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HUNGARIAN INTERNATIONAL DEVELOPMENT COOPERATION: PROBLEMS AND RECOMMENDATIONS | CEED

HUNGARIAN INTERNATIONAL DEVELOPMENT COOPERATION: PROBLEMS AND RECOMMENDATIONS

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This paper provides a brief overview of Hungarian international development cooperation (IDC). After a short introduction into the history, legal context, institutional setup and the system of bi- and multilateral Hungarian development cooperation the main weaknesses and possible solutions are discussed. The main problems include the lack of sufficient funding (worsened by the practice of aid inflation), aid ineffectiveness, a weak legal and institutional background and the lack of coherence between different policy areas affecting poverty. The mapping of a clear and coherent strategy for Hungarian IDC could be a first step to solve these weaknesses.

HISTORY OF HUNGARIAN DEVELOPMENT ACTIVITY
Hungary is a relatively new donor with development policy activity since 2003. Although there has been development policy before the transition, it lacked a coherent strategy – as Hungary has no colonial history, recipient partners were mainly chosen with the aim to strengthen political-ideological allies of the Eastern Block. It has to be mentioned however, that in some years the amount of ODA was very high: in the eighties aid levels reached 0.7% of GNI.
With the transition ideological and foreign policy priorities changed fundamentally. The transformation of the economy meant a huge burden for the budget and aid activity decreased drastically. Although Hungary became a member of the OECD in 1996, there was no real improvement in Hungarian development policy until 2001-2003. In 2001 the first International Development Cooperation concept paper was adopted and the institutional, legal and financial frameworks were set up. Parallel to this Hungarian development civil society began to evolve and in 2002 the Hungarian NGDO platform, the Hungarian Association of NGOs for Development and Humanitarian Aid (HAND) was founded.

LEGAL CONTEXT
Regarding the legal context Hungarian development activity is regulated by a government decree while being constricted by a number of other laws as well. The preparation of a single framework law on IDC started in 2007 and is still in progress despite promises of the government to adopt the law by the end of 2009. The absence of this single framework law makes development activities difficult.

INSTITUTIONAL SETUP
The International Development Cooperation Department (NEFEF) of the Ministry of Foreign Affairs is responsible for planning and coordinating Hungarian International Development Cooperation, functioning as a decision preparing, coordinating and implementing body. As several other ministries take part in the international aid and support activities including the Ministry for the Interior, the Ministry for Environment and Water, the Ministry of Health and others, leading political and strategic decisions are made by the Inter-Governmental Development Policy Committee (NEFE KB), chaired by the Minister for Foreign Affairs. Meeting at least once a year, the committee determines geographical and sectoral priorities of Hungarian IDC, translates it to programs and determines the recipient states. Its activity is supported by the Inter-Departmental Expert Workgroup consisting of members delegated by the various ministries.
As Hungary is a relatively new donor, the acceptance of development policy in Hungarian society is low. This is one of the reasons the Social Advisory Board was set up, to enhance connections with society, academia and NGOs. The Board comments on the materials handed in to the Inter-Governmental Committee and functions as a forum for representatives of different sectors participating in IDC activities to consult each other. The Board consists of representatives of the MFA, political parties, trade unions, employers’ associations, academic communities, NGOs and individual experts. Its president currently is Glatz Ferenc, former president of the Hungarian Academy of Sciences.
HUN-IDA, a non-profit company, is the implementing agency of Hungarian IDC programs, while Hungarian missions abroad, NGOs, the private sector and various organs of public administration participate in carrying out development projects in the partner countries. 1

BI- AND MULTILATERAL COOPERATION

Multilateral Cooperation:
Being signatory of numerous international agreements and member to several international organizations, Hungary is becoming part of various IDC initiatives. A decisive amount of Hungarian IDC expenditure accounts for the yearly membership fees and contributions to international organizations paid by the MFA and various other ministries.
The biggest share, 83.7% of multilateral ODA is Hungary’s contribution to the EU budget. Although this can be counted as ODA, it is questionable, whether this is right, since we have absolutely no oversight on how and on what purposes this money is spent. The second biggest part (4.4% of all multilateral ODA) is Hungary’s contribution to the International Development Association, giving aid and loans to the poorest countries. The Ministry of Finance contributes to the IMF HIPC, the program for heavily indebted poor countries. Membership fees and contributions to the OECD, UN, FAO and WHO have to be mentioned as well.
The bigger the share of multilateral IDC in a country’s portfolio the smaller the room for manoeuvre in choosing partners, IDC activities and priority sectors. The share of multilateral cooperation in Hungarian IDC is exceptionally high and has even increased over the last years: from around 61% in 2005 to around 88% in 2008 of all Hungarian IDC. It is safe to say that bilateral aid is more or less residual in Hungarian development cooperation: what is left after fulfilling the international commitments is used for bilateral development activity. 2

BOX:
INTERNATIONAL COMMITMENTS
With the accession to the OECD and the European Union Hungary assumed the responsibility to work out and implement an international development cooperation policy conforming to OECD and EU principles and practices.

