Multilateral aid
About 30% of Australian aid money is channelled through multilateral institutions and funds.
Australia gives more money to the World Bank and the Asian Development Bank (ADB) than to United Nations agencies and programs.
The World Bank and ADB in particular have been criticised for conditionality of their loans, undemocratic governing structures, and funding large-scale projects that undermine people’s lives and livelihoods.
Last updated 12 November 2010
What is multilateral aid?
A multilateral organisation is an international organisation whose membership is made up of member governments, who collectively govern the organisation and are its primary source of funds. The OECD estimates that in 2008 around 40% of ODA or nearly US$50 billion from DAC countries was channelled through multilateral institutions and funds.[1]
There are a number of reasons why donor countries such as Australia give aid through multilateral institutions:
- multilateral aid is generally seen as a less political form of aid than bilateral aid, encouraging international cooperation rather than strategic and commercial interests of respective donor countries;
- multilateral aid pools resources enabling the implementation of large-scale programs that are beyond the capacity of individual donor countries through bilateral aid;
- multilateral aid can help coordinate donors to address issues at regional and global levels and harmonise their efforts, thereby reducing donor burden in recipient countries.
One of the biggest problems with multilateral aid is the lack of accountability to the people aid is intended to assist. Furthermore many donor countries favour certain multilateral organisations and funds over others. For example, Australia gives more money to multilateral development banks such as the World Bank and the Asian Development Bank, where voting is weighted according to financial contributions,[2] and less to the United Nations agencies where voting is equal and less of the money is returned to the donor countries.
Last updated: 12 November 2010
[1] OECD DAC (2010) DAC 2010 Report on Multilateral Aid, p.11. http://www.oecd.org/dataoecd/23/17/45828572.pdf
[2] Voting rights are tied to capital subscriptions or shareholdings, which do not necessarily come out of the aid budget. The recent capital increase to the ADB (estimated US$197.6 million over 10 years from 2010-11) did come out of the aid budget, see: 2009-10 aid budget, p. 66. http://www.budget.gov.au/2009-10/content/ministerial_statements/ausaid/download/ms_ausaid.pdf
World Bank and Asian Development Bank
Firstly, multilateral development banks (MDBs) are the largest source of development finance in the world. According to the Bank Information Center, MDBs typically lend $30 to $40 billion dollars a year to low and middle income countries.[1]
Secondly, MDBs also strongly influence the direction of development policies through the generation of technical research, analysis and statistics concerning aid and development.[2] Many donor countries and development institutions, including Australia, take the lead from MDBs, especially the World Bank.
The 2006 White Paper on Australia’s aid program, for example, draws almost solely on World Bank-generated knowledge.[3] In discussing the extent of poverty (and therefore how poverty is defined), the place of aid versus trade, lessons about the appropriate role of aid, and the focus on fragile states, the White Paper cites World Bank sources and articulates the World Bank’s neoliberal framework on poverty and economic growth, globalisation and the role of institutions and private investment in development.
The vast majority of Australia’s funding for MDBs is channelled through the World Bank and Asian Development Bank.[4] In 2007-08 over $500 million of Australian aid money was given to and through the two banks, which accounted for 50% of money delivered through international and regional organisations. As the 2010-11 aid budget states “The World Bank and Asian Development Bank continue to be central partners for Australia's aid.”[5]
The table and graphs below provide some information on the structure and operations of the World Bank and ADB, with a particular focus on their concessional lending arms, that is, the International Development Association (IDA) and Asian Development Fund (ADF).
For more information and critiques on the structure, role and operations of the banks, see:
- Bank Information Center (undated) Tools for Activists: An Information and Advocacy Guide to the World Bank Group
- NGO Forum on ADB and Bank Information Center (2008) Unpacking the ADB: A Guide to the Asian Development Bank
World Bank (IDA) and ADB (ADF) at a glance
Where do the banks spend the money?
Source: World Bank Annual Report
Source: Asian Development Bank Annual Report
What do the banks spend the money on?
The World Bank and ADB run a large variety of programs from infrastructure development to small loans often termed ‘microfinance’ to education and health programs. Despite the diversity of projects, in 2009 both the World Bank (IDA) and ADB (ADF) devoted about 40% of their lending towards economic infrastructure, that is the combined sectors of transport and communication, energy and mining, and tourism and trade.
