Development aid helps donors access new markets

In recent years, Greece has turned from development aid recipient to donor, a change not widely perceived. Some might object to how a country still dependent on EU aid can be a donor. However, as Giorgos Mergos, general secretary at the Economy and Finance Ministry argues, development aid is a very important tool in international diplomacy that Greece must take greater advantage of. Development aid, says Mergos, is not charity but an investment because it opens up access to recipient countries’ markets. The interview with Mergos took place during a meeting, in Athens, of the World Bank’s International Development Agency, early last week. The IDA’s role is to help developing economies boost their growth rates by providing direct aid or loans with low interest, or none at all, and a long grace period and by conducting studies on economic restructuring. Mergos was in charge of coordinating the meeting, attended by representatives of the 39 donor countries, the recipient countries and international development organizations, that focused on finding resources for the period 2006-2008. It appears that a consensus was reached to increase IDA’s resources by 30 percent, compared to the period 2003-2005. How was Greece transformed from a recipient to a donor country and what is its contribution to IDA? After efforts that lasted nearly a decade, Greece became a standing member of the OECD’s Development Aid Commission and a donor country within the World Bank’s framework in 2002. Its contribution to IDA’s fund for 2006-2008 will be 20.46 million euros. Given that our budget does not provide much of a margin for development aid, why not use the money for domestic investment? Development aid is not a kind of charity but an important policy tool that benefits both donor and recipient. The aid helps boost economic cooperation and growth in both countries. Donors create new markets and gains from returns on investment proportionally to the amount and duration of investment programs (in recipient countries). Beyond that, we also create a safer and more stable political and economic environment. Denmark, which invests almost 1 percent of its GDP in donor programs has reaped great benefits. How do we ensure recipients manage these sums in a transparent and efficient manner? The necessary monitoring mechanisms exist. IDA funds specific programs in education, health, infrastructure, the provision of drinkable water, etc. It applies a specific control system to ensure transparency and compliance with international aid management standards. How does globalization affect developing countries’ efforts to grow and how is international development aid affected? Those countries that adapt their economic and social structures in a timely fashion benefit significantly from globalization. However, many among the poorest developing countries are unprepared for the tough competition of international markets. Some have little access to global markets and are unable to become part of the global economic system. There is, however, a new emerging economic order thanks to the rise of dynamic trade competitors, such as China, India, Brazil, South Korea, Singapore and Thailand, to name a few. The World Trade Organization has many more countries to get to respect international norms than, say, it did 15 years ago. A dilemma that faces international donor bodies is that some of the new trade competitors are still aid recipients. IDA considers that there are now two tiers of developing countries: one consists of 50-70 countries with very low per capita income, up to $800, and which represent about 2.5 billion people; and those we mentioned above. The poorest countries are mainly exporters of raw materials and thus very vulnerable to market fluctuations.