportunities among countries. For policies. example, sounder international tax coordination for avoiding tax evasion and capital fight, an agreement for managing orderly migration, or more balanced regulation of intellectual property rights are all parts 3 Is still ODA required? of what development cooperation should do to pro- The role of ODA mote economic convergence. Given the massive alterations in the international Some of the aspects above connect with the third context, it becomes reasonable to question the rele- purpose for development cooperation policy: pro- vance of ODA as a mechanism for fnancing sustain- viding international public goods, particularly those able development. Tat question admits two possible related to development achievements. In this regard, interpretations: i) is ODA still useful in the new cooperation among countries is required due to the international context?; and ii) is ODA an efective systemic interdependencies on which international means for supporting development? public goods are based. International support is mandatory in this feld for backing eforts by devel- Given the limited volume of funds that this type oping countries to contribute to global collective of assistance mobilizes, ODA is called on to play a action, and for applying global standards and norms modest role in the total resources required to real- at the national level. ize the 2030 Agenda. As mentioned, the resources needed to feasibly meet the Sustainable Development As defned, the new policy for development coop- Goals (SDGs) are measured in trillions of dollars, eration is no longer compatible with the traditional but ODA has scarcely exceeded $140 billion annu- narrative on which ODA was founded, based on ally ($142 billion in 2016). unilateral concessions (close to charity) and solidar- ity with other peoples’ problems (see Annex again). However, even if the resources mobilized by ODA Today, most development challenges are shared by are limited, its impact need not be irrelevant. For developed and developing countries alike, as the many poorer countries, international aid will remain 2030 Agenda suggests. Terefore the new narrative among the most signifcant and reliable sources of should be based on the principle of common but international fnancing, at least in the time frame 10 CDP BACKGROUND PAPER NO. 39

Figure 1 Composition of financing flows by income groups (2015)

80 LDCs 70 Other LICs LMICs 60 UMICs 50

40

30

20

10

0 ODA Private grants Other securities FDI Export Credits Other Official Flows Source: DAC (OECD). addressed by Agenda 2030. Tis is particularly resources that are ofcial in nature, which means true for the case of the Least Developed Countries that they can be oriented toward ends that have been (LDCs) and other low-income countries (LICs) socially agreed upon. Tat is, those services with where such fows make up more than 70% of higher social returns or for which universal access is international fnancing received (Figure 1). Even crucial. Tis combination of characteristics is unique in middle-income countries (MICs), aid may play to ODA (and other ODA-like resources) and makes a signifcant role, not so much for what it fnances it a source of support that is particularly useful for directly but because of the role it can play in incen- many countries facing structural restrictions to their tivising changes and mobilizing additional resources development processes. for development. Te role of ODA is frequently underestimated Tere are other qualitative factors that make inter- because of the higher dynamism and volume of some national aid particularly useful. Firstly, it is a highly private fows, such as remittances or grants from concessional source, which could be appropriate philanthropic foundations, for example. It is also for fnancing investments with limited economic underlined favourably that these kinds of resources returns, or countries with constrained access to operate “above political infuence” and without other fnancial sources. Secondly, it mobilizes not complex bureaucracies. However, the ofcial origin just fnancial resources but also technical capaci- of ODA resources and the implication of public institutions in their provision have a positive conse- ties and experiences, which could be important to quence, as they establish a base for public accounta- support of the 2030 Agenda7. Finally, it channels bility and strengthen the relationship between States and individuals on which the concept of citizenship 7 In spite of its potential contribution to the 2030 Agenda, technical assistance is one of the more problematic modali- is based (something that does not happen with ty of aid, as evaluations confrm (see Riddell, 2014). private funds). DEVELOPMENT COOPERATION TO ENSURE THAT NONE BE LEFT BEHIND 11

