06/29/2011 04:39 EDT | Updated 08/29/2011 05:12 EDT

Canada Could Punch Above its Weight in Multilateral Policy Shift

Prime Minister Harper's new government has indicated that Canada would not increase its bilateral assistance to the current governments in Egypt and Tunisia. Instead, it plans to channel more of its foreign aid to them through multilateral institutions such as the European Development Bank, the World Bank and regional development banks.

Though not explicit, the implication was that assistance through certain multilateral institutions would be more effective in generating growth and employment, than aid allocated bilaterally. As an alternative interpretation, detractors might see a shift to more multilateralism as a pretext for a government keen to reduce spending.

The issue of heightened value-for-money has become key as all OECD donors are under pressure from taxpayers to spend less but get more results from the billions that are spent annually on foreign aid. Canada distributed about $5.1 billion in foreign aid in 2009-10, of which about $1.2 billion went to multilateral organizations.

It was against this backdrop of Canada's apparent shift to increased multilateral development assistance that The North-South Institute held a timely June 20-21 conference in Ottawa titled "The Future of Multilateral Development Cooperation in a Changing Global Order," attended by more than 200 participants, including 35 experts from a variety of international think tanks.

The conference was supported by the Canadian International Development Agency and the Department of Foreign Affairs and International Trade.

Some key issues considered in-depth over the two days of discussion included the effectiveness of multilateral development aid versus other forms of cooperation and the expanding role the newly emerging economies can play both within multilateral institutions and through their own innovative approaches to economic development. The importance of increased South-South cooperation was endorsed as was the possibility that important lessons can be learned from well-managed, successful mid-sized economies.

Canada's possible shift to increased multilateral aid begs the question of whether the strategy is warranted. Indeed two recent studies support the multilateral approach to funding development.

In a 2010 evaluation of the effectiveness of 31 bilateral and multilateral aid agencies, the Washington-based Center for Global Development concluded that on the basis of some 30 criteria, multilateral development institutions have substantially higher rankings of effectiveness than do bilateral institutions.

Foremost amongst these multilaterals were global and regional development banks through which some 22 per cent of multilateral development funding is currently channeled. In total some 27 per cent of all foreign aid from the OECD member countries currently goes through multilateral channels. Amongst the best performers were the World Bank's International Development Association, the African Development Bank, and the International Fund for Agricultural Development.

A study earlier this year by the UK government's aid agency reached similar conclusions, using different criteria. The UK report found that multilaterals, unlike most bilateral agencies, performed well because "they are able to mobilize large-scale funding, bring specialist expertise, support innovation, play pivotal leadership roles with other donors, have the legitimacy and mandate to help with conflict situations and provide a platform for action in every country in the world."

Last week, in the opening speech to NSI's international gathering, Bev Oda, Canada's Minister of International Cooperation, noted that she was just arriving from meetings in Europe, of the African Development Bank, the Global Alliance for Vaccines and Immunisations, the World Food Program and the International Fund for Agricultural Development -- "all multilateral organizations that Canada proudly supports."

"Multilateral organizations are key players in global responses to emergency situations and the challenges of fragile states," said Ms. Oda. "In some cases they extend our reach, allowing us to accomplish more in the developing world than we otherwise could achieve alone."

But Ms. Oda also put the multilaterals on notice, saying that they must become more effective and efficient and better aligned with developing countries' needs.

Canada's foreign policy shift could put it in the enviable position of being able to punch above its weight within the multilaterals.

In doing so it would move past the growing tendency amongst traditional aid donors to first want to flag plant on projects funded bilaterally which, while beneficial to national contractors and in some cases to targeted beneficiaries, doesn't always allow for coordination with other donors nor for harmonization with host government priorities. As has been shown by study after study, the absence of such coordination and harmonization has been a primary source of waste and duplication by aid donors.

Perhaps the real litmus test for this apparent policy shift would be if our new government's support for multilateral institutions included demands that their programs respond to development priorities set and "owned" by the developing countries, that loan conditions be identified by the governments of the developing countries themselves, and that these same governments conduct multi-stakeholder dialogues which include the private sector and other civil society organizations.

An even more compelling indicator of what's really behind Canada's shift to increased funding of multilateral bodies would be if the Government were to publicly break with the tradition of selecting only an American as head of the World Bank, and a European as head of the IMF. Such an initiative by Canada, though largely symbolic, would be a public recognition that the world has changed and that it is time for the successful developing economies to take real positions of leadership in the globe's most important development and financial institutions.

Joseph K. Ingram is the President and CEO of The North-South Institute, Canada's oldest independent development policy think-tank.