A Third Way for Official Development Assistance

Policy Paper
March 1, 2011

Official Development Assistance (ODA) reform has been hotly debated in global development circles for decades. Aid has been plagued by inefficiencies, ineffectiveness, and corruption, inviting tough criticism and calls for all manners of restructuring. The 2005 Paris Declaration on Aid Effectiveness formalized actions for donor countries to take to improve the effectiveness of aid, emphasizing national ownership of development priorities, harmonization and alignment of donor activities, predictable and untied aid, program-based approaches, improved procurement and financial management systems, results-oriented frameworks, and mutual accountability. But there is still a wide recognition of persistent problems in donor coordination (leading to huge administrative costs for recipient governments) and fragmentation, aid-tying, an inability to direct aid to where it is needed (such as to the poorest), and an overemphasis on ‘rich-country’ technical assistance.

Changes in why and how foreign aid was delivered in the 1990s, as well as, in particular, after 9/11, have only further fueled the debate over ODA measurement metrics and how to better leverage aid flows toward more meaningful outputs. As Jean-Michel Severino, former director of France’s international development agency (Agence Française de Développement), argued, along with Olivier Ray at AFD, it “is hard to find other examples of public policies whose performance is assessed so little on the basis of results and so much on the basis of expenses.” Secretary of State Hillary Clinton agreed last year, stating that a “new [development] mindset means a new commitment to results,” and that the U.S. “must not simply add up the dollars we spend or the number of programs we run, but measure” lasting change. Rajiv Shah, the administrator of the U.S. Agency for International Development, recently echoed that sentiment. “This agency is no longer satisfied with writing big checks to big contractors and calling it development,” he said.

This paper explores the conceptual and practical case for a simple yet radical idea: improve ODA’s efficiency and effectiveness by directing ODA funds toward account-linked cash transfer programs. In effect, this would enable the creation of bank accounts for aid recipients around the world and then leverage those accounts to a) deliver aid or make other transfers and b) create additional opportunities to enhance human capital and asset building. This would address the renewed emphasis on more meaningful, measurable outputs of aid and fulfill a critical need of the poor, with tools that provide a safe and secure place to save, manage resources, and build wealth over the long-term.

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