Saturday, March 31, 2012
WHO praises Cuba's health care system
English.news.cn
2012-03-28
HAVANA, March 27 (Xinhua) -- Cuba's health care system has a lot to teach the world, the deputy head of the World Health Organization (WHO) said Tuesday during a visit to the Caribbean island nation.
WHO Deputy Director General Dr. Anarfi Asamoa-Baah praised Cuba's health care standards and held the island's universal health care system as a model for other countries to emulate.
Asamoa-Baah is part of a visiting delegation of health experts, including WHO Director General Dr. Margaret Chan, Regional Director for Africa Dr. Luis Sambo, and Shin Young-Soo, regional director for the Western Pacific, who were to attend the first-ever meeting of the agency's regional directors held in Havana.
During a tour Monday of scientific institutions in Cuba, the WHO deputy director said he was impressed by the nation's "well integrated" health care system at all levels.
Asamoa-Baah praised the fact that all Cubans have free access to high-quality, high-tech health services and applauded the country's ongoing campaigns to eradicate communicable diseases.
He also praised the work of Cuban health care workers in more than 32 countries and the medical training offered by Cuban universities to thousands of students from around the world.
The WHO experts expressed particular interest in Cuba's biotech industry, which has developed vaccines to fight cancer and other diseases, and Cuban medical products are marketed in over 40 countries.
The WHO delegation is scheduled to meet Thursday with Cuban Foreign Minister Bruno Rodriguez and tour the Center for Genetic Engineering and Biotechnology in Havana.
On Friday, the group will attend the closing ceremony of the Congress of Geriatrics and Gerontology.
Advanced universal health care and education in Cuba are two of the main achievements of the Socialist Revolution launched in 1959 by former Cuban leader Fidel Castro.
Saturday, March 3, 2012
Microfinancing gone bad: Lender's own probe links it to suicides
By ERIKA KINETZ, AP
February 24, 2012
MUMBAI, India (AP)
First they were stripped of their utensils, furniture, mobile phones, televisions, ration cards and heirloom gold jewelry. Then, some of them drank pesticide. One woman threw herself in a pond. Another jumped into a well with her children.
Sometimes, the debt collectors watched nearby.
More than 200 poor, debt-ridden residents of Andhra Pradesh killed themselves in late 2010, according to media reports compiled by the government of the south Indian state. The state blamed microfinance companies — which give small loans intended to lift up the very poor — for fueling a frenzy of overindebtedness and then pressuring borrowers so relentlessly that some took their own lives.
The companies, including market leader SKS Microfinance, denied it.
However, internal documents obtained by The Associated Press, as well as interviews with more than a dozen current and former employees, independent researchers and videotaped testimony from the families of the dead, show top SKS officials had information implicating company employees in some of the suicides.
An independent investigation commissioned by the company linked SKS employees to at least seven of the deaths. A second investigation commissioned by an industry umbrella group that probed the role of many microfinance companies did not draw conclusions but pointed to SKS involvement in two more cases that ended in suicide. Neither study has been made public.
Both reports said SKS employees had verbally harassed over-indebted borrowers, forced them to pawn valuable items, incited other borrowers to humiliate them and orchestrated sit-ins outside their homes to publicly shame them. In some cases, the SKS staff physically harassed defaulters, according to the report commissioned by the company. Only in death would the debts be forgiven.
The videos and reports tell stark stories:
One woman drank pesticide and died a day after an SKS loan agent told her to prostitute her daughters to pay off her debt. She had been given 150,000 rupees ($3,000) in loans but only made 600 rupees ($12) a week.
Another SKS debt collector told a delinquent borrower to drown herself in a pond if she wanted her loan waived. The next day, she did. She left behind four children.
One agent blocked a woman from bringing her young son, weak with diarrhea, to the hospital, demanding payment first. Other borrowers, who could not get any new loans until she paid, told her that if she wanted to die, they would bring her pesticide. An SKS staff member was there when she drank the poison. She survived.
An 18-year-old girl, pressured until she handed over 150 rupees ($3) — meant for a school examination fee — also drank pesticide. She left a suicide note: "Work hard and earn money. Do not take loans."
In all these cases, the report commissioned by SKS concluded that the company's staff was either directly or indirectly responsible.
Caught in the despair of poverty, tens of thousands of impoverished Indians kill themselves every year, often because of insurmountable debt. The supportive structure of the microfinance companies was supposed to change that.
But Davuluri Venkateswarlu, director of Glocal Research in Hyderabad, which conducted the industrywide investigation, said in an interview that he told SKS executives there was "clear involvement of SKS personnel" in some suicides.
SKS continues to deny all responsibility for the deaths and says it never commissioned an independent inquiry. SKS spokesman J.S. Sai, who flew to Mumbai from the company's Hyderabad headquarters to discuss the AP findings, said the company stands by its September 2011 affidavit before India's Supreme Court. In that affidavit, chief executive M.R. Rao says SKS "is neither the cause of nor responsible for any suicides in the state of Andhra Pradesh."
The deaths came after a period of hypergrowth leading up to the company's hugely successful August 2010 initial public offering.
Originally developed as a nonprofit effort to lift society's most downtrodden, microfinance has increasingly become a for-profit enterprise that serves investors as well as the poor. As India's market leader, SKS has pioneered a business model that many others hoped to emulate.
But the story of what went wrong at SKS has led current and former employees and even some major shareholders to question that strategy and raises fundamental questions for the multibillion-dollar global microfinance industry.
Meanwhile, whistleblowers at SKS say that they have been targeted for retaliation and that the company has failed to correct structural flaws that contributed to the suicides.
"At the end of it," said Alok Prasad, chief executive of the Microfinance Institutions Network, the industry group that commissioned the Glocal report, "you come down to a handful of cases where some things went wrong. Is that indicative of the model being bad or very rapid expansion leading to a loss of control?"
___
Microfinance was born in desperation. Amid the 1970s famine in Bangladesh, Muhammad Yunus began giving small loans to poor women with his own money. Despite the predictions of bankers, the women paid him back.
The core idea of Yunus' Grameen Bank was the borrower group. Five women from a village determine how large a loan each member gets and act as guarantors. If even one member is delinquent, no new loans are issued. Group members apply pressure — and support — that has kept repayment rates near 100 percent.
Yunus' innovation won him the Nobel Peace Prize in 2006.
In 1997, Yunus acolyte Vikram Akula founded his own microcredit organization, Swayam Krishi Sangam, Sanskrit for "self-help society." In 2005, SKS started operating as a for-profit company and Akula began chasing private investment to achieve the massive scale required to dent global poverty.
In August 2010, SKS Microfinance — then India's largest microlender — went public. Exuberant investors oversubscribed the $350 million offering nearly 14 times. The stock surged more than 10 percent its first day. The company handed out 21,000 watches to employees in celebration.
Then media reports began to surface that over-indebted borrowers were killing themselves.
In October 2010, a mob of 150 people surrounded SKS's Hyderabad headquarters, protesting the suicide of a borrower's husband. They threatened to drag the corpse inside and demanded $20,000.
It was one of dozens of deaths the government of Andhra Pradesh blamed on aggressive tactics by microfinance companies. Police jailed microfinance employees, including dozens from SKS. Among the charges was abetment to suicide, essentially driving people to kill themselves, a crime under Indian law. Authorities investigated 76 cases in which employees from SKS and other microfinance companies were blamed for driving borrowers to take their own lives. The state passed a law designed to clamp down on abuses with new restrictions on loan disbursement and collection and onerous registration requirements on the companies. Microlending in India's largest microcredit market was effectively shut down.
Microfinance officials fought the new law and denied the charges, accusing the state government of trying to gain traction with voters and punish companies for capturing valuable market share from state-run lending groups.
Established microlenders such as SKS said loan sharks operating under the guise of microfinance were behind the excesses. SKS and other companies asked a court to stop the arrest of their employees. The court issued a stay on new arrests. Today, no one is in jail.
In a November 2010 letter to India's finance minister, Akula defended his company and included supportive articles from The Wall Street Journal and the Financial Times.
At the same time, the industry group Microfinance Institutions Network hired Glocal to investigate 44 deaths among debtors of microfinance companies, including SKS.
Venkateswarlu, the Glocal director, presented the findings to executives at three lenders. In January 2011, he delivered startling news to Akula and Rao: SKS employees had clear involvement in the suicides of four borrowers, meaning that their actions appeared strongly linked to the subsequent deaths, according to their investigation.
The AP obtained a four-page section of the Glocal report that deals with the SKS case studies. It related the financial history of borrowers, the loans obtained, the nature of pressure or harassment for repayment and the microfinance company involved. Venkateswarlu verified that it was the material he presented to Akula and Rao.
"They said they'd look into the issue and take some appropriate action," Venkateswarlu said.
SKS sent internal audit teams to the field. Their reports exonerated the company.
Unable to reconcile the two sets of findings, SKS hired Guardian's Human & Civil Rights Forum and Third Eye, a private investigative agency, to do a more thorough, independent inquiry, according to Ramesh Vautrey, head of administration at SKS, who oversaw the investigation, and Rajender Khanna, the president of Guardian's.
A Jan. 17, 2011, letter from SKS, signed and stamped by Vautrey, asked Khanna to "carry out a fact finding enquiry on the causes of suicide and complicity of our field staffs without any prejudice," according to a copy of the letter obtained by AP. The AP was shown invoice numbers for SKS payments to Third Eye and emails indicating the findings were sent to top management.
P.H. Ravikumar, who became interim chairman of the SKS board last November, said neither management nor the board authorized an independent inquiry into borrower deaths.
"Our enquiries from 2009 to 2011 have revealed that neither SKS nor its employees have been the cause for any of the suicides in the state of Andhra Pradesh," the company said in a statement. The company also said SKS employees have been acquitted in two borrower suicide cases in Andhra Pradesh and that only one criminal case remains outstanding.
Khanna sent teams to speak with families of the dead, village leaders, neighbors and loan agents, videotaping the interviews. Their report said SKS employees bore direct or indirect responsibility for at least seven suicides, including two that overlapped with the Glocal findings.
The interview videos were shown to the AP by Uma Maheshwari, who said she was present during one set of recordings and visited several of the families personally. She left SKS in July.
In one video, the daughter of borrower Dhake Lakshmi Rajyam cries, gasping as she talks to an investigator in Tadepalligudem, Andhra Pradesh.
Rajyam was unable to pay off $2,400 owed to eight different companies. Employees of microfinance companies, including SKS, urged other borrowers to seize the family's chairs, utensils and wardrobe and pawn them to make loan payments, her family told investigators. Unable to bear the insults and pressure of the crowd of borrowers who sat outside her home for hours to shame her, Rajyam drank pesticide on Sept. 16, 2010, and died, the family says.
"We have lost my mother," her daughter says. "Nobody will support us."
The investigator's conclusions lay the blame on SKS employees, saying they failed to comply with company policies "and even basic moral rights."
Vautrey said he sent the case studies to three top managers, including Rao. Emails obtained by AP indicate that summary reports were emailed to the managers.
Rao did not respond to multiple requests from AP seeking comment.
Vautrey went to Akula's office one night and told him what they were doing was bad karma.
"I don't want to be part of a team abetting suicides," Vautrey said in an interview. "It is systemic failure. We have no right to kill anybody for our own business. Let's close down our business if we can't do it right."
___
A profound shift in values and incentives at SKS began in 2008.
In October, Boston-based Sandstone Capital, now SKS' largest investor, made a major investment. It joined U.S. private equity firm Sequoia Capital, which funded Google and Apple and is SKS' largest shareholder, on the board of directors.
Akula, who had been chief executive in the company's early days, stepped down in December 2008 but stayed on as chairman. The company brought in new top executives from the worlds of finance and insurance.
SKS also began transferring more loans off its books, selling highly rated pools of loans to banks, which then assumed most of the associated risk of borrower default. That freed SKS to push out more and bigger loans.
