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Independent research & practical ideas for global prosperity
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Independent research & practical ideas for global prosperity
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 Posts:March 15, 2010Truthiness and Justiness at the Haiti Debt HearingBy David Roodman
Memories of those days flooded back two weeks ago when I attended a hearing at the U.S. House of Representatives on canceling Haiti’s debt. Before I show you video highlights, let me sketch my thinking on canceling the debt of poor countries generally and Haiti in particular. Comment »March 11, 2010What We Talk About When We Talk About DevelopmentBy David RoodmanYou might know that I am writing a book about microfinance in public, via blogus. I’m working on the last chapter now, and that has me in a reflective mood. Here, I’d like to share one big idea that I discovered by writing the book. I am fired up about it, and I’d appreciate feedback on whether it is dumb, old, useless, or all three. Here’s how I explained it last December:
2 Comments »January 29, 2010For Haitians’ Sake, Drop the “Drop the Debt”By David RoodmanAs I blogged Monday, the Haiti government owes the rest of the world about $1.25 billion. Seems like a lot of money. Inevitably, groups such as the One Campaign, Oxfam International, and the Jubilee Debt Campaign have seized the moment to call on Haiti’s creditors to cancel the debt. And they have a point: can you imagine a metaphorical debt collector from the IMF knocking on the door of the Haitian finance ministry (if it still has one) asking for a few million dollars please? That’s why I called debt relief, meaning at least a suspension of debt collection, a no-brainer. The question is whether to go further than debt service suspension, to drop Haiti’s debt outright, as non-governmental organizations, members of Congress, and others have demanded. Actually, the practical question for citizens, officials, politicians, campaigners, and other players is whether to push for that. On a few days’ reflection, I say no. I would go so far as to describe such pressure as harmful. 8 Comments »January 25, 2010Suspend Haiti’s Debt—And Take Official Lenders beyond LendingBy David RoodmanMore Fresh Ideas for Haiti
See also[Update: For a more opinionated take on debt cancellation, see For Haitians' Sake, Drop the "Drop the Debt".] Haiti and international debt go way back, and it is a sad history. The circumstances of Haiti’s birth seem auspicious in retrospect: it was the second republic in the Western Hemisphere, founded in 1804 by slaves of African descent who had wrested freedom from their masters, then defeated Napoleon’s navy. But after France gave up on enslaving Haiti’s people, it enslaved the whole nation. In 1825, it exploited its superiority on the high seas to ransom the country’s ability to export sugar and coffee. The price: 150 million francs in gold, some $22 billion in today’s dollars. Not until 1947 did Paris declare Haiti’s debt cleared. A century of intense pressure to export commodities and extract profit by pressing plantation workers into conditions tantamount to slavery goes far to explain Haiti’s human and ecological poverty today. The latter is symbolized by satellite photos of the border between Haiti and the Dominican Republic, its twin-separated-at-birth on the Hispaniola island. The DR has trees. Haiti has none. Today, Haiti owes foreigners $1.25 billion. Inevitably, many are calling for the cancellation of that debt. The question of whether to give Haiti debt relief is at once easily distorted and misunderstood—and a no-brainer. When the world is struggling to channel resources through damaged air and water ports to a nation that has suffered such a blow, sending bills for debt service due would be practically and morally absurd. Since rebuilding Haiti will take time, a sensible formulation is that at a minimum, Haiti’s creditors should cancel all principal and interest payments for the next five years. This debt relief could be accomplished by, but would not require, debt cancellation. Why not go for complete cancellation? For some creditors, the political and financial costs would be high. And the benefits for Haiti would be lower than you might guess. Notably, persuading the Inter-American Development Bank (IDB) to swallow a $411 million loss in Haiti would be hard. Persuading it to forbear for a time on Haiti’s $8.6 million/year in debt service, or even arranging for the U.S. and other donors to reimburse that loss, would be a more realistic and expedient response to the emergency. 2 Comments »January 15, 2010Haiti Aid FactsBy David RoodmanMore Fresh Ideas for Haiti
See alsoNote: David Roodman usually blogs at his Open Book Microfinance Blog. CGD does not have data on how much public and private aid is responding to the Haiti earthquake. (But see this.) As background, here are a charts on recent patterns in Haiti’s aid, debt, and remittance receipts. Post comments to request others. The graphs and data shown here are in this spreadsheet (2006–08 version). Aid figures come from the Paris-based Development Assistance Committee (DAC), which collects its data from donor governments. The latest aid figures—just released—are for 2008. 5 Comments »December 18, 2009Does Aid Cause Dutch Disease?By David Roodman[Update: Arvind Subramanian has replied on Aid Watch to this post, and I have commented there.]