United Nations
In 1970, members of the UN General Assembly agreed to increase their ODA to 0.7% of their Gross National Income (GNI).
In 2000, UN member states committed to reduce extreme poverty by achieving a set of goals by 2015. The eight Millennium Development Goals are: eradicating extreme poverty and hunger, achieving universal primary education, promoting gender equality and empowerment of women, reducing child mortality, improving maternal health, combating HIV/AIDS, malaria and other diseases, ensuring environmental sustainability and developing a Global Partnership for Development.

European Union
The European Union as a block adopted a set of binding common targets with the 2002 Monterrey Consensus.
In 2005 the member states agreed to set interim targets to progress towards the 0.7% target. Old member states committed themselves to reach 0.51% and new member states 0.17% of GNI by 2010.
In 2005, the EU identified Policy Coherence for Development (PCD) as a central concept in poverty reduction and achieving the Millennium Development Goals.

OECD
In 2005, donor governments and the EU, signed the Paris Declaration on Aid Effectiveness, placing democratic ownership at the heart of development policy. Hungary acceded to the Paris Declaration in 2007. In 2008, donors met to advance on implementing the Paris Declaration. As it became obvious that progress had been minimal, donors agreed on the Accra Agenda for Action, setting out immediate-to-implement commitments to focus on until 2010, the deadline for meeting the Paris Declaration commitments.

Bilateral cooperation:
Although Hungarian ODA targets a large number of countries, the vast majority is concentrated on a few only: 90% of ODA go to ten, 78% to five partner countries. Of these ten countries only one (Afganistan) is a least developed country, one (Vietnam) is a low income country, five are middle income countries and three are in the top category of middle income countries. It is safe to say that LDCs are not a priority of Hungarian development activity.
In geographical terms, Hungarian IDC activity has a very strong Europe-focus with more than 60% of the funds going to neighbouring countries. In 2008 43% of ODA was directed to Albania, Bosnia-Herzegovina, Kosovo, Serbia, Ukraine and Belarus. The main idea behind this choice of partners was that Hungary has gained a lot of experience in the course of political and economic transition and EU accession, which can be best utilized by countries of these regions. Although Africa should be a priority according to the European Union’s new Africa-policy, only 0.6% of Hungarian bilateral ODA targeted Africa in 2008.

According to the Ministry of Foreign Affairs, the main objectives of Hungarian IDA are:
international peace and security and regional, political and economic stability;
reduction of poverty, contributing to sustainable economic and social development;
protection of human rights, strengthening democracy and civil society structures, supporting local community autonomies;
supporting efforts aimed at creating economic and social development (basic necessities, healthcare, primary education);
promoting good governance;
protection and improvement of environmental resources.

Target sectors of Hungarian IDC are3:
Transition management (economic transition, EU accession)
Knowledge transfer
Education
Health services
Agriculture
Environmental protection
Water management
Infrastructure

Decreasing level of ODA4
There was a constant increase in the share of ODA in Hungarian gross national income until 2006: in 2003, the share was 0.03%, in 2004 0.07%, in 2005 0.1% and 0.13% in 2006. From this point on however, ODA began to decrease: in 2007 ODA was 0.08% of GNI and 0.075% in 2008. The decreasing level of ODA has various reasons. In 2005 and 2006 debt cancellation raised aid levels significantly. In 2005, the cancellation of Yemeni and Tanzanian debt accounted for almost 20% of ODA. In 2006, debt relief was provided for Iraq and Ethiopia and in 2007 to Mozambique, accounting for 16.9% of ODA, whereas in 2008 there was no debt cancellation. (In 2009 however, Ethiopian and Cambodian debt cancellation will be counted.) Therefore we cannot be optimistic about the future. The EU member states are expected to raise their levels of ODA to 0.17% of GNI until 2010 and to 0.33% to 2015. As the source of debt cancellation is running out and financing difficulties increase due to the economic crisis, it is more than probable that Hungary will not be able to meet these targets.