In December 2009, SKS launched a massive sales drive. The "Incentives Galore" program ran through February 2010 — just one month before the company filed its IPO prospectus.
Agents won prizes worth up to 10 times their average monthly salary for signing huge numbers of new borrowers. Vautrey said he coordinated the shipment of 8,800 televisions, refrigerators, gold coins, mixers, washing machines and DVDs as rewards for more than 3,000 districts nationwide.
One loan officer signed up 273 groups in a month. Under training protocols, the ideal number of groups formed per month is 12, the maximum is 36, according to field agents and reports written by Akula.
"The focus is only on targets," Ramulu Sirgapur, who spent a decade at SKS before he left in December, told AP. "Even if we've given feedback, there might be recovery or repayment issues. That's OK. Just concentrate on growth."
The result: Management had a great set of numbers to show investors as it shopped the IPO. In a month, SKS could add 400,000 borrowers and 100 branches, and train more than 1,000 new loan officers. SKS had 6.8 million borrowers and had disbursed $3.2 billion in loans. India was pimpled with SKS branches, which bloomed in nearly 100,000 villages.
SKS said it was the fastest growing microfinance company in the world.
But basic principles of lending were overlooked, according to interviews with current and former employees, as well as correspondence and internal PowerPoint presentations by Akula.
Six current and former SKS staffers with experience in the field told the AP they no longer had time to check a borrower's assets or follow up and make sure a loan was put to productive use. They said that they were pressured to push more debt onto people than they could handle and that the number of days devoted to borrower training was cut in half.
"You have a (borrower group), and a loan officer goes out and trains them, educates them, then they give the loan. That's the SKS I'd seen in 1999. That was the whole model on which microfinance is supposed to work. In the quest for growth, a lot of these things got neglected," said Ankur Sarin, director of the SKS trusts, which are the fourth largest shareholder in the company and tasked with looking out for borrower interests.
As the relationships between heavily indebted borrowers and loan agents broke down, it became harder to collect.
Frustrated agents began working together and going door to door to collect, rather than taking payments only in public — a company rule designed to limit coercion. They began using other borrowers to pressure defaulters into repaying.
"The growth was very rapid. That growth led to some suboptimal outcomes," said Ashish Lakhanpal, managing director of Kismet Capital, one of SKS's largest shareholders, who was on the SKS board until October 2010. "Were there lapses? Absolutely."
While the board was concerned about fast credit growth, the company never believed it was harming borrowers, Lakhanpal said.
"Mistakes were made, but I find it difficult to believe there was anything people did at a managerial level to encourage field officers to do that," he said.
___
In spring 2011, Akula began circulating a plan to spend $10 million to train financial counselors who would make sure clients weren't getting into too much debt and used their loans productively, according to Sarin, Vautrey and others with firsthand knowledge of the proposal.
The plan was never adopted.
Publicly, Akula continued to deny that SKS bore any responsibility for suicides. "Whatever happened was due to external factors and was not reflective of any fundamental flaw in our model," he told India's Business Today.
Privately, Akula prepared a 55-page presentation for the board that detailed the seven suicides that SKS' outside investigation had blamed on the company. The presentation showed how the pre-IPO push for growth led to a systemic breakdown, and again urged core reforms to restore training and lending discipline.
Board members received copies of Akula's presentation at a July 26, 2011, meeting, said a former employee who helped prepare the material and spoke anonymously for fear of retribution.
The minutes of the meeting, however, make no mention of the report.
"As per my notes, this was not part of the board proceedings," company secretary Sudershan Pallap wrote in a Sept. 26 email to Akula, who had complained of the omission.
Ravikumar, who would become interim chairman when Akula resigned, said the board was never informed that SKS employees were implicated in any suicides, and denied Akula presented any such findings to the board.
"There was no presentation from Vikram Akula at that board meeting. This will be reflected in the minutes, as signed by Vikram Akula," he said.
Ravikumar said the board reviewed reports from the Microfinance Institutions Network, but none of them implicated SKS employees.
Akula continued to complain to the board that his presentation had been ignored. He summarized his concerns about the company's direction in emails, obtained by the AP, to seven board members, including Sequoia's Sumir Chadha, Sandstone's Paresh Patel and three independent directors: Ravikumar, Harvard's Tarun Khanna, and Pramod Bhasin, the former chief executive of Genpact.
Chadha, Patel and Khanna did not respond to multiple requests for comment.
Ravikumar declined to comment on what he said was personal correspondence.
Bhasin said reports claiming SKS bore responsibility for borrower suicides were "unsubstantiated."
"Any issues raised to the Board at various times were fully investigated by external parties and found to be unsubstantiated or without evidence or actions were taken on them where appropriate," he wrote in an email.
Rancor within the company was intensifying. Board members felt Akula was suffering from a bad case of "founder's syndrome," that he couldn't stand to share power at a company that had become too big for him to run.
Finally, on Nov. 23, 2011, Akula resigned.
Vautrey said he was targeted, and SKS began termination proceedings against him on Feb. 6. Three members of his staff have been fired and have filed wrongful termination complaints with the state.
On Feb. 6, SKS also sold 2.43 billion rupees ($49 million) in securitized loans. The stock price surged 10 percent. Top executives have been on the road, hoping to raise 5 billion rupees ($100 million) from international investors.
Sai, the company spokesman, said SKS has hired an ombudsman, is spending $3 million to improve its customer grievance program and has revamped training to ensure that employees comply with current regulations and do not lend to over-indebted borrowers. He said the company would like to reorganize incentives to maintain rapid growth while ensuring loan quality. Those changes have yet to be implemented, he said.
February 24, 2012
MUMBAI, India (AP)
First they were stripped of their utensils, furniture, mobile phones, televisions, ration cards and heirloom gold jewelry. Then, some of them drank pesticide. One woman threw herself in a pond. Another jumped into a well with her children.
Sometimes, the debt collectors watched nearby.
More than 200 poor, debt-ridden residents of Andhra Pradesh killed themselves in late 2010, according to media reports compiled by the government of the south Indian state. The state blamed microfinance companies — which give small loans intended to lift up the very poor — for fueling a frenzy of overindebtedness and then pressuring borrowers so relentlessly that some took their own lives.
 |
| In this photo taken Feb. 14, 2012, Shwetha, 5, sits on the lap of her mother Sunita, 22, as she holds a photograph of her debt-ridden father Hari Prasad, who consumed fertilizer chemical to kill himself on Aug. 1, 2010, in Kadiri village about 160 kilometers (99 miles) north of Bangalore, India. A wave of suicides among the impoverished residents of India's Andhra Pradesh state was blamed on the relentless tactics of agents from microfinance companies, which give small loans intended to lift up the very poor. |
The companies, including market leader SKS Microfinance, denied it.
However, internal documents obtained by The Associated Press, as well as interviews with more than a dozen current and former employees, independent researchers and videotaped testimony from the families of the dead, show top SKS officials had information implicating company employees in some of the suicides.
An independent investigation commissioned by the company linked SKS employees to at least seven of the deaths. A second investigation commissioned by an industry umbrella group that probed the role of many microfinance companies did not draw conclusions but pointed to SKS involvement in two more cases that ended in suicide. Neither study has been made public.
Both reports said SKS employees had verbally harassed over-indebted borrowers, forced them to pawn valuable items, incited other borrowers to humiliate them and orchestrated sit-ins outside their homes to publicly shame them. In some cases, the SKS staff physically harassed defaulters, according to the report commissioned by the company. Only in death would the debts be forgiven.
The videos and reports tell stark stories:
One woman drank pesticide and died a day after an SKS loan agent told her to prostitute her daughters to pay off her debt. She had been given 150,000 rupees ($3,000) in loans but only made 600 rupees ($12) a week.
Another SKS debt collector told a delinquent borrower to drown herself in a pond if she wanted her loan waived. The next day, she did. She left behind four children.
One agent blocked a woman from bringing her young son, weak with diarrhea, to the hospital, demanding payment first. Other borrowers, who could not get any new loans until she paid, told her that if she wanted to die, they would bring her pesticide. An SKS staff member was there when she drank the poison. She survived.
An 18-year-old girl, pressured until she handed over 150 rupees ($3) — meant for a school examination fee — also drank pesticide. She left a suicide note: "Work hard and earn money. Do not take loans."
In all these cases, the report commissioned by SKS concluded that the company's staff was either directly or indirectly responsible.
Caught in the despair of poverty, tens of thousands of impoverished Indians kill themselves every year, often because of insurmountable debt. The supportive structure of the microfinance companies was supposed to change that.
But Davuluri Venkateswarlu, director of Glocal Research in Hyderabad, which conducted the industrywide investigation, said in an interview that he told SKS executives there was "clear involvement of SKS personnel" in some suicides.
SKS continues to deny all responsibility for the deaths and says it never commissioned an independent inquiry. SKS spokesman J.S. Sai, who flew to Mumbai from the company's Hyderabad headquarters to discuss the AP findings, said the company stands by its September 2011 affidavit before India's Supreme Court. In that affidavit, chief executive M.R. Rao says SKS "is neither the cause of nor responsible for any suicides in the state of Andhra Pradesh."
The deaths came after a period of hypergrowth leading up to the company's hugely successful August 2010 initial public offering.
Originally developed as a nonprofit effort to lift society's most downtrodden, microfinance has increasingly become a for-profit enterprise that serves investors as well as the poor. As India's market leader, SKS has pioneered a business model that many others hoped to emulate.
But the story of what went wrong at SKS has led current and former employees and even some major shareholders to question that strategy and raises fundamental questions for the multibillion-dollar global microfinance industry.
Meanwhile, whistleblowers at SKS say that they have been targeted for retaliation and that the company has failed to correct structural flaws that contributed to the suicides.
"At the end of it," said Alok Prasad, chief executive of the Microfinance Institutions Network, the industry group that commissioned the Glocal report, "you come down to a handful of cases where some things went wrong. Is that indicative of the model being bad or very rapid expansion leading to a loss of control?"
___
Microfinance was born in desperation. Amid the 1970s famine in Bangladesh, Muhammad Yunus began giving small loans to poor women with his own money. Despite the predictions of bankers, the women paid him back.
The core idea of Yunus' Grameen Bank was the borrower group. Five women from a village determine how large a loan each member gets and act as guarantors. If even one member is delinquent, no new loans are issued. Group members apply pressure — and support — that has kept repayment rates near 100 percent.
Yunus' innovation won him the Nobel Peace Prize in 2006.
In 1997, Yunus acolyte Vikram Akula founded his own microcredit organization, Swayam Krishi Sangam, Sanskrit for "self-help society." In 2005, SKS started operating as a for-profit company and Akula began chasing private investment to achieve the massive scale required to dent global poverty.
In August 2010, SKS Microfinance — then India's largest microlender — went public. Exuberant investors oversubscribed the $350 million offering nearly 14 times. The stock surged more than 10 percent its first day. The company handed out 21,000 watches to employees in celebration.
Then media reports began to surface that over-indebted borrowers were killing themselves.
In October 2010, a mob of 150 people surrounded SKS's Hyderabad headquarters, protesting the suicide of a borrower's husband. They threatened to drag the corpse inside and demanded $20,000.
It was one of dozens of deaths the government of Andhra Pradesh blamed on aggressive tactics by microfinance companies. Police jailed microfinance employees, including dozens from SKS. Among the charges was abetment to suicide, essentially driving people to kill themselves, a crime under Indian law. Authorities investigated 76 cases in which employees from SKS and other microfinance companies were blamed for driving borrowers to take their own lives. The state passed a law designed to clamp down on abuses with new restrictions on loan disbursement and collection and onerous registration requirements on the companies. Microlending in India's largest microcredit market was effectively shut down.
Microfinance officials fought the new law and denied the charges, accusing the state government of trying to gain traction with voters and punish companies for capturing valuable market share from state-run lending groups.