Beyond ODA’s utility, it must be considered whether international competitiveness in recipient countries aid is truly efective, given that concerns about it (Moss et al., 2008; Rajan and Subramaian, 2008, are well documented. Te specialized literature on among others). Secondly, despite limited institu- this subject is largely inconclusive, with some stud- tional capacity, recipient countries have to deal with ies fnding positive efects of aid on the economic a wide array of donors with diferent requirements growth of recipients (e.g., Dreher et al., 2008; Arndt, and limited coordination. A survey published by the et al., 2010; or Clemens et al., 2012), others fnding DAC showed that levels of aid fragmentation and negative or null efects (e.g., Rajan and Subramanian, donor proliferation are considerably higher in the 2008; Nowak-Lehmann et al. 2012; or Doucouliagos poorest countries (LDCs and LICs) than in MICs9. and Paldam, 2011), and many others considering And thirdly, many poor countries sufer from fragile the efects to be conditioned by diferent mediating states with poor governance, high risks of confict, factors, such as recipients´ policies (e.g., Burnside and related problems, making aid management still and Dollar, 200 and 2004) or other circumstances more difcult. (e.g., Guillaumont and Chavet, 2001 or Collier and All these factors suggest that donors should be Dehn, 2001). Tese frustrating results are in line more cautious around plans to increase aid without with the methodological difculties that empirical considering its potential efects on the country (not research faces in this area, and with the variety of always “more is better”). As a consequence, in those conditions in which aid is allocated and managed8. more aid-dependent countries, they should establish Tough far from conclusive, recent studies have plans to gradually downsize aid when feasible, mean- shed more positive light on the subject, tending to while seeking and backing alternative sources for confrm a small but positive efect of aid on recipi- fnancing the country’s development. In this line, it ent countries’ economic growth (e.g., Galiani et al., is important to pay closer attention to existing routes 2014; or Minoiu and Reddy, 2009). Additionally, for mobilizing domestic resources (e.g., strengthen- this more optimistic image is reinforced by estimates ing tax systems) but also international changes (e.g., that consider the efect of certain components of tackling tax avoidance, tax evasion and capital fight). ODA on the social dimensions (i.e., education, At the same time, aid interventions should be more health, water supply, or poverty reduction) in which politically informed, more context-sensitive and those components operate (among others, Dreher less supply-driven oriented, as Both (2011) pointed et al., 2008; Christensen et al., 2011; Mishra and out. Finally, donors should dedicate more resources Newhouse, 2009). towards the provision of crucial international public goods related to developmental objectives (such as In any case, there remains much room for improving agricultural R&D or infrastructure for international the efectiveness of aid. Here, three obstacles appear connectivity), because such projects are unlikely to condition achievements, particularly in the poorest to exacerbate national problems derived from aid countries. Firstly, these poorest countries continue dependency. to present high levels of aid dependency, although the ratios of ODA over GDP have fallen in the last ten years. As many studies have shown, aid depend- The evolution of official ency has negative efects, harming the quality of aid, financing resources damaging institutions and governance, or reducing Beyond ODA’s efectiveness, it is important to know if ODA and other ofcial funds are capable of reach- 8 As Bourguignon and Sundberg (2007: 316) pointed out, ing the volume required for efectively supporting the unclear and ambiguous results of this empirical litera- the 2030 Agenda. Antecedents are not promising: ture are not surprising “given the heterogeneity of aid mo- tives, the limitations of the tools of analysis, and the com- plex causality chain linking external aid to fnal outcomes”. 9 See http://www.oecd.org/dac/efectiveness/47823094.pdf 12 CDP BACKGROUND PAPER NO. 39 the average rate of annual growth of ODA was barely In contrast with repeated reassurances, most donors 2.28% between 1961 and 2015. In other words, still fail to meet their commitments in relation to overall fows through the period multiplied by 3.5, aid. In 2016, only six countries met the require- from $42 billion to $146 billion, at 2014 prices. Tat ment to dedicate 0.7% of GNI to international aid: is a limited expansion considering that the number Denmark, Germany, Luxembourg, Norway, Sweden, of donors in the DAC rose from 17 to 28 over the and the United Kingdom. Te DAC average was same period, and that the GDP of OECD donors below half that target: around 0.32%. Furthermore, increased 5.2 times, also at constant prices. only seven countries met the criterion to dedicate 0.15%-0.20% of their GDP to the LDCs: Denmark, In fact, ODA fows have proven rather stagnant at Finland, Ireland, Luxembourg, Poland, Sweden, a time when international fnancial markets have and the United Kingdom. Te DAC average in this grown signifcantly and become more accessible to regard was barely 0.09%. many developing countries. As a consequence, the Tis double breach highlights a moral debt that relative share of ODA in total international fnanc- donors have acquired with the developing countries. ing fows aimed at developing countries has fallen in Specifcally, meeting the 0.7% commitment would the last two decades (Figure 2). In fact, the fnancing have meant mobilizing $312 billion in the form of structure of these countries has sufered a double ODA in 2015 ($181 billion more than was actually change: on the one hand, there has been a signifcant mobilized that year); and fulflling the agreement on increase in the share of private fows as compared to priority to LDCs would have mobilized $69 billion ofcial fows (including ODA); on the other hand, in ODA to such countries ($32 billion above was there has been a diversifcation of the instruments actually mobilized in 2015). Besides that, a signif- of development fnancing funded by ofcial sources, cant part of ODA does not get through developing beyond ODA (Alonso, 2016b). countries, being consumed in donor countries: this