Last updated 12 November 2010
[1] Bank Information Center, Institutions, http://www.bicusa.org/en/Institutions.aspx Accessed 8 November 2010
[2] Ibid.
[3] See especially sections 2.1, 2.3, 2.4 and 2.5 of the White Paper
[4] Australia also gives aid money to the International Monetary Fund (around $2.8 million in 2007-08)
[5] Australia’s International Development Assistance Budget 2010-11, 11 May 2011, p.59.
http://www.budget.gov.au/2010-11/content/ministerial_statements/ausaid/download/ms_ausaid.pdf
United Nations Agencies
The structure of other multilateral organisations particularly the United Nations agencies is different to that of the World Bank and ADB. Many of the main agencies involved in multilateral aid such as the United Nations Children’s Fund (UNICEF), the World Food Programme (WFP), Joint United Nations Program on HIV/AIDS (UNAIDS) and the Office of the United Nations High Commissioner for Refugees (UNHCR) are answerable to the General Assembly, in which all member countries participate and have an equal vote. Many are also answerable to the Economic and Social Council which coordinates the economic and social work of UN agencies. However, most of these agencies are largely self-contained with their own executive heads, constitutions, budgets, and representatives from member countries.
Last updated 12 November 2010
Australia’s multilateral aid
Until recently, however, there has been little in the way of a publicly articulated framework which explains how the Australian Government determines its funding relationship with the banks and other multilateral institutions.
In 2009 AusAID developed a draft multilateral engagement strategy which for the first time articulated a broad framework giving some direction to decisions about funding levels, priority partners and priority areas of concern.[1] Some key directions outlined in the strategy include:
- maintaining aid channelled through multilateral organisations at between 25 and 35%
- increasing core funding to priority multilateral institutions based on their effectiveness, relevance to Australia’s aid priorities and responsiveness to Australia’s interests
- using multilateral funding to increase Australia’s profile and influence institutions to focus on areas that are of strategic importance to Australia, i.e. the Asia-Pacific region.
Since 2008, the Australian Government has also signed partnership framework agreements with 10 UN humanitarian and development agencies, which include commitments for increased multi-year funding. The partnership agreements include mutual commitments to: the Millennium Development Goals; increase aid effectiveness; support UN reforms; and increase public awareness of partnerships between AusAID and respective UN agencies.[2]
Next page Last updated 12 November 2010
[1] AusAID (2009) Draft Multilateral Engagement Strategy for the Australian Aid Program 2010 -2015. As at October 2010, it is unclear whether the draft strategy has been finalised as it is not publicly available.
[2] AusAID (2010) Multilateral Organisations http://www.ausaid.gov.au/partner/multilateral.cfm Partnership agreements with UN agencies are available at: http://www.ausaid.gov.au/partner/partnership_frameworks.cfm
How does Australia contribute to multilateral institutions?
There are various ways in which Australia channels money to and through multilateral institutions and funds:
Core funding: Core funding allows multilateral institutions greater control over how that money is spent. Because core funding arrangements are generally negotiated on a multi-year basis, they also provide greater security and predictability of funding for multilateral organisations. Noting that “multilateral organisations need secure, long-term funding to engage in strategic planning and reform and be responsive to developing country priorities,” AusAID’s 2009 draft multilateral engagement strategy makes a commitment to increase core funding to “priority multilateral organisations.”[1]
Non-core funding: According to an OECD report on multilateral aid published in 2010, out of DAC donors, Australia made the second highest level of non-core contributions or earmarked funding to multilaterals.[2] Non-core contributions give AusAID more control over how money is spent (e.g. by selecting which programs and projects to fund) but decreases the predictability of funding for the multilateral institution.
Multi-donor trust funds (MDTFs): One means by which Australia provides non-core funding is through MDTFs, which pools money from a range of donors for a common stated purpose (for example, the Afghanistan Reconstruction Trust Fund). These funds are held in trust by multilateral institutions and governed by joint committees comprised of representatives of donor countries. MDTFs have become an increasingly important mechanism for multilateral institutions to mobilise funds. From a donor perspective, MDTFs give more selectivity over the use of their funds than providing core contributions. In 2007-08, Australia contributed nearly $190 million to over 60 MDTFs, of which about $116 million went to funds administered by the World Bank.[3]
Parallel financing: Parallel financing typically occurs when a bank identifies a large project with multiple components and then seeks funding from other donors to deliver discrete components of the overall project.
