The Good Governance

American Academy of Political and Social Science

The "Good Governance" Concept RevisitedAuthor(s): Ved P. NandaSource: Annals of the American Academy of Political and Social Science, Vol. 603, Law,Society, and Democracy: Comparative Perspectives (Jan., 2006), pp. 269-283Published by: Sage Publications, Inc. in association with the American Academy of Political andSocial ScienceStable URL: http://www.jstor.org/stable/25097772 .

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The "Good

Governance"

Concept Revisited

By VED P. NANDA

The term "good governance" is unsettled in its meaning.

Through the 1980s and 1990s, donor countries and insti

tutions trended to make aid conditional upon reforms in

the recipient country, which was found largely ineffec

tive in encouraging real policy changes. More recently, donors, such as the International Monetary Fund, the

World Bank, and the United States, are increasingly

insisting upon performance and good governance as a

prerequisite for aid, a practice called "selectivity." This is

a means of requiring a

recipient state to demonstrate the

seriousness of its commitment to economic and social

reforms. There are no objective standards for determin

ing good governance: some aspects include political

sta

bility, the rule of law, control of corruption, and account

ability. High levels of poverty and weak governance are

linked, making selectivity difficult to implement. For

reforms to succeed, domestic support, ownership, and

commitment are crucial, as are the recipients cultural

context and history.

Keywords: good governance; aid; conditionality; rule

of law; accountability; cultural context;

International Monetary Fund; World Bank

^ /^1 ood governance," a term that came into

VJ vogue in the 1990s with the World Bank

leading the charge, has assumed the status of a

mantra for donor agencies as well as donor

countries for conditioning aid upon the perfor mance of the recipient government. This is

Ved P. Nanda is the Thompson G. Marsh Professor of Law and director ofthe International Legal Studies Pro

gram at the University of Denver Sturm College of Law.

He has served as the U. S. delegate to the World Federa

tion ofthe United Nations Associations, Geneva, and as

vice chair of its Executive Council. He is a member ofthe

advisory council ofthe United States Institute of Human

Rights and serves on the Board of Directors ofthe United

Nations Association ofthe United States of America. He

also serves as an elected member ofthe American Law

Institute and as a council member-at-largeforthe Amer

ican Bar Association Section of International Law and

Practice. Widely published in law journals and national

magazines, he has authored or coauthored more than

twenty books and more than 150 chapters and major law

review articles.

DOI: 10.1177/0002716205282847

ANNALS, AAPSS, 603, January 2006 269



270 THE ANNALS OF THE AMERICAN ACADEMY

intended to ensure that the development assistance is used effectively. The G-8 leaders, who met in Gleneagle, Scotland, on July 7-8, 2005, with a

major focus ofthe summit on combating poverty in Africa, reiterated the require ment in their final Communique (Gleneagles Communique 2005, para. 27). They noted that the aid is to be focused "on low income countries which are committed to growth and poverty reduction, to democratic, accountable and transparent gov ernment, and to sound public financial management" (ibid., para. 30; see White and Mahtani 2005).

On making this commitment, the leaders endorsed the earlier report by the G-8 Africa Personal Representatives on implementation of the Africa Action Plan

(Progress Report 2005).l The report stated,

Improving the effectiveness of aid is a vital complement to increasing the volume of

resources_The evidence shows that aid is particularly effective when provided to gov ernments with sound policies, strong leadership and capacity to absorb resources. The

Millennium Challenge Account, a major

new US initiative in development effectiveness,

allocates aid resources according

to these principles. (Ibid., para. 80)

In the debate surrounding the issues of debt forgiveness and increases in aid,

experts, policy makers, and long-time observers stressed the need for governance reform and policy prescriptions to ensure transparency and rule of law, account

ability in public finances, improvement in governance standards, and creation of a

productive private sector (Bhagwati and Gambari 2005; Blitz 2005; Oppenheimer 2005; Wolf 2005).