Established microlenders such as SKS said loan sharks operating under the guise of microfinance were behind the excesses. SKS and other companies asked a court to stop the arrest of their employees. The court issued a stay on new arrests. Today, no one is in jail.
In a November 2010 letter to India's finance minister, Akula defended his company and included supportive articles from The Wall Street Journal and the Financial Times.
At the same time, the industry group Microfinance Institutions Network hired Glocal to investigate 44 deaths among debtors of microfinance companies, including SKS.
Venkateswarlu, the Glocal director, presented the findings to executives at three lenders. In January 2011, he delivered startling news to Akula and Rao: SKS employees had clear involvement in the suicides of four borrowers, meaning that their actions appeared strongly linked to the subsequent deaths, according to their investigation.
The AP obtained a four-page section of the Glocal report that deals with the SKS case studies. It related the financial history of borrowers, the loans obtained, the nature of pressure or harassment for repayment and the microfinance company involved. Venkateswarlu verified that it was the material he presented to Akula and Rao.
"They said they'd look into the issue and take some appropriate action," Venkateswarlu said.
SKS sent internal audit teams to the field. Their reports exonerated the company.
Unable to reconcile the two sets of findings, SKS hired Guardian's Human & Civil Rights Forum and Third Eye, a private investigative agency, to do a more thorough, independent inquiry, according to Ramesh Vautrey, head of administration at SKS, who oversaw the investigation, and Rajender Khanna, the president of Guardian's.
A Jan. 17, 2011, letter from SKS, signed and stamped by Vautrey, asked Khanna to "carry out a fact finding enquiry on the causes of suicide and complicity of our field staffs without any prejudice," according to a copy of the letter obtained by AP. The AP was shown invoice numbers for SKS payments to Third Eye and emails indicating the findings were sent to top management.
P.H. Ravikumar, who became interim chairman of the SKS board last November, said neither management nor the board authorized an independent inquiry into borrower deaths.
"Our enquiries from 2009 to 2011 have revealed that neither SKS nor its employees have been the cause for any of the suicides in the state of Andhra Pradesh," the company said in a statement. The company also said SKS employees have been acquitted in two borrower suicide cases in Andhra Pradesh and that only one criminal case remains outstanding.
Khanna sent teams to speak with families of the dead, village leaders, neighbors and loan agents, videotaping the interviews. Their report said SKS employees bore direct or indirect responsibility for at least seven suicides, including two that overlapped with the Glocal findings.
The interview videos were shown to the AP by Uma Maheshwari, who said she was present during one set of recordings and visited several of the families personally. She left SKS in July.
In one video, the daughter of borrower Dhake Lakshmi Rajyam cries, gasping as she talks to an investigator in Tadepalligudem, Andhra Pradesh.
Rajyam was unable to pay off $2,400 owed to eight different companies. Employees of microfinance companies, including SKS, urged other borrowers to seize the family's chairs, utensils and wardrobe and pawn them to make loan payments, her family told investigators. Unable to bear the insults and pressure of the crowd of borrowers who sat outside her home for hours to shame her, Rajyam drank pesticide on Sept. 16, 2010, and died, the family says.
"We have lost my mother," her daughter says. "Nobody will support us."
The investigator's conclusions lay the blame on SKS employees, saying they failed to comply with company policies "and even basic moral rights."
Vautrey said he sent the case studies to three top managers, including Rao. Emails obtained by AP indicate that summary reports were emailed to the managers.
Rao did not respond to multiple requests from AP seeking comment.
Vautrey went to Akula's office one night and told him what they were doing was bad karma.
"I don't want to be part of a team abetting suicides," Vautrey said in an interview. "It is systemic failure. We have no right to kill anybody for our own business. Let's close down our business if we can't do it right."
___
A profound shift in values and incentives at SKS began in 2008.
In October, Boston-based Sandstone Capital, now SKS' largest investor, made a major investment. It joined U.S. private equity firm Sequoia Capital, which funded Google and Apple and is SKS' largest shareholder, on the board of directors.
Akula, who had been chief executive in the company's early days, stepped down in December 2008 but stayed on as chairman. The company brought in new top executives from the worlds of finance and insurance.
SKS also began transferring more loans off its books, selling highly rated pools of loans to banks, which then assumed most of the associated risk of borrower default. That freed SKS to push out more and bigger loans.
In December 2009, SKS launched a massive sales drive. The "Incentives Galore" program ran through February 2010 — just one month before the company filed its IPO prospectus.
Agents won prizes worth up to 10 times their average monthly salary for signing huge numbers of new borrowers. Vautrey said he coordinated the shipment of 8,800 televisions, refrigerators, gold coins, mixers, washing machines and DVDs as rewards for more than 3,000 districts nationwide.
One loan officer signed up 273 groups in a month. Under training protocols, the ideal number of groups formed per month is 12, the maximum is 36, according to field agents and reports written by Akula.
"The focus is only on targets," Ramulu Sirgapur, who spent a decade at SKS before he left in December, told AP. "Even if we've given feedback, there might be recovery or repayment issues. That's OK. Just concentrate on growth."
The result: Management had a great set of numbers to show investors as it shopped the IPO. In a month, SKS could add 400,000 borrowers and 100 branches, and train more than 1,000 new loan officers. SKS had 6.8 million borrowers and had disbursed $3.2 billion in loans. India was pimpled with SKS branches, which bloomed in nearly 100,000 villages.
SKS said it was the fastest growing microfinance company in the world.
But basic principles of lending were overlooked, according to interviews with current and former employees, as well as correspondence and internal PowerPoint presentations by Akula.
Six current and former SKS staffers with experience in the field told the AP they no longer had time to check a borrower's assets or follow up and make sure a loan was put to productive use. They said that they were pressured to push more debt onto people than they could handle and that the number of days devoted to borrower training was cut in half.
"You have a (borrower group), and a loan officer goes out and trains them, educates them, then they give the loan. That's the SKS I'd seen in 1999. That was the whole model on which microfinance is supposed to work. In the quest for growth, a lot of these things got neglected," said Ankur Sarin, director of the SKS trusts, which are the fourth largest shareholder in the company and tasked with looking out for borrower interests.
As the relationships between heavily indebted borrowers and loan agents broke down, it became harder to collect.
Frustrated agents began working together and going door to door to collect, rather than taking payments only in public — a company rule designed to limit coercion. They began using other borrowers to pressure defaulters into repaying.
"The growth was very rapid. That growth led to some suboptimal outcomes," said Ashish Lakhanpal, managing director of Kismet Capital, one of SKS's largest shareholders, who was on the SKS board until October 2010. "Were there lapses? Absolutely."
While the board was concerned about fast credit growth, the company never believed it was harming borrowers, Lakhanpal said.
"Mistakes were made, but I find it difficult to believe there was anything people did at a managerial level to encourage field officers to do that," he said.
___
In spring 2011, Akula began circulating a plan to spend $10 million to train financial counselors who would make sure clients weren't getting into too much debt and used their loans productively, according to Sarin, Vautrey and others with firsthand knowledge of the proposal.
The plan was never adopted.
Publicly, Akula continued to deny that SKS bore any responsibility for suicides. "Whatever happened was due to external factors and was not reflective of any fundamental flaw in our model," he told India's Business Today.
Privately, Akula prepared a 55-page presentation for the board that detailed the seven suicides that SKS' outside investigation had blamed on the company. The presentation showed how the pre-IPO push for growth led to a systemic breakdown, and again urged core reforms to restore training and lending discipline.
Board members received copies of Akula's presentation at a July 26, 2011, meeting, said a former employee who helped prepare the material and spoke anonymously for fear of retribution.
The minutes of the meeting, however, make no mention of the report.
"As per my notes, this was not part of the board proceedings," company secretary Sudershan Pallap wrote in a Sept. 26 email to Akula, who had complained of the omission.
Ravikumar, who would become interim chairman when Akula resigned, said the board was never informed that SKS employees were implicated in any suicides, and denied Akula presented any such findings to the board.
"There was no presentation from Vikram Akula at that board meeting. This will be reflected in the minutes, as signed by Vikram Akula," he said.
Ravikumar said the board reviewed reports from the Microfinance Institutions Network, but none of them implicated SKS employees.
Akula continued to complain to the board that his presentation had been ignored. He summarized his concerns about the company's direction in emails, obtained by the AP, to seven board members, including Sequoia's Sumir Chadha, Sandstone's Paresh Patel and three independent directors: Ravikumar, Harvard's Tarun Khanna, and Pramod Bhasin, the former chief executive of Genpact.
Chadha, Patel and Khanna did not respond to multiple requests for comment.
Ravikumar declined to comment on what he said was personal correspondence.
Bhasin said reports claiming SKS bore responsibility for borrower suicides were "unsubstantiated."
"Any issues raised to the Board at various times were fully investigated by external parties and found to be unsubstantiated or without evidence or actions were taken on them where appropriate," he wrote in an email.
Rancor within the company was intensifying. Board members felt Akula was suffering from a bad case of "founder's syndrome," that he couldn't stand to share power at a company that had become too big for him to run.
Finally, on Nov. 23, 2011, Akula resigned.
Vautrey said he was targeted, and SKS began termination proceedings against him on Feb. 6. Three members of his staff have been fired and have filed wrongful termination complaints with the state.
On Feb. 6, SKS also sold 2.43 billion rupees ($49 million) in securitized loans. The stock price surged 10 percent. Top executives have been on the road, hoping to raise 5 billion rupees ($100 million) from international investors.
Sai, the company spokesman, said SKS has hired an ombudsman, is spending $3 million to improve its customer grievance program and has revamped training to ensure that employees comply with current regulations and do not lend to over-indebted borrowers. He said the company would like to reorganize incentives to maintain rapid growth while ensuring loan quality. Those changes have yet to be implemented, he said.
India's role as global drug supplier threatened by EU pact
KATY DAIGLE, AP
February 10, 2012
 |
| Indian Minister for Commerce and Industry Anand Sharma, left, talks with European Union Commissioner Kari De Gucht during a meeting in New Delhi, India, Thursday, Feb. 9, 2012. Gucht will attend the annual India-EU Summit scheduled for February 10. INDIA OUT Photo: AP / AP |
NEW DELHI (AP) — Efforts by India and the European Union to strengthen trade are threatening India's ability to deliver lifesaving medicines to the world's poorest, analysts say as the two sides push through protracted negotiations on a free-trade pact.
The two sides said after a summit Friday in New Delhi that they would speed up efforts to reach an agreement this year.
Health industry workers and activists worry India may bow to EU demands for strict intellectual property protections and investor guarantees, which could close down the world's generic drug supply.
India's $26 billion drug industry has become an immense profit engine, growing at 15-25 percent a year — but also a lifeline for millions of patients in poor countries, many in Africa, unable to pay sky-high Western prices to treat illnesses that include HIV, malaria, asthma and cancer. For HIV alone, India makes more than 80 percent of the world's medicines.
The EU says it has suggested a clause in the free-trade pact "to ensure that nothing in the proposed agreement would limit India's freedom to produce and export lifesaving medicines."
Despite the EU assurance, Indian drug makers and health workers say two broad provisions in the agreement — one on intellectual property rights, and the other on investor lawsuits — would make it much easier for international pharmaceutical giants to sue the Indian government, drug manufacturers and distributors.
That, they argue, would dramatically curtail Indian production of many lifesaving drugs, or cause prices to rise to levels many cannot afford.
"The EU has changed strategy and has now focused on enforcement," trying to create an intellectual property rights regime "that will intimidate even legitimate generic manufacturers and thereby impact access and availability," said Dilip G. Shah, a former Pfizer executive who now heads both the Indian Pharmaceutical Alliance and the industry's Vision Consulting Group.
Activists have unleashed a global campaign to call the EU out on the policies. Analysts and drug makers say they have a point. While India's pharmaceutical companies would likely survive under a regime limiting generics, millions of the world's neediest patients, including within India, may not.
