# New Partnerships in Global Development Finance

## Moscow International Conference, February 17-18, 2010

## Ministry of Finance
of the Russian Federation

www.minfin.ru
With support of The World Bank
and the Organization for Economic
Cooperation and Development

## New Development Partners in Global Development Finance Key Note Speech By Axel van Trotsenburg

Good Afternoon. It is an honor to be here to deliver the Key Note Speech for this plenary panel session on New Development Partners and Global Development Finance

First, let me thank our host, the Russian Government for taking the initiative of organizing the conference. I think it is significant that a new donor such as Russia convenes this meeting to discuss development issues and invites the traditional donors, rather than the other way around.

Second, I wish to thank the OEC-DAC and the World Bank teams for supporting this effort over the last few months.

I would also like to recognize Eckhard Deutscher, as Chair of the panel discussions and Luis Ernesto Derbez, as discussant. Both are friends from past reincarnations.

### Setting the Context

As noted by the Bank’s President, Mr. Zoellick, we live in the more inter-connected, multi-polar world, where global problems call for global solutions. In this light, the theme of this conference: “New Development Partners in Global Development Finance”, is indeed very fitting.

The development challenges we confront in the second decade of the 21st century are daunting and would require progress on several fronts.

First, there is the need to accelerate progress toward poverty reduction and the other Millennium Development Goals (MDGs). As you may know, most poor countries are unlikely to meet these goals by the 2015 deadline. There is therefore a deep sense of urgency.

We must also deal with additional challenges such as climate change and how to manage the impact of severe recurrent crises, including the recent global crisis.

While private investment and trade must ultimately drive economic recovery and long term development; official development finance plays a very important role. This is particularly the case in poor countries where access to private finance is limited. For instance, in 2007 private capital flows to low income countries amounted to $30 billion compared to around $100 billion official development assistance (ODA) from traditional DAC donors. Last year, however, private capital flows are estimated to have reached just $13 billion.

### The role of New Development Partners

Who are the New Development Partners? Coming up with appropriate terminology has been difficult. The term NDPs encompasses a diversity of bilateral actors outside the traditional DAC members. Some of them are the newest DAC or OECD members such Korea and the EU New Member States, while others have been engaged in development for many years such as Saudi Arabia. They range from richer middle-income countries and poorer countries. Therefore, recognizing the limits of the terminology- “new development partners”- let us agree to use it in this broad sense. What is perhaps new and definitely “exciting” is the growing presence of these actors in the international aid landscape.

The discussion of the role of NDP should be seen in the context of the global aid architecture. The past decade has seen a dynamic evolution of the global aid architecture. On the positive side, aid from traditional DAC members:

- has grown, reaching $121.5 billion in 2008;
- has become more concessional; and
- is more focused on the poorest countries.

Under Gleneagles, DAC members are committed to scale up aid, although this may be challenging given the difficult situations faced by many.

DAC members are also stepping up efforts to increase aid effectiveness. There is now greater emphasis on strengthening country ownership, building more inclusive partnerships, and managing for results. This responds to pressure from both donor and partner countries, including the need to ensure that tax payers money is well spent and accounted for.

At the same time, the global aid architecture comprises a wide range of new actors including: private foundations, corporations, hundreds of NGOs, and over 30 new official donors. It is this last group which we refer to as New Development Partners.

These new actors are contributing not only additional resources, but also innovation, and learning. They are also forceful actors, especially NGOs, in advocacy, often focused on single issues—from debt to HIV/AIDs to climate change.

In the case of the new official development partners, additional resources are estimated at $12-15 billion in 2008. But, beyond aid volumes, NDPs bring relevant development experiences; for instance in the framework of South-South cooperation; and complementary investments in key sectors such as infrastructure. The scope of their assistance often goes beyond immediate regional interests, to reach the poor elsewhere. The fact that many channel their resources through the multilateral system is evidence of this wider scope.

However, alongside these positive developments come also challenges.

The flip side is that the aid architecture has become more fragmented and earmarked. At present, there are over 260 international organizations engaged in development. Many of these organizations are sectorally or thematically focused and therefore earmark their assistance to specific uses. The number of official bilateral donors has also increased from about two dozen in 1960 to about 60 today. At the same time, number of donor-funded activities has increased to over 70,000 compared to 20,000 a decade ago with an average size of less than $2 million. As a result, partner countries have to manage a multiplicity of aid channels and a myriad of small donor-funded activities. On average, partner countries manage over 30 donors, each with its own processes and reporting requirements.

While earmarking has helped fundraising by targeting specific issues, it reduces the flexibility of countries to allocate funds across and within sectors. In some cases, it can lead to significant distortions in sectoral funding. This is especially so when the earmarked funds are both narrowly targeted and large relative to national budgets.

Another issue is the limited information and knowledge sharing among all development partners. The OECD-DAC has made a valuable contribution by establishing systems and common definitions to monitor the activities of its members. Unfortunately, the full extent of the contribution from NDPs is not well known because of lack of systematic data sharing. In part this is because some NDPs are still in the process of setting up their own aid management systems and is therefore understandable. At the same time, regular reporting is important for an informed debate and ultimately for achieving better results on the ground.