PROBLEMS AND RECOMMENDATIONS

1. Underfinanced IDC
Since 2006, Hungarian ODA flows have shown a constant decrease, in 2008 the amount of ODA was about half the amount of 2006. Decreasing aid levels are a consequence of inflated aid: Hungary has been reporting large amounts of debt cancellation as ODA, but this source is running out. The financial and economic crises contributed to decreasing aid levels as well and ODA is likely to fall in the future.5 With 0.07% ODA/GNI in 2008 Hungary will most likely not meet its 0.17% target by 2010. Furthermore, only five years away from the MDGs the lack of commitment on aid figures raise concern that these objectives will not be met.
Recommendations: As it is very unlikely that the current target of 0.17% will be met in 2010, Hungary should undertake new aid commitments and most importantly work out a realistic road map to fulfil these commitments. Ultimately however, the level of genuine aid has to be raised, leaving behind the practice of aid inflation.

2. Aid inflation
Aid inflation is a widespread practice in the EU: out of the nearly 50 billion euros that EU governments provided as aid in 2008, almost 5 billion was debt cancellation, 2 billion student costs and almost 1 billion refugee costs.6 Instead of phasing out the practice of reporting debt cancellation, refugee and student costs as aid, many EU governments are now pushing for a “widened ODA agenda” to include climate finance as well as security and migration spending.
Although the donor community accepts the practice of reporting debt cancellation as ODA in the case that it has development aims, European NGDOs believe that debt cancellation – although extremely important – should not be classified as development assistance. They refer to this kind of ODA as “inflated aid” in contrast to “genuine aid”. Unfortunately, Hungary is not an exception when it comes to aid inflation as we have seen. Debt cancellation has made up a significant share of ODA in recent years, but this source is running out.
European NGDOs believe it is unacceptable to count refugee costs as ODA since they do not contribute to poverty reduction of developing countries in any way. Hungary is in line with these demands since it has never reported its refugee costs as ODA.
Another form of aid inflation is counting scholarships to students from partner countries studying in donors countries as ODA. Hungary counts student costs as a form of technical assistance. European NGDOs believe that these should not be counted as aid as the donors merely subsidize their own higher educating institutions this way. They see no guarantee that money covering student costs ever contributes to poverty reduction in developing countries, furthermore, by funding foreign students, donors can fuel the brain drain phenomenon. The official Hungarian position on the issue on the contrary is that foreign students trained in Hungary can substantionally contribute to the economic and social development of their home countries, student costs can be seen as a tool of poverty reduction and therefore counted as aid.
Recommendations:
Debt cancellation has to be continued, but it should not be counted as ODA. There is a strong need for ODA statistics that keep record of genuine ODA and debt cancellations separately.

3. Aid (in-)effectiveness
Ineffective development cooperation costs a lot: according to the European Commission the costs of not applying fully the aid effectiveness agenda amount to 5-7 billion euros yearly.7 The main factors determining aid effectiveness are transparency, gender equality, democratic ownership, accountability, untied aid, a low ratio of technical assistance, predictability of spending and efficient division of labour between donors. As the amount of ODA will most likely decrease further in the coming years, raising aid efficiency is particularly crucial to Hungarian IDC.

Aid transparency
Good transparency enables citizens and parliaments in both donor and recipient countries to fight corruption, to make sure aid is spent on the purposes intended and to hold their governments accountable. According to CONCORD AidWatch European donors expect a high degree of transparency and accountability from their southern partners but they usually do not practice what they preach.8 In Hungary, too advancement is needed on the transparency issue, the public and NGOs often face difficulties in accessing information.
Recommendations: The Hungarian NGDO-platform has pushed for an IDC database and documentation centre providing free access to all IDC data, statistics, reports and project-evaluations. Although there has been improvement regarding the availability and access to data, the establishment of this single documentation centre seems more and more out of reach.

Gender equality
It is impossible to achieve development goals without addressing women’s rights and gender equality. Women are overrepresented among the poor and illiterate and are a highly vulnerable group with their rights denied on an everyday basis. International development cooperation must take this into consideration and pay special attention to women by ensuring that aid programs target them as primary beneficiaries. Although all EU member states have signed up to a number of international agreements for gender equality (having most lately committed to the MDG “promoting gender equality and empowerment of women”) in practice only a few European governments such as Denmark and the Netherlands have gender strategies and assessment mechanisms in place.
Hungary as a new donor has no clear gender strategy in its development cooperation and the shrinking bilateral budget suggests that gender issues will not become a priority in the coming years.
Recommendations: A gender strategy has to be developed with particular regard to the relevant Millennium Development Goal.