"The industry will be OK. They can produce anything" including drugs for Western multinationals, pharmaceutical analyst Bino Pathiparampil of IIFL Capital said. They may also gain from easier access to European markets.
"But there would be a serious impact on society, as many of the poor would be cut off from treatments," he said.
Since the talks began in 2007, Indian negotiators have refused to hamper the country's generic drug industry by undermining the low-cost production, high-quality professionalism or permissive licensing regime that has helped the industry grow.
But India and the EU both face different pressures today than when they started five years ago. Following a year of economic turmoil, Europe is eager to reach India's young and upwardly mobile market of 1.2 billion people, while India wants to prove its place among the world's economic powerhouses.
This year would also be ideal for India's government to show progress on a pact that can distract from a recent string of embarrassing corruption scandals. Indian and EU officials did not discuss the concerns over Indian generics with reporters after their meeting on Friday.
The EU is India's biggest trading partner, accounting last year for $92 billion in bilateral sales. The trade pact, they say, would lift that to an annual $237 billion by 2015.
With the talks held behind closed doors and without participation by health ministers, analysts say there are few voices to prevent the final draft from giving multinational pharmaceuticals enough power to shut generics down.
On Friday, hundreds of people living with HIV protested in New Delhi to press Indian officials to reject any rules that might limit world supplies of anti-retroviral treatments.
"Whether we get to live or die should not be up to trade negotiators," Mundrika Gahlot of the Delhi Network of Positive People said in a statement.
Half of the generics India produces are used domestically, as India grapples with its own health care crisis and many impoverished patients are left to pay for care themselves.
The European Union has suggested it could drop two demands that would have affected the generics industry, specifically on patent extensions and on allowing companies to keep scientific data and clinical studies under wraps.
But experts say there are even more worrying provisions in the draft, which has been leaked during the talks and discussed by Indian negotiators with health care workers.
Measures to strengthen intellectual property rights, for example, would require courts to impose injunctions on drug production whenever a complaint is filed, whereas courts today often allow production of lifesaving drugs to continue while cases are pending.
There are also measures for widening lawsuits so patent holders can sue not just pharmaceuticals producing generics, but also those who supply materials as mundane as plastic bottles, nonprofit groups and foreign governments who purchase the drugs, and hypothetically even those who use them — the patients.
 |
| A pharmacist near a tablet counting machine at a Cipla manufacturing unit on the outskirts of Mumbai, India, Thursday, Feb 9, 2012. Efforts by India and the European Union to strengthen trade are threatening India's ability to deliver life-saving medicines to the world's poorest, analysts say as the two sides resume protracted negotiations on a free-trade pact. Health industry workers and activists worry that India may bow to EU demands for strict intellectual property protections and investor guarantees, which could result in the slow poisoning of its own generic pharmaceutical industry. India's $26 billion drug industry has become an immense profit engine, growing at 15-25 percent a year _ but also a lifeline for millions of patients in poor countries, many in Africa, unable to pay sky-high Western prices to treat illnesses that include HIV, malaria, asthma and cancer. Photo: Rafiq Maqbool / AP |
Another measure would let investors sue the Indian government if they feel their investment is being undermined, for example, by a license that allows a generic to be produced.
"Who do these measures serve? Not the European people, not the Indian people, not even the governments," said Indian lawyer Anand Grover, who since 2006 has served as a U.N. Special Rapporteur on human rights to health. "In fact, this is for a very small, profit-taking group of people."
Thursday, February 16, 2012
Banned Aid : Why International Assistance Does Not Alleviate Poverty
By Jagdish Bhagwati
January/February 2010
Foreign Affairs
An annotated Foreign Affairs syllabus on foreign aid.
Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa. By Dambisa Moyo. Farrar, Straus & Giroux, 2009, 208 pp. $24.00.
If you live in the affluent West, no public policy issue is more likely to produce conflicts in your conscience than foreign aid. The humane impulse, fueled by unceasing televised images of famine and pestilence in the developing world, is to favor giving more aid. But a contrasting narrative has the opposite effect: Emperor Jean-Bédel Bokassa of the Central African Republic used Western aid to buy a gold-plated bed, and Zaire's dictator, Mobutu Sese Seko, spent it on personal jaunts on the Concorde. Such scandals inevitably lead many to conclude that most aid is wasted or, worse still, that it alone is responsible for corruption.
These debates have largely been the province of Western intellectuals and economists, with Africans in the developing world being passive objects in the exercise -- just as the 1980s debate over the United States' Japan fixation, and the consequent Japan bashing, occurred among Americans while the Japanese themselves stood by silently. Yet now the African silence has been broken by Dambisa Moyo, a young Zambian-born economist with impeccable credentials. Educated at Harvard and Oxford and employed by Goldman Sachs and the World Bank, Moyo has written an impassioned attack on aid that has won praise from leaders as diverse as former UN Secretary-General Kofi Annan and Rwandan President Paul Kagame.
Moyo's sense of outrage derives partly from her distress over how rock stars, such as Bono, have dominated the public discussion of aid and development in recent years, to the exclusion of Africans with experience and expertise. "Scarcely does one see Africa's (elected) officials or those African policymakers charged with a country's development portfolio offer an opinion on what should be done," she writes, "or what might actually work to save the continent from its regression. . . . One disastrous consequence of this has been that honest, critical and serious dialogue and debate on the merits and demerits of aid have atrophied." She also distances herself from academic proponents of aid, virtually disowning her former Harvard professor Jeffrey Sachs, whose technocratic advocacy of aid and moralistic denunciations of aid skeptics cut no ice with her. Instead, she dedicates her book to a prominent and prescient early critic of aid, the development economist Peter Bauer.
Moyo's analysis begins with the frustrating fact that in economic terms, Africa has actually regressed, rather than progressed, since shedding colonial rule several decades ago. She notes that the special factors customarily cited to account for this tragic situation -- geography, history, social cleavages, and civil wars -- are not as compelling as they appear. Indeed, there are many places where these constraints have been overcome. Moyo is less convincing, however, when she tries to argue that aid itself has been the crucial factor holding Africa back, and she verges on deliberate provocation when she proposes terminating all aid within five years -- a proposal that is both impractical (given existing long-term commitments) and unhelpful (since an abrupt withdrawal of aid would leave chaos in its wake).
Moyo's indictment of aid, however, is serious business, going beyond Africa to draw on cross-sectional studies and anecdotes from across the globe. Before buying her indictment, however, it is necessary to explore why the hopes of donors have so often been dashed.
THE CHARITY TRAP
Foreign aid rests on two principles: that it should be given as a moral duty and that it should yield beneficial results. Duty can be seen as an obligation independent of its consequences, but in practice, few are likely to continue giving if their charity has little positive effect. Beginning in the years after World War II, those who wanted the rich nations to give development aid to poorer ones had to address the challenges of building domestic support for greater aid flows and ensuring that the aid would be put to good use. But their unceasing efforts to produce higher flows of aid have led aid advocates to propose the use of tactics that have ironically undermined aid's efficacy, virtually guaranteeing the kind of failures that understandably trigger Moyo's outrage.
At the outset, aid was principally driven by a common sense of humanity that cut across national boundaries -- what might be called cosmopolitan altruism. Aid proponents in the 1940s and 1950s, such as Gunnar Myrdal and Paul Rosenstein-Rodan, were liberals who felt that the principle of progressive taxation -- redistribution within nations -- ought to be extended across international borders. This led to proposals such as those to set an aid target of one percent of each donor nation's GNP, playing off the Christian principle of tithing (giving ten percent of one's income to the church) or the Muslim duty of zakat (which mandates donating 2.5 percent of one's earnings to the needy).
How was the one percent figure arrived at? According to Sir Arthur Lewis, the first Nobel laureate in economics for development economics, the British Labour Party leader Hugh Gaitskell had asked him in the early 1950s what figure they should adopt as the United Kingdom's annual aid obligation and Lewis had settled on one percent of GNP as a target because he had a student working on French colonies in Africa, where French expenditures seemed to add up to one percent of GNP. Such a target, of course, implied a proportional, rather than a progressive, obligation, but it had a nice ring to it.
The problem was that the one percent target remained aspirational rather than practical. Outside of Scandinavia, there was never much popular support for giving away so much money to foreigners, however deserving they might be. So aid proponents started looking for other arguments to bolster their case, and they hit on enlightened self-interest. If one could convince Western legislatures and voters that aid would benefit them as well, the reasoning went, the purse strings might be loosened.
In 1956, Rosenstein-Rodan told me that then Senator John F. Kennedy, who bought into the altruism argument, had told him that there was no way it could fly in the U.S. Congress. A case stressing national interest and the containment of communism was needed. And so the argument was invented that unless the United States gave aid, the Soviet Union would provide it and, as a result, the Third World might tilt toward Moscow. In fact, the Soviets had already funded the construction of Egypt's Aswan Dam, a project the United States had turned down. The only catch was that if the Cold War became Washington's rationale for giving aid, it was inevitable that much of it would end up in the hands of unsavory regimes that pledged to be anticommunist -- regimes with a taste for gold-plated beds, Concordes, fat Swiss bank accounts, and torture. By linking aid payments to the Cold War, proponents of aid shot themselves in the foot. More aid was given, but it rarely reached the people it was intended to help.
FROM ALTRUISM TO SELF-INTEREST
When the Cold War began to lose its salience, the search began for other arguments to support aid. The World Bank appointed two successive blue-ribbon panels to deliberate on ways of expanding aid flows, the Pearson Commission, in 1968, and the Brandt Commission, in 1977. The group led by former West German Chancellor Willy Brandt, although emphasizing that there was a moral duty to give, fell back nonetheless on an enlightened self-interest argument based on a Keynesian assertion that made no sense at all: that raising global demand for goods and services through aid to the poor countries would reduce unemployment in the rich countries -- an argument seemingly oblivious to the fact that spending that money in the rich countries would reduce unemployment even more.
Other feeble arguments related to immigration. It was assumed that if aid were given wisely and used effectively, it would reduce illegal immigration by decreasing the wage differentials between the sending and the receiving countries. But the primary constraint on illegal immigration today is the inability of many aspiring immigrants to pay the smugglers who shepherd them across the border. If those seeking to reach El Norte or Europe earned higher salaries, they would have an easier time paying "coyotes," and more of them would attempt illegal entry.
Lewis, who was a member of the Pearson Commission, therefore despaired of both the altruistic and the enlightened self-interest arguments. I recall him remarking in 1970, half in jest, that development economists should simply hand over the job of raising aid flows to Madison Avenue. Little did he know that this is exactly what would happen 20 years later with the advent of the "Make Poverty History" campaign, supported by Live Aid concerts and the sort of celebrity overkill that many Africans despise. Of course, this has meant the revival of the altruism argument. Aid targets have therefore returned to the forefront of the debate, even though they are rarely met: in 2008, there was a shortfall of $35 billion per year on aid pledged by the G-8 countries at the Gleneagles summit in 2005, and the shortfall for aid to Africa was $20 billion.
One of the chief reasons for the gap is not just miserliness but a lack of conviction that aid does much good. Aid proponents today try to overcome this doubt by linking aid-flow obligations to worldwide targets for the provision of primary education and health care and other laudable objectives enshrined in the 2000 UN Millennium Development Goals (which are uncannily reminiscent of the Brandt Commission's proposals). But the question Moyo and other thoughtful critics properly insist on raising is whether aid is an appropriate policy instrument for achieving these targets.
And so one returns to the old question of what Rosenstein-Rodan termed "absorptive capacity": How much aid can be absorbed by potential aid recipients and transformed into useful programs? Arguments that aid can and should be used to promote development seem reasonable but have run into problems -- not just because corrupt dictators divert aid for nefarious or selfish purposes but because even in reasonably democratic countries, the provision of aid creates perverse incentives and unintended consequences.
