International cooperation and middle income countries
by José Antonio Alonso
Professor of Applied Economics
Director, Instituto Complutense de Estudios Internacionales, Complutense University of Madrid
In the last few years, the international community has taken important steps in defining its commitment to the fight against poverty in a more precise way. These changes were accompanied by a greater emphasis on the need to target aid resources, in a much more focused way at social sectors and countries with the most acute levels of poverty. For this reason more attention has been demanded for the poorest regions, like sub-Saharan Africa, reducing (or eliminating) aid which previously went to countries with greater income levels. Therefore, there are already various donors (among those some from the European Union) who have decided to end their cooperation and to close their representation in various middle income countries (MIC). That process can be observed in the case of Latin American countries (both South American and Central American) which have seen a reduction in both the resources and the number of donors available to back aid initiatives in the last few years.
Nevertheless, close to 95 countries (or territories) belong to the middle income group: in other words, about 60 percent of those which belong to the developing world. Besides that, about half (47.7%) the world population lives in MIC (including the decisive weighting of China) and contributes about 36% of world GDP (in purchasing power parity).
Therefore even accepting the need to pay greater attention to the poorest countries, there are still good reasons for the international community to continue to support the development efforts of the MIC. In particular, it is necessary to maintain aid to the MIC:
- because more than 41% of the poor population of the world, with less than 2 dollars a day, lives in these countries: so if we want to eradicate poverty we necessarily have to obtain effective development results in these countries;
- because middle income countries are highly vulnerable to external shocks or internal crises: in such a way that international support may be necessary to consolidate and ensure achievements;
- because the contribution of this group to the provision of international public goods – especially environmental goods – is decisive: which justifies the support of international community for those countries efforts to promote this type of goods which benefit everyone;
- because of the weighting of some of those countries in their region, their success in development terms can have a positive effect on the progress of third countries, providing stability in the international system;
- and, finally, because it is necessary to create a system of cooperation which is incentive-compatible with the aims of development: if only deficient results – and not successes – are rewarded alone by international aid, we are introducing a problem of perverse incentives and moral hazard into the cooperation system.
In short, the idea would be to avoid a system that creates a radical border between recipient and non recipient countries. Instead of that, we should promote an international cooperation system able to follow up the development efforts of these countries until they are firmly consolidated, by adjusting the aid to the specific needs in each recipient development phase. To make this kind of system coherent, it is necessary to involve all those countries (not only today’s donors) in sustaining international aid so they are able to advance in their levels of development. In contrast with an excessively dual vision of the system, which neatly separates the functions of donor and recipient countries, we should promote the progressive involvement of middle income countries in active aid tasks as they progress in their experience of development. That involves their increasingly active participation in a South-South cooperation, which should be supported by donors through various forms of triangular cooperation and regional cooperation.
Re: International cooperation and middle income countries
Largely agree with the arguments of Professor Alonso, in particular building a partnership with donor countries to make economic gains in MICs irreversible and to support MICs that can generate growth impulses that have substantial positive effects in neighbouring countries. The idea to adjust aid to “each recipient development phase” is interesting, but only as long as the “development phase” is not defined exclusively by the per capita GDP level. Other factors such as education levels, extent of poverty, fiscal and financial stability, productive structure and export dynamics are important to consider. Still, this should only constitute a first step in the consideration of donors’ aid to MICs.
The other is the eventual use of the aid (concessional financial flows or funding technical assistance); here, ownership is crucial. Aid to MICs cannot be large and will never be a determinant factor in their development. Yet, if the government of a MIC (with limited resources) is proposing funding reasonable-size projects or programmes with a likely major economic or social impact, such as projects leading to significant and sustained employment gains in rural areas or substantial increases in the education of girls, donors should certainly assist. Projects in institutional reform such as reform of the tax system and enhancing tax collection, projects that lift a constraint to business investments – including foreign direct investment, projects to improve public health or educational policies, all might have an enormous long-term impact on development and poverty eradication. In other words aid could play a very important catalytic role if the recipient country government plays its role in partnership with donors.
Aid oriented to experimentation with pilot projects in MICs might also have a high rate of return. Many MICs depend on tropical agriculture and have significant extensions of tropical forests. Pilot projects leading to an eventual green revolution in tropical agriculture (new techniques and processes that will probably be easily transferred to low-income countries) or that facilitate ensuring the protection of the tropical forest also merit the granting of aid as their character is more of a global good. Yet, experimentation does not have to be limited to agriculture related areas. Other socio-economic areas could be contemplated such as testing approaches to effective and efficient provision of basic services in the slums.
