PRESS CONFERENCE ON 1998 DEVELOPMENT COOPERATION REPORT

1 March 1999




The 1998 Development Cooperation Report was a reminder of the
opportunities of an inclusive kind of globalization, and of the potential
of human solidarity, James Michel, departing Chair of the Organisation for
Economic Cooperation and Development's (OECD) Development Assistance
Committee, told correspondents at a Headquarters press conference this
morning.

Introducing the Committee's annual Report, he said that he hoped it would
also serve as a reminder of the risks of squandering those opportunities
and, in that way, spur some needed action. It contained a wealth of
detailed statistical analysis about resource flows to developing countries,
including development assistance and other issues of a policy nature
concerning events in development cooperation in the preceding year. As
Chair of the Committee for the past five years, Mr. Michel had had the
privilege of helping to shape the Report and had written an essay in the
overview chapter.

The 1998 Report examined efforts to give operational effect to a global
partnership strategy, widely accepted in the international community as the
accepted standard for development cooperation, he said. It looked at that
implementation process against the backdrop of turmoil in financial markets
and persistent decline in development assistance resources. That was
especially important for the poorest countries, who had not participated
much in the growth of private flows in the globalizing economy. The basic
theme was one of staying the course. The point of that was to make clear
that the members of the Committee, and the international community in
general, were looking to persevere in the hard work of learning how to give
practical effect to the principles they had agreed on.

The idea was respect for local ownership and integrated development
policies and strategies, which were people-centred and results-oriented, he
added. What was needed was international encouragement of locally led
approaches through an agreed division of labour, adequate resources,
coherent policies and coordination. That broad effort had to be integrated
into a coherent framework of policies that would facilitate the
participation of poor countries in the global community, and the
participation of poor people in the economic, cultural and political life
of their societies.

The Report described progress under four headings, which corresponded to
the objectives set out in the Committee's work programme, he said. The
first goal was to advance the international development targets and to
measure performance against them. In that regard, two major events had
occurred. The first was the formation of a network on poverty reduction.
The Committee members had decided that of all the different goals, poverty
reduction was the one in which they could most constructively engage.
Thus, they had gotten together with representatives of a number of
developing countries and formed a network for reducing poverty. The
network was geared at identifying best practices to help attain the goal
of reducing the percentage of people living in absolute poverty by 50 per
cent by the year 2015. It was working with other groups within the OECD to
put the principle of partnership into practice.

The other element discussed in the Report was measuring performance
through the identification of 21 indicators, which measured progress
against the goals in a more intensive way, he continued. The indicators
could help to look at how progress was being made and simplify the process
so it was a more harmonized approach, which did not tax developing
countries. Those indicators had already provided concrete evidence of the
connection between conflict and retarded development, and the importance of
functional political systems for sustainable development. That, in turn,
enforced the importance of having development cooperation which addressed
the tough issues of peace-building, conflict resolution and reconciliation.

Turning to strengthening partnerships, the second of the four objectives
of the Committee for 1999 and 2000, he said that progress had been made in
identifying key points for strengthening partnerships for fostering local
ownership. That had come out of a dialogue between members of the donor
community and developing countries. Another noteworthy event was the
completion of a two-year study of how the international system was working
in a particular country -- Mali, from the perspective of that country
rather than the perspective of any one donor. That showed how reforms
could be put into place to make the system more results-oriented. Support
had been seen from the international community for that partnership
approach.

He said thinking about development cooperation was changing and those
changes were being reflected in policies and programmes. At the same time,
there was a need to see those principles translated into practice on the
ground. Future work would require strengthening the coordination of a
number of efforts under way in a number of countries. Personally, he felt
the need to get beyond the pilot stage and systematize partnership as the
norm in development cooperation.

He said that the third area was mobilizing and monitoring resources for
development, a major challenge brought home in light of the Asian financial
crisis. Economic turmoil in poor countries had shown its impact in the
markets of rich countries. Inter-dependence and globalization were not
just theories, but were real and had an immediate impact. The most
successful developing countries were also vulnerable.

In the area of resources, the Report contained detailed statistical data
on resource flows, he said. The statistical reporting for the current
report was for the period that ended on 31 December 1997. The statistics
were always a year behind because it took that long for all of the members
to report them and for them to be organized. The year 1997 had seen a reduction in
total resource flows from OECD countries to developing countries, of about
$40 billion -- from $365 billion to $325 billion. At the same time, that
$325 billion was still the second largest total resource flow to developing
countries in history. The principal cause of the decline was the sharp
reduction in bank lending, particularly to Asia, which had gone from
$86 billion to $20 billion. An interesting phenomenon for 1997 was that
private direct investment continued to grow substantially -- from $64
billion in 1996 to $108 billion in 1998.

The Report, in looking at global trends and breaking them down by
geographical region and income group, saw that the poorest countries were
not sharing in the private flows, he said. They had remained substantially
dependent on official flows and especially on official development
assistance (ODA), the concessional resource flow, which had continued its
decline of recent years. Smaller donors had increased their donor volume -

- Luxembourg and New Zealand had increased theirs by 25 per cent. However,
that could not make up for the drops seen in the larger donors. Some of
them, including Germany, Sweden and the United Kingdom, had announced
budget increases which would show up in future years' statistics. In
looking at expenditures for 1997, the major donors continued to decline.
While development assistance since 1992 had dropped by about 20 per cent,
the decline for the Group of 7 countries had been almost 30 per cent.

