The New Face of Foreign Aid in Asia

October 24, 2012

By Jonathan R. Stromseth

A sea change is unfolding in the world of foreign aid. Emerging powers, particularly China and India, are challenging longstanding aid principles held by the United States, the United Kingdom, and other established donors. Ironically, amid this shifting landscape, opportunities exist for increased cooperation between established and emerging aid providers, including in the field of governance. Such cooperation would not only help to address pressing humanitarian challenges in Asia, but could improve the quality and impact of aid throughout the developing world.

The current global aid architecture has evolved over decades as established donors – members of the Organization for Economic Cooperation and Development (OECD) – have sought to achieve consensus on how aid should be disbursed and for what purposes. Since the late 1990s, these donors have dramatically increased spending on governance and counter-corruption programs in recipient countries. This shift has been fueled by compelling studies that establish positive correlations between good governance, on the one hand, and both economic growth and aid effectiveness, on the other.

Yet, after expanding steadily since 1997 and peaking at US$128.5 billion in 2010, total assistance from OECD donors fell in 2011 in real terms and is projected to stagnate in coming years due to fiscal constraints in donor countries. In contrast, aid from emerging donors is growing rapidly in the form of South-South cooperation. Chinese aid has increased by about 30 percent per year over the past decade, with 45 percent disbursed in Africa and a third in Asia. India recently established a new aid agency and is already a major donor to neighboring countries such as Burma (also known as Myanmar) and Sri Lanka.

In November 2011, the OECD convened the Fourth High Level Forum on Aid Effectiveness in Busan, launching a broader and more inclusive global partnership on development cooperation to include South-South partners. Above, The Asia Foundation co-hosts an official side event in Busan on Asian Approaches to Development Cooperation.

But these donors prioritize spending on infrastructure, not good governance. They emphasize mutual benefit with development partners and link aid more explicitly to economic objectives, such as securing energy resources or opening new markets for products. They also provide assistance through a broader array of financial instruments. China is at the forefront of this group, combining concessional loans, export credits, and debt write-offs with special trade arrangements and commercial investments, often in support of infrastructure development.

The ready money offered by emerging donors presents a dilemma for established donors because it allows recipient governments to reject aid that comes with demands for improved governance. In this evolving context, the idea of promoting a division of labor is gaining currency, with emerging donors focusing on “hardware” (infrastructure) and the West concentrating on “software” (good governance). Although this idea has intuitive appeal, it could be fraught with contradictions and lead established and emerging donors to work at cross-purposes in providing aid, even within the same country.

In short, this isn’t the time to prescribe simplistic solutions or impose old or new orthodoxies, but to allow for a period of experimentation while identifying possible avenues of cooperation and areas of common ground. How might this be done?

First, a starting point in Asia could be disaster risk reduction, including experience sharing on effective governance approaches for promoting disaster preparedness. Since the devastating Wenchuan earthquake of May 2008, China has been developing a nationwide system of community-based disaster preparedness that encourages local governments to engage Chinese enterprises and charity groups in preparing for and responding to disasters. In the course of creating this system, Chinese policymakers carried out bilateral exchanges with American agencies to observe how the United States integrates public-private partnerships into its own disaster management system.

China and the United States could now expand these exchanges to encompass foreign aid cooperation in Southeast Asia, which remains extremely vulnerable to natural disasters despite its economic success. Such initiatives would be consistent with plans by the U.S. Agency for International Development to help build resilient communities through disaster risk reduction and support for governance. It would also provide China an opportunity to demonstrate the usefulness of its own domestic models.

Second, and looking further ahead, development practitioners should identify forms of governance aid that find appeal beyond the established donor community. One approach is to link institutional reforms more closely with actual development outcomes. Through evidenced-based programming and advanced monitoring and evaluation techniques, it is increasingly possible to show how specific institutional changes are associated with results that everyone believes are important – for example, how improved accountability mechanisms can lead to better public service delivery of health, education, and even infrastructure.

Ultimately, the world will benefit if established and emerging donors can find common and cooperative approaches to foreign aid that enhance effectiveness and attack global poverty with combined resources. Ideally this cooperation would begin between the United States and China, the world’s largest bilateral donor and its fastest rising power.

During a trip to Asia last month, Secretary of State Hillary Clinton sought to ease growing perceptions of U.S.-China rivalry, and said the United States hopes to work more closely with China as it expands its role in the region. Collaboration on regional disaster assistance is a ready opportunity. It would not only send a reassuring signal that real cooperation is possible, but could set the stage for cooperation in other areas of foreign aid in the future – in Asia and beyond. For both Washington and Beijing, the door is definitely open.

Jonathan Stromseth is The Asia Foundation’s country representative in China. He can be reached at [email protected]. The views and opinions expressed here are those of the individual author and not those of The Asia Foundation.

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