To spend the new aid productively, suggestions were made to increase aid

beyond its current levels to countries with "good governance" (Bhagwati and Gambari 2005) and to give debt relief only to countries "with good performance and tolerable political accountability" (Wolf 2005). Accordingly, Nigerian Finance

Minister Ngozi Okonjo-Iweala announced two initiatives to be taken by the Ni

gerian government: (1) Nigeria will establish a monitoring system to ensure that

savings to the country of $1 billion a year in a debt deal it has reached to settle $30 billion it owes to its creditors, members of the Paris Club countries, will be ear marked for health, education, agriculture, and power and water supply; and (2) the

government of Nigeria will send to the National Assembly a draft Fiscal Respon sibility Bill requiring greater accountability in the management of government finances (White and Mahtani 2005).

Economist Jagdish Bhagwati and UN Under Secretary General and Special Advisor for Africa Ibrahim Gambari responded to those calling for debt relief only to those countries with good governance:

Debt relief for the very poor nations makes sense. It should be extended regardless of bad

governance. Would you collect a pound of flesh from a dictator if the flesh is actually going to come from his emaciated and oppressed subjects? (Bhagwati and Gambari 2005)

As there is no consensus on the criteria for measuring good governance, how ever, the term remains ambiguous and hence imprecision results. Should eco



THE "GOOD GOVERNANCE" CONCEPT REVISITED 271

nomic performance be the sole or a primary measuring rod, or should the term be

extended to encompass the governance of political entities, be they central or state

governments or even municipalities? What is the political content of good gover nance? Are liberal, democratic values included as an element of that content, and, if so, how important are they? What kind of participation in decision making is

envisaged and by whom? What kind of accountability is required? How universal are or should be the standards used to evaluate good governance?

This article will provide a historical context in the next section, which will be fol

lowed by examining the World Bank's and the International Monetary Fund's

approaches to governance in developing states that are recipients of aid from these

international financial institutions (IFIs). The sections following will comprise a

review of a donor country's?the United States s?approach to the issue of gover nance and a few concluding remarks, respectively.

Historical Context

Prior conditions on countries seeking debt relief and financial help in the form of loans and development aid are not new. Several decades ago, the International

Monetary Fund and the World Bank instituted structural adjustment programs

imposing specific conditions upon a country suffering from economic malaise caused by balance of payments deficits, high inflation, and sluggish GDP, and seek

ing financial help to meet those challenges. Initial short-term measures prescribed by the IFIs were usually aimed at ensuring fiscal and monetary discipline. These include curtailing of spending and austerity measures, devaluation, trade liberal

ization, market-oriented policies and privatization, and incentives for private sav

ings and investments. Long-term measures have included restructuring the role of the state aimed at market allocation of resources. This typically resulted in erosion ofthe state's role for public action and the substitution ofthe private sector for state

involvement in the economy. Voluminous literature exists on the socioeconomic

and political impacts of the austerity measures and other Structural Adjustment Programs (SAPs) prescribed by the IFIs for, and their implementation in, many

developing countries since the 1980s, especially in Sub-Saharan Africa (Crisp and Kelly 1999; Hilson 2004; Devarajan, Dollar, and Holgren 2001; Dollar and Svensson 1998; Donkor 1997; Gwin and Nelson 1997; International Monetary Fund [IMF] 2001a, 2001b; IMF and World Bank 2001; Reed 1996; Stokke 1995;

World Bank 1998). Hence, I will not discuss these issues further, except to note

briefly one such program that researchers have studied extensively: mining sector

reform in Ghana.

Policy formulations in Ghana, prescribed by the IMF and implemented with the active involvement of the government since 1983, have resulted in the coun

try's achieving continuous economic growth and macroeconomic gains. However, Ghana continues to face enormous socioeconomic problems as well. The suffering ofthe poor and the impoverished is exacerbated as these people have been expe riencing further marginalization, large displacements of the population have




occurred, a substantial portion ofthe mineral economy ofthe country is owned by

foreign multinationals, and there has occurred unabated mine pollution and con

tamination ofthe fresh water resources (Hilson 2004). Thus, the SAP in Ghana has

been a mixed blessing.