Last updated 12 November 2010
[1] AusAID (2009) Draft Multilateral Engagement Strategy for the Australian Aid Program 2010 -2015, p.3.
[2] OECD DAC (2010) DAC 2010 Report on Multilateral Aid, p.39. http://www.oecd.org/dataoecd/23/17/45828572.pdf
[3] Senate Standing Committee on Foreign Affairs, Defence and Trade, Additional estimates 2008-2009; February 2009, Answers to questions on notice from AusAID, pp. 31-35. http://www.aph.gov.au/senate/committee/fadt_ctte/estimates/add_0809/dfat/ans_ausaid_feb09.pdf
Australia’s contributions at a glance
In 2007- 08, approximately one billion dollars or 30% of Australia’s aid money was channelled to and through multilateral institutions and funds.[1] As the chart below shows, in 2007-08 the ADB and World Bank received 50% of Australia’s multilateral funding; with the World Bank alone receiving about 37.5%.
Source: AusAID (2010) Statistical Summary
World Bank Group: $389 million
Australia contributes core and non-core funding to various organisations within the World Bank, including:
- International Development Association, the concessional lending arm of the World Bank which provides interest-free loans to 79 countries;
- Highly Indebted Poor Countries/ Multilateral Deb Relief Initiative, which provides debt relief for poor countries that have a demonstrated commitment to reform;
- International Finance Corporation, the private sector lending arm of the World Bank, which provides financial services to businesses investing in developing countries.
- In 2007-08 Australia contributed around $116 million to various MDTFs administered by the World Bank.[2]
- In the 2010-11 aid budget the government announced that from 2011-12 it would contribute to a capital increase (about US$51.6 million over five years) for the International Bank for Reconstruction and Development, which lends money to middle-income countries.[3]
Asian Development Bank: $140 million
In 2007-08, Australia contributed $140 million to the ADB of which $91.5 million went to the Asian Development Fund (ADF). The ADF works in a similar way to the World Bank’s IDA in that it provides interest-free loans to developing member countries in the Asia-Pacific region.
United Nations agencies and programs: $368.3 million
In 2007-08 Australia contributed funds to over 25 UN agencies and programs. The six largest recipients received over 80% of this funding:
- World Food Programme – WFP (86.5 million);
- United Nations Children Fund – UNICEF (60.3 million);
- United Nations Development Programme – UNDP ($56.5 million);
- World Health Organisation – WHO ($36.5 million);
- United Nations Office for the Coordination of Humanitarian Affairs - OCHA ($26.3 million)
- United Nations High Commissioner for Refugees - UNHCR (26.1 million)
Global Environment Facility: $19.7 million
Established in 1991, the Global Environment Facility coordinates key multilateral environmental agreements and funds projects related to biodiversity, climate change, international water systems, land degradation, the ozone layer, and persistent organic pollutants.[4]
Global Fund: $45 million
Created in 2002, the Global Fund to Fight Aids, Tuberculosis and Malaria has become the main source of finance for programs to fight AIDS, tuberculosis and malaria. The Global Fund provides funding for more than 572 programs in 144 countries to the tune of US$ 19.3 billion.[5]
Commonwealth Organisations: $12.9 million
While Australia contributes to a number of Commonwealth organisations, most of its contributions have been directed towards the Commonwealth Fund for Technical Cooperation (about $11 million or 85% in 2007-08), which provides small-scale short term assistance in a range of sectors.
Other international and regional organisations (including IMF): $66.5 million
In 2007-08 Australia contributed around $66.5 million to a range of other international and regional organisations including the South Pacific Islands Forum/ SPC ($23.7 million), GAVI Alliance ($5.2 million), International Monetary Fund ($2.7 million), and Mekong River Commission ($4.7 million).
