Week 8: Sachs and Moyo

                Noted expert in the field of aid studies, Jeffrey Sachs has stated in his book, “The End of Poverty”, that poverty reduction strategy plans (PRS) have been formulated, studied, and approved by the IMF for years in various countries. But, in a short anecdote, he demonstrates that despite the focused nature of this aid, those funding it cannot pass a large enough hat. These programs are unfortunately underfunded, but that more could be raised if the reasons for providing it were made clear to the developed world. This would be stipulated on a high level of transparency for how the dollars are utilized. He focuses in on several PRS in place.

                Kenya’s PRS, called ERS, is a four part effort which is aimed at reducing poverty and inducing economic growth in a macroeconomic context within 4 years. The first part is to source all government expenditures through tax revenue by holding revenues at 21% of GDP. The second is directed at strengthening good governance, so that there may be the rule of law, national security, and efficiency in public administration. The third is primarily concentrated on improving infrastructure. Finally, the fourth is investment in human capital including health and comfort dollars.

Senegal too participated in a PRS. In general, the document states what the obstacles to development are, including a contextual background in Senegal’s particular culture. The solutions it provides are wide stretching, but are focused on investing in public goods and services, while promoting the growth in the private sector.

Senegal

While aid has long been a part of the effort to develop nations, new thinking among experts, such as Dambisa Moyo, states that it is less effective at expanding economic prosperity, and is in fact detrimental to the process. Moyo has described, in Dead Aid, many of the issues surrounding the procurement and distribution methods for aid. In the next part of her book, she describes a ‘capital solution’ which she considers to be a better method for development.

Her solution is based on the principle that aid is wasteful as the countries which receive it become dependent and less successful as a result. Therefore, she proposes that nations in a developing stage should seek out sources of capital, specifically pursuing the bond market. While aid can be paid back within a number of years, the length of those loans can exceed 50 years. Bonds can be repaid within a much shorter timeline (max of 30 yrs.). Naturally, this requires the efforts of these nations to assist in securing this funding through diplomacy with financial institutions. A bank can be a useful supporter when providing such aid.

Finally, Moyo discusses what developing nations must accomplish before seeking FDI. First, they must find an investor who can supply start up dollars for a project which will grow consistently for a long period of time within economy of that nation. Instability and public perception can be detrimental for a country in need of FDI. Thus, clear and unbiased information is key to garnering FDI, so that investors can feel they are making the best possible choice.

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