The World Bank and Good Governance

As a condition for lending development assistance, the Bank requires the recipi ent government to show effective performance and to promote further reforms.

The rationale is that with good governance?that is, combating corruption, nepo tism, bureaucracy,

and mismanagement?and transparency, accountability,

and

proper procedures, aid would be effectively used to achieve the objective of reduc

ing poverty (Doornbos 1995). Traditionally, the Bank has not considered political issues in determining whether to undertake aid programs in the recipient state, for

under their traditional mandates, the World Bank and the International Monetary Fund are to remain apolitical, not involved in considering governance issues. The

World Bank's core mandate under its Articles of Agreement does not encompass

governance reform unrelated to its economic growth agenda. As the Bank's general counsel Ibrahim Shihata (1991, 88-91) stated, the Bank can promote legal and civil service reform and transparency and accountability in budgetary discipline and

fiscal management in pursuance of that agenda. Public sector reform aimed at efficiency and economic growth remained the

Bank policy and practice until a shift took place in the 1990s following a 1989 Bank

report that blamed a "crisis of governance" in Sub-Saharan African for a lack of

effective use of development aid in the region (World Bank 1989). A World Bank

Staff Paper in 1991 identified external agencies as "potentially key political players

capable of exerting considerable influence in promoting good or bad governance. In

raising the shortcomings

of a country's governance, external agencies

are call

ing into question its government's performance" (Landell-Mills and Serageldin 1991, 13).

Thus, good governance appeared on the World Bank's agenda; one of the themes of the Bank's 1991 Annual Development Economic Conference was

"Good Governance" (World Bank 1992b). On the relationship between develop ment and governance, the Bank conceptualized governance to indicate the man ner in which power and authority are exercised for development "in the manage ment of a country's economic and social resources" (World Bank 1992a, 1). Also, as

former chief economist of the Bank Joseph Stiglitz acknowledged in 1999, a shift toward "broader objectives, entitling more instruments, than was the case earlier," occurred with a change of views about development in the World Bank as well as in

the development community (p. F587). A United Nations Conference on Trade and Development (UNCTAD) discus

sion paper suggested that the new mandate regarding governance "arrived at a

moment when growing doubts regarding the purpose and effectiveness ofthe IFIs seemed to threaten their funding, and even their continued existence" (Kapur and




Webb 2000, 18). Since the early 1990s, the Bank has actively engaged in gover nance-related programs and projects. To illustrate, between 1996 and 2000, the

Bank initiated significant governance reform in the public sector in at least fifty countries, while its governance-related initiatives numbered more than six hun

dred in ninety-five countries (Development Committee 2000).

The World Bank's emphasis has been on the

economic dimensions of good governance

and the state's capacity to effectively use

the development assistance.

Although the Bank presents the broader objectives mentioned by Stiglitz (1999) in economic terms, they cannot be separated from political aspects. As an illustra

tion, the Bank, acting as the secretariat for a consortium of several donor countries

that set political conditions for providing aid, conveyed those conditions to the aid

recipient countries and monitored their implementation as well (Gibbon 1993,55 56). And the Bank's governance discourse reflects the tension between economic

and political aspects of governance without at the same time providing precise cri teria by which to define good governance and thus to evaluate a recipient country

for the appropriate conditions for allocation of aid. As a starting point for the dis cussion here, a comment from the authors ofthe Bank's Staff Paper is appropriate:

Governance may be taken as denoting how people

are ruled and how the affairs of a state are administered and regulated. It refers to a nation s

system of politics and how this func tions in relation to

public administration and law. Thus, the concept of governance

goes beyond that of "government" to include a political dimension. (Landell-Mills and

Serageldin 1992, 304)

