Bank Robbers

04.09.07

How a new class of donor countries is sapping Western power.

by Joshua Kurlantzick
The New Republic (USA)

"...China's assistance has made it nearly impossible for other donors to put pressure on the increasingly authoritarian leadership in Phnom Penh"

For nearly a decade, facing pressure from environmental groups, the World Bank postponed a decision on Nam Theun II, a massive hydropower dam in the tiny Southeast Asian country of Laos. From early missions designed to assess the potential dam in 1995, the Bank for years commissioned study after study of the project, which many greens feared would impact flooding patterns and water quality.

But by 2005, the Bank had decided to push forward with the project, though some Bank staffers privately conceded they, too, shared those environmental concerns. After all, some Bank officials privately said, they'd learned that if the World Bank did not provide the capital for Nam Theun II, China had indicated it would back the project--and was unlikely to hold the dam to any environmental standards.

As the World Bank gathers this week for its annual spring meeting, it must have future Nam Theun-like problems on its agenda. Over the past decade, rich donor countries have pushed through a series of reforms to foreign aid, trying to ensure that donors work together and support good governance in recipient nations. But now a new group of aid-givers has emerged on the scene, countries themselves still developing their own economies: China, Russia, India, Brazil, Iran, and many others. These emerging donors could play a positive role in development. So far, though, they have had the opposite effect, undercutting efforts to make aid more transparent and useful.

In just the past five years, these emerging donors have developed into significant aid providers. In early March, as President Bush toured the Americas, Venezuelan President Hugo Chávez announced that Venezuela's aid to Latin America actually now topped the United States' aid programming. Though Chávez's boast is impossible to substantiate because of the Venezuelan government's lack of transparency, the Associated Press estimated that since early 2005 Venezuela had offered other Latin nations some $5.5 billion in assistance, in comparison to America's $1.6 billion annual aid to the region.

Like Venezuela, which benefits from high oil prices, petro-economies Iran and Russia also have cash to spend. Tehran reportedly has become the largest donor to the Palestinians, surpassing the European Union, while Russia has become an important donor in Central Asia and other former Soviet states. Even non-oil middle income countries like South Africa, Brazil, India, Thailand, South Korea, and Poland, which once received billions in aid themselves from organizations like the World Bank, have become donors. Poland has been targeting its spending toward Eastern European nations. South Africa has been focusing on its African neighbors. Brazil has offered a loan worth nearly $600 million to build infrastructure in Angola. Many other middle income countries have similarly announced plans to drastically expand their aid programs.

Then there is China. From virtually no aid programs a decade ago, China, which possesses some trillion dollars in currency reserves, has become the largest lender to Africa, reportedly loaning at least $8 billion to the continent. At November's China-Africa summit, Beijing promised more, vowing to double its aid to Africa; this year the African Development Bank actually will hold its annual meeting in Shanghai, in recognition of China's powerful new role in Africa. In Latin America and Asia, too, China has become a major aid player, backing new roads in Laos, training programs for Cambodian officials, and many other initiatives. In Cambodia, for example, China last year pledged nearly as much in loans as all the other donors' offered in aid combined.

In some respects, these emerging donors might actually have a better idea how to make grants and loans than Europe, America, or Japan. After all, many emerging donors themselves still get aid money, and thus have first-hand experience in how to manage aid flows. With traditional donors still failing to live up to their aid commitments, assistance from new donors could provide a major boost for global development. What's more, with the growing power of emerging economies, it is only natural that nations like China should have a bigger role in development, too often a game dictated by a small club of Western countries.

Unfortunately, so far the emerging donors do not seem to be such a positive force. In the past ten years, most leading donors have agreed upon a series of reforms designed to improve the global aid apparatus. These commitments, hashed out from years of trial and error, help to ensure that donors work together and do not duplicate each others' efforts, that they follow standards set up on environmental protection and governance, and that aid money benefits broad spectrums of society, not just a few government officials. But most emerging donors have not signed onto these standards, whether because they resent Western nations telling them what to do, because they do not have the aid bureaucracies to guarantee that they can meet these commitments, or because--in the cases of China and Russia--they themselves may fear supporting reforms abroad that promote democratic governance.

This lack of accountability causes severe problems. As the G-8 group of industrialized nations has warned, new loans from donors like China could add debt to the world's poorest countries, which only had their debts written off in 2005.

If emerging donors do not work with traditional aid-givers and support authoritarian states, they also allow aid-receiving countries to ignore standards of democracy and environmentalism. This has happened in Angola, where the corrupt government shunned a deal with the International Monetary Fund (IMF) in favor of a financing agreement with China, which holds Angola to no conditions and provides aid with little transparency. It has happened in Cambodia, where China's assistance has made it nearly impossible for other donors to put pressure on the increasingly authoritarian leadership in Phnom Penh.

Worse, the emerging donors could force the traditional aid institutions, like the Bank and the IMF, to lower their own standards--as with Nam Theun II, where China's pending involvement prodded the Bank to make a decision. Unfortunately, Nam Theun may only be a harbinger. If the Bank is painted into a corner on similar decisions in the future, its influence on the international stage will be severely diminished.

Joshua Kurlantzick is a special correspondent for The New Republic.