Figure 2 Financing flows to developing countries (million dollars)

800000 ODA 700000 FDI Remittances 600000 Other flows 500000

400000

300000

200000

100000

0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: World Bank. DEVELOPMENT COOPERATION TO ENSURE THAT NONE BE LEFT BEHIND 13

Figure 3 Evolution of ODA and Other Official Flows (billion dollars)

250 OOF ODA 200

150

100

50

0 1985 1990 1995 2000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: DAC (OECD). part has signifcantly increased as a consequence of have shown a clear upward tendency, with resources the current refugee crisis. doubling between 2010 and 2015. As a consequence, the composition of aid fows is now more complex It is worth asking whether the limited growth in than ever before (Figure 4). ODA might be complemented by the more expansive tendencies of other ofcial resources provided by tra- It is also worth noting that these data clearly under- ditional donors. However, data do not confrm this estimate the contribution of the new providers, possibility: even where resources are poorly reported referring only to those fows equivalent to ODA. As and registered, the so-called “other ofcial fows” mentioned, many emerging donors use a broad set follow the same basic tendency as ODA (Figure 3). of instruments to engage with developing countries, including instruments that are clearly beyond the More dynamism is shown by the contribution to DAC defnition of ODA. Te limited transparency ofcial funds by new providers outside the DAC. on such contributions makes it difcult to arrive Data are clearly incomplete, as many countries do at a fgure that refects all the resources mobilized not report development cooperation fgures, while for so many mechanisms and sources. However, the others use criteria for reporting that are not easily OECD ofered a provisional fgure when presenting standardized. If we consider only those (20) coun- a frst estimate of the order of magnitude of TOSSD, tries that report to the DAC and those (10) for which using 2014 data: while ofcial bilateral fows from the DAC makes regular estimates, the total of ODA- DAC providers reached $109 billion, those from like resources mobilized by non-DAC countries emerging market economies tripled that amount, approached 19% of total ODA in 2014 ($31.7 billion climbing to $330 billion10. mobilized by non-DAC countries, and $137 billion by traditional donors) (Table 1). It is interesting to 10 Te OECD does not inform about the procedure followed highlight that, contrary to contributions from DAC in this estimate, which makes difcult to give an opinion members, contributions by non-OECD countries about its accuracy. 14 CDP BACKGROUND PAPER NO. 39

Table 1 Estimated global development co-operation flows, 2011-15, net disbursements, current prices

2015 2011 2012 2013 2014 2015 (% of total)

ODA from 28 DAC countries 135.0 126.9 134.7 137.4 131.4 84.2%

ODA from 20 reporting countries beyond the DAC 8.9 6.2 16.4 24.7 17.7 11.3%

Estimated develop- ment co-operation flows from ten non- reporting countries beyond the DAC 5.2 5.6 6.8 7 6.9 4.4%

Subtotal flows from non-DAC providers 14.1 11.8 23.2 31.7 24.6 15.8%

Estimated global total 149.1 138.7 157.9 169.1 156.0 100%

Figure 4 The new composition of development cooperation (billion dollars)

64.1 Bilateral from DAC 97.3 Bilateral from non-DAC Multilateral Private philantropy 35.1 30.6

Source: Author’s elaboration based on Hudson Institute and the DAC (OECD).