With the focus on the structures ofthe state and its institutions as they relate to

public administration and law, the Bank as the external agency prescribes these conditions purportedly to ensure transparency, accountability, and good manage

ment practices. Doornbos (2004, 377) postulated that given the World Bank's ori

entation, one ofthe key aims ofthe Bank's designing a good governance approach "appears to have been the creation, in developing country contexts, of state-market

relationships that have been characteristic for Western neo-liberal systems." He found the end ofthe cold war to have been a propitious time for the Bank to open the door for imposing internally directed political conditionalities. These are to be contrasted with externally directed conditionalities that do not address internal



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state structures. Internally directed conditionalities, on the other hand, address

the structuring and operation of the aid recipient country's institutions, and are

aimed at rolling back the state systems?unwieldy structures and operations of state institutions?of many developing countries (ibid.).

The World Bank's emphasis has been on the economic dimensions of good gov ernance and the state's capacity to effectively use the development assistance. It

also continued to reiterate its apolitical approach to governance reform in the allo cation of development aid by focusing on efficiency in public administration, rule

of law, and transparency and accountability notions of governance as the major ele ments to ensure economic growth and development. Consequently, it did not

explicitly question how legitimate the government and its power structures are, what the decision-making process is, how public policy is formulated and imple mented, or how equitable the economic system is. In its 1997 Development Report, however, the Bank did refer to citizen participation and the role ofthe state as per tinent governance factors having a bearing on development (Martinussen 1998).

After a few years' experience with implementing the good governance agenda, it

became apparent to the Bank that sociocultural and political contexts in the recipi ent countries and not the Western donors' preferences primarily shape the agenda.

Although the recipient governments paid lip service to conditionalities for pro

moting transparency and political reform, little change in fact occurred because of resistance from entrenched socioeconomic and political interests (Bayart 1993;

Harrison 1999; Doornbos 2004, 380-382). Democracy, multipartyism, and pre scribed changes in aid-receiving countries' policy structures and processes are cases in point (Doornbos 2004).

Acknowledging that conditionalities have failed to induce reforms and good governance in the recipient countries, the World Bank and the donors have in

creasingly shifted their focus from conditionality to selectivity in allocating aid. A 1998 World Bank report assessing aid stated that the governments better able to use aid are those with good economic performance (World Bank 1998). The report thus recommended that aid be linked with performance and targeted to countries

with effective institutions and sound policies. Subsequently, David Dollar, the main author of the Bank report, collaborating with other Bank researchers, con

ducted a case study often Sub-Saharan African countries and reaffirmed his earlier

finding that conditionalities had not succeeded in inducing policy changes (Devarajan, Dollar, and Holgren 2001). Another World Bank study likewise pos ited that since "corruption can significantly impair aid effectiveness," the Bank has learned to allocate aid taking into account corruption in the recipient country (Collier and Dollar 2001, 21).

Consequently, the World Bank and several donor countries have shifted their focus from attempting to induce good governance in a recipient country by provid ing aid and attaching political conditionalities to requiring performance and good

governance as a prerequisite from a recipient government. To illustrate, Anne

Krueger, a former Bank vice president who subsequently became IMF's deputy managing director, said that the Bank "will need to differentiate carefully between countries where reforms are serious and stand a reasonable prospect of success



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and those in which window dressing is used as a means of seeking additional fund

ing" (Krueger 1998, 2009). Aid policies ofthe Dutch government (Netherlands

Ministry of Foreign Affairs 2000) and the U.S. government (National Security Council 2002) reflect this policy shift.

Another recent apt example is the Norwegian ambassador's announcement in

July 2005 that Norway had suspended $4 million in aid to the Ugandan govern ment for its "mishandling the transition to multiparty democracy, stifling opposi tion parties, failing to combat corruption and abusing human rights." The Presi

dent of Uganda's spokesman called the move "unfair" ("Norway Freezes Aid to

Press Government" 2005). A critic of this policy, Jan Pronk (2001, 626), has ob

served, "Policy improvement and better governance should not be seen as pre conditions for development aid, but also as development objectives themselves."