The disconnect between what development economists thought foreign assistance would achieve and what it has actually done is best illustrated by a close look at the earliest model used to formulate development plans and estimate aid requirements. The model was associated with two world-class economists, Roy Harrod of Oxford and Evsey Domar of MIT. In essence, the Harrod-Domar model used two parameters to define development: growth rates were considered a function of how much a country saved and invested (the savings rate) and how much it got out of the investment (the capital-output ratio). Aid proponents would thus set a target growth rate (say, five percent per annum), assume a capital-output ratio (say, 3:1), and derive the "required" savings rate (in this case, 15 percent of GNP). If the country's domestic savings rates fell below this level, they reasoned, the unmet portion could and should be financed from abroad.
Economists also assumed that aid recipients would use fiscal policy to steadily increase their own domestic savings rates over time, thus eliminating the need for aid entirely in the long run. With such matching efforts by the recipients to raise domestic savings, so the logic went, aid would promote growth and self-reliance.
The problem with this approach, widely used throughout the 1970s, was that although aid was predicated on increased domestic savings, in practice it led to reduced domestic savings. Many aid recipients were smart enough to realize that once wealthy nations had made a commitment to support them, shortfalls in their domestic efforts would be compensated by increased, not diminished, aid flows. Besides, as Moyo notes, the World Bank -- which provided much of the multilateral aid flows -- faced a moral hazard: unlike the International Monetary Fund, which lends on a temporary basis and has a "good year" when it lends nothing, the World Bank was then judged by how much money it disbursed, not by how well that money was spent -- and the recipients knew this.
PAVED WITH GOOD INTENTIONS
Similar problems involving the mismatch between intentions and realities are present in today's battles over aid. Now, as before, the real question is not who favors helping the poor or spurring development -- since despite the slurs of aid proponents, all serious parties to the debate share these goals -- but rather how this can be done.
Many activists today think that development economists in the past neglected poverty in their quest for growth. But what they miss is that the latter was seen as the most effective weapon against the former. Poverty rates in the developing countries did indeed rise during the postwar decades, but this was because growth was sporadic and uncommon. And that was because the policy framework developing countries embraced was excessively dirigiste, with knee-jerk government intervention across the economy and fears of excessive openness to trade and foreign direct investment. After countries such as China and India changed course and adopted liberal (or, if you prefer, "neoliberal") reforms in the last decades of the century, their growth rates soared and half a billion people managed to move above the poverty line -- without question, the greatest and quickest progress in fighting poverty in history.
Neither China nor India, Moyo points out, owed their progress to aid inflows at all. True, India had used aid well, but for decades its growth was inhibited by bad policies, and it was only when aid had become negligible and its economic policies improved in the early 1990s that its economy boomed. The same goes for China.
If history is any guide, therefore, the chief weapon in the "war on poverty" should be not aid but liberal policy reforms. Aid may assist poor nations if it is effectively tied to the adoption of sound development policies and carefully channeled to countries that are prepared to use it properly (as President George W. Bush's Millennium Challenge program recently sought to do). Political reform is important, too, as has been recognized by the enlightened African leaders who have put their energies into the New Partnership for Africa's Development (NEPAD), which aims to check the continent's worst political abuses.
But unfortunately, despite all these good intentions, if the conditions for aid's proper use do not prevail, that aid is more likely to harm than help the world's poorest nations. This has been true in the past, it is true now, and it will continue to be true in the future -- especially if some activists get their wishes and major new flows of aid reach the developing world simply because it makes Western donors feel good.
Moyo is right to raise her voice, and she should be heard if African nations and other poor countries are to move in the right direction. In part, that depends on whether the international development agenda is set by Hollywood actresses and globetrotting troubadours or by policymakers and academics with half a century of hard-earned experience and scholarship. In the end, however, it will be the citizens and policymakers of the developing world who will seize the reins and make the choices that shape their destiny and, hopefully, soon achieve the development progress that so many have sought for so long.
Dembisa Moyo
January/February 2010
Foreign Affairs
An annotated Foreign Affairs syllabus on foreign aid.
Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa. By Dambisa Moyo. Farrar, Straus & Giroux, 2009, 208 pp. $24.00.
If you live in the affluent West, no public policy issue is more likely to produce conflicts in your conscience than foreign aid. The humane impulse, fueled by unceasing televised images of famine and pestilence in the developing world, is to favor giving more aid. But a contrasting narrative has the opposite effect: Emperor Jean-Bédel Bokassa of the Central African Republic used Western aid to buy a gold-plated bed, and Zaire's dictator, Mobutu Sese Seko, spent it on personal jaunts on the Concorde. Such scandals inevitably lead many to conclude that most aid is wasted or, worse still, that it alone is responsible for corruption.
These debates have largely been the province of Western intellectuals and economists, with Africans in the developing world being passive objects in the exercise -- just as the 1980s debate over the United States' Japan fixation, and the consequent Japan bashing, occurred among Americans while the Japanese themselves stood by silently. Yet now the African silence has been broken by Dambisa Moyo, a young Zambian-born economist with impeccable credentials. Educated at Harvard and Oxford and employed by Goldman Sachs and the World Bank, Moyo has written an impassioned attack on aid that has won praise from leaders as diverse as former UN Secretary-General Kofi Annan and Rwandan President Paul Kagame.
Moyo's sense of outrage derives partly from her distress over how rock stars, such as Bono, have dominated the public discussion of aid and development in recent years, to the exclusion of Africans with experience and expertise. "Scarcely does one see Africa's (elected) officials or those African policymakers charged with a country's development portfolio offer an opinion on what should be done," she writes, "or what might actually work to save the continent from its regression. . . . One disastrous consequence of this has been that honest, critical and serious dialogue and debate on the merits and demerits of aid have atrophied." She also distances herself from academic proponents of aid, virtually disowning her former Harvard professor Jeffrey Sachs, whose technocratic advocacy of aid and moralistic denunciations of aid skeptics cut no ice with her. Instead, she dedicates her book to a prominent and prescient early critic of aid, the development economist Peter Bauer.
Moyo's analysis begins with the frustrating fact that in economic terms, Africa has actually regressed, rather than progressed, since shedding colonial rule several decades ago. She notes that the special factors customarily cited to account for this tragic situation -- geography, history, social cleavages, and civil wars -- are not as compelling as they appear. Indeed, there are many places where these constraints have been overcome. Moyo is less convincing, however, when she tries to argue that aid itself has been the crucial factor holding Africa back, and she verges on deliberate provocation when she proposes terminating all aid within five years -- a proposal that is both impractical (given existing long-term commitments) and unhelpful (since an abrupt withdrawal of aid would leave chaos in its wake).
Moyo's indictment of aid, however, is serious business, going beyond Africa to draw on cross-sectional studies and anecdotes from across the globe. Before buying her indictment, however, it is necessary to explore why the hopes of donors have so often been dashed.
THE CHARITY TRAP
Foreign aid rests on two principles: that it should be given as a moral duty and that it should yield beneficial results. Duty can be seen as an obligation independent of its consequences, but in practice, few are likely to continue giving if their charity has little positive effect. Beginning in the years after World War II, those who wanted the rich nations to give development aid to poorer ones had to address the challenges of building domestic support for greater aid flows and ensuring that the aid would be put to good use. But their unceasing efforts to produce higher flows of aid have led aid advocates to propose the use of tactics that have ironically undermined aid's efficacy, virtually guaranteeing the kind of failures that understandably trigger Moyo's outrage.
At the outset, aid was principally driven by a common sense of humanity that cut across national boundaries -- what might be called cosmopolitan altruism. Aid proponents in the 1940s and 1950s, such as Gunnar Myrdal and Paul Rosenstein-Rodan, were liberals who felt that the principle of progressive taxation -- redistribution within nations -- ought to be extended across international borders. This led to proposals such as those to set an aid target of one percent of each donor nation's GNP, playing off the Christian principle of tithing (giving ten percent of one's income to the church) or the Muslim duty of zakat (which mandates donating 2.5 percent of one's earnings to the needy).
How was the one percent figure arrived at? According to Sir Arthur Lewis, the first Nobel laureate in economics for development economics, the British Labour Party leader Hugh Gaitskell had asked him in the early 1950s what figure they should adopt as the United Kingdom's annual aid obligation and Lewis had settled on one percent of GNP as a target because he had a student working on French colonies in Africa, where French expenditures seemed to add up to one percent of GNP. Such a target, of course, implied a proportional, rather than a progressive, obligation, but it had a nice ring to it.
The problem was that the one percent target remained aspirational rather than practical. Outside of Scandinavia, there was never much popular support for giving away so much money to foreigners, however deserving they might be. So aid proponents started looking for other arguments to bolster their case, and they hit on enlightened self-interest. If one could convince Western legislatures and voters that aid would benefit them as well, the reasoning went, the purse strings might be loosened.
In 1956, Rosenstein-Rodan told me that then Senator John F. Kennedy, who bought into the altruism argument, had told him that there was no way it could fly in the U.S. Congress. A case stressing national interest and the containment of communism was needed. And so the argument was invented that unless the United States gave aid, the Soviet Union would provide it and, as a result, the Third World might tilt toward Moscow. In fact, the Soviets had already funded the construction of Egypt's Aswan Dam, a project the United States had turned down. The only catch was that if the Cold War became Washington's rationale for giving aid, it was inevitable that much of it would end up in the hands of unsavory regimes that pledged to be anticommunist -- regimes with a taste for gold-plated beds, Concordes, fat Swiss bank accounts, and torture. By linking aid payments to the Cold War, proponents of aid shot themselves in the foot. More aid was given, but it rarely reached the people it was intended to help.
FROM ALTRUISM TO SELF-INTEREST
When the Cold War began to lose its salience, the search began for other arguments to support aid. The World Bank appointed two successive blue-ribbon panels to deliberate on ways of expanding aid flows, the Pearson Commission, in 1968, and the Brandt Commission, in 1977. The group led by former West German Chancellor Willy Brandt, although emphasizing that there was a moral duty to give, fell back nonetheless on an enlightened self-interest argument based on a Keynesian assertion that made no sense at all: that raising global demand for goods and services through aid to the poor countries would reduce unemployment in the rich countries -- an argument seemingly oblivious to the fact that spending that money in the rich countries would reduce unemployment even more.
Other feeble arguments related to immigration. It was assumed that if aid were given wisely and used effectively, it would reduce illegal immigration by decreasing the wage differentials between the sending and the receiving countries. But the primary constraint on illegal immigration today is the inability of many aspiring immigrants to pay the smugglers who shepherd them across the border. If those seeking to reach El Norte or Europe earned higher salaries, they would have an easier time paying "coyotes," and more of them would attempt illegal entry.
Lewis, who was a member of the Pearson Commission, therefore despaired of both the altruistic and the enlightened self-interest arguments. I recall him remarking in 1970, half in jest, that development economists should simply hand over the job of raising aid flows to Madison Avenue. Little did he know that this is exactly what would happen 20 years later with the advent of the "Make Poverty History" campaign, supported by Live Aid concerts and the sort of celebrity overkill that many Africans despise. Of course, this has meant the revival of the altruism argument. Aid targets have therefore returned to the forefront of the debate, even though they are rarely met: in 2008, there was a shortfall of $35 billion per year on aid pledged by the G-8 countries at the Gleneagles summit in 2005, and the shortfall for aid to Africa was $20 billion.
One of the chief reasons for the gap is not just miserliness but a lack of conviction that aid does much good. Aid proponents today try to overcome this doubt by linking aid-flow obligations to worldwide targets for the provision of primary education and health care and other laudable objectives enshrined in the 2000 UN Millennium Development Goals (which are uncannily reminiscent of the Brandt Commission's proposals). But the question Moyo and other thoughtful critics properly insist on raising is whether aid is an appropriate policy instrument for achieving these targets.
And so one returns to the old question of what Rosenstein-Rodan termed "absorptive capacity": How much aid can be absorbed by potential aid recipients and transformed into useful programs? Arguments that aid can and should be used to promote development seem reasonable but have run into problems -- not just because corrupt dictators divert aid for nefarious or selfish purposes but because even in reasonably democratic countries, the provision of aid creates perverse incentives and unintended consequences.
