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Reader riposte: Aid flows need to be decoupled

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3 April 2009 15:53

Paolo de Renzio who is a Research Associate at the Overseas Development Institute and Global Economic Governance Programme of Oxford University responds to an earlier post from Laurence Chandy.

As Laurence rightly points out, the potential impact of the current global crisis on developing nations is likely to take many forms and affect not only hard-gained improvements in basic service delivery and poverty indicators, but also social and political stability.

The need for rich nations to focus on the domestic side of the crisis means that, despite numerous calls, not enough is being done to address these issues. The G20, despite its enlarged membership, cannot be said to adequately represent the interests of the poorest countries.

While decreases in trade, foreign direct investment and remittances are somewhat inevitable, reductions in aid flows are not a necessity. As I argue in a recent GEG blog post, donor nations need to think outside the box in order to ensure that this fundamental lifeline for helping developing countries weather the storm does not dry up, too.

Not only can donor governments push international institutions like the World Bank and the IMF to immediately deliver more and faster aid within an improved governance framework, but efforts should be put into creating a source of financing for development assistance that can be used counter-cyclically and that is decoupled from rich countries' budget and political cycles. Dani Rodrik's recent call for developing countries to push for a Tobin tax is an interesting proposal in this direction.

As I write this, G20 leaders are about to come out of their London Summit. The final communiqué' is likely to include something on additional funding for the IMF, but that's just a small initial step in (hopefully) the right direction.

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