In sum, in spite of defciencies in transparency and purposes that should be funded mainly with ofcial reporting, data confrm that: i) the development means. Terefore, if development cooperation is to fnancing landscape has changed signifcantly in play a more active and signifcant role in supporting recent decades with the emergence of the private Agenda 2030, ODA will need to grow much more sector and new providers; and ii) ODA still repre- dynamically. Te OECD donor forecasts, however, sents an important component of fows received by give no grounds for optimism, suggesting stagnation developing countries. Additionally, more ofcial (or even contraction) of aid fgures for the next few resources will need to be mobilized if many of the years. A pesimit forecast that is reinforced for the SDGs are to be fulflled, as these goals remit to public existence in many countries of a backdrop of growing DEVELOPMENT COOPERATION TO ENSURE THAT NONE BE LEFT BEHIND 15 populism, inward-looking policies and scepticism followed by donors, some of which are related to the about the advantages of international cooperation needs of recipient countries (levels of shortage and and multilateralism. In the opposite sense, we should poverty), or to donors’ interests (economic, political, emphasize that, because the world is more complex, or strategic), while others are associated with ele- interdependent and unpredictable than before, more ments of identity between countries (past colonial international cooperation is needed now and in the ties, a shared language) or with shared goals (interna- next future. In fact, achieving the goals the 2030 tional public goods). What varies is the importance Agenda proclaims will require a variety of actors and given to the combination of these factors in donors’ countries working in concert, which means that the policies. Nevertheless, as empirical studies unequiv- complementary contributions of other development ocally show, donors’ interests seem to have a strong cooperation providers (diferent from raditional presence in the process of aid allocation (Alesina and donors) will be absolutely needed”. Dollar, 2000; Berthelemy, 2006).

Allocation of resources Te data confrm this. Aggregate data show that ODA is divided almost equally between that given Alongside the amount of the resources mobilized, to low-income countries (LDCs and LICs) and another relevant aspect is the way in which ofcial that given to middle-income countries (LMICs and resources are distributed among countries. Te UMICs). During the past decade, there has been empirical literature confrms two general features. some improvement in this distributive pattern, and Firstly, despite the convergence of donor cooperation aid aimed at LDCs has grown, fundamentally at the policies encouraged by the DAC, there is clear diver- expense of the UMICs (Figure 5). sity in donors´ aid allocation models: something that had been underlined by McGillivray (1989) thirty Te picture is slightly improved if ODA is compared years ago. It is nonetheless possible to identify cer- to domestic variables of the recipient countries. In tain ‘patterns’ shared by groups of countries (van der this case the relative share of aid is higher for the Veen, 2011; Neumayer, 2003). Secondly, there is a lowest income level countries (Table 2). Te ratios mix of factors in explaining the allocation criteria are equally higher than average where countries face

Figure 5 Allocable ODA by income country groups (in %)

50 2004/5 45 40 2014/15 35 30 25 20 15 10 5 0 LDCs Other LICs LMICs UMICs Source: DAC (OECD). 16 CDP BACKGROUND PAPER NO. 39

Table 2 ODA over recipient countries´ variables

ODA over gross ODA over import of ODA/GNI % ODA per capita capital formation % goods and services %

2004/05 2014/15 2004/05 2014/15 2004/05 2014/15 2004/05 2014/15

Income groups

UMICs 0.35 0.08 10.18 6.40 1.21 0.22 1.10 0.29

LMICs 1.44 0.82 11.56 16.75 5.14 3.03 4.21 2.62

LICs 13.67 8.74 40.11 54.59 65.07 31.07 33.96 20.31

Countries in need

LDCs 9.0 4.8 34.5 46.0 39.2 18.6 23.9 12.8

HIPC 12.3 6.1 49.2 53.0 51.4 22.8 30.2 15.2

Fragile and conflicto 9.6 4.2 68.7 67.5 60.6 16.5 10.5

Source: Author´s elaboration on data from DAC and World Bank.