Issues have been raised regarding the terms of assistance and ensuring debt sustainability. We need to clearly distinguish between commercially and investment related assistance from the purely development assistance component. This is best reflected in the terms of assistance where the former is more on market terms and the latter on concessional terms, including grants.

Finally, there are no established global fora for systematic dialogue among all partners. From this vantage point, this is type of conference is filling an important gap. As I said earlier, we very much welcome the fact that it is a new development partner who is the convener of such an event.

In sum, we must build on the opportunities brought by the more diverse aid architecture and work together to make it more effective. Despite different approaches and ways to assess effectiveness, all development partners, old and new, share the common objective to improve results on the ground. The sessions on working with multilaterals and focusing on results will be relevant in this regard.

### Working with the Multilateral System

Working with the multilateral system is the subject of the session tomorrow morning and should be a very interesting one.

The share of assistance channeled multilaterally ranges widely across NDPs. It would appear that countries with smaller ODA volumes channel the majority of their aid multilaterally; notably the EUNMS, through the EC; while Arab countries and some of the BRICS, such as China and India, tend to channel their aid mostly bilaterally.

The multilateral system can help address some of the challenges I outlined earlier.

First, using the multilaterals system to channel bilateral aid can prevent further aid fragmentation. Here we see a positive trend. NDPs tend to partner mostly with the larger multilateral organizations such as the World Bank, UN, RDBs, EC, and the Global Fund.

Second, because of their broad-based membership, multilaterals provide a platform for knowledge sharing on several directions: North South, South-South, and South- North.

Lastly, multilaterals can support dialogue and cooperation both at the country and global levels.

At the World Bank, we have been engaged on a number of partnerships with a broad range of bilateral donors. First, we work together under the platform of the International Development Association (IDA) which was created in 1960 to provide concessional resources to poor counties. Since inception, IDA has provided over $210 billion in financial assistance to poor countries across regions. Its membership has increased from 18 in the first IDA replenishment to 45 in the last replenishment (IDA 15) concluded in 2007.

About half of IDA members are NDPs. Like traditional donors, NDPs have also seen benefits of contributing to an established multilateral aid channel such as IDA, with low overhead costs and performance-based aid allocation system, as a complement to providing bilateral aid. Replenishment discussions such as those for IDA also allow NDPs to participate directly in shaping future development policy.

Contributions from NDPs to IDA’s replenishments have nearly doubled from $ 0.5 billion in IDA 14 to about $1 billion in IDA 15. Cumulatively since inception they have reached about $7 billion.

Six NDPs joined in IDA 15: China, Lithuania, Estonia, Latvia, Cyprus and Egypt. We are looking forward to further increases in the next replenishment.

The Bank is working on facilitating knowledge sharing through the South-South Experience Exchange Facility. This is a new trust fund launched last year, under which low-income countries can receive funding for knowledge exchange from other low or middle income countries. For example, Bolivia has asked Brazil, Mexico, Indonesia and Vietnam to share experience with conditional cash transfers. Yemen has asked China to share experience on coastal area management. A number of African countries have asked India for experience on ICT and new economy skills. And Tajikistan has asked Russia and the Philippines to share knowledge on migration challenges and opportunities. There are many more examples, and information is available outside on the SEETF. We will be glad to share further with you on this.

To summarize, there is a strong rationale and room to further strengthen partnerships with the multilateral system in order to make the global aid architecture more effective. Nonetheless, it is more difficult to explain to tax payers the benefits of multilateral partnerships vis-à-vis direct bilateral assistance. The session on results tomorrow should provide important insights first on how to achieve results and then on how to better communicate them to the general public

### Managing for Results

Managing for results is an area where all donors, old and new, share a common objective and where all of us are struggling with.

Development is a multi-sector issue and requires progress on several fronts. This poses problems of measurement and attribution. Even when resources are earmarked to specific purposes, such as HIV/AIDs treatment, it is difficult to isolate the contribution of individual interventions.

The World Bank has developed a two tier system to monitor progress on results. The first tier monitors development outcomes at the country level and the second tier monitors indicators at the project level. More details can be given during the session by one of our Bank colleagues.

As important as managing for results is communicating them to the general public. Everywhere we go we find there is a need to do more on communications. Key constituencies include parliaments and civil society in donor and partner countries. Branding can be an issue. We see this in the case of IDA and have stepped up efforts to reach first to reach stakeholders in our country visits and also to make more use of multi-media channels.

Ultimately, we need to remind ourselves that our partner countries are the ones in the driver seat, producing the results and that we as development partners only complementing their efforts.

### Final Remarks: Way Forward

The global aid architecture is no longer an exclusive club of high-income countries. The good news is that it has become more globalized with a much more diverse membership. The challenge is to exploit this diversity for tackling poverty and making progress on the MDGs, through better coordination, knowledge sharing, and focus on results.

The initiative by the Russian Government to convene this conference is an excellent step forward to deepen this debate. We would very much welcome that this dialogue can be continued and that another new development partner could be host of a future meeting.