Democratic ownership and reduction of conditionality
The idea of democratic ownership is that instead of donors prescribing their own solutions, recipient countries themselves should determine the path of their own development. All partners should participate in national policy development, implementation and monitoring and donors should support and not undermine these democratic processes. Although donor governments recognized this with the Paris Declaration and reaffirmed their commitment in Accra at the High Level Forum on Aid Effectiveness there has been only minimal progress in this area. Development policy is still donor-driven in most cases, with IDC determined by the economic-, foreign policy- and security policy interests of donors.
One symptom of the lack of democratic ownership is the widespread use of harmful economic policy conditions, often forcing vulnerable economies to open their markets or making cuts in vital public spending. Experiences of the past decades have shown that forced privatization of state-owned companies and public services and the irresponsible liberalization of trade and financial flows often put societies on an unsustainable path of development, creating social and economic tensions, whereas a slower liberalization combined with a selective industrial policy can be more successful. It is highly problematic that the World Bank and the IMF set the standards used by donors to rank poor country economies.
Recommendations: Reduction of conditionality, in particular harmful economic conditionality demanding uncontrolled liberalization and privatization. The real needs and national development strategies of recipient countries must be the starting-point of any development project, giving priority to projects targeting the poorest and most vulnerable, developing the basic social services (primary education, basic healthcare, population programs, providing food and drinking water).

Accountability
While recipient governments have a lot of requirements placed on them by donors to be accountable, there are no robust mechanisms in place to hold donors accountable on their aid commitments. Development activity is very often characterized by a lack of accessible information on aid activities and adequate evaluations of development projects and an absence of public and parliamentary scrutiny. In the Paris Declaration donors committed to implement mutual accountability mechanisms but they admit that there has been no real progress in this area. Most new member states – including Hungary – do not have proper systems in place to evaluate their aid projects. In Hungary, data often doesn’t exist or is hard to access. Although it seems there has been some progress on this area in the last couple of years, the yearly reports are hard to compare with each other and (except for year 2008) do not contain any statistical background-information. Recommendations: Organizations and institutions allocating development funds should report regularly in a transparent, understandable, measurable and comparable way on their activities to the parliament, civil society and the public on one hand and to the international donor community on the other. Development projects have to be monitored, evaluated with mechanisms for follow-up and feedback. Information on this has to be made accessible.

Untying aid
Tied aid, meaning “aid given on the condition that the beneficiary will use it to purchase goods and services from suppliers based in the donor country”9 can be criticized for many reasons: it fails to boost demand and create jobs in recipient countries, it narrows supply recipient countries can choose from, it diminishes competition and therefore reduces efficiency. Furthermore, tied aid most often aims at or results in increasing the market share of companies of the donor country. Tied aid decreases the real value of aid by making it more expensive, by 15 to 30% for most items and around 40% for food aid, according to OECD estimates. In Hungarian IDC tied aid plays a dominant role and it is likely, that its importance will further increase in the future. 10
Recommendations: Strong efforts have to be made to gradually untie Hungarian ODA.

Technical assistance
Technical assistance (TA), “the provision of know-how in the form of personnel, training, research and associated costs” has long been a subject to criticism. One of the main problems is that donors are particularly intransparent about the costs of TA, leaving recipient countries in a weak position if they wish to compare alternative sources and negotiate with other partners, fuelling criticism of TA being expensive. Moreover, TA is sometimes used as a form of conditionality in a way that recipient governments have to accept it as a condition for accessing financial resources. Additionally, as donors favour companies from their own countries, TA is often a form of tied aid itself.
TA is one if the priorities of Hungarian ODA in the form of training professionals and scholarship holders in Hungary and abroad. Although access to detailed information is hard, it seems that the training of professionals mainly focuses on sharing the experience on Hungarian political and economic transition – it would be highly recommendable for experts to reflect on the economic and social consequences of the transition as well, on the difficulties and the possible lessons learned. The other form of TA is sending experts to partner countries that lack these experts.
Recommendations: Successful monitoring would be absolutely crucial for TA. It is equally important for TA to be demand-driven, so that not the donors, but the recipients profit.

Predictability
With the Paris Declaration, donors committed to “provide reliable indicative commitments of aid over a multi-year framework and disburse aid in a timely and predictable fashion according to agreed schedules”.11 Predictability is still a major aid effectiveness problem across the EU and in Hungary.
Recommendation: Predictability of spending has to be strengthened.

Division of labour
In practice, aid is not distributed evenly, leaving “aid orphans” with less aid than other countries with similar development levels. To work on this problem, EU member states adopted the (voluntary) Code of Conduct on Division of Labour in 2007. The code asks governments to focus on a limited number of specific sectors where they have a comparative advantage or hand over their activities to other donors that do, to work together with other donors at the international level and to make sure that aid recipient governments take the lead in projects.12 So far it seems that division of labour poses a challenge to European donors and most countries have developed no strategy to implement it.
Recommendations: A special field of donor-cooperation could be the cooperation between new member states – Hungary could take the leading role in this process.

