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All mixed up: Council conclusions send contradictory messages on aid and private finance

Added 18/May/12

topics: private finance

By Jesse Griffiths

18-05-2012

EU Foreign Ministers issued their Council conclusions on the European Commission’s “Agenda for change” proposal for a revamp of EU development policy this week. One extraordinary contradiction – on ‘leveraging’ private finace - caught my eye.
There’s a whole section on targeting of resources, which includes the (sensible) idea that:

“Resources should be targeted at countries most in need, including those in situations of fragility, and where they can have the greatest development impact in terms of poverty reduction.”

Let’s be charitable and ignore the fact that, in addition to the obvious “in need” countries of Sub-Saharan Africa and Least Developed Countries, the Ministers slip in “supporting development in Europe’s neighbourhood” – code for using aid to support foreign policy agendas in the Mediterranean and Western Asia.

Focus instead on what comes just two paragraphs later:

“In order to leverage further resources and increase the EU’s impact on poverty reduction, new financial tools will be promoted, including blending grants and loans and other risk-sharing instruments.”

Eurodad has been following this ‘blending’ agenda closely: it was the focus of our previous submission to this process. Earlier this year the Commission commissioned a Group of Experts to develop its proposals for a ‘platform’ to take this agenda forward, but as Eurodad and others have pointed out, this is almost entirely about supporting investment in upper-middle-income countries.

How does that square with trying to focus on “countries most in need”? Yes, I know that a large proportion of the world’s poor live in middle-income countries, but I don’t think that’s the point. Aren’t many of these countries awash with foreign capital – so much so that many are reinstituting controls to regulate it? And don’t they mostly have well functioning domestic finance markets? So I’m left wondering if this really the best way focus the EU’s development policy.