Development and Aid Effectiveness; Inquiries Raised Within the Case of Lebanon

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By: Kinda Mohamadieh - Arab NGO Network for Development

Published by: Tatimma - Lebanon Support April 2012

Introduction: The Role of Foreign Aid in Post-War Economic Policies

Since the end of the civil war in Lebanon, foreign aid has played a significant role in the Lebanese economic and political contexts, including (but not limited to) stabilization of macroeconomic policies, supporting various official institutional structures, and supporting civil society dynamics. This was a deliberate governmental decision, implemented through series of international donor conferences (including Paris I, II, and III donor conferences), and starting with raising funds to support postwar reconstruction efforts. Yet, more than twenty years after the end of the war, Lebanon is still dependent on substantial foreign aid and suffers a large debt burden linked to the failure of building a dynamic economic cycle of growth that fuels production, job creation, and equitable development.

In his article “Foreign Aid and Economic Development in Postwar Lebanon” (June 2007), Ghassan Dibeh notes that the year 1997 saw the shift of foreign aid policy from focusing on reconstruction towards focusing on financial stability and balance of payment. The major amount of foreign funding came from international institutions such as the World Bank and the European Investment Bank, along with Arab funds like the Saudi and Kuwaiti Funds[i]. However, the author notes misbalance in the allocation of aid monies between physical infrastructure, social infrastructure, public services, and productive activities. Most notably, he notes that “social sectors were most severely affected by the unrealized plans; only 50 per cent of the original expenditures in this sector for the period 1992-97 were achieved by the end of 2004”[ii].

In April 2007, the IMF and Lebanon signed a US$76.8 million loan agreement under the Emergency Post-Conflict Assistance Program[iii]. Under the same program, the IMF’s Executive Board approved US$37.6 million in November 2008 in support of the authorities’ economic program through June 2009[iv]. The continuous dependency on foreign aid for stabilization have lead Lebanon to further exposure to policy conditionalities, which often limits the policy space needed for policy design in support of productive cycles, poverty reduction, and more equitable redistribution of income[v].

The “Aid Effectiveness” Process

The concept of ‘aid effectiveness’ has been negotiated and developed at the global level since the year 2003. Officially, the aid effectiveness process is presented as a process towards “ensuring the maximum impact of development aid to improve lives, reduce poverty and help achieve the Millennium Development Goals (MDGs)”[vi]. The discussion about ‘aid effectiveness’ came as a response to the challenges emerging from inadequate methods and differences in donor approaches, which made aid less effective. The process started with the first High Level Forum on Harmonization in Rome (2003), followed by the second High Level Forum in Paris resulting in the ‘Paris Declaration on Aid Effectiveness’, followed by the Third High Level Forum in Ghana (2008), and lately the Fourth High Level Forum on Aid Effectiveness in Busan, South Korea (2011).

Some of the main concepts developed and included in the 2005 Paris Declaration include:

“ownership” standing for the control of receiving countries of their own priorities for development, strengthening their institutions, and leading in coordinating aid; “alignment” standing for donors’ line up of their aid behind developing country priorities and making better use of a country’s plans, policies and systems; “harmonisation” standing for donors’ coordination to avoid duplication, simplifying procedures and agreeing a better division of labour with partner countries; “managing for results” standing for developing countries’ and donors’ focus on producing and measuring results, and “mutual accountability” standing for accountability of donors and developing countries for the results they achieve to each other, and to their parliaments and public. The Accra Agenda for Action added the concepts of “predictability” which stands for donors’ 3 to 5 year estimates of their planned aid; “country systems” standing for strengthening partner countries’ capacities and developing country systems that are used to deliver aid, “conditionality” standing for switching donors’ conditions from how and when aid money is spent to conditions based on the developing country’s own objectives, and “untying” meaning relaxing donors’ restrictions that prevent developing countries from buying the goods and services they need wherever they can get the best quality at the lowest price. While this process in still emerging, some of its main limitations include the lack of commitments to adopt human-rights based approaches, the voluntary nature of the commitment to the principles that are being developed, and the lack of a critical approach to retaining the private sector-led growth as framework for development[vii]. Furthermore, there remains a lack of ability to follow the implementation of the commitments developed in Paris, Accra, and Busan.

