Canada and the World

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11 February 2011

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Global Development Aid

 

At the Bretton Woods Conference of 1944 the international community created the financial

framework for development by setting up the

World Bank, the International Monetary Fund,

and their associated agencies

 

Cyrus Farivar

 

On the global scale, the International Monetary Fund (IMF) and the World Bank are the two biggest dispensers of development aid. Together, they often are referred to as the Bretton Woods Sisters, after the conference that set them up in 1944. They are both part of the United Nations family of organizations.

 

The World Bank’s original role was to help with the reconstruction of Europe after the devastation of World War II (1939-45). The IMF was given the job of bringing stability to the exchange rates among currencies and to offer short-term financing to economies facing a crisis. Over the last 60 years, the work of the two agencies has expanded and overlapped.

 

Organization of the Bretton Woods Sisters

The World Bank now has 184 member states and has aid projects in every developing country in the world. The IMF has the same number of members and it now provides long-term financial support for ailing economies as well as funding for development projects.

 

Nations seeking help from the Bretton Woods Sisters usually do so as a last resort. Through combinations of bad management and bad luck their economies have crashed. They are unable to borrow money from private lenders because they are seen as being at a high risk of not being able to pay it back. They turn to the IMF and World Bank because their mandate is to assist countries in crisis.

 

Membership in both organizations is voluntary, but any country seeking funds must join. Each country is assessed a level of contribution upon joining. The amount of the contribution depends on the size of the country’s economy. The biggest economies contribute the most and also have the greatest voting strength.

 

Unlike the United Nations General Assembly where each nation gets one vote, decision-making at the IMF and World Bank is dominated by the industrial nations of the North. The G7 countries (Canada, France, Germany, Italy, Japan, United Kingdom, United States) control 45 percent of votes.

 

Structural Adjustment Programs

With such a heavy weighting of power towards the industrialized nations of the North, it comes as no surprise to learn that capitalism is the preferred model for development. This has led to the adoption of what is called Structural Adjustment Programs (SAPs).

 

An SAP is a combination of economic policies that involves: selling government-run businesses to the private sector; removing import tariffs; cutting government spending and letting go staff; opening up financial markets to foreign investment; eliminating government subsidies to local businesses; and reducing taxes.

 

Countries getting aid from the International Monetary Fund must agree to put an SAP in place. This has led to some tragic outcomes and is mostly what has brought thousands of protesters into the streets both in developing countries and in the developed world.

 

Steve Kaiser

When the World Trade Organization (WTO) held a meeting in Seattle, Washington in November 1999, protesters gathered. They demonstrators complained that the WTO and other groups associated with globalization such as the World Bank and IMF were unfair to developing countries. A crowd estimated as at least 40,000 strong began rioting in what became known as the Battle in Seattle (above) and the meeting was shut down.

 

Structural adjustment has forced many countries with already inadequate social services to shut hospitals and schools to satisfy the demands of the Bretton Woods institutions. The rigid application of SAPs is beginning to fall out of favour although countries in crisis are still required to make market-based reforms.

 

The World Bank says that its “primary focus is on helping the poorest people and the poorest countries.”

 

Unequal Income Distribution

The total annual income of all the people in the world is estimated to be $31 trillion. That means each man, woman, and child has an average annual income of about $5,100. But, that is a very misleading figure.

 

More than 1.2 billion people in the world live on less than $365 a year, and the number falling into that extremely poor category grows year after year.

 

At the same time, Canada alone has at least 180,000 people with more than a million dollars in the bank, and 15,000 Canadians become millionaires each year.

 

This leads many to conclude that the World Bank has failed; even the bank’s own President, James Wolfensohn, said in 1999 that, “At the level of people, the system isn’t working.”

 

Confirmation of that assessment came from the United Nations in July 2003. In its annual Human Development Report, the UN says the 54 poorest nations in the world became poorer during the 1990s. The UN urged the World Bank and the IMF to put pressure on their rich members to do more to help combat the extreme poverty in which so many people live.

 

Official Development Aid

Every country in the developed part of the world has its own national organization to deal with international aid.

 

Called Official Development Aid (ODA), this totaled $53.7 billion U.S. in the year 2000, for the world’s 22 wealthiest nations. These 22 countries, Canada among them, are members of the Development Assistance Committee (DAC).

