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Do fewer strings make for better aid?

Politics often shapes
aid. Is the link between the two good, bad or just the new normal? 

By: /
3 June, 2016
A fire fighting helicopter works over wildfires that continue to threaten Fort McMurray neighbourhoods in Fort McMurray, Alberta, Canada May 4, 2016. Courtesy Chris Schwarz/Government of Alberta/Handout
By: John Sinclair
Distinguished Associate of the North-South Institute and a member of the McLeod Group

The line connecting politics and aid is a very flexible one. Some see aid as pure altruism; some see it opportunistically as a means to gain friends or create economic dependency. The ‘some’ varies, they can be powerful politicians or corporate leaders, individual nations or groupings such as the G7, G20, NATO or the G77 (the club of developing countries that dominates the UN).

Whoever the actors involved, when we reach the international sphere, politics and aid are frequently intertwined – often for benign but sometimes with malevolent or exploitative intent. Geopolitical maneuvering between major powers has for decades been played out on the backs of smaller vulnerable nations, mainly in the developing world.

This commentary was triggered by a recent Canadian event: in the midst of the massive Fort McMurray fire, Russia made a generous offer to supply several Ilyushin aircraft able to dump fire retardant on the fiery furnace below. The offer came in the wake of past tensions with Russia under former prime minister Stephen Harper, now contrasted by the new Liberal government’s desire to de-escalate the hot politics over Ukraine.

Canada was slow to reply but said to Russia — and the few other countries that had followed suit, including the United States — that the situation was under control. Essentially, ‘thank you, but your kind offer is not needed.’ This polite, diplomatically correct, exchange then became a rather unproductive finger-pointing game in certain parts of the press, between those who were peaceniks and those who increasingly see every Russian move as malevolent, part of a revived Cold War mindset.  

The amount of such politicized aid varies with the intensity of global rivalry and competition. Too often these incidents are proxy battles between great powers, in which a much poorer developing country is the victim of collateral damage. 

In this case, Russia may have been offering a small olive branch, and accepting it might have done wonders for bilateral relations. We’ll never know. (But then did Canada curry favour with Russia by not passing the recent Magnitsky Bill in Parliament to be rewarded by Russia an invitation to be a player in the Syria peace process, only to annoy the United States which wanted us to replicate their bill?)

“Are all these diplomatic battles worth it? Are they all posturing or a new norm for global aid politics?”

Politically influenced aid — aid that comes with political ‘strings’ or conditions attached can look relatively harmless but often has unforeseen effects. The balance of benefits in a negotiation can involve painful collateral consequences.

However, those warning words are often brushed aside. The examples abound, many involving assertive power politics, making the above Canada–Russia example seem tame by comparison.  A few to sample:

The Aswan Dam crisis: The U.S. back in the 1950s under Foster Dulles, their hawkish foreign secretary, saw President Nasser of Egypt as an unwanted crypto-communist controlling the geopolitically sensitive Suez Canal. They first offered aid for this costly but economically important dam. Then Dulles abruptly withdrew his offer, thinking no doubt that he had put the leftist Nasser in his place. But the Soviets instead seized the chance to simultaneously help a potential ally and tweak the nose of the Americans by offering to finance the dam. This aid-linked tension led Nasser to nationalize the canal.  This, in turn, was a key trigger for the 1956 Suez War, a tangled invasion of Egypt by the UK, France and Israel. The U.S. and Russia then found themselves stepping uncomfortably forward as peace-imposers, with a combination of nuclear and financial threats to the warring parties. (Finally, in 1970, Egypt completed the dam.)