Figure 6 ODA per capita and countries´ income level (2014)

200

150

100

50

R² = 0.1528 ODA per capita $ 0 6 7 8 9 10 11

-50

-100 Ln GDP per capita Source: World Bank. Countries with population under 2 million people excluded. DEVELOPMENT COOPERATION TO ENSURE THAT NONE BE LEFT BEHIND 17

Figure 7 ODA per poor people and countries´ level of income (2014)

2500

2000

1500

1000 R² = 0.1724 500

0 6 6.5 7 7.5 8 8.5 9 9.5 10 10.5 11

ODA per poor people -500

-1000

-1500

-2000 Ln GDP per capita

Source: World Bank. Countries with population under 2 million people have been excluded. Additionally, Ukraina , Serbia, Moldova and Central Africa have been excluded. particular development difculties, as is the cases of While not exhaustive, the data ofered is sufcient HIPCs, fragile states, small states, or LDCs. to express: i) a high dispersal in donor models of aid Nevertheless, these results are the total outcome allocation; and ii) the limited role that redistributive of a highly decentralised system in which donor purposes play in these models. Both aspects should countries set their priorities with notable freedom be corrected. Donors should revise their allocation and, frequently, in ways that are inconsistent with models, setting out criteria based on the severity of the goals that aid is supposed to pursue. Tis can be countries’ shortages and structural obstacles. more clearly seen when the data is disaggregated. For example, when per capita ODA is compared to the developmental level of the recipient countries, the 4 Some dilemmas on resources result confrms the negative relationship we would allocation expect (more aid per capita the lower the income), but the levels of dispersal are very notable, revealing Quantity vs. quality inconsistent donor behaviour (Figure 6). As mentioned above, in the past two decades, the Looking at the volume of poverty in the recipient development cooperation system has been trans- country yields even more contradictory results. Specifcally, if we compare aid received per person formed by the presence of new actors, instruments, below the poverty threshold ($3.1 of spending per and felds of work. While the widening of develop- day) with the developmental level of the country, ment cooperation may be in keeping with the content the trend revealed contradicts expectation: countries of the SDGs, it remains unclear whether that process with greater developmental levels receive more aid serves the principle of “leaving no one behind”, the per poor person (Figure 7). inspiration for the agenda. 18 CDP BACKGROUND PAPER NO. 39