The disconnect between what development economists thought foreign assistance would achieve and what it has actually done is best illustrated by a close look at the earliest model used to formulate development plans and estimate aid requirements. The model was associated with two world-class economists, Roy Harrod of Oxford and Evsey Domar of MIT. In essence, the Harrod-Domar model used two parameters to define development: growth rates were considered a function of how much a country saved and invested (the savings rate) and how much it got out of the investment (the capital-output ratio). Aid proponents would thus set a target growth rate (say, five percent per annum), assume a capital-output ratio (say, 3:1), and derive the "required" savings rate (in this case, 15 percent of GNP). If the country's domestic savings rates fell below this level, they reasoned, the unmet portion could and should be financed from abroad.
Economists also assumed that aid recipients would use fiscal policy to steadily increase their own domestic savings rates over time, thus eliminating the need for aid entirely in the long run. With such matching efforts by the recipients to raise domestic savings, so the logic went, aid would promote growth and self-reliance.
The problem with this approach, widely used throughout the 1970s, was that although aid was predicated on increased domestic savings, in practice it led to reduced domestic savings. Many aid recipients were smart enough to realize that once wealthy nations had made a commitment to support them, shortfalls in their domestic efforts would be compensated by increased, not diminished, aid flows. Besides, as Moyo notes, the World Bank -- which provided much of the multilateral aid flows -- faced a moral hazard: unlike the International Monetary Fund, which lends on a temporary basis and has a "good year" when it lends nothing, the World Bank was then judged by how much money it disbursed, not by how well that money was spent -- and the recipients knew this.
PAVED WITH GOOD INTENTIONS
Similar problems involving the mismatch between intentions and realities are present in today's battles over aid. Now, as before, the real question is not who favors helping the poor or spurring development -- since despite the slurs of aid proponents, all serious parties to the debate share these goals -- but rather how this can be done.
Many activists today think that development economists in the past neglected poverty in their quest for growth. But what they miss is that the latter was seen as the most effective weapon against the former. Poverty rates in the developing countries did indeed rise during the postwar decades, but this was because growth was sporadic and uncommon. And that was because the policy framework developing countries embraced was excessively dirigiste, with knee-jerk government intervention across the economy and fears of excessive openness to trade and foreign direct investment. After countries such as China and India changed course and adopted liberal (or, if you prefer, "neoliberal") reforms in the last decades of the century, their growth rates soared and half a billion people managed to move above the poverty line -- without question, the greatest and quickest progress in fighting poverty in history.
Neither China nor India, Moyo points out, owed their progress to aid inflows at all. True, India had used aid well, but for decades its growth was inhibited by bad policies, and it was only when aid had become negligible and its economic policies improved in the early 1990s that its economy boomed. The same goes for China.
If history is any guide, therefore, the chief weapon in the "war on poverty" should be not aid but liberal policy reforms. Aid may assist poor nations if it is effectively tied to the adoption of sound development policies and carefully channeled to countries that are prepared to use it properly (as President George W. Bush's Millennium Challenge program recently sought to do). Political reform is important, too, as has been recognized by the enlightened African leaders who have put their energies into the New Partnership for Africa's Development (NEPAD), which aims to check the continent's worst political abuses.
But unfortunately, despite all these good intentions, if the conditions for aid's proper use do not prevail, that aid is more likely to harm than help the world's poorest nations. This has been true in the past, it is true now, and it will continue to be true in the future -- especially if some activists get their wishes and major new flows of aid reach the developing world simply because it makes Western donors feel good.
Moyo is right to raise her voice, and she should be heard if African nations and other poor countries are to move in the right direction. In part, that depends on whether the international development agenda is set by Hollywood actresses and globetrotting troubadours or by policymakers and academics with half a century of hard-earned experience and scholarship. In the end, however, it will be the citizens and policymakers of the developing world who will seize the reins and make the choices that shape their destiny and, hopefully, soon achieve the development progress that so many have sought for so long.
Dembisa Moyo
Foreign Aid and Underdevelopment in Africa
By Mathew K. Jallow
The African continent has struggled with chronic poverty and under-development since the advent of political independence more than fifty years, and many Africans view this problem as one of Africa's own making. African development experts and academics have blamed foreign aid for the continued and seemingly intractable development crisis confronting the continent. Africa's war on poverty is perceived as amounting to begging and submissiveness, leading to reforms that have made Africans poorer. The contention among many African experts is that the more the developed north co-operated with the south, the poorer Africa became. And increasingly, even tangible western generosity has failed to impress many Africans. Foreign aid has generally benefited the ruling elites in Africa, by among other things, enabling and perpetuating corrupt governments' hold on power, and by extension, entrenching the pervasive underdevelopment. Over the past five decades, foreign emergency assistance to Africa has helped to avert hardship for many of Africa's poor, but failed to promote any significant economic development. Foreign aid is provided with the conviction that real economic development begins when the emphasis is placed on providing aid to poor rural and urban communities.
Providing assistance to Africa's poor is a noble cause, but the five decades long campaign of aid has turned out to be what one critic called “a theater of the absurd.” To-date, the record of western aid to Africa has been significant, amounting to more than $500 billion between 1960 and 1997, which is the equivalent of four Marshall Plans being pumped into Sub-Saharan African. And today, the national budgets of most Sub-Saharan African countries are dependent on foreign aid for up to eighty percent of the annual budgets. Apart from the relief aid and economic development, foreign aid assistance was also provided to support reforms and policy adjustment programs. And between 1981 and 1991 alone, The World Bank provided $20 billion towards Africa's structural adjustment programs. The purpose of the programs was to make public institutions, government agencies, and bureaucracies in Africa more transparent, effective, efficient and accountable. It is baffling that Africa still suffers from a poverty trap, considering the depth of governments' corruption and the missing billions in export earnings from oil, gas, diamonds and other resources. The idea of foreign aid was compatible with the central theme of economic development, and was accepted as a possible escape from the chronic underdevelopment that is characterized by undeveloped infrastructure and dualistic economies. The persistence of the deplorable economic conditions in Africa has become the primary reason for the relentless search for realistic and durable solutions to the continent's development woes, even as the need for aid is intermittently reinforced by the fact that Africa's underdevelopment is accentuated by periodic global economic recession.
When it was conceived after World War II, U.S. foreign aid was designed to serve two conceptually interdependent, but potentially conflicting set of goals: first, the diplomatic and strategic goals that advance U.S. short-term political and long term strategic interests; and secondly, the development and humanitarian goals that sought a long-term economic growth, political stability, and the short-term alleviation of suffering. The U.S. Foreign Assistance Act of 1973 stressed the need to promote equity, minimum standards of living and per capita growth. Since then, the U.S. foreign assistance statutes have gone through several changes; each with its own objective and some would argue, defined by global politics rather than by any humane consideration. The concept of “Basic Human Needs,” under the U. S. Foreign Assistance statutes, can be seen as paradoxical if one considers the foreign assistance legislation as the expression of the primary function of foreign aid. The position of the U.S. as observed by development experts is that developmental and humanitarian programs received substantial funding only when they coincided with U.S. diplomatic and strategic interests. And despite the massive injection of aid over the past five decades, Africa, rather than achieve economic growth and development, has become more dependent, with standards of living experiencing a net decline. Studies show that there is overwhelming evidence that foreign aid has helped to under-write the misguided policies of the corrupt and bloated government bureaucracies across Africa. The Oxford International Group study revealed that the external stock of capital held by Africans in overseas accounts, was between $700billion and $800 billion in 2005, and nearly 40% of Africa's aggregate wealth was stacked in foreign bank accounts in Europe, United States and Japan. Africa's foreign assistance is significant when we look at the overall economic situation, and African governments have become dependent on aid for the survival of their people and governments.
The concept of aid is relatively new, and it is basically the transfer of resources from the rich countries to poor ones for the purpose of development. Foreign aid is primarily the official government-to-government transfer of financial and technical resources for the programs of social and economic development. The main objective of aid is to produce accelerated economic growth, combined with higher standards of consumption, but as we have seen, aid is very much influenced by prevailing regional or global political climates. Due to political necessities, donors often exert pressure for political and policy reasons, thereby making dependence on aid shaky and unreliable. Additionally, those charged with making decisions on aid allocation, generally do not have a good grasp of issues facing developing and poor countries; consequently, the rationale behind most aid disbursement decisions are usually fraught with poor judgments and inconsistencies. The disadvantages of aid include the fact that funding provided is usually tied to the fact it must be spend in the donor countries regardless of the high cost of goods and services. Rather than create wealth, prosperity and economic development, most Africans have over the past few decades realized a net decline in their standards of living. Research shows that over the period that foreign aid was being pumped into Africa, the per capita GDP declined by an averaged of 0.59 percent annually, between 1975 and 2000. The Heritage Foundation in 1985 concluded that foreign aid is not the answer to Africa's economic troubles; and in fact, the organization maintained that aid was contributing to Africa's underdevelopment woes. It is now a popular belief that foreign aid has been found to do more harm, leading to the situation where Africans have failed to set their own pace and direction of development; free of external interference. The United Nations Conference on Trade and Development admits that aid to Africa has not been successful and despite many years of policy reform, no Sub-Saharan country has completed its adjustment program or achieved any sustained economic growth. Similarly, a Heritage Foundation study found that foreign aid retards the process of economic growth and the accumulation of wealth. The Foundation argued aid dependency pulls entrepreneurship and intellectual capital into non-productive activities, thereby blunting the entrepreneurial spirits of many Africans.
The decades of financial and technical aid transfers to Africa have not fostered economic growth, rather, it has left seventy countries, primarily in Sub-Saharan African, poorer than they were in 1980, and 43 are worst off than they were in 1970. The United Nations Development Program describes the 1980's, the period of highest foreign aid transfer to Africa, as the “lost decade.” Over much of that decade, 100 countries mostly in Africa, suffered major economic decline or net stagnation, and the conclusion is that foreign aid failed to create economic growth in aid recipient countries. The old belief that aid transfer allowed poor countries to escape the poverty trap has been refuted, because research has proved that poverty, contrary to the popular belief, is not caused by capital shortage. In fact, studies show that there is no correlation between aid and economic development, rather, most aid recipient countries have become and remained more dependent of foreign aid. Additionally, a World Bank study showed that food aid budgets in developed nations were mainly guided by prospects for commercial exports of surplus from donor countries, and not determined in accordance with the needs and objectives of recipient countries' to reduce dependence on imported food. Donors reduce food aid budgets when the prospect for commercial exports are good, and increase them when the prospects are poor. A U.S 1997 General Accounting Office report, criticized USAID for having no strategies for the assessment of the impact of its programs in enhancing the food security, and further, the Agency could not determine whether food aid was an efficient means of accomplishing food security goals in aid recipient African countries. Poor policy choices in Africa have caused development there to first stagnate and decline over the past several decades. In 1960, South Korea was as poor as the African countries, but thirty years later, the country was wealthy enough to offer aid to Africa. Altogether, South East Asian countries have achieved phenomenal development in the past five decades, and many have joined the industrialized countries of the world. Critics now contend that foreign aid to Africa must be changed for a number of reasons, but mainly because it has not worked. Further, they argue that most aid initiatives are well thought out, and most of the funding intended for projects, rarely reaches the intended target groups. A study found that in Uganda, less than 30 per cent of the aid earmarked for primary education actually reached the intended schools. The missing funds were stolen, wasted or re-apportioned to priorities identified by politicians or middle level and senior government officials. To address the persistent failure of Sub-Saharan Africa, donors have identified capacity building as the answer to the perennial problem of underdevelopment in Africa. Since 1980, about 4 billion dollars has been spent each year in training, technical assistance and institutional strengthening capacities in Africa.