The Principles of ‘Aid Effectiveness’: Limitations within the Lebanese Case of Aid Reception and Use

One of the main challenges to ‘aid effectiveness’ in the Lebanese context is the lack of development policies integrating people’s human, social, economic and cultural rights as the basis upon which aid is received and used. As noted above, the focus in the Lebanese foreign aid policy was focused on reconstruction and infrastructure development, while social aspects were often neglected or to say the least, not well pursued. Thus, the crux of the problem is the lack of a comprehensive vision for development in Lebanon.

Moreover, the Paris III Reform agenda that was developed in light of the 2006 Israeli war on Lebanon is often designated as a comprehensive economic reform program by the government[viii]. However, the Paris III agenda does not extend beyond a set of financial and fiscal reform measures, and cannot qualify as a well-defined comprehensive economic vision or as a national development strategy as it is often referred to. Though it does contain reference to a social agenda, it lacks any well-defined mechanisms for its implementation and keeps it within the context of complementary safety nets and does not address it as a core rights-based comprehensive social policy.[ix]

Furthermore, the context of receiving aid in Lebanon (including the governmental policies in this regards, role of involved governmental institutions, and mechanisms they used) did not allow a participatory process where non-governmental stakeholders, including social partners such as labor groups and civil society organizations, take part in the process of developing a comprehensive, cross-sectoral national development strategy. Indeed, for as for social dialogue- such as the Economic and Social Council as well as the labor unions- were either inactive or politically hijacked. A comprehensive development process would engage development partners from civil society and the private sector in developing the vision, its formulation and implementation, and would entail a commitment to realizing development for all social groups.

In addition, the Lebanese context lacked effective development-mandated national institutions that can facilitate the formulation and implementation of a longer-term development plan, to which donor spending can be oriented and aligned with. This indeed is a core principle in the ‘aid effectiveness’ concept. The lack of proper institutions have often led to weak coordination processes between donors and affected groups in order to determine needs and priorities and avoid aid duplication. Indeed, the Lebanese context of foreign aid receipt and use has often suffered from overlap and fragmentation.

In June 2011, Lebanon signed the International Aid Transparency Initiative (IATI), aimed at bolstering the effectiveness of donor assistance, which is a voluntary accord that pushes donor countries and civil society groups to enact transparency reforms and conforms to the Accra Agenda for Action. However, such voluntary measures, with a context that lacks a macro development policy and effective development-oriented institutions, would fail to improve much in the aid receipt and use.

Concluding Remarks:

The Lebanese case is not alien to that of other developing countries that have fell into the trap of dependency on foreign aid, reorienting macro-economic policies to give priority focus to financial stability, while neglecting the productive sectors. Such policy orientations have led to severe challenges in generating jobs, and in supporting the citizen to play an active role in national economic cycles. These policies crowded-out the potential support tools to build the productive sectors and lend a hand to the private sector to take part[x]. Indeed, the restrictive monetary policy in Lebanon focused on maintaining high interest rates to attract foreign flows to finance the budget deficit while discouraging domestic investment by raising the cost of credit to prohibitive levels. Furthermore, this policy led commercial banks to focus on supplying credit to the public sector versus the private sector. Accordingly, Lebanon has been locked in a context where macroeconomic policy has been detached from development processes and aid policy remained isolated from development objectives, including poverty reduction, job generating growth, and the elimination of social discrimination and disparities.

Within this context, there is a need to strengthen the role of civil society organizations in monitoring aid and aid policy as well as the role of international financial and development institutions operating in Lebanon. Furthermore, there is a need to widen the spaces for constructive engagement with the government in debates around development policies and the interaction of foreign aid policies with the pillars of a comprehensive development process, including the formulation of policies at the economic and social fronts.