In a context of severe restrictions on public expen- sectors will need to be placed at the highest level of di tures, traditional donors seek to defne a new priority, something that public funds can do, but frame work (wider than ODA) in which other, non- that private resources do not necessarily pursue. concessional ofcial funds are counted, as well as private resources mobilized with public support. Tat Poor people vs. poor countries is the rationale for the concept of TOSSD (see Box 1). In this new framework, the engagement of the private In order to approach that goal, two additional debates sector, through blended fnance, public- private part- should be clarifed. Te frst emerges as a consequence nerships, or other market-like instruments, becomes of the new geographical patterns of global poverty crucial. Tis explains the donors´ insistence on using that have dissociated two terms that were tradition- ODA as a mechanism for the mobilization and lever- ally linked: “poor countries” and “poor people”. In aging of resources from the private sector. the past, the terms were in basic agreement: the bulk of the poor population lived in countries that were Given the ambitious nature of the 2030 Agenda, it is likewise considered poor. Today, however, about clearly desirable to direct as many resources as pos- two thirds of the poor population (defned under sible to support the SDGs, including those coming World Bank criteria) live in MICs; and this is likely from the private sector. Additionally, the private to remain the case in the coming decade (Sumner, sector can contribute to sustainable development not 2017). Bearing this transformation in mind, it is only via fnancial resources, but with technological essential to ask whether development cooperation and managerial capacity. Te need to engage this should be targeted at poor populations, wherever sector more actively in development initiatives is they live, or whether it should be targeted at countries undeniable. However, transforming this purpose sufering severe structural shortages – even if their in the main criterion for allocating ODA would be poor populations are limited in absolute terms. undesirable, due to the perverse distributive efect that might result, eroding the quality of resources Tis debate echoes discussions among ethicists channelled to developing countries. around the way in which national criteria for justice might be translated to the international arena. Two Indeed, if mobilization of private resources becomes contrasting positions can be found here: those who the main orientation of development cooperation, argue that the responsibility of building a fair and it is likely that donors could enlarge their reported equitable human society goes beyond national bor- fgures on fnancing for development within the new ders, and is independent of the segregation imposed OECD framework, but at the cost of reducing the by diferentiated political communities (Singer, focus on those countries and social sectors most in 2003; Pogge, 2002; among others); and those who need. If international ofcial funds are oriented to argue that the political community formed around support the rights of the very poorest, it is unlikely national States carries a special (and primary) that this orientation may ofer much prospects of responsibility for the condition of their citizens, short-term commercial returns. Terefore, it will be including the determination of distributive patterns difcult to achieve the alignment between public and (Rawls, 1999; Sandel, 2009; among others). private priorities on which blending instruments rely. Tis same debate has extended to specialists in the One of the main added values of ofcial funds is feld of international aid. Some suggest the primacy that they can be oriented to investments with higher of human rights makes it obligatory for aid to be social returns, even if their private returns are low. targeted at poor people, wherever they live (Kanbur Tis added value could be lost if ODA is conceived and Sumner, 2012), and such an approach would as a mechanism for private resources mobilisation. necessarily lead to the revision of aid allocation In sum, if development cooperation is to maintain its models and the strengthening of the aid targeted at redistributive purpose, marginalized and excluded MICs with large poor populations. Other specialists, DEVELOPMENT COOPERATION TO ENSURE THAT NONE BE LEFT BEHIND 19 however, insist that the purpose of aid is to support Tis approach tries to combine national self- (and not to substitute) particular countries’ eforts determination in terms of defning redistributive to overcome barriers to development, and that inter- policies within the country with international sup- national support should take into account national port for correcting structural asymmetries among capacities for facing development obstacles. From countries. Adopting fscal federalism as inspiration, this perspective, development cooperation resources this approach would assume that national govern- should be targeted mainly at those countries most in ments rather than donors are principal responsible need; that is, those countries with greater limitations for vertical equity within their borders. At the same time, international ofcial transfers would pursue to or constraints to tackling their own development enhance fscal equity at global level. In accordance, challenges (Alonso et al., 2016). the objective of these transfers would be to enable For example, in the case of fghting poverty, limi- national governments to provide comparable levels tation can be determined by the fscal capacity for of public services at comparable tax rates, leaving funding redistributive and social policies. In order them discretion to implement redistribution policies to obtain a notional measurement of this variable, within their jurisdictions (Boadway, 2003). we might estimate the transfer of income that the Although this is a reasonable criterion, two remarks ffth quintile (the richest) would have to commit to should be underlined. Firstly, the fact that a country in order for all people living in poverty to be raised may have greater capabilities for tackling its own above the poverty line. As fscal eforts usually rest poverty is no guarantee that sufcient resources will on this ffth quintile, that ratio could be understood be efectively directed toward that goal. Te interna- as a notional approach to the redistributive efort tional community has a role to play in encouraging required for eliminating poverty (the ratio being countries to make social inclusiveness a public pri- dependent on the national GDP per capita, the level ority. Moreover, the international community has of inequality, the percentage of persons living in pov- a subsidiary responsibility to meet the needs of the erty, and the poverty gap). Estimates confrm that, poorest populations in cases where States are not to a large extent, LICs need to exert a greater efort assuming their responsibility. in order to eliminate poverty than do MICs (see Secondly, if the principle of “leaving no one behind” Figure 8). Terefore, as long as international aid aims is to be applied, donors should go beyond national to attend countries and social sectors in greater need, averages, and use variables and indicators with resources should be focused mainly on LICs (includ- information disaggregated by groups and regions. ing LDCs), even if development cooperation with Te level of information about subnational distribu- MICs should be maintained (Alonso et al., 2016). tion of ODA is scarce, but some studies show that correlation does not always exist between resources In sum, national capacities and resources must received and the level of poverty of the region (Desai be taken into account in the process of allocating and Greenhill, 2017). Terefore, development coop- resources and international support. Tat position eration providers should work more intensively to seems in accordance with the content of the 2030 ensure a better distribution of resources, in line with Agenda, since the primacy of countries’ responsibil- needs of groups and regions across the country. ity for their own development is acknowledged in Transforming diferent parts of the UN Declaration Efficiency vs. equity our world: the 2030 Agenda for Sustainable Development11. An additional problem to solve is whether the inter- national community is capable of setting up an 11 See https://sustainabledevelopment.un.org/post2015/trans- optimal allocation model for aid based on shared formingourworld criteria in the fght against poverty and exclusion. 20 CDP BACKGROUND PAPER NO. 39