More than six decades of foreign aid has not changed Africa's latent capacity, moreover, professionals from around the continent are leaving for other countries in the west at an alarming rate. Today, many aid agencies are acknowledging that there is greater pressure to commit money grandly than to spend it wisely in Africa. In 1976, Tanzania began the $220 million Mufundi paper mill factory project financed by the World Bank. The project turned out to be a total failure, yet for twenty years, Tanzanians paid the bill for that ill-thought out experiment. In the early 1990's, the UNDP spent $900,000 over a three year period trying unsuccessfully to show farmers in north-east Ivory Coast how to cultivate onions. Meanwhile, 90 miles north, in neighboring Burkina Faso, the farmers there were growing onions profitably under similar agricultural conditions, but without any foreign aid. A World Bank finding on food import into Somalia in 1998 concluded that aid had methodically undermined Somalia's civil society. Somalia had become more dependent on imported food than any other country in Sub-Saharan Africa. The report noted that until food aid began to arrive in Somalia, the economy was predominantly an agricultural and pastoral economy. And up until the early seventies, Somalia was self-sufficient in food grains production; however, Somalia's share of food imported in total volume of food consumption rose from less than 33 per cent in 1979 to over 63 per cent in 1984. This sea change ironically coincided with the period of highest food aid distribution to that country. By increasing the supply of food aid, Somalia's domestic food prices were dampened, and the prices of local food crops were prevented from rising, thus reducing the incentives for domestic food crop producers. This exacerbated Somalia's food deficit. Mismanagement and corruption in the administration of food aid distribution in Africa is pervasive, in the absence of efficient and accountable institutions to oversee and institute fair and just aid distribution practices. But, critics of aid say donors are also complicit in the failure of aid distribution in Africa, as there are no effective monitoring mechanisms, and this gives the politicians and bureaucrats the opportunity to rob what is intended for the people. A former U.S Ambassador to Ghana, Edward P. Bryan, admitted that foreign donors have allowed what he describes as “a small, clever class that inherited power from the colonial masters to take us to the cleaners.” It will take a lot of resources and time to turn Africa around. In March 1990, a Paris daily, Le Monde wrote, “Every franc given to impoverished Africans, comes back to France or is smuggled into Switzerland by African bureaucrats and politicians.” And critics contend that donor agencies knew or should have known the motivation and activities of corrupt African leaders who spirit away billions into Swiss Banks and other western bank accounts. Even famine relief aid is not spared. As early as the late 1980's, a former head of Medicine Sans Frontiers, Dr. Rory Branman, lamented the failure of aid to Africa, saying, “We have been duped.” The Western governments and humanitarian groups”, he said, have “unwittingly fueled and are continuing to fuel an operation that will be described in hindsight in a few years' time as one of the greatest slaughters of our time.” The World Bank admitted that in most cases Western donors knew that up to 30 per cent of the loans to African countries and governments went directly into the bank accounts of corrupt officials, yet The Bank considered these officials and their governments as partners in development.
But, foreign aid is full of ambiguities and double bottoms. It does not fit neatly into any one of the three ways people are said to go about their material transaction; i.e; coercion, exchange and gift giving. Because it is tied with geo-politics, trade and banking, foreign aid cannot be classified purely as gift-giving. During its first four decades, victory in the Cold War was the compelling and pre-eminent drive in the regime of aid giving. Today, experts have identified the predominant motives for aid giving as strategic socio-political, mercantile, and humanitarian and ethical. Official aid is seldom the tool of altruism alone, because the direction of foreign aid is dictated by political and strategic considerations, much more than the economic needs and policy performance of the recipient. However, the motives behind aid never come in fixed and stable proportions. Perhaps the one safest generalization to make is that foreign aid, when used alone or in combination with other policy instruments, has a unique ability to allow the donors to demonstrate compassion, while simultaneously pursuing a variety of other ulterior motives and objectives. In the U.S, the realization that aid has failed to provide economic growth and development over several decades, prompted the U.S. Government to try different ways of administering its foreign aid. Officials in the Reagan administration promoted direct local participation in the planning, implementation and overall control of projects. And USAID further made efforts to recruit in-country field staffs that are experienced in and sensitive to Africa's development processes and institutions. U.S. government officials recommended that Congress monitor the activities of USAID, but without getting involved in any of the operational decision-making. Yet, this did not address the goal conflict that has created the paradox of foreign aid. Countries receiving foreign aid in amounts that are sufficient to stimulate development along the lines of Basic Human Needs mandate, are precisely the countries that are important to the diplomatic and strategic goals of the United States. A Cato Institute study found little evidence that better targeting and management enabled foreign aid to achieve self- sustaining growth in poor African countries. Additional, the U.S. Congressional Budget Office warned that aid can inhibit the commitment to reforms of even the more responsible African governments, and without reform, aid can reinforce policies that do not further development. The failure of Africa's development assistance has allowed poor countries to delay reform, thereby worsening the underlying problems. Empirical evidence suggests that the greater a country's dependence on aid, the worst the quality of its public institutions. Poverty is a justification for aid, but it is seldom the main criterion used for allocating it.
The public image of foreign aid is of Western beneficence; nevertheless, studies show in some cases, foreign worker remittance to their countries of origin far exceeds the annual aid transfers from some European countries. In 1998, the officially recorded remittance from the Netherlands to forty-two low-income developing countries exceeded U.S. $1 billion; a sum equivalent to 115 percent of Dutch aid to those countries. In the non-oil producing countries in Africa, trade losses between 1970 and 1997, represented almost minus 120 % of GDP. Ironically, the World Bank estimates that the purchasing power in those African countries would be considerably lower in 2010, than they were back in 1997. Foreign aid serves a useful purpose when it is provided to alleviate temporary hardship as in cases of natural disasters such as droughts, but, experience in Africa has proved that aid recipients could easily construe foreign aid as a substitution to their own productivity. Across the continent, food aid has suppressed food production, undermining the prices of local produced foods. Agricultural production has declined significantly, as farmers migrate to urban centers to create a shortage of farm workers and exacerbate food production deficit. A mentioned earlier, a major debilitating by-product of foreign aid to Africa is the culture of corruption that has taken root at every level of every government. Today, corruption has become the way of life in every country in Sub-Saharan Africa, and the theft, bribery and embezzlement of aid, and other government resources are so endemic, they are not considered as crimes. African politicians and government officials have engaged in corruption practices, and a 2004-2005 World Bank Report showed that $148 billion were embezzled out of Africa by politicians and bureaucrats; a significant amount of it being aid and loans earmarked for development activities to benefit Africa's poor. Without transparency, accountability, and good governance, Africa's future will continue to remain bleak.
Mathew K. Jallow; M.A. Public Administration and Non-Profit Management. Mr. Jallow is a Gambian journalist/writer and Human Rights Activist exiled in the U.S.
The African continent has struggled with chronic poverty and under-development since the advent of political independence more than fifty years, and many Africans view this problem as one of Africa's own making. African development experts and academics have blamed foreign aid for the continued and seemingly intractable development crisis confronting the continent. Africa's war on poverty is perceived as amounting to begging and submissiveness, leading to reforms that have made Africans poorer. The contention among many African experts is that the more the developed north co-operated with the south, the poorer Africa became. And increasingly, even tangible western generosity has failed to impress many Africans. Foreign aid has generally benefited the ruling elites in Africa, by among other things, enabling and perpetuating corrupt governments' hold on power, and by extension, entrenching the pervasive underdevelopment. Over the past five decades, foreign emergency assistance to Africa has helped to avert hardship for many of Africa's poor, but failed to promote any significant economic development. Foreign aid is provided with the conviction that real economic development begins when the emphasis is placed on providing aid to poor rural and urban communities.
Providing assistance to Africa's poor is a noble cause, but the five decades long campaign of aid has turned out to be what one critic called “a theater of the absurd.” To-date, the record of western aid to Africa has been significant, amounting to more than $500 billion between 1960 and 1997, which is the equivalent of four Marshall Plans being pumped into Sub-Saharan African. And today, the national budgets of most Sub-Saharan African countries are dependent on foreign aid for up to eighty percent of the annual budgets. Apart from the relief aid and economic development, foreign aid assistance was also provided to support reforms and policy adjustment programs. And between 1981 and 1991 alone, The World Bank provided $20 billion towards Africa's structural adjustment programs. The purpose of the programs was to make public institutions, government agencies, and bureaucracies in Africa more transparent, effective, efficient and accountable. It is baffling that Africa still suffers from a poverty trap, considering the depth of governments' corruption and the missing billions in export earnings from oil, gas, diamonds and other resources. The idea of foreign aid was compatible with the central theme of economic development, and was accepted as a possible escape from the chronic underdevelopment that is characterized by undeveloped infrastructure and dualistic economies. The persistence of the deplorable economic conditions in Africa has become the primary reason for the relentless search for realistic and durable solutions to the continent's development woes, even as the need for aid is intermittently reinforced by the fact that Africa's underdevelopment is accentuated by periodic global economic recession.
When it was conceived after World War II, U.S. foreign aid was designed to serve two conceptually interdependent, but potentially conflicting set of goals: first, the diplomatic and strategic goals that advance U.S. short-term political and long term strategic interests; and secondly, the development and humanitarian goals that sought a long-term economic growth, political stability, and the short-term alleviation of suffering. The U.S. Foreign Assistance Act of 1973 stressed the need to promote equity, minimum standards of living and per capita growth. Since then, the U.S. foreign assistance statutes have gone through several changes; each with its own objective and some would argue, defined by global politics rather than by any humane consideration. The concept of “Basic Human Needs,” under the U. S. Foreign Assistance statutes, can be seen as paradoxical if one considers the foreign assistance legislation as the expression of the primary function of foreign aid. The position of the U.S. as observed by development experts is that developmental and humanitarian programs received substantial funding only when they coincided with U.S. diplomatic and strategic interests. And despite the massive injection of aid over the past five decades, Africa, rather than achieve economic growth and development, has become more dependent, with standards of living experiencing a net decline. Studies show that there is overwhelming evidence that foreign aid has helped to under-write the misguided policies of the corrupt and bloated government bureaucracies across Africa. The Oxford International Group study revealed that the external stock of capital held by Africans in overseas accounts, was between $700billion and $800 billion in 2005, and nearly 40% of Africa's aggregate wealth was stacked in foreign bank accounts in Europe, United States and Japan. Africa's foreign assistance is significant when we look at the overall economic situation, and African governments have become dependent on aid for the survival of their people and governments.
The concept of aid is relatively new, and it is basically the transfer of resources from the rich countries to poor ones for the purpose of development. Foreign aid is primarily the official government-to-government transfer of financial and technical resources for the programs of social and economic development. The main objective of aid is to produce accelerated economic growth, combined with higher standards of consumption, but as we have seen, aid is very much influenced by prevailing regional or global political climates. Due to political necessities, donors often exert pressure for political and policy reasons, thereby making dependence on aid shaky and unreliable. Additionally, those charged with making decisions on aid allocation, generally do not have a good grasp of issues facing developing and poor countries; consequently, the rationale behind most aid disbursement decisions are usually fraught with poor judgments and inconsistencies. The disadvantages of aid include the fact that funding provided is usually tied to the fact it must be spend in the donor countries regardless of the high cost of goods and services. Rather than create wealth, prosperity and economic development, most Africans have over the past few decades realized a net decline in their standards of living. Research shows that over the period that foreign aid was being pumped into Africa, the per capita GDP declined by an averaged of 0.59 percent annually, between 1975 and 2000. The Heritage Foundation in 1985 concluded that foreign aid is not the answer to Africa's economic troubles; and in fact, the organization maintained that aid was contributing to Africa's underdevelopment woes. It is now a popular belief that foreign aid has been found to do more harm, leading to the situation where Africans have failed to set their own pace and direction of development; free of external interference. The United Nations Conference on Trade and Development admits that aid to Africa has not been successful and despite many years of policy reform, no Sub-Saharan country has completed its adjustment program or achieved any sustained economic growth. Similarly, a Heritage Foundation study found that foreign aid retards the process of economic growth and the accumulation of wealth. The Foundation argued aid dependency pulls entrepreneurship and intellectual capital into non-productive activities, thereby blunting the entrepreneurial spirits of many Africans.
