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F and D logo
A quarterly magazine of the IMF
  September 2005
Volume 42, Number 3

AID and Development

Making Aid Work

Peter S. Heller
Rich countries aim to confront persistent poverty in much of the developing world with plans to boost aid, cancel debts of poor countries, and increase trade access for goods from developing nations. But scaling up aid flows is just the start of a complex set of decisions and tough choices. Donor and recipient countries will still need to ensure that the aid actually achieves results, given the spotty record so far. It is critical, therefore, that any large increase in aid be accompanied by considered efforts to ensure that lessons of the past are learned and that new challenges are anticipated.

Picture This

Aiding Development: Tracking the Flows
Bilal Siddiqi
Chart-based analysis of which countries give the most aid and where the money goes.

Aid and Growth
Steven Radelet, Michael Clemens, and Rikhil Bhavnani
New evidence shows that aid flows aimed at growth have produced results. The authors argue that policy discussions should not focus exclusively on determining the limits of aid on growth, but rather on how those limits can be expanded so that aid can be made more effective in supporting development.

The MDGs: Building Momentum
Andy Berg and Zia Qureshi
A big push to deliver more aid is not the sole answer to achieving the Millennium Development Goals; rather aid must be combined with a concerted drive to improve trade access, encourage private capital flows, promote technology transfer, and enhance domestic expenditure management.

Coping with Aid Volatility
Benn Eifert and Alan Gelb
As the amount of aid increases, the volatility of aid flows may also rise. But there are ways to tackle the problem, particularly if donors lengthen funding horizons.

The Macroeconomic Challenge of More Aid
Shekhar Aiyar, Andrew Berg, and Mumtaz Hussain
How should countries react to a large increase in aid inflows? An analysis of five African countries that received big increases in aid—Ethiopia, Ghana, Mozambique, Tanzania, and Uganda—offers useful lessons for other developing countries.

spacer Ethiopia: Scaling Up
David Andrews, Lodewyk Erasmus, and Robert Powell
Ethiopia, among the poorest countries in Africa, presents one of the biggest development challenges in a region beset by frequent drought and hobbled by inadequate infrastructure. Would a dramatic increase in aid really help? An analysis illustrates the considerable challenges of attempting to promote faster development through more aid.

Debating Aid

U.K.: More Country Ownership
Sam Sharpe, Adrian Wood, and Ellen Wratten
Like many other donors, the United Kingdom says experience shows that a "country-led" approach, in which the governments of developing countries themselves define and lead the poverty reduction agenda, is the key to improving aid effectiveness.

Tanzania: "Smart" Partnerships
Basil P. Mramba
Tanzania’s finance minister says that a clear national development vision upon which donor support can be anchored is critical for ensuring that aid is well used.

Burkina Faso: Greater Capacity
Jean-Baptiste Compaoré
In Burkina Faso, only about 70 percent of aid committed by donors is effectively disbursed. The country’s finance minister says that improving absorption capacity is crucial if a scaling up of aid is to be effective.

Also in This Issue

Next Steps for China
Eswar S. Prasad
The exchange rate regime is just one piece of the broader reform agenda in China. The author assesses what China needs to do to ensure the durability of its economic expansion by addressing the looming issues of financial sector reform and the need to bolster balanced domestic-led growth.

Economic Spillovers
Vivek Arora and Athanasios Vamvakidis
Trading partners matter significantly for a country’s growth. Research shows that countries benefit relatively more if their trading partners grow faster than they themselves do and are richer.


Letter from the Editor

In Brief

News from international agencies
AIDS battle needs urgent new funding; encouraging breastfeeding; tsunami follow up; OECD on workers and globalization; IDA shift to grants for the poorest; IMF-World Bank promote standards and codes.

People in Economics

The Globalization Guru
Arvind Subramanian interviews Jagdish Bhagwati, a leading economist in the area of trade and development and a tireless opponent of protectionism and advocate of free trade.

Back to Basics

10 Myths About Governance and Corruption
Daniel Kaufmann
A bolder approach is needed to improve governance and curb corruption around the world. The World Bank Institute is designing a transparency reform scorecard and constructing a transparency index to complement its well-known governance indicators.

Book Reviews

And the Money Kept Rolling In (and Out): Wall Street, the IMF, and the Bankrupting of Argentina, Paul Blustein

Chasing Dirty Money: The Fight Against Money Laundering, Peter Reuter and Edwin M. Truman

Governance and the Sclerosis that Has Set In, Arun Shourie

Straight Talk

Risky Business
Raghuram Rajan
The IMF’s Economic Counsellor argues that skewed incentives for investment managers may be adding to global financial risk. While the techniques and instruments to absorb fluctuations have improved, there is a great deal of uncertainty about how they will perform in a serious downturn.

Country Focus

Economic growth has remained strong and inflation low. A large trade surplus, together with strong capital inflows, has kept accumulation of official reserves high. In July, China abandoned the de facto peg of its currency to the U.S. dollar and moved to a managed floating exchange rate arrangement linked to a basket of currencies, with an initial 2 percent revaluation against the dollar.