A while back, I was musing about the end of IDA, especially given the interesting work of Andy Sumner on the “New Bottom Billion” and the increasing rate of country “graduation” from IDA eligibility.  For those unfamiliar with the term, IDA is the International Development Association, a branch of the World Bank Group focused on assistance for the world’s poorest countries.  Countries eligible to receive support from IDA have access to low- or no-interest loans that can be paid back over long periods of time – this is justified by the assumption that IDA-eligible countries will not have access to other forms of credit on reasonable terms, mostly because of conditions in the country that would drive away commercial lenders and other sources of credit.  Of course, IDA loans often came with significant conditionality – terms that recipients had to agree to in order to receive the funds, ideally intended to remedy the problems that kept traditional creditors away.  While these conditions were meant to help recipient countries, they often proved disastrous (structural adjustment had a lot of collateral damage among the people it was meant to help) and certainly challenged recipient country’s sovereignty, as the conditions effectively moved economic policy decision-making out of the national government and into multilateral donor organizations.  Both situations created a lot of tension between the multilaterals and the IDA-eligible countries.

Today, for a lot of reasons, it seems that IDA might be coming to a close in much of the world.  Countries are moving beyond the GNI per capita thresholds between low-income and middle-income status all the time (Ghana recently did so), and thus losing eligibility for IDA loans.  Further, ever-cheaper sources of capital have been extended to nearly every country in the world, a process that seems to have accelerated since the recession in the Global North (I surmise this has something to do with the fact that the giant pool of global money that no longer resides in real estate speculation needs somewhere else to go).  In any case, for most low income countries IDA is no longer the only credit game in town, and considering other sources of credit, especially the Chinese, put very few conditions on their loans, IDA is less attractive all the time.  There is still a need for IDA, for a very few countries, but it seems that the tide has turned against it.  This is good news – after all, in development our job should be to put ourselves out of business.  I think there is significant debate about whether IDA put itself out of business (considering attribution of graduation to IDA assistance is weak, at best), but at least we are seeing a situation where a development institution might finally be losing its purpose because good things have happened in the world.

Having worked for USAID, and now working with the World Bank, I have had the chance to sound out a lot of people in the donor world about this shift.  Most people I talk to who have given it any thought recognize that this is part of a much broader shift, one in which the days of “development as financial assistance” (IDA or otherwise) are coming to an end.  Going forward, it is clear that development assistance will increasingly be about technical assistance and less about lending (the Obama administration’s pick of Jim Kim as head of the World Bank is a clear signal that they see the World Bank of the future as a technical assistance organization, not a lending organization).  It is a fascinating transformation that, among other things, is going to obviate a lot of traditional critiques of aid, which revolved around the economic imperialism that aid dollars allowed – the conditionalities of lending that enabled structural adjustment and its many disastrous outcomes.

But the question of graduation is, of course, a tricky one.  Andy’s work, at least when I have been present for his presentations, has drawn questions about what seems to be the arbitrary nature of the lines between low-income and middle-income countries – that is, the movement to “middle income status” might represent a real shift in economic activity, but not a significant change in people’s lives.  I’ve expressed concerns about the robustness of “graduation”, as what appears to be a positive income trend in many countries might not have the strongest of foundations, or might be compromised by the impacts of climate change going forward.

So how can we productively track this change in the world’s financial needs and ensure that development takes a relevant shape as we seek to address the evolving needs of the world’s poor (wherever they might be)?  Perhaps another, more productive way to think about “graduation” is to examine the point at which investment dollars provided by donors is swamped by private investment such that the aid dollars are no longer effective means of leveraging change.  One million dollars can effectively leverage 10 million dollars of investment, but can 1 million dollars leverage 100 million dollars?  In most cases, probably not.  It would be interesting to look at various countries where aid dollars are of declining importance (Ghana, Zambia, etc.) and determine a) if their situation vis a vis aid investment has shifted such that donor dollars no longer effectively leverage other investments and b) when and under what conditions that shift occurred.  It seems to me that this would be a more effective marker in terms of thinking of transitioning from aid as investment to aid as technical assistance, as opposed to a largely arbitrary line in the GNI sand, one subject to rather large margins of error in its calculation.   Further, understanding the conditions of a transition from dependence on donor investment to stand-alone FDI recipient would be a key lesson for transitioning other countries out from aid dependence.

This is a rough sketch, but it seems to me this could be done.  It would require a bit of research in a couple of key places, but organizations like the World Bank are well-positioned to conduct such research and disseminate the findings.  Academia stands ready to help…