Figure 8 Fiscal transfer from the fifth quintile's income required for eliminating poverty (2 dollars poverty line)

100% LICs LMICs 90% UMICs

80%

70%

60%

50% E ff ort

40%

30%

20%

10%

0% 6.5 7.0 7.5 8.0 8.5 9.0 9.5 10.0 Ln GDP per capita Source: Alonso (2016).

Difering positions exist on this question as well. equality of development opportunities between Some argue that the allocation criteria should refect countries (Llavador and Roemer, 2001). Neither of the distribution of resources to maximise poverty these two options has led to convincing results; the reduction (Collier and Dollar, 2004). Tis argument utilitarian approach would deny aid to many coun- (based on a utilitarian view) comes up against lim- tries that deserve it under other reasonable criteria, ited knowledge around the factors explaining pov- while the equal-opportunities approach, though erty reduction, and the role that aid plays in those more egalitarian, may lead to debatable results when implemented. factors. Others argue, in contrast, for the creation of a model based on criteria of justice (rather than Te creation of a universal allocation model faces a efciency), with the aim of guaranteeing maximum double problem: i) frstly, the diversity of goals that DEVELOPMENT COOPERATION TO ENSURE THAT NONE BE LEFT BEHIND 21 the resources aim to tackle, given the wide range of this debate is difcult, because the share attributed the developmental agenda; and ii) secondly, the lim- to each of these dimensions depends on the specifc ited knowledge available on the causal relationships conditions of each given country. Terefore, the underlying achievements in development. Given most appropriate approach may be for development these difculties, instead of searching for an optimal fnancing to serve the priorities of the recipient coun- distributive model, it would seem more reasonable to tries themselves in every case. Te development of defne and agree, based on critical analysis and collec- programmatic aid (such as budget support) and its tive debate, on certain standards and norms among subordination to the national development strategies countries regarding the allocation of resources, in of the recipients (as suggested by the Paris Agenda) order to guarantee a better balance among the many may be the best ways to direct the content of aid. goals that development cooperation pursues. One of Tis recommendation should be accompanied by those standards would be that of dedicating between 0.15% and 0.20% of GDP to aid targeted at LDCs. two others, which are equally relevant. Te frst is It is important for standards like this to be thor- the need to adapt both fnancial and non-fnancial oughly discussed and collectively adopted in order instruments to the concrete areas where develop- to guarantee their efective application. ment cooperation intends to act. One basic task in the design of cooperation should entail selecting the instruments most suitable for each case. In this sense, Social sectors vs. the widening of the perimeter of development coop- productive sectors eration increases the number of available options. A fnal dilemma is related to the content of inter- Te second recommendation is that in each of the national aid. Here, too, changes have been visible areas in which aid operates, it should strive to com- during the period considered. In the 1980s and pensate for any distributive asymmetries, addressing early 1990s, aid was directed fundamentally toward above all those sectors and social groups that sufer macroeconomic purposes, as a means of supporting from exclusion and marginalization. Tis is part of structural adjustment plans agreed upon with the the very essence of aid and should not be lost during IMF and the World Bank. After the Millennium a period of “creative destruction” in the cooperation Declaration, more aid was directed at fghting system (Kharas and Roggerson, 2012). poverty and at social sectors related to health and education, at the expense of supporting productive sectors. Finally, over the past decade, an attempt has 5 Concluding remarks been to correct aid distribution, in order to strike Te development cooperation system is undergoing a a better balance between the social and productive dramatic process of change. New actors are on stage, elements of development. new instruments (beyond ODA) are being used, and Once again, the weight that should be given to the the felds of work have been clearly widened. Along diferent dimensions of development in the allo- with these changes, new priorities, procedures, and cation of aid is debatable. Tose who defend the narratives have emerged that diverge from those tra- primacy of social dimensions do so believing that ditionally adopted by DAC members. Te enlarge- these are more directly connected to the needs of ment of the development cooperation system is in the poorest sectors of society. By contrast, those who line with the ambitious and comprehensive 2030 defend a readjustment in favour of productive and Agenda. However, those changes also imply impor- economic dimensions argue that such a route can tant challenges for the development cooperation generate employment and income opportunities for system in terms of the increasing difculty in the the poorest sectors, as a way to achieve sustainable process of setting standards, in coordination, and in achievements in social policy over time. Resolving monitoring policies. Additionally, as the diversity of 22 CDP BACKGROUND PAPER NO. 39 the actors engaged increases, so does the heteroge- Finally, the international community must settle neity of interests and visions at play, thus opening certain dilemmas in defning priorities and allocat- the space for new conficts. To avoid such pitfalls, ing resources. In this regard, we would underline: it has become necessary to design an inclusive and i) the redistributive purpose, which should inspire legitimate structure for development cooperation the overall content of development cooperation governance. Given its exclusive membership, the policy; ii) the need for improved transparency by DAC may not adequately fll this function. all actors, and the collective defnition of standards through open and critical deliberation; and iii) the Even in a widened system for development coopera- subsidiary character of international support in rela- tion, ODA will remain an important component of tion to decisions, eforts, and priorities defned by development fnancing, particularly for those coun- developing countries. tries and sectors in greater need. However, in order to improve contributions in support of the 2030 In spite of its limitations, development cooperation Agenda, it is important that donors meet their com- policy can signifcantly contribute to making the mitments in terms of resources channelled as ODA, 2030 Agenda a reality, and to putting into practice and that criteria for allocation be more consistent the principle of “leaving no one behind”. To achieve with the structural impediments to development that, the development cooperation system must be that countries face. Te purpose of reaching sectors reshaped: it needs to escape the domain of developed that are marginalized, vulnerable, or impoverished countries and become an inclusive framework for should form a necessary part of these criteria. As a promoting collective action in favour of sustainable consequence, development cooperation providers development strategies at the national and global should go beyond national averages, looking for the levels. regions and social sectors more vulnerable. DEVELOPMENT COOPERATION TO ENSURE THAT NONE BE LEFT BEHIND 23

