World Bank urges donors to channel aid to countries committed to reform

WASHINGTON, March 27 (AFP) - The World Bank on Tuesday called on donor nations to channel their assistance to developing countries committed to broad-based economic reform, warning that indiscriminate aid packages can actually do serious damage to their recipients.

"Giving large amounts of money to countries with poor policy has not stimulated reform," the Bank said in a report based on an analysis of 10 African nations.

"In fact, several case studies argue persuasively that money in this situation allows a government to avoid reform."

Rather than enhancing growth or poverty reduction, the study found, financial assistance to governments that resist difficult reforms allows local authorities to prop up their favored sectors or groups, thereby ensuring continued inefficiency.

"This report shows that aid cannot 'buy' reform in poor countries that are flatly opposed to it," said Shanta Devarajan, chief economist of the World Bank's human development network and a co-author of the study.

"Without 'country ownership' of a national development strategy, even the most well-intentioned aid packages will have little or no impact in improving the quality of people's lives."

The Bank defined good policy as one embracing efficient overall management of tax, trade and exchange rate regimes and effective public sector institutions that can deliver critical services to the population.

The 10 countries included in the study all received large amounts of foreign aid in the 1980s and 1990s but only two -- Ghana and Uganda -- managed to adopt and maintain sound policy.

The eight that did not were divided by the Bank into post-Socialist reformers, Ethiopia, Mali and Tanzania, mixed reformers, Ivory Coast, Kenya and Zambia, and the non-reformers, the Democratic Republic of Congo and Nigeria.

"That the 10 countries in our study all received large amounts of aid, including conditional loans, yet ended up with vastly different policies suggests that aid is not a primary determinant of policy," the report said.

In Ghana and Uganda, described by the Bank as among the most successful reformers in sub-Saharan Africa in the last 20 years, authorities first experimented with price controls and aid from the Soviet bloc.

When those policies failed, they adopted a market-based strategy that eventually attracted multilateral and bilateral aid, the study found.

"Aid volumes picked up in the mid-1980s when the reform programs took off and the level has since then closely matched the improvements in lockstep fashion," the report said.

Such results contrasted with those in Ivory Coast and Kenya, where according to the World Bank aid financing in the 1980s did more harm than good.

In Ivory Coast, "the former colonizer (France) paid its ex-colony's debts to save it from default," the report said.

"It can be argued that by so doing, it relieved the pressure for structural adjustments, thereby retarding reform."

In Kenya, according to the Bank, large infusions of budget support in the 1980s "helped the government to finance the budgetary cost of an overstaffed civil service and inefficient public enterprises."