"Aid exit" strategy for African countries : a debate

McPherson and Clive S. Gray -- on the efficacy of an "aid exit" strategy for Africa. McPherson argues that, because foreign aid tends to submerge the agendas of African governments, those governments should, on their own initiative, begin planning to get off aid. A properly formulated "aid exit" strategy, he argues, would include a "debt exit" strategy as well. McPherson draws on field experience indicating a chronic pattern of dependence between African governments and donor agencies that reduces the effectiveness of aid. In too many cases across Africa, he argues, aid dependence has undermined growth and development. The primary evidence for this is Africa"s experience over the last three decades. Despite massive foreign assistance and donor "engagement" in virtually every dimension of African political economy, only Mauritius has successfully adopted a structural adjustment program leading to sustained growth and development. Further, recent studies in the context of the HIPC (Highly Indebted Poor Countries) initiative suggest that most African countries now require still more financial assistance, both to pay off their debt and to promote development. Something is wrong with the logic. Gray starts out by asking how an "aid exit" strategy differs from a conventional growth strategy, given that donors are inclined to terminate aid anyway once a country has achieved self-sustaining growth. The operational question is whether, other things being equal, a country that is following the "right" policies to accelerate growth, will grow still faster by renouncing aid than by accepting it. McPherson outlines conditions under which some countries have probably grown more slowly because they accepted aid, than they would have had they declined it. The question is whether those conditions apply more often than not in African countries. Gray cites recent cross- country World Bank analyses showing that aid has been effective when recipients pursued good policies, and ineffective when they did not. He argues that policy conditionalities imposed by the IMF and aid donors, starting around 1980, have on balance caused African growth rates in the 1990s to be higher than they would otherwise have been. He also disputes the argument that project aid simply finances uneconomic expenditures at the margin, and accuses McPherson of exaggerating the distortions caused by vested and corrupt interests on the both sides of the aid divide. Finally, he argues that aid, when matched with good host country policies, is necessary to reduce the income and wealth gap between rich and poor countries in a time frame acceptable to enlightened world opinion. McPherson"s response is that African history is against those who wish to make relatively minor modifications in the aid relationship. The last three decades have seen a vast experiment in whether African governments and aid donors can "get it right". They have not succeeded. Some years ago, Lord P.T. Bauer wrote an article entitled "Aid, Mend it or End it!" Gray is among those who believe that aid can be "mended". McPherson is not. He believes that aid has already done serious damage to Africa by allowing governments to postpone adjustment. Includes references. (Authors" abstract, modified)