The decades of financial and technical aid transfers to Africa have not fostered economic growth, rather, it has left seventy countries, primarily in Sub-Saharan African, poorer than they were in 1980, and 43 are worst off than they were in 1970. The United Nations Development Program describes the 1980's, the period of highest foreign aid transfer to Africa, as the “lost decade.” Over much of that decade, 100 countries mostly in Africa, suffered major economic decline or net stagnation, and the conclusion is that foreign aid failed to create economic growth in aid recipient countries. The old belief that aid transfer allowed poor countries to escape the poverty trap has been refuted, because research has proved that poverty, contrary to the popular belief, is not caused by capital shortage. In fact, studies show that there is no correlation between aid and economic development, rather, most aid recipient countries have become and remained more dependent of foreign aid. Additionally, a World Bank study showed that food aid budgets in developed nations were mainly guided by prospects for commercial exports of surplus from donor countries, and not determined in accordance with the needs and objectives of recipient countries' to reduce dependence on imported food. Donors reduce food aid budgets when the prospect for commercial exports are good, and increase them when the prospects are poor. A U.S 1997 General Accounting Office report, criticized USAID for having no strategies for the assessment of the impact of its programs in enhancing the food security, and further, the Agency could not determine whether food aid was an efficient means of accomplishing food security goals in aid recipient African countries. Poor policy choices in Africa have caused development there to first stagnate and decline over the past several decades. In 1960, South Korea was as poor as the African countries, but thirty years later, the country was wealthy enough to offer aid to Africa. Altogether, South East Asian countries have achieved phenomenal development in the past five decades, and many have joined the industrialized countries of the world. Critics now contend that foreign aid to Africa must be changed for a number of reasons, but mainly because it has not worked. Further, they argue that most aid initiatives are well thought out, and most of the funding intended for projects, rarely reaches the intended target groups. A study found that in Uganda, less than 30 per cent of the aid earmarked for primary education actually reached the intended schools. The missing funds were stolen, wasted or re-apportioned to priorities identified by politicians or middle level and senior government officials. To address the persistent failure of Sub-Saharan Africa, donors have identified capacity building as the answer to the perennial problem of underdevelopment in Africa. Since 1980, about 4 billion dollars has been spent each year in training, technical assistance and institutional strengthening capacities in Africa.
More than six decades of foreign aid has not changed Africa's latent capacity, moreover, professionals from around the continent are leaving for other countries in the west at an alarming rate. Today, many aid agencies are acknowledging that there is greater pressure to commit money grandly than to spend it wisely in Africa. In 1976, Tanzania began the $220 million Mufundi paper mill factory project financed by the World Bank. The project turned out to be a total failure, yet for twenty years, Tanzanians paid the bill for that ill-thought out experiment. In the early 1990's, the UNDP spent $900,000 over a three year period trying unsuccessfully to show farmers in north-east Ivory Coast how to cultivate onions. Meanwhile, 90 miles north, in neighboring Burkina Faso, the farmers there were growing onions profitably under similar agricultural conditions, but without any foreign aid. A World Bank finding on food import into Somalia in 1998 concluded that aid had methodically undermined Somalia's civil society. Somalia had become more dependent on imported food than any other country in Sub-Saharan Africa. The report noted that until food aid began to arrive in Somalia, the economy was predominantly an agricultural and pastoral economy. And up until the early seventies, Somalia was self-sufficient in food grains production; however, Somalia's share of food imported in total volume of food consumption rose from less than 33 per cent in 1979 to over 63 per cent in 1984. This sea change ironically coincided with the period of highest food aid distribution to that country. By increasing the supply of food aid, Somalia's domestic food prices were dampened, and the prices of local food crops were prevented from rising, thus reducing the incentives for domestic food crop producers. This exacerbated Somalia's food deficit. Mismanagement and corruption in the administration of food aid distribution in Africa is pervasive, in the absence of efficient and accountable institutions to oversee and institute fair and just aid distribution practices. But, critics of aid say donors are also complicit in the failure of aid distribution in Africa, as there are no effective monitoring mechanisms, and this gives the politicians and bureaucrats the opportunity to rob what is intended for the people. A former U.S Ambassador to Ghana, Edward P. Bryan, admitted that foreign donors have allowed what he describes as “a small, clever class that inherited power from the colonial masters to take us to the cleaners.” It will take a lot of resources and time to turn Africa around. In March 1990, a Paris daily, Le Monde wrote, “Every franc given to impoverished Africans, comes back to France or is smuggled into Switzerland by African bureaucrats and politicians.” And critics contend that donor agencies knew or should have known the motivation and activities of corrupt African leaders who spirit away billions into Swiss Banks and other western bank accounts. Even famine relief aid is not spared. As early as the late 1980's, a former head of Medicine Sans Frontiers, Dr. Rory Branman, lamented the failure of aid to Africa, saying, “We have been duped.” The Western governments and humanitarian groups”, he said, have “unwittingly fueled and are continuing to fuel an operation that will be described in hindsight in a few years' time as one of the greatest slaughters of our time.” The World Bank admitted that in most cases Western donors knew that up to 30 per cent of the loans to African countries and governments went directly into the bank accounts of corrupt officials, yet The Bank considered these officials and their governments as partners in development.
But, foreign aid is full of ambiguities and double bottoms. It does not fit neatly into any one of the three ways people are said to go about their material transaction; i.e; coercion, exchange and gift giving. Because it is tied with geo-politics, trade and banking, foreign aid cannot be classified purely as gift-giving. During its first four decades, victory in the Cold War was the compelling and pre-eminent drive in the regime of aid giving. Today, experts have identified the predominant motives for aid giving as strategic socio-political, mercantile, and humanitarian and ethical. Official aid is seldom the tool of altruism alone, because the direction of foreign aid is dictated by political and strategic considerations, much more than the economic needs and policy performance of the recipient. However, the motives behind aid never come in fixed and stable proportions. Perhaps the one safest generalization to make is that foreign aid, when used alone or in combination with other policy instruments, has a unique ability to allow the donors to demonstrate compassion, while simultaneously pursuing a variety of other ulterior motives and objectives. In the U.S, the realization that aid has failed to provide economic growth and development over several decades, prompted the U.S. Government to try different ways of administering its foreign aid. Officials in the Reagan administration promoted direct local participation in the planning, implementation and overall control of projects. And USAID further made efforts to recruit in-country field staffs that are experienced in and sensitive to Africa's development processes and institutions. U.S. government officials recommended that Congress monitor the activities of USAID, but without getting involved in any of the operational decision-making. Yet, this did not address the goal conflict that has created the paradox of foreign aid. Countries receiving foreign aid in amounts that are sufficient to stimulate development along the lines of Basic Human Needs mandate, are precisely the countries that are important to the diplomatic and strategic goals of the United States. A Cato Institute study found little evidence that better targeting and management enabled foreign aid to achieve self- sustaining growth in poor African countries. Additional, the U.S. Congressional Budget Office warned that aid can inhibit the commitment to reforms of even the more responsible African governments, and without reform, aid can reinforce policies that do not further development. The failure of Africa's development assistance has allowed poor countries to delay reform, thereby worsening the underlying problems. Empirical evidence suggests that the greater a country's dependence on aid, the worst the quality of its public institutions. Poverty is a justification for aid, but it is seldom the main criterion used for allocating it.
The public image of foreign aid is of Western beneficence; nevertheless, studies show in some cases, foreign worker remittance to their countries of origin far exceeds the annual aid transfers from some European countries. In 1998, the officially recorded remittance from the Netherlands to forty-two low-income developing countries exceeded U.S. $1 billion; a sum equivalent to 115 percent of Dutch aid to those countries. In the non-oil producing countries in Africa, trade losses between 1970 and 1997, represented almost minus 120 % of GDP. Ironically, the World Bank estimates that the purchasing power in those African countries would be considerably lower in 2010, than they were back in 1997. Foreign aid serves a useful purpose when it is provided to alleviate temporary hardship as in cases of natural disasters such as droughts, but, experience in Africa has proved that aid recipients could easily construe foreign aid as a substitution to their own productivity. Across the continent, food aid has suppressed food production, undermining the prices of local produced foods. Agricultural production has declined significantly, as farmers migrate to urban centers to create a shortage of farm workers and exacerbate food production deficit. A mentioned earlier, a major debilitating by-product of foreign aid to Africa is the culture of corruption that has taken root at every level of every government. Today, corruption has become the way of life in every country in Sub-Saharan Africa, and the theft, bribery and embezzlement of aid, and other government resources are so endemic, they are not considered as crimes. African politicians and government officials have engaged in corruption practices, and a 2004-2005 World Bank Report showed that $148 billion were embezzled out of Africa by politicians and bureaucrats; a significant amount of it being aid and loans earmarked for development activities to benefit Africa's poor. Without transparency, accountability, and good governance, Africa's future will continue to remain bleak.
Mathew K. Jallow; M.A. Public Administration and Non-Profit Management. Mr. Jallow is a Gambian journalist/writer and Human Rights Activist exiled in the U.S.
Sunday, January 8, 2012
Carla Bruni-Sarkozy charity accused of handing Aids fight funds to friends
Carla Bruni-Sarkozy tends to President Nicolas Sarkozy on a visit to Martinique
Reuters/Philippe Wojazer
By RFI
French President Nicolas Sarkozy’s wife, Carla Bruni-Sarkozy, has denied accusations that 2.7 million euros of public cash has been handed out to a charitable foundation she runs and to a close friend’s companies without proper accountability.
The money was paid by the Geneva-based Global Fund to fight Aids for a campaign called Born HIV-free, which aimed to raise awareness of transmission of HIV from mothers to children.
Bruni-Sarkozy is an ambassador for the fund.
The Global Fund is no stranger to corruption charges.
In January 2011 an Associated Press report cited widespread corruption in some of the fund’s programmes, prompting a statement that it has “zero tolerance” for graft.
But her Fondation Carla Bruni-Sarkozy has no proper legal status, no bank account and opaque accounts, according to the weekly magazine Marianne.
The foundation is effectively run by the Fondation de France, an independent body originally set up by the French government, the magazine says.
And, it charges, the money was passed on “at the limits of legality and without an invitation for bids” to companies belonging to Bruni-Sarkozy’s friend, Julien Civange, a musician and businessman who is said to be the “principal adviser” to her foundation and to have an office at the Elysée presidential palace.
Although the Global Fund is largely financed by governments, Bruni-Sarkozy on Saturday said that her foundation had “never received […] any public money” and insisted that her foundation does have its own accounts, “consolidated in fine at the Fondation de France”.
Fondation Carla Bruni-Sarkozy secretary general Cléa Martinet slammed the article as “untruthful on several points”.
A statement by the Global Fund dubs Marianne’s report “untruthful and misleading”.
It acknowledged having financed the Born HIV-free campaign to the tune of 2.8 million dollars (2.2 million euros), “significantly less than claimed by Marianne”.
“All the contracts for the campaign and for the support of a Global Fund-focused section on the Carlabrunisarkozy.org web site, and costs related to Ms Bruni-Sarkozy’s travel related to the Global Fund were in full compliance with Global Fund’s stringent rules and procedures,” the statement says.
The fund says that it paid Civange and four colleagues 580,000 euros over 18 months to jointly run the campaign.
French ambassador to the fund Patrice Debré was fired by the French president after details of the campaign were revealed at the Global Fund’s board, according to Marianne.
It also claims that Global Fund director general, Michel Kazatchkine, another friend of Bruni-Sarkozy, has been sidelined in response to calls to resign by reporesentatives of US Secretary of State Hillary Clinton.
He will officially quit in late May, after the forthcoming French presidential election.
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