That’s a simplified picture of the impact of aid on a receiving economy. One can imagine many hidden complications: Uganda might stash the money in a New York bank, deferring the spending. Or it might buy yen with the dollars so that Japan would import California wines while Uganda got Sony TVs. Most of these complications do not change the essential picture, however. Aid is free imports, so while making the recipient richer, it also compresses the recipient’s production of tradeable goods. This compression is known as Dutch Disease because something like it happened to the Netherlands after natural gas was discovered there. Suddenly foreigners were clammoring to hand foreign currency to the Dutch in exchange for the gas. The country’s hydrocarbon industry grew, and since there were only so many workers and so much capital, other industries got squeezed down, disrupting the lives of many. You can imagine the channels through which these changes played out. The natural gas company started hiring, for example; that bid up wages; that forced other companies to lay off people or completely shut down. Other ripples ran through exchange rates. 2 Comments »November 23, 2009South Korea Joins the Donor ClubBy David RoodmanThe Korea Times reports that the Paris-based Development Assistance Committee is set to endorse South Korea’s application for membership on Wednesday. DAC is the official club of Northern government donors. Korea will join Australia, Canada, New Zealand, Japan, the U.S., Western European nations and the European Commission in one of the world’s most exclusive clubs. Meanwhile, Korea and the U.N. Development Programne (UNDP) have just agreed to start a new UNDP branch with the felicitous name, “Seoul Policy Center for Global Development Partnership”:
Both bits of news are indeed signs of South Korea’s graduation from receiver of aid to giver. I hope they will also mark a progression in Korea’s conception of something broader than aid, development policy. Last year, anticipating South Korea’s entry into DAC, we added the country to the Commitment to Development Index (CDI), which ranks wealthy nations on a spectrum of policies that affect poorer ones, from aid to farm subsidies to gasoline taxes. A key message of the CDI is that development policy embraces far more than aid. Korea now ranks last on the CDI, with a profile similar to that of Japan: little aid for its size, and high entry barriers to goods (read: “rice”) and workers from other countries. On the other hand, it scores a 2.5 in 2009 (where 5 is average), a level Japan did not surpass until 2006, so it is not far behind for a new entrant. (See the Korea CDI report in English or Korean.) Before releasing the CDI last year my colleague Cindy Prieto and I visited the Korean embassy here in Washington to brief officials. We were impressed with their constructive attitude, which blended respect for the CDI and hope that Korea would improve as it took its place among donors. We congratulate South Korea on its new status and wish it the best as it accepts the attendant responsibilities. 4 Comments »November 5, 2009Yes Bill, No Owen: Why I Still Doubt Aid-Growth RegressionsBy David Roodman[Update: I posted slides from my turn as a discussant for this paper at the Brookings Institution on January 25, 2010.] In the last few days, Bill Easterly and Owen Barder, two respected bloggers who spent time at CGD, looked over a new paper and (at least provisionally) reached opposite conclusions about whether aid has at long last been shown to boost economic growth on average. Also in the last few days, I whacked Bill; now I’ll back him. The new paper by Channing Arndt, Sam Jones, and Finn Tarp (I’ll call them “AJT”) contains two statements I largely endorse:
The first quote says that unless you experiment on poor countries, randomly giving aid to some and not others, you have to make arguable assumptions about the world in order to infer anything from country-level data about whether foreign aid causes growth. The second quote might overreach slightly but is true in spirit: this is an impressively careful analysis. The authors work with a data set from a widely cited paper by Raghuram Rajan and my colleague Arvind Subramanian that concludes that there is no clear evidence of a systematic impact of aid on growth. Reanalyzing, AJT conclude that—on the contrary—it is reasonable to believe that aid worth 1% of a country’s gross domestic product (GDP) raised economic growth by 0.1%/year on average during 1970–2000. That is a small but helpful impact. While I cannot prove AJT wrong, I remain skeptical. In a new CGD paper, Blunt Instruments, Michael Clemens and Samuel Bazzi powerfully express my main concern. I’ve explained it less technically on my microfinance open book blog with reference to studies of the impact of microcredit, and will adapt that writing here. 5 Comments »October 28, 2009The Moyo Criterion: Is Easterly a Truer Scholar than the Gateses?By David RoodmanYesterday, Bill Easterly and Laura Freschi took Bill and Melinda Gates to task for building an aid success story on dubious African malaria statistics. Perhaps, Easterly and Freschi suggest, the leaders of the largest private endowment ever are stubbornly clutching questionable statistics because they conveniently support the conclusion that “The money the US spends in developing countries to prevent disease and fight poverty is effective, empowers people, and is appreciated.” Easterly and Freschi humbly express hope that they themselves meet a higher standard, letting the evidence determine their conclusions rather than the other way around. Whether a person meets this standard of objectivity, they point out, can be judged