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ANNEX Differences between ODA and a more comprehensive Development Cooperation ODA Development cooperation Meta- Two principles: New principles: foundations Complexity and interdependency among countries Differentiation: North and South are two very different realities Instead of convergence, both North and South have to move towards a new (and unknown) sustainable and inclusive Convergence: South (with support) can model converge to the North conditions Framework A hierarchical and unilateral Building collective and cooperative action at international North-South relation level, through more horizontal relationships among all coun- tries and actors Diagnostic Poverty trap: mainly the financial pov- Many kinds of market failures (including failures of coordina- erty trap (two gaps model) tion) Distributive asymmetries (systematically reproduced by mar- ket forces) Problems related with international public goods (systemic interdependency) Response Temporary: Big Push up to put coun- Permanent: correcting asymmetries and market failures tries on self-sustained growth Based on: Based on: Financial transfers and support (concessional and non- Financial and technical transfers concessional) (concessional in character) Sharing experiences and building innovative capacities Defining incentives and rules Economic Redistribution at international level Redistribution at international and national level realms Allocation (overcoming market fail- Allocation (overcoming market failures) ures): in the origin, but progressively missing Provision of international public goods

Objectives Fighting extreme poverty (mainly after Assuring minimum social standards for all people (national the 90s) inequalities) Reducing development gaps among countries (international inequalities) Providing international public goods (governing the interdependencies) Narrative Based on a moral duty of solidarity Based on the principle of common but differentiated benefits (charity): developed countries con- and responsibilities: shared problems and solutions that ben- tribute to solve problems that affect efit all of the involved countries (mutual interest) developing ones Governance Centralized process Decentralized process Coordination and standard setting by Inclusive and representative body?? the DAC (OECD)