Conditionalities, Not Corruption, Biggest Problem with Aid

At the ongoing Philippine Development Forum (PDF), foreign aid donors have rightly taken President Gloria Macapagal-Arroyo to task for corruption in her administration which, along with other factors such as poverty, could hinder economic development. But Philippine AidWatch, a national network of civil society groups that monitors foreign aid, stresses that policy conditionalities attached to foreign development aid is the biggest threat to the country’s development.

Donor countries use such conditionalities to promote their economic and political interests in donor countries. Such conditions require aid recipient governments to implement far-reaching economic policies that benefit ultimately foreign governments and local elites at the expense of the welfare of the people and broad-based development.

One example of how aid is used to pressure government to implement a particular policy is the pending Japan-Philippines Economic Partnership Agreement (JPEPA). Japan has effectively been using its position as the country’s largest aid donor as leverage for the free-trade pact’s ratification. As of December 2006, Japan accounted for 49% (some US$4.7 billion) of total Official Development Assistance (ODA) to the Philippines, which was channelled through its Japan Bank for International Cooperation (JBIC). The Asian Development Bank, of which Japan is the largest overall shareholder, accounts for a further 19 percent (US$1.8 billion).

Political influence over loan decisions was also recently highlighted through allegations of alleged kickbacks of US$50 million (for the US$400 million ongoing Northrail project) and US$130 million (for the suspended US$329 million National Broadband Network project). Both projects were funded by loans from the Chinese government and were beset by allegations that prominent government officials had been bribed by Chinese companies to facilitate approval of the projects. Both projects are also examples of “tied aid” with implementation of the projects tied to participation of Chinese state firms.

ODA remains significant to the Philippines because of the country’s limited resources for development, although aid flows have slowed down since their peak in 1992. ODA from bilateral and multilateral sources has fallen from its peak of 81.8% of total public external debt stock in 2004 to a still substantial 56.4% as of September 2007.

In order for ODA to truly benefit recipient countries, Philippine AidWatch believes that aid has to be divorced from the political and economic interests of donor countries. It is therefore vital that conditionalities and tied aid be removed from ODA loans in order to separate aid from donor interests and influence. Doing this would allow the largest number of people to claim as their own the development process and help ensure that their welfare is promoted.

The Philippine Aidwatch Network is a national network of non-government and people’s organizations that monitors and campaigns on foreign aid. It is a member of the Reality of Aid Network, the only major north/south international non-government initiative focusing on analysis and lobbying for poverty eradication policies and practices in the international aid regime

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