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Global Charity: 60 Percent of International Aid is 'Phantom'

Kenyans during the Peoples March for Justice calling for debt cancellation, better quality and quantity of Foreign Aid and trade justice
ActionAid International is calling for more accountability over global aid amid debate over how far pledges by rich nations help poor countries.

The Johannesburg-based international charity group, ActionAid, is accusing rich countries of giving what it calls "phantom" aid to poor nations. In a recent report called "RealAid," it says as much as 60 percent of all donor pledges do not effectively materialize.

The group's Asia Director, John Samuel in New Delhi says the study look at aid pledges in 2003.

"Sixty percent of the aid flows out of $65 billion was actually phantom aid that means it did not reach the countries where it was supposed to reach," said Mr. Samuel.

The report says so much of donor aid was either wasted on expensive consulting or what it calls "recycling" where the money is tied to buying supplies back in the donor country.

"Aid is being diverted in the form of technical assistance and consultancies in multinational firms, aid is being diverted for other purpose than aid, tied aid to buy goods from those countries," explained Mr. Samuel. "Phantom aid does not reach the people. We have found that $18 billion was spent on technical assistance … For instance, the average consultancy received by an expatriate consultant is $18,000 to $27,000, a month as opposed to $1,300 a month for a Vietnamese consultant."

The report comes at a time when development officials are engaged in a heated debate about how far aid goes to improve the lives of the poor.

ActionAid used statistics from the Organization for Economic Cooperation and Development, which groups dozens of major donor governments. But the OECD says ActionAid used some arbitrary calculations and assumptions to derive its conclusions.

Richard Carey is vice president of the Paris-based Development Assistance Committee, a key OECD advisory body. He says ActionAid has raised an important issue but has overstated the problem.

"They are right on the issue. But they cannot be right on the arithmetic because it is really impossible to estimate the difference in value," said Mr. Carey. "At the same time we, in Development Assistance Committee, are concerned with the issue of the quality and cost of technical assistance."

He says his group is working with donors to maximize the impact of the aid given, including encouraging the use of qualified technical experts in developing countries who are likely to cost less than those from richer nations.

Mr. Carey says with billions of dollars at stake, rich nations are vested in trying to make aid as effective as possible.

"The whole aid system is now being more focused on that very issue of how do we improve the lives of poor people, and we are now looking at how much aid is impacting on those objectives," he added. "We are working to ensure that the developing countries themselves have the programs that reach poor people and we can then finance the developing countries budgets with confidence."

There is consensus among development experts that there is an urgent need for better utilization of funds.

Den Philips, the South Asia policy coordinator with the New Delhi office of the charity Oxfam, says more aid money should be spent on schools, health facilities or training teachers and nurses in poor countries not expensive pilot projects or foreign consultants.

"The difficulty is countries give aid for lots of reasons," he said. "One of the reasons is that they want to help people in poor countries and their voters ask them to do that. But the other reason they give aid is it is tied to economic interest or it is tied to business interest and what we need to do is to take out that aspect."

ActionAid cites the recent Indian Ocean tsunami disaster as an example of "phantom" aid. It says Australia has given seven percent of the money it pledged; France has given 13 percent. The United States and European Commission have delivered over a third of their pledges, while Italy scores the best having handed out nearly 60 percent of the promised money.

The criticism may be premature as much of the nearly $6 billion pledged to help tsunami devastated nations is to be dispensed in installments for rebuilding and development over the next several years. The combination of public and private donations is the largest aid pledge ever dedicated to a single natural disaster.