Conditional aid was the idea behind the heavily criticised World Bank and IMF strategy that came under the designation ‘Washington Consensus’. The concept involved poor aid recipient countries were required to promise governmental reforms before they could receive aid.
But, it didn’t work. Pressure to provide aid resulted in recipient countries getting the aid without actually implementing their promises to reform. Oxford Professor Paul Collier has shown that Kenya received World Bank funding five times over 15 years in return for the same promises to implement the same reforms – which have never actually been implemented. (Separately, the greater question is, naturally, why Kenyan leaders have not implemented these reforms to benefit the country without pressure from outside – if they understood reform would bring greater development, and they were really interested in helping their country.)
Professor Collier’s findings led the Unite States Government under George Bush to support the Millennium Challenge Corporation (MCC) in 2004. This organisation was conceived as an aid organ independent of governmental agency USAid that would operate under entirely different premises. As the name indicates, the MCC was established to operate directly referencing the United Nations’ Millennium Goals – to reduce extreme poverty by half, and other objectives, by a deadline of 2015. The Reform Institute noted the MCC when it was founded (as discussed here in Swedish). Now there is concrete evidence from an evaluation of their performance.
MCC distributes aid only afterwards, when the recipient country has met the conditions set that were considered necessary to improve national development. This is to ensure the aid can be used effectively. This helped avoid the destructive cat and mouse games that arise between aid donors and recipients in the kind of conditionality previously attempted. The MCC has no national pressure to make any payments, and is not restricted by any national GNP percentage donation targets.
Now that MCC has been in operation several years, researchers can try to determine whether the concept functions as intended. One study, conducted by Bradley C. Parks and Zachary J. Rice at the College of William & Mary in Virginia, used a comprehensive stakeholder survey of all involved parties, not just donor and aid recipient governments, but included interested parties in the business sector and private citizens, and others. The respondents in these surveys stated that the MCC method of conditional aid has in fact led to improvements in relation to aid – especially in relation to corruption and tax policy issues. More information is reported in The Economist Newspaper (here) reported on the study (available here) and its positive findings. And a summary is available here.
The study confirms that MCC has succeed in helping in countries that are already heading in the right direction. But it also confirms one of the most difficult dilemmas related to providing aid. That is, aid only works for countries with sufficiently well-functioning institutions, where national leadership is interested in their country’s growth. But these countries often perform well without aid. This warning is also brought out in the Economist article quoting aid advisor and researcher, Steven Radelet (previously advisor to Liberia’s Nobel Peace Prize winning president Ellen Johnson Sirleaf), who notes the cited study isn’t comprehensive so that some of the recipients would have implemented the reforms they did even without help from MCC.
Fredrik Segerfeldt