Also, as there is no consensus about the contents of good governance, and hence no

universally accepted objective standards to decide what government, political, and

administrative practices qualify as good governance, there is validity to the criti

cism that the allocation of aid might be made on political grounds and simply justi fied under the rubric of good governance (Doornbos 2004, 385).

Graham Harrison (2005,240) asserted that although the World Bank shows pri mary concern with economic efficiency, economic growth, and administrative

reforms, its governance agenda is "subject to political and ideological influence and

how governance reform can have a variety of effects on power relations." This assertion is based on prior analysis by several observers (Harriss 2002; Marquette 2001; Nelson 1995). After extensively studying the Bank's interventions in Sub

Saharan Africa (Harrison 2004), Harrison (2005,241-42) concluded that the Bank

has a liberal worldview, which it has imposed on African states in promoting gover nance reforms through its interventions?lending and technical assistance. It is

worth noting that African states have been the subject ofthe bulk of Bank-funded

governance reform. Harrison attributed this new liberal worldview, steeped in a

combination of Western culture and history and American political thought, to

shape the Bank's strategy of reducing the capacity and scope of the recipient state

for public action (ibid.). Harrison suggested that the World Bank theory of political change stems from

the Bank's belief that those responsible for change in the recipient state act with rational choice, that the state should intervene as little as possible in the economy, that incentives for state agents will work, and that the state should act as a market

complementing institution (ibid., 245-46). He found this liberal-capitalist world view at odds with the worldview and the theory of political change in Tanzania and

Uganda, the countries he studies. Contrasting these divergent theories, he con

cluded that both the earlier class-based theory ofthe African state and the subse

quent theory relying upon a network of clientelism based in ethnic-social rela tions are steeped in cultural traditions and history and are not comprehended by the Bank, which doggedly pursues governance reforms it considers appropriate.

These prescribed reforms, he suggested, cannot succeed, for, although the African states make cosmetic changes in response to the Bank's demands, not much in fact

changes (ibid., 251-56).



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In a study released in May 2005, the World Bank presented the latest update of its aggregate governance indicators for 2004 for 209 countries and territories, de

signed to measure the following six dimensions of governance?voice and account

ability, political stability and violence, government effectiveness, regulatory qual ity, rule of law, and control of corruption (Kaufmann, Kraay, and Mastruzzi 2005).

The study documents that "there is little evidence of any trends?for better or worse?in global averages of governance" (ibid., 2). It argues that based upon

existing evidence "most of the correlation between governance and per capita in

come reflects causation from the former to the latter," and that misgovernance in a

country or region leads to low incomes (ibid., 3-4). Based upon the past experience and current trends, for governance reforms to

succeed, the history and culture ofthe recipient country matter the most and must

be given top priority. The World Bank, in applying its own conceptualization of

good governance and seemingly not showing enough sensitivity to these issues in

the developing states, may not be able to succeed in achieving the results it seeks.

IMF and Good Governance

The IMF was established to act as a forum to facilitate international monetary

cooperation and to regulate monetary relationships. However, the traditional IMF

role as international coordinator and regulator on monetary issues among states came under heavy pressure because of a combination of the rise of capital flows and a breakdown of international exchange rate obligations. In the 1980s the num

ber of developing countries seeking assistance grew, the World Bank/IMF intru

sions into states' policies grew, and hence the number of SAPs became the norm

and the scope of conditionality expanded. IFIs imposed severe austerity measures.

The IMF had initially gotten involved in capital account issues because of its

role in addressing the debt crisis but subsequently began justifying conditionality under the rationale that in inducing capital flows and thus enhancing market confi

dence, it was acting as a catalyst (Thirkell-White 2003, 104; Dhonte 1997, 7; for a

critical account, see Bird and Rowlands 1997). During the late 1980s, a backlash

began against the SAPs in developing countries, and by the mid-1990s according to one estimate, more than half of IMF programs were

failing implementation (Killick 1995).

