Op-Ed

A New U.S. Multilateralism in Development?

Homi Kharas

The G8 and G-20 meetings taking place in Canada are the most visible symbols of multilateral cooperation. The agendas for discussion include coordinating policies on the pace with which fiscal stimulus is reduced, financial regulations, raising living standards in the developing world and cutting fossil fuel subsidies. But what lies behind this talk is a growing recognition that collective action is the only option to confront the most pressing global challenges and that building the trust to move forward together is a key achievement of summitry.

Nowhere is there a greater need for collective action than on the issue of development of the world’s poorest countries. The average U.S. citizen had a standard of living 11 times higher than an average African in 1970. By the turn of the century, as globalization expanded, that differential had increased to 25 times. Because Africa actually did better than the United States in terms of growth during the recent crisis, the gap has narrowed to 21 times today.

At Gleneagles, rich countries agreed to pay special attention to Africa, not just because of the income gaps, but because Africa was perceived to be lagging on many dimensions including poverty, health, education, violence against women and other indicators of a just and free society. Most of the countries that are off-track to meet the Millennium Development Goals are in Africa.

Actions to boost African economic and social development must be discussed and implemented within a multilateral framework. No single donor country can do much to help on its own. For example, the United States has tried to promote trade with Africa under the African Growth and Opportunity Act. However despite this, 80 percent of African exports to the United States are crude oil. Meanwhile, the multilateral Doha Round of trade talks, that could significantly help African cotton farmers among others, has stalled.

The same pattern holds for aid with donors not harmonized. Many countries provide technical and financial assistance to Africa, but this is fragmented into small projects, administered by a proliferation of donor procedures and reporting requirements. As a consequence, foreign assistance suffers from considerable overlap and waste.

This is especially true of U.S. foreign assistance. Since 2000, U.S. official development assistance has increased significantly by almost 10 percent per year in real terms (see chart). But U.S. aid channeled through the multilateral system has stagnated. All the increase in U.S. assistance has been through new bilateral programs like PEPFAR and the MCC. As a result, the share of U.S. foreign assistance channeled through the multilateral system has fallen to 11 percent today, less than one-half of its level in 2000. Compare that to the United Kingdom that gives one-third of its foreign assistance through multilateral organizations.

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Other indicators reveal the same problem. Only 12 percent of U.S. aid missions are coordinated with other donors, according to the Development Assistance Committee. Only one-third of U.S. analytical work on development problems is done jointly.

This decline in U.S. multilateralism is linked to a loss of its leadership on the aid front. Until 2005, the U.S. had systematically been the largest donor to every multilateral development fund. But it lost this spot in the IDA 14 replenishment to the U.K., and became the fourth largest donor to the African Development Fund’s tenth replenishment, after the U.K., France and Germany.

Perhaps there is a different mood in Washington today. Recently, the U.S. Treasury Department announced the first grants totaling $224 million from a new multilateral fund to fight hunger and poverty, the Global Agriculture and Food Security Program. The fund was created in response to the call by the G-20 at their last meeting in Pittsburgh to operationalize efforts to raise smallholder agricultural productivity and build food security. It is novel in that it has equal voices of donors and recipients on its Board, a strong voice for civil society and the participation of new donors, like South Korea. The U.S. is at the forefront in creating, financing and implementing this fund to deliver aid in a smarter and more effective way.

Which brings us back to the G-20 discussions in Canada. The GAFSP is the first concrete step toward a multilateral approach to development, led by the United States and endorsed by the G-20. Further steps are needed, including agreement to recapitalize the international financial institutions and to complete a generous replenishment of their concessional funds. The U.S. should call for a G-20 development discussion at the next meeting in Korea that goes beyond aid, so that global policies on energy subsidies, financial regulation and fiscal stimulus exit strategies take into account the impact on the poorest countries. That kind of debate, coupled with real resources for implementation, would be welcome news for developing countries

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