Last updated 12 November 2010
[1] AusAID (2010) Statistical Summary 2005-2006, 2006-2007, 2007-2008, Australia’s International Aid Program http://www.ausaid.gov.au/publications/pdf/statsummary.pdf
[2] Senate Standing Committee on Foreign Affairs, Defence and Trade, Additional estimates 2008-2009; February 2009, Answers to questions on notice from AusAID, pp. 31-35. http://www.aph.gov.au/senate/committee/fadt_ctte/estimates/add_0809/dfat/ans_ausaid_feb09.pdf
[3] Australia’s International Development Assistance Budget 2010-11, 11 May 2011, p.61.
http://www.budget.gov.au/2010-11/content/ministerial_statements/ausaid/download/ms_ausaid.pdf
Issues and Debates
These include:
- conditions attached to loans, programs and projects
- undemocratic decision-making structures and processes
- bureaucratic structures
- social and environmental impacts of projects
Conditionality
A long-standing issue surrounding aid from multilateral development banks (MDBs) is what is known as conditionality. Conditionality refers to the conditions attached to aid money dispersed from MDBs like the World Bank and the Asian Development Bank.
While the conditions imposed on aid-recipient countries vary, common examples of the types of conditions in loans provided by MDBs include:
• Cutting back on public spending and reducing the size of government departments and services. This is often concentrated in areas such as health and education where costs are high. This has major impact on people’s access to health care and schooling, particularly among the poorest.
• Privatising key sectors of government and public services. Countries have been required to privatise key sectors such as water provision, essential infrastructure, hospitals, electricity, and transport. This puts control of key sectors into private (and often foreign) hands, which may not have the best interests of the country in mind. This has often resulted in the inequitable provision of key services as private providers tend to prioritise servicing of areas that are profitable.
• Lifting essential subsidies. In many poor countries governments subsidise essential items such as rice, grain, oil, and even petrol. They do this so that the prices of essential items do not prohibit people from meeting their daily needs. Sometimes governments are required to lift these subsidies which can lead to increases in prices of essential items, making them unaffordable for many people.
Last updated 12 November 2010
Undemocratic and Bureaucratic
Undemocratic decision-making
Multilateral development banks have been criticised for being undemocratic due to the disproportionate power and influence wealthier member countries have in decision-making. Since voting power is weighted according to the financial contributions of member countries, the wealthy countries who contribute more money have the greatest say and influence over decisions at these institutions. For example,
- In the IDA of the World Bank 12 countries control more than 50% of the vote, which is greater than votes held by the remaining 158 member countries;[1]
- In the ADB, seven countries control more than 50% of the vote, which is greater than votes held by remaining than 60 member countries.[2]
While in 2010 the World Bank implemented reforms to its voting power, the Bretton Woods Project notes that high-income countries will still control over 60% of the votes. [link to: http://www.brettonwoodsproject.org/doc/wbimfgov/wbgovreforms2010.pdf]
Furthermore, the ways in which MDBs prioritise and implement programs and projects have been characterised by lack of participation and consultation with local communities and lack of accountability to affected communities.[3]
Bureaucratic culture
A common criticism of MDBs is that they are overly bureaucratic and often prescribe a single set of policies as solutions, without sufficient regard to local needs and contexts. This can result in inappropriate projects and programs which at times can do more harm than good, as demonstrated in the section on conditionalites.
United Nations agencies have also been criticised for taking too long to respond to problems because of their complex bureaucracies, and also that much of the aid money is spent on the salaries of personnel in these organisations rather than on the actual programs and projects.
Last updated 12 November 2010
[1] http://siteresources.worldbank.org/BODINT/Resources/278027-1215524804501/IDACountryVotingTable.pdf
[2] http://www.adb.org/About/membership.asp
[3] For case studies of problem projects funded by the World Bank and ADB, see: http://www.bicusa.org/en/Institution.Projects.5.aspx; http://www.forum-adb.org/inner.php?sec=1&id=2
Social and environmental impacts of projects
Social and environmental impacts of projects
The ability of MDBs to mobilise sufficient funds for large-scale ‘development’ projects is often cited as one of their key advantages. However, their involvement in promoting, funding and implementing large-scale projects has also been a source of controversy.
Firstly, the technical expertise necessary to manage and build large-scale infrastructure has meant that much of the aid money has been channelled to companies, consultants and technical experts that oversee the projects.
Secondly, while these projects may generate revenue and contribute to economic growth, they can also have detrimental social and environmental impacts. For example, the World Bank and ADB have been heavily criticised for funding large dams that have degraded rivers and destroyed local livelihoods.
Whether some of the projects funded by the banks ‘alleviate poverty’ (as the banks claim) or further impoverish populations (as critics claim) is a matter of much debate. For an example from the Mekong Region in Southeast Asia, see Hidden Costs: The underside of economic transformation in the Greater Mekong Subregion