Despite the research findings that conditionality does not work, its expansion

during the course ofthe 1990s is striking, as the share of programs with structural conditions and the average number of conditions per program increased signifi cantly during that period?programs with structural conditions increased from 60 to 100 percent from 1989 to 1999, and the average number of structural conditions

per program increased from three to twelve (Santiso 2001, 10; Kapur and Webb

2000, 5-7). Two factors are primarily responsible for the Fund's governance agenda: "the

rise of capital account openness and . . . the difficult political consequences of its

adoption of structural adjustment in the 1980s" (Thirkell-White 2003,105). Those



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driving the agenda were financial technocrats?financial ministers and central

bankers in developed as well as developing states and nongovernmental organiza tions (NGOs) in developed states (ibid.). It was not, however, until 1997 that the

IMF fully articulated its governance policy. Although the policy guidelines an

nounced then were couched in economic terms, there were strong political under

tones. After explicitly stating that the IMF should focus on the improvement and

support of "the development and maintenance of a transparent and stable eco

nomic and regulatory environment" (IMF 1997, para. 5), the document provides the rationale for the Fund's concern with governance issues: "Poor governance

would have a significant current or potential impact on macroeconomic perfor mance in the short and medium term and on the ability ofthe government credibly to pursue policies aimed at external viability" (ibid., para. 9).

[F]or governance reforms to succeed, the

history and culture ofthe recipient country

matter the most and must be given top priority.

Thirkell-White (2003), who studied the IMF's response to the financial crises in

the 1990s in Korea and Indonesia, criticized the Fund's governance policy as

applied to middle-income countries on two grounds: first, the policy was being steered by the IMF's Executive Board with unbridled discretion to make decisions no longer controlled by a rules-based framework, and second, the decisions did not

necessarily reflect the primacy of the needs or interests of those the IMF pur

ported to help but rather of Western countries and Western NGOs that were far

less affected by those decisions (pp. 120-21). He argued that both economic and political forces are driving the Fund's gover

nance. Financial technocrats in the Fund and the financial elites in government ministries and banks in the countries that the Fund assists lead the economic

forces; and the liberal and democratic agenda is driven by political concerns and

potentially addresses the criticism in the West that traditionally the Fund has been

too narrowly focused on macroeconomic considerations in the formulation and

implementation of its aid policies (ibid., 99-100). As in the World Bank, there is tension between the Fund's economic and politi

cal governance agendas, especially when the Fund's goals on governance are not

clearly defined and articulated. It should be noted that the Fund's economic gover nance agenda is concerned with traditional economic management and the politi cal governance agenda is aimed at enhancing market confidence.



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Thirkell-White raised a question of principle by suggesting that the Fund's

major proposed reforms in Korea?enhancing corporate transparency, account

ability, and competition; and disciplining and structuring the huge industrial con

glomerates, the chaebols, to favor small business?cannot be justified as interven

tions in pursuance of the Fund's traditional technocratic and politically neutral

mandate, even though at the heart ofthe crisis was the lack of market confidence.

These were interventions dovetailing President Kim Dae Jung's political agenda, and the Korean people adopted them not as measures devised to enhance eco

nomic efficiency but to further nationalism and democracy (ibid., 108-12). Similar was the case in Indonesia, which was suffering reversal of market confi

dence caused primarily by corruption and nepotism and poor governance by the

Suharto regime. This had led to the financial crisis. The IMF's structural reform measures aimed at the prevalent corruption and bank mismanagement did not

work. Subsequently, the Suharto government agreed to IMF prescriptions for gov ernance reform, including

new bankruptcy, consumer, and corporate governance

laws, capital and current account liberalization, modification of several subsidies,

ending cartels and monopolies, and independent audits of government depart ments and state-owned enterprises (Government of Indonesia 1998).