I’d like to suggest another test of commitment to the pursuit of the truth: whether one challenges the reasoning of one’s supporters and dissenters with equal enthusiasm. By this standard, I think Easterly has fallen short. (Disclosure: The Bill & Melinda Gates Foundation is a major funder of the Center for Global Development.) 7 Comments »May 29, 2009Cross-post: First Randomized Trial of MicrocreditBy David RoodmanOver on my microfinance “open book” blog, I posted a digest of what is arguably the first gold standard evaluation of a storied anti-poverty intervention, microcredit. Given the paper’s historic nature and its resonance with CGD themes of impact evaluation and finance, the post may particularly interest those who follow the present blog, Voices from the Center. Comment »May 23, 2009Review of Portfolios of the Poor: How the World’s Poor Live on $2 a DayBy David RoodmanIf you want to understand how poor people in poor countries manage money, invest in Portfolios of the Poor. The new book’s four authors—Daryl Collins, Jonathan Morduch, Stuart Rutherford, and Orlanda Ruthven—took up an idea of David Hulme, to compile financial diaries of poor households. A researcher visits a poor household repeatedly, say, every fortnight for a year, and gathers detailed information on what its members earned, spent, borrowed, and saved since the last visit. Through the data collection and the associated conversations she pieces together an intimate portrait of the household’s financial life. “[F]inance is the relationship between time and money…to understand it fully, time and money must be observed together.” (Disclosure: I am coauthoring a CGD paper with Morduch.) Comment »May 13, 2009Does Aid Crash During Crises? A Sharper LookBy David RoodmanLast fall, as stocks tumbled and credit froze, I blogged on how much foreign aid has fallen in past financial crises. I found that in four previous cases—Finland, Japan, Norway, and Sweden, all in the early 1990s—foreign aid fell 10—62%. The bigger drops happened in bigger crises. The analysis was easy to understand, but crude. One factor it ignored was that the Cold War rationale for foreign aid had just crumbled, so many countries were cutting aid anyway. Emmanuel Frot of the Stockholm Institute of Transition Economics just performed a more careful analysis. He adds two more crises: South Korea in 1997 and the United States in 1988. (The U.S. stock market did crash in ‘87, but I don’t know that that constituted a financial crisis…) And he uses more sophisticated statistical techniques to remove broad time trends such as the ending of the Cold War. He corroborates my simple findings, but comes in at the optimistic end. Past experience suggests to him that the global aid could fall 13 percent this time around. Comment »March 25, 2009Dambisa Moyo Discovers Key to Ending PovertyBy David RoodmanLast month I blogged a New York Times interview with Dambisa Moyo, whom the paper aptly dubbed the “Anti-Bono.” A youngish woman who grew up in Zambia and holds degrees from Harvard and Oxford, she launches a frontal assault on foreign assistance in her new book, Dead Aid. For her, ODA is DOA. I worried in my post about her simplistic interview answers, which implied that aid has nothing to do with microfinance even though donors helped make it what it is today. I ended carefully:
Well, I did, and she doesn’t. (Her publicist sent us a copy, so we got the Anti-Bono pro bono.) The book is sporadically footnoted, selective in its use of facts, sloppy, simplistic, illogical, and stunningly naive. Read More… 5 Comments »January 12, 2009Who Will Index the Indexers? Think Tank Ranking in Foreign Policy MagazineBy David RoodmanOn January 5, the University of Pennsylvania’s International Relations Program and Foreign Policy magazine released a first-ever ranking of think tanks. Penn’s James McGann, the author, calls it the “The Global Go-To Think Tank” index and Foreign Policy, simply the “The Think Tank Index.” A think tank, in case you were wondering, is a “a group or an institution organized for intensive research and solving of problems, especially in the areas of technology, social or political strategy, or armament.” The irony did not escape us at CGD: our own Commitment to Development Index was born in the pages of FP; now FP would rate us. 3 Comments »October 13, 2008History Says Financial Crisis Will Suppress AidBy David RoodmanThough today’s financial crisis began in the world’s richest nation, there is good reason to worry about how it will affect the world’s poor. A recent series of posts explores the implications. The contagions of freeze-up and slowdown will spread through many channels: trade, investment, migration, and more. In particular, as governments pour trillions of dollars and euros of aid into their banks, it will be unsurprising if their spending on aid for poor countries—currently about $80 billion/year—falls. (See Saturday’s story in the Washington Post.) After each previous financial crisis in a donor country since 1970, the country’s aid has declined. “Every” in this case refers to four instances: Japan after its real estate and stock bubble burst in 1990; and Finland, Norway, and Sweden after their shared crisis in 1991. 1 Comment »September 22, 2008Microfinance Likely to Weather the Storm (Development Impacts of Financial Crisis)By David Roodman
