My first mission as a self-employed economist will lead me to Geneva
tomorrow, where I will participate in a research kick-off meeting for the Swiss
National Fund for International Studies (SNIS) on the growing trend toward
non-core funding of multilateral aid institutions. I will meet researchers and practitioners from a wide range
of disciplines (political science, economics, law, philosophy and
anthropology), with different sectoral specializations, and with experience of
a number of different international organizations. The research team is
coordinated by Professors Simon Hug (Graduate Institute Geneva), Katharina
Michaelowa (Zurich U) and Axel Dreher (Heidelberg U).
Non-core multilateral aid has seen a strong rise relative
to assessed core funding of international organizations. The voluntary
contributions by bilateral donors to the budgets of multilateral aid
institutions to specific activities make use of separate funding channels and
governance structures outside the executive boards, despite being managed by
the multilaterals.
To orient yourself in the alphabet soup of UN acronyms
it may be valuable to look at the List of UN Acronyms
which the DAG Hammarskjöld Library at Uppsala University has put together
(I promise it´s not only fun but may help identify totally unknown potential
employers to the younger readers of this blog, and consultancy sources for the
older ones…). The UN (ECOSOC) has recently
produced a report that summarizes for the UN the damage done over the
recent decades. For the most important UN organizations, the graph shown below
documents for the year 2010 that the share of non-core contributions to
development related operational activities exceeds the share of core
contribution, often by a wide margin. The UNDP, for example, a UN entity widely
appreciated above all on the ground in poor countries, has to fund 81% of its
operational expenses on the shaky basis of voluntary contributions.
It is easy to see why voluntary budget contributions
have been popular among donors. They allow earmarking contributions for specific development objectives which in turn
allows for more influence over the allocation of multilateral aid, more
visibility for individual contributions and higher financial flexibility since
voluntary contributions are not subject to long-term international contracts.
In a principal-agent framework, the higher share of
non-core budgets in multilateral organizations has gone along the move from collective principals to multiple principals, from member country
groupings with largely homogenous preferences to groupings with heterogeneous
policy goals. Applied to the UN system, the US called the shots after WWII
based on its Western European and Latin American allies in what was then a much
smaller country grouping. To the extent that the UN enlarged and raised its
member base, the US, the UK and other leading countries lost the majority. This
explains the start and rise of voluntary multilateral aid funding. Multiple
principals have multiple interests that they see better implemented in earmarked
rather than general policy programs.
Non-core multilateral aid may pose severe risks for
aid effectiveness. It may replace the core contributions to multilateral
organizations, complicate the budgeting of these organizations, inflate
administrative costs and governance structures due to additional reporting, relinquish
the expert knowledge of experienced MAI staff through newly created
sub-structures, and attract the attention of their management to shopping for
funds, away from their genuine task to lead by content design and by strategic decisions.
Moreover, donors may create funds to which little additional resources are
channeled, causing sunk costs and organizational duplication with existing multilateral organizations.
From the perspective of staff in multilateral organizations, the trend toward
higher voluntary funding translates into job insecurity as overall budgets are
being destabilized. From the perspective of recipients, non-core multilateral
aid undermines developing country ownership and tends to make aid flows less
predictable – with adverse effects on development effectiveness. It seems from
the outset of our research that non-core budget contributions should be seen
not as a blessing, but as a curse.