However, the program was not effectively implemented and hence did not suc

ceed in establishing market confidence. According to some critics (Radelet and

Sachs 1998), the Fund should have directly addressed Indonesia's debt burden, which it failed to do initially. It did, however, belatedly take measures to provide the

needed debt relief. Others saw the problem as mainly political (Haggard 2000). IMF intervention, seeking to end corruption and nepotism, the main reasons for

Suharto's downfall, could perhaps be seen as the Fund's positive role in Indonesia

(Thirkell-White 2003, 116). What is noteworthy is that on the economic front

IMF's intervention in Indonesia was a failure. If the governance agenda brought about a political change in the government, however, questions then arise about

the Fund's political authority to do so, and especially its decision-making mecha nisms in striking a balance between democracy on one hand and markets and lib eral economics on the other. It may be argued that without meaningful partici pation of the recipient country's political leadership, the Funds decisions on

macroeconomic management may not garner the political receptivity essential for the success of the Fund's governance agenda.

Thirkell-White's observation is apt:

Transparent administration sounds positive from a political point of view but, in the hands

of economists, can slip from a means of accountability (transparency about decision

making procedures) to a

requirement for "predictable" policy-making that takes away

government discretion. The most benign form of that is central bank independence but

the agenda rapidly broadens to include, for example, ideas like a fiscal constitution to limit

government spending. Is transparency over country economic policy transparency for

developing country citizens or a free source of data for the markets? Concern with the

"rule of law" can similarly be subverted to outlaw land reform and ethnic redistribution of

wealth or, with an economic focus, can divert judicial resources from grass roots justice to

training judges for the commercial courts. (Ibid. 118)2



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In a nutshell, unlike the Fund's current practice, decision making at the Fund

about the direction of its governance agenda in each country must be responsive to

the country's cultural and political traditions, preferences, and sensitivities.

The United States and Good Governance

The National Security Strategy of the United States, announced by President

George W. Bush in September 2002, provides the rationale and the framework for

new U.S. development assistance under a new Millennium Challenge Account

(MCA) (National Security Strategy ofthe United States of America 2002, sec. VII).

Noting that massive development assistance has not resulted in economic growth in many countries and "has often served to prop up failed policies," the president said that the MCA is

for projects in countries whose governments rule justly, invest in the people, and encour

age economic freedom. Governments must fight corruption, respect basic human rights, embrace the rule of law, invest in health care and education, follow responsible economic

policies, and enable entrepreneurship. The Millennium Challenge

Account will reward

countries that have demonstrated real policy change and challenge those that have not to

implement reforms. (Ibid.)

This policy statement has set the tone for U.S. aid agencies to opt for selectivity. In November 1998, the U.S. Agency for International Development's (U.S. AID)

Center for Democracy and Governance provided a conceptual framework that

recognized the importance of linkages between democratization and economic

growth (Center for Democracy and Governance November 1998, 3). It identified

four categories that describe the agency's democracy and governance activities?

rule of law, elections and political processes, civil society, and governance (ibid., 5).

Noting that ultimately the process of governing is most legitimate "when it is in

fused with democratic principles such as transparency, pluralism, citizen involve

ment in decisionmaking, representation, and accountability," the center orga nized its governance work in five areas?democratic decentralization, legislative

strengthening, government integrity, policy implementation, and civil-military relations (ibid., 19).

U.S. AID builds on the National Security Strategy statement to formulate and

implement its development goals. In a January 2004 white paper on U.S. foreign aid, the agency noted that donors have learned lessons about aid effectiveness,

including the following: "Allocate aid across and within countries more selec

tively," since "progress is primarily a function of commitment and political will to

rule justly, promote economic freedom, and invest in people" (U.S. Foreign Aid

2004, 6). It stated that it will work in a complementary fashion with another inde

pendent agency, the Millennium Challenge Corporation (MCC), "employingprin

ciples of selectivity based on commitment and performance in countries that can

aspire to MCC eligibility or are good candidates for transformational develop ment" (ibid; see also ibid., 20).