Net flows of ODA in 1997 -- $48 billion -- were down by 6 per cent in
real terms from the previous years, he continued. Some of that was due to
the end of the eligibility of aid to Israel to count as ODA. The Committee
reviewed the list of developing countries every three years and moved countries off that
list as they moved into the higher income brackets. That was the year that
Israel had moved off the list. However, that was not the sole cause of the
decline. Lower aid spending continued to be the case in a number of the
larger donor countries. The non-Group of 7 countries accounted for about
15 per cent of the total gross national product (GNP) of the Committee-
member countries, but they were providing about 28 per cent of ODA. Their
burden was about twice their percentage of GNP, in effect, they were
carrying more than their weight.

He added that viewed as a percentage of GNP, ODA had fallen to a record
low of 0.22 per cent of the total GNP of the Committee's members. Denmark,
Norway, Netherlands and Sweden had remained the only four donors whose volume
exceeded the 0.7 per cent target set many years ago by the United Nations. At the
other end of the scale, the United States had now fallen below 0.1 per
cent. The percentage of aid going to countries in greatest need had not changed much
and had remained constant, when looking at where countries were in their
distance from the agreed international goals. However, as the total volume
deteriorated, that percentage, while remaining constant, meant a lower
dollar volume going to those countries in greatest need. On the other
hand, that smaller dollar volume appeared to be better targeted towards the
goals in education, health and water, for example.

The final point addressed in the Report was bringing together policies
that affected development, he said. There was a strong need to look at
development cooperation in context. Development cooperation -- aid money -- had to be
part of a broader effort in which development was given more priority in
the international agenda. The declining budgets did not necessarily correlate
entirely with the importance of the subject matter. However, the fact that
the budgets declined year after year suggested that there was a judgement
being made about the importance of development cooperation, and that it was
not seen to be as important as some other issues on the international
agenda.

The Report suggested that there needed to be a broadly based effort by:
development professionals to show that they were responsible stewards of
public resources and were accomplishing something with the public money
entrusted to them; civil society to show that they cared; media to be able
to convey a long-term perspective of what kind of world was being moved
towards in the twenty-first century and what the opportunities were;
educators to be able to integrate values of development and solidarity into
learning processes; and senior government officials as accountable leaders
who could project a vision of the public interest that was an inclusive
one. It showed that thinking had changed and that practice was changing,
but the benefits of development were at risk. They needed resources and
political attention to put in place conditions necessary to attain those
agreed long-term goals. The Report also tried to take stock of changes and
point the way ahead to development results through partnership.

Responding to a question regarding increased private direct investment
and the decline in private flows, Mr. Michel said that there had been a
larger decline in lending and a growth in private investment, which had
offset some of that decline. The decline was attributable to Asia --
countries' private borrowing from the Asian economies had gone down from
$86 billion to $20 billion.

With regard to Africa, he said that there had been hardly any direct
lending to Africa. Twelve countries absorbed about 80 per cent of private
investment flows. Much of the investment that went to Africa went to
extractive kinds of endeavours in a few countries, such as Nigeria and
South Africa. However, in the reforming economies in Africa, a creeping up
of private investment as a percentage of total flows to that continent
could be seen.

Asked to what extent governments in the recipient countries influenced
the effectiveness of the partnership for development, he said that
governance was a key ingredient. The recent World Bank report assessing
aid had looked at the capacities of developing countries. It had concluded
that aid was most effective in countries which had, not surprisingly, the
combination of need, a good policy framework and good institutional
capacity to use those resources well. The countries that did not adopt
reforms and did not have good governance were the countries that were
lagging in development.

He was asked whether those countries that were most in need of aid were
the least able to absorb it. Mr. Michel replied that there were poor
countries that were adopting measures and building capacities to improve
their ability to use resources. In those cases, more aid did accelerate
development. There were also those countries where partnership was
difficult to conceive of because there were no shared values or interests. That issue had been discussed in the high-level meeting of the Committee and addressed in the Report. One
of the conclusions reached was that where one had poor conditions for partnership,
one needed to be cautious about large resource transfers. Investments in
systems that were not functional, where governance was lacking, would probably not
be good investments. There needed to be a strong emphasis on dialogue,
efforts to increase a sense of common purpose, readiness to engage non-
governmental partners, and focus on things like peace-building and poverty
reduction.

Responding to a question on the importance of portfolio investments, he
said that that was something that the OECD Committee was not very good at
measuring. From his exposure to World Bank meetings, he could see a lot of
money going into funds that were looking at international opportunities,
because they were looking for increasing diversity and increased returns.
There was money in those various managed funds that could be valuable for
development financing. A lot of work needed to be done to look at all of
the elements of development financing, and the development financing agenda
in a more sophisticated way.


Development financing could not be looked at as filling gaps because
development was about the capacity of societies, institutions and people,
much more than it was about capital shortages, he added. The question then
was how to use that official development resource in ways that contributed
to the capacity of societies, institutions and people so that they could
attract private flows of capital. That external capital was always going
to be a relatively small part of the total.

Asked about the trend in flows to multilateral agencies, he said that
flows had been steady -- two thirds bilateral and one third multilateral.
The Report had looked at how aid was used by the bilaterals and
multilaterals in addressing the international development targets.

Regarding changes within the various multilaterals, such as the European
Union versus the United Nations, he said that the Union was the growing
multilateral source. More and more of the European money was being
channelled through the European development fund and the budget of the
Union. The United Nations Development Programme (UNDP), on the other hand,
had experienced some decline.