Comment »July 24, 2008Quality over Quantity: New Index of Donors’ Microfinance WorkBy David RoodmanBack in December 2006 I blogged a meeting in Paris at which the Consultative Group to Assist the Poor (CGAP), a sort of microfinance think tank operating out of the World Bank, won a mandate to hold a mirror up to the aid agencies that fund it. A year and a half later, CGAP’s new SmartAid Index looks at the quality of donors’ work in supporting micorofinance. For example, it asks, do donors learn and apply lessons from past experience? Do they hold staff accountable for results? My observation at the meeting was that mid-level officials who were directly responsible for microfinance activities, while seeing the good sense in external scrutiny, were somewhat uncomfortable with the prospect. Meanwhile, people closer to the top were eager for ways to understand the effectiveness of the various branches of the organizations they run, including units doing microfinance. Comment »April 7, 2008NYT Microcredit Story Raises a Tough Question: Does 100 Percent Interest Help Poor People?By David RoodmanThe New York Times ran a story on Saturday by Elisabeth Malkin, called “Problems for Microfinancing in Mexico,” that illustrates the difficulties of sizing up microcredit. The article surveys the controversy over the initial public offering of shares in Compartamos, a Mexican microfinance bank, which “began as a nongovernmental organization in 1990, started by a Catholic social action group called Gente Nueva, whose inspiration was a visit by Mother Teresa to Mexico.” The spectacular IPO last April raised $450 million for the company, turned the founders into multimillionaires, and generated nine-figure gains for early investors including non-profit Accion International and the World Bank’s private sector lending arm, the IFC. The IPO was a Richter-9 earthquake in the microfinance world, seeding contention between those whose vision for microfinance is of a rapidly growing commercial industry reaching millions more people each year and those dismayed at businessmen making fortunes on the backs of the poor thanks to annual interest rates approaching 100%. (For facts, see Rich Rosenberg’s note for CGAP, also in Spanish and Arabic. For a round-up of opinions see the State of the Microcredit Summit Campaign Report 2007.) 2 Comments »October 10, 20072007 Commitment to Development Index AnnouncedBy David RoodmanHello from London, where, at a Parliamentary building across the street from Big Ben, CGD today released the 2007 edition of the Commitment to Development Index. The event was organized by the U.K. Department for International Development, the All Parliamentary Group on Overseas Development, and the Overseas Development Institute. Each year the CDI ranks 21 rich countries on how much their policies help or hurt developing countries. The starting point is that rich and poor countries are connected in many ways–by aid, yes, but also by commerce, migration, the environment, military affairs, and technological developments. So simple comparisons of donors on how much aid they give as a share of gross domestic product miss the big picture, which is why the CDI assesses policies in seven major areas. The CDI web site offers a wealth of graphs, introductory material, country performance reports, and technical detail. Comment »June 4, 2007British Conservatives Invoke Commitment to Development IndexBy David RoodmanThe British Conservative party issued a statement today aimed at the upcoming G-8 summit and citing CGD’s Commitment to Development Index (CDI). (Coverage in the Guardian is here.) The CDI rates 21 rich countries on how much their foreign aid, trade, and other policies help or hurt people in the developing world. The aid component of the index works to measure not just how much aid countries give but how good the aid is–quality matters as well as quantity.
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When I was 
If the United States gives Uganda a billion dollars, Uganda becomes richer. However, Uganda can only enjoy that money by spending it; and since the money is dollars Uganda must buy goods and services from the United States. So when the United States gives Uganda a billion dollars, exports follow. With enhanced access to products easily tradeable across national borders, Uganda can devote more economic energy to making non-tradeables such as restaurant meals and bicycle repairs. With the wealth, then, comes economic change.