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U.S. AID has identified nine principles of development and reconstruction

assistance to achieve development objectives including economic growth, democ

racy and governance, and social transition: ownership, capacity building, sus

tainability, selectivity, assessment, results, partnership, flexibility, and accountabil

ity (U.S. AID 2005b). The United States coordinates its international aid policies with major donor governments, regional organizations, and multilateral lending bodies including the World Bank (U.S. AID 2005a).

The MCC uses five ofthe six World Bank indicators?rule of law, government effectiveness, voice and accountability, control of corruption, and regulatory qual ity?as part of the set of sixteen indicators it uses to select countries to qualify to

submit proposals for MCA funding (Radelet, Siddiqi, and Dizolele 2005). A coun

try must score better than the median score in its group in half of the indicators in

each of three broad areas?ruling justly, investing in people, establishing economic

freedom?to pass the indicators test, and must surpass the median on corruption as part ofthe "ruling justly" indicators (ibid., 2).

In a discussion on the future ofthe MCA in May 2005, the focus was on eco

nomic growth, donor ownership, and free markets (Center for Global Develop ment 2005). There was consensus on linking assistance to performance, measuring results, monitoring and evaluation, and "ownership" as the direction taken by the

MCA in the selection ofthe recipient countries. Experts also agreed that the coun

try's commitment to change and its allocation of resources are important factors to assure effective use of aid in reducing poverty (ibid.).

Concluding Remarks

Conditionalities have not necessarily brought about policy reforms that are sus

tainable over the long term (Killick 1998; Gwin and Nelson 1997). Based on the failure of conditionality in Africa, one critic argues that if it is pursued as a means of

general economic policy making, conditionality is often "dysfunctional" because it

implies a "transfer of sovereignty" that undermines the domestic political process (Collier 1999). For reforms to succeed, domestic support, ownership, and commit

ment are crucial; otherwise, as a World Bank researcher has reported, develop ment aid dependence had a negative impact during 1982 and 1995 on corruption, rule of law, and quality of governance (Knack 2000).

It is difficult to implement selectivity for high levels of poverty and weak gover nance go together. As one critic has aptly stated, selectivity as a "form of ex-post

conditionality should not penalize least developed countries by concentrating aid

exclusively on good performers, most of which are middle-income countries. The

poor in poorly performing countries already have to bear the burden of inept gov ernments and authoritarian regimes" (ibid., 11).

Past performance cannot be an effective indicator and guide to future perfor mance (Hansen and Tarp 2000). For the success of governance reforms, the state and governing institutions must be reformed and strengthened; effective demo



Jack

Jack


cratic institutions established; and effective participation, strengthened account

ability, and enhanced rule of law instituted to ensure sustainable good governance. The good governance agenda of multilateral aid agencies and donor countries is

being refined. Although it is impossible to have a clear-cut demarcation between

economic and political aspects of governance, the current confusion and ambigu ities need to be further clarified. Notwithstanding the lack of clarity about the con

cept, however, a reiteration of good governance and efforts at governance reforms,

despite many pitfalls, have served a useful function in identifying the problem areas hampering the success of development aid. It bears reiterating that the con

cept can be used effectively only when the cultural context and history are under

stood and sensitively taken into account. Finally, without effective participation and meaningful ownership by the recipient government and the people in the

recipient country, development aid cannot accomplish its objectives.

Notes

1. The G-8 leaders, along with other donor countries, committed to double aid to Africa by 2010 as com

pared to 2004 and to increase official development assistance (ODA) to around $50 billion a year by 2010,

compared to 2004 (Gleneagles Communique 2005, para. 28). Also, they agreed on a

proposal to cancel 100

percent of eligible Heavily Indebted Poor Countries' (HIPC) debt to the International Monetary Fund, International Development Association (IDA), and African Development Fund (ibid., para. 29).

2. As Robison (2001, as quoted in Thirkell-White 2003) explained in the context ofthe Fund's interven

tion in Indonesia, "The neo-liberal agenda is embedded in coalitions of interest and power," which has not

succeeded in "assembling a broad and powerful political coalition."

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