Conditionality on Greece: This more recent situation started as a battle inside the European Union between an arrogant old-school German finance minister and his flamboyant Greek counterpart about the tough financial conditionalities to be imposed on an already struggling Greek economy. The political chaos triggered in Greece led to victory for the present leftist government, which in turn was then forced by Eurocrats to eat humble pie and accept new, heavily conditional aid. The Greek prime minister fired his finance minister along the way. Today the euro-zone is in even greater crisis and ordinary Greeks are more impoverished. The normally politically correct International Monetary Fund (IMF) is even saying there is no sustainable recovery path for Greece without massive debt relief, long-stalled by Germany. Is all this pain effective tough love or brutish politics?

The East Asia financial crisis: This broke out in the late 1990s. All the big actors (World Bank, IMF, U.S. Treasury) lined up with their solutions. And the bad boys, notably Thailand, Malaysia and Korea, lined up for their austerity punishment. But one powerful voice, Joseph Stiglitz, then the World Bank Chief Economist, broke ranks and publicly said the IMF’s tough conditions were the wrong advice. The U.S. Treasury complained to the World Bank President about Stiglitz’s unwanted frankness and a few days later he was forced to resign.  All this was a good indicator of global power politics at work and but bad news for those Asian countries in need of good advice. A year or two later, almost as a belated apology to the region and implicitly Stiglitz, a group of powerful finance ministers from the Organisation for Economic Co-operation and Development (OECD) prodded by Canada’s Paul Martin set up the G20 – a policy club which deliberately bridged the North (OECD) and South.

China’s AIIB: China was frustrated by the sustained blocking of its agreed increased voting share in the IMF, something Congress largely did to make President Barack Obama look weak on the global scene. The Chinese response was to create their own US$100 billion Asia Infrastructure Investment Bank. The Obama administration tried to render this stillborn by encouraging other supposedly allied countries to refuse to join. But instead the Europeans panicked at the risk of being excluded by China. In a few hurried days, starting with the UK and France, almost all signed up, leaving Obama looking weak and the U.S. a failed spoiler. A year later, the U.S. and its residual loyal friends, Canada and Japan, are still outside and looking foolish, as even the World Bank signs up to partner with the new Chinese bank. All foolishness? Or an unwanted indicator of how dysfunctional U.S.–China relations are becoming?

Are all these diplomatic battles worth it? Are they all posturing or a new norm for global aid politics?

Aid competition between China and Western donors is meanwhile only widening further: the UK’s Financial Times recently reported China has a bigger aid presence in Africa than the six largest multilateral financial institutions combined.

As a middle power, and a somewhat weakened donor, Canada has tended to go with the crowd, our G7 friends and especially the U.S. But the message now is that, in aid politics, confrontation often does not work. The old ‘strings’ lead too often to entangled relations. This is even more true today as the developing world becomes better informed and more assertive of its own interests. The last decade has seen emerging powers, notably the BRICS, becoming the North’s economic equals and strategic rivals.  

These changes will affect how Canada can best regain its place in the world of international development, as a bilateral donor and a ‘co-owner’ of major multilateral institutions like the World Bank. Especially in the latter world, our influence needs to be amplified by working in partnership with other nations, principally the traditionally ‘like-minded’ such as the Nordics, but maybe also now new Southern leaders like those in India, Brazil and Indonesia.  The same partnership principles apply with aid recipients. Our influence will derive from how well we understand and respond to their ambitions. For example, with a Bangladesh, we now talk of both gender equality and trade/investment in our development/aid dialogue. This shift fits well with the goal of a more coherent Canadian foreign policy. 

Whatever the personal boxing prowess of Canada’s Prime Minister, Justin Trudeau, it should not be our style as a donor. Global Affairs Canada aid officials will increasingly need to practice compromise and partnership in moving forward on today’s priority development challenges of poverty reduction and climate change. We can gain more credibility through the partnership route than via geopolitical boxing or trying (often vainly) to impose tough conditionality and overly assertive views.

Canada’s new ‘sunny’ and inclusive face is the right way forward. It will pay dividends not only in terms of more effective traditional aid, bilateral and multilateral, but also lay the foundations for the trusting, mutually beneficial trade and investment relationship we need for our own future economic well-being. 

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