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Future of development aid under threat in eleventh hour negotiations

Added 23 Oct 2017

Brussels, October 23rd 2017. Pressure from a handful of the world’s richest countries is threatening to open up the rules governing aid to developing countries to alarming abuse.

According to information obtained by Eurodad, the European Network on Debt and Development, the OECD’s Development Assistance Committee (DAC) - the body which decides what can and cannot be counted as aid – has introduced deeply worrying new proposals on rules for donor support to the private sector, in an attempt to reach consensus ahead of a major meeting of its thirty member states at the end of the month.

“Just three countries - Japan, France and Germany - are holding the DAC to ransom, and pushing for a solution that would be worse for development,” said Eurodad Senior Policy and Advocacy Officer Polly Meeks. “The original proposals for these reforms were disturbing enough - now we learn that these three governments are pushing for an even poorer outcome. We applaud the efforts of all governments which stand up for the integrity of aid and push back against the worst aspects of the proposed reforms. But we are concerned the DAC may ultimately agree on a weakened compromise simply in order to close the deal.”

The rules in question govern Official Development Assistance (ODA) channeled through private sector instruments (PSIs) which support private companies operating in developing countries, through loans, equity, or guarantees.

With ministers from major donor countries due to converge on Paris at the end of this month for the biggest decision-making meeting in the DAC’s calendar , the pressure is on to find a compromise - but Eurodad is concerned this may come at the cost of aid quality.

“We recognise that the private sector, particularly the local private sector in the global south, can play an important role in development – but the devil is in the detail. We have always been concerned that these rule changes risk creating perverse incentives to divert ODA away from the public services most needed by the poorest people. And we have long warned that the rules risk blurring the lines between development and commercial transactions. Far from addressing these risks, from what we've been told the latest proposals will make them worse. 

“What is more, the proposals do not fully address questions about meeting donors’ commitments such as the ownership of development priorities by developing countries, and doing no harm.  One of the most worrying questions is how the DAC will mitigate the risk of an increase in tied aid - the practice of channelling ODA to corporations based in donor countries. Tied aid puts donors’ commercial priorities before the priorities of women and men living in poverty, and weakens the legitimacy of ODA.

“The DAC speaks of a review of the rules in two years’ time. But once its members have started to make investment decisions based on the new rules,  it's highly unlikely, having just come through a long and contentious negotiation process that they would reverse the decision.

“ODA is a precious resource for eradicating poverty, tackling inequality and leaving no-one behind. Decisions governing its future are too important to be hijacked by the bargaining tactics of a handful of rich countries.”