 

The Scandinavian nations (Denmark, Sweden, and Norway) are easily the largest donors when measured as a percentage of their Gross Domestic Product (GDP); Canada ranks 19th.

 

Canada’s poor showing reflects almost a decade of cuts to its ODA contribution. In 1969, the Canadian government made a commitment to meet the United Nations goal of providing aid equal to 0.7% of its GDP.

 

During the 1970s, Canada came close to that target, but since then has fallen far below it. In 2000, Canada’s ODA was 0.25% of Gross Domestic Product. Since then, the federal government has increased its aid spending.

 

In the 2003 budget there was a commitment to raise ODA by eight percent a year for the next several years. This will not put Canada among the top aid donors but it will double its ODA over the next nine years.

 

Canada’s Development Assistance

Canada’s Official Development Aid is channeled through many different routes.

 

Government-to-government aid goes directly into the treasury of the recipient country. Unfortunately, this kind of assistance has a long history of disappearing.

 

In 2002, Globe and Mail columnist Marcus Gee reported from Chad in north-central Africa. He wrote that, “Chad has been showered with aid from France (its former colonial ruler), the United States, and a host of other wealthy countries.”

 

However, “The only Chadians prospering are the friends and relatives of President Idriss Deby, who swan around town in their Toyota Land Cruisers and ride first class to Paris on Air France when they need a break.”

 

Meanwhile, only three in ten people in the country have access to safe drinking water and the life expectancy is 45 years.

 

Canadian Aid Partners

A lot of Canada’s aid goes to private enterprise in Canada. This is called tied aid and involves placing contracts with Canadian companies to supply goods and services to developing countries. This is not a perfect mechanism either. It’s not unknown for machinery and equipment to turn up in some out-of-the-way community where there is no electricity to run it.

 

About 70 cents in every dollar of ODA is returned to Canada through jobs and the purchase of our goods and services. This sustains about 30,000 jobs in Canada. At any given time, 2,000 Canadian businesses are receiving aid-related contracts.

 

Canada also distributes aid through dozens of non-governmental organizations (NGOs). Some you might have heard of, such as, OXFAM Canada, Doctors without Borders, and Save the Children. But, you probably didn’t know that the Wycliffe Bible Translators of Canada, Rooftops Canada, and the International Freedom of Expression Exchange are partners in Canada’s Official Development Aid programs.

 

Most of Canada’s colleges and universities are also involved in aid programs. This is usually in the form of technical assistance; experts providing advice on a variety of subjects from farming to health care. Canadian universities also carry out research projects, funded by the government, aimed at finding solutions to developing country problems.

 

Also falling within the international development envelope is humanitarian aid. Canada provides financial assistance and material help in post-war situations such as Afghanistan and Iraq.

 

Food aid is sent to deal with emergencies in drought-stricken areas such as Ethiopia and Southern Africa. In the wake of floods and earthquakes Canada often sends temporary shelter such as tents and other material assistance.

 

© Canada and the World, September 2003

All rights reserved

 

 

According to the 2002 World Development report published by the World Bank, global economic output could more than quadruple to $140 trillion U.S. while population will increase by a third to nine billion over the next half century.

 

 

“The purpose of Canada’s Official Development Aid is to support sustainable development in developing countries, in order to reduce poverty and to contribute to a more secure, equitable, and prosperous world.”

 

Department of Foreign Affairs and International Trade

 

 

A PLAN

 

Donald Johnson is a former Canadian cabinet minister who now heads the Organization for Economic Cooperation and Development (OECD). The 30 member states of the OECD have the world’s most advanced market-based economies.

 

In May 2002, Mr. Johnson wrote about a ten-point plan for reducing poverty and making development assistance effective:

 

• Create a framework for free and equitable international trade;

• Promote mutually beneficial flows of foreign private investment;

 

• Establish a better partnership, a clearer purpose, and a greater coherence in development aid;

 

• Increase the volume of aid;

 

• Meet the problem of mounting debts;

 

• Make aid administration more effective;

 

• Redirect technical assistance;

 

• Slow the growth of population;

 

• Revitalize aid to education and research;

 

• Strengthen the multilateral aid system.

 

“Good strategy,” wrote Mr. Johnson. “I wish I could take credit for it. In fact, it is pulled from an international commission report delivered to Robert McNamara, then president of the World Bank, in 1969!”