4. Other recommendations

Strengthening the institutional background of Hungarian IDC: legal background and education
The legal background of Hungarian IDC has to be set up involving all stakeholders in the process: there is a strong need for a single IDC law.
The improvement of Hungarian IDC-education is crucial as well – there is no chance of Hungary working out its development profile in the donor community if it lacks the specialists on the subject. Therefore a certain amount of ODA should be spent on IDC-training in Hungary.

Revision of the system of partner countries
Hungary should revise its system of partner countries. At the moment, far too many policy areas and partner countries are targeted. There is a strong need for clear priorities in both areas, placing a far greater emphasis on African countries and LDCs.

Establishing political coherence
How could international development assistance be effective, when its objectives are undermined by other policies? Coherence between agricultural-, trade-, education- and migration policies has to be established. When a donor assists the export-sector agriculture of a developing country it is unacceptable, that at the same time EU agricultural subsidies make African producers less competitive and EU trade policy keeps them from entering the European markets.
The term policy coherence was first introduced by the OECD Development Assistance Committee (OECD DAC). UN member states have stressed the importance of policy coherence in the Millennium Declaration. At EU-level, the principle of coherence has been enshrined in EU Treaties and in 2005, the EU identified Policy Coherence for Development (PCD) as a central concept in poverty reduction and achieving the Millennium Development Goals – ensuring that the external impacts of other EU policies do not undermine the objectives of development policy. 12 key areas have been identified where the PCD approach has to be applied: trade, environment and climate change, security and agriculture, bilateral fisheries agreements, social policies, migration, research and innovation, information technologies, transport and energy.13 It is very unfortunate, that in 2009 the EU narrowed its focus regarding the PCD. As PCD is a very complex issue, the Commission proposed to concentrate on only five key areas: climate change, food security, migration, intellectual property rights and security and peace-building.14 This means, that one of the key areas affecting poverty – trade – is not included.
The effectiveness of PCD is further compromised by other problems. There are no robust accountability mechanisms on PCD: there are no legal mechanism to hold the EU to account regarding its commitments on PCD, there is no complaint procedure open to governments and NGOs. There is no clear hierarchy of values: European interests are put before developing countries’ needs and development objectives are subordinated to other policies. The two-dimensional approach to PCD is problematic as well: development policy objectives are assessed only in relation to one of all designated PCD policy areas at a time, not taking into account that all policies are closely interlinked with each other. Additionally, there are no clear benchmarks to asses that in case there is a conflict of interest, other interests should not override development goals. There is a strong need for indicators to assess development impacts of other policies. 15
The difficulty for Hungary is that different policies are formulated on different levels: while trade policy and agricultural policy is mainly made on EU-level, development policy is partially national and partially European, while migration policy is entirely regulated on the national level. Under these circumstances it is hard to provide for coherence of policies.
Recommendations: The Hungarian ODA-policy should set its clear priorities: now there are far too many countries and far too many policy-areas which declared as part of the ODA-policy. When the clear priorities are fixed, a review of Hungarian foreign policy should be conducted in order to map possible incoherencies.

Literature

CONCORD [2009]: Spotlight on Policy Coherence

Hunyadi – Scheiring [2006]: A magyar kereskedelem és fejlesztéspolitika intézményrendszere. Védegylet, Budapest.

Dr. Kiss Judit [2007] A magyar nemzetközi fejlesztéspolitika a számok tükrében. Nemzetközi Humanitárius és Fejlesztési Civil Szövetség, Budapest.

Dr. Kiss Judit [2008]: A nemzetközi fejlesztéspolitika kihívásai és lehetőségei Magyarország számára. MTA Világgazdasági Kutatóintézet.

Dr. Kiss Judit [2009]: Merre tart a magyar nemzetközi fejlesztéspolitika? A HAND Szövetség Aid Watch munkacsoportjának II. jelentése. Megjelenés alatt.

OECD DAC [2005] Paris Declaration on Aid Effectiveness. High Level Forum 28. February – 2. March, Paris.

Paragi, Szent-Iványi, Vári [2007]: Nemzetközi fejlesztési segélyezés. TeTT Consult Kft, Budapest

Pereira – Burnley [2009]: Lighten the load - In a time of crisis, European aid has never been more important. CONCORD, Brussels.

Scheiring Gábor [2008]: A nemzetközi fejlesztéspolitika helyzete és feladatai. In:

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