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Sunday, August 19, 2007

The Danish halo needs a polishing

After recently having handed in my Master's thesis I browsed through the files and folders which are 'left' from my time as a student in the Erasmus Mundus programme. Here is an article written for a course in September 2005. No doubt political developments have taken place since then - but to my knowledge the Danish development aid has not increased since then, so the content should still be relevant.

The article is attempted to fit the Economist style which was a part of the assignment. Enjoy.

The Halo Needs a Polishing

Denmark is always in top of the statistics when it comes to development spending. But a closer look reveals scratches in the surface: $165 millions cut off development aid, $86 millions spent wrongly and tsunami aid at the expense of other development projects shows it is time to review Danish aid policies.

This week the Danish Prime Minister reaffirmed Denmark’s dedication to aim for the Millennium Development Goals (MDGs). Compared to many of his disappointed colleagues he was fairly enthusiastic about the outcome of the UN World Summit this week. At a press conference he highlighted one goal as unique: the one that calls on developed nations to contribute yearly at least 0.7 percent of their GNP to the world’s poorest countries. This MDG is easy to achieve for the small Nordic nation since Denmark already supports developing countries with 0.9 percent of the GNP.

So does the Danish government deserve a pat on the back? There are pros and cons. Measured in percentage of GNP Denmark and the other Nordic countries are the biggest contributors to third world projects. Denmark does better than most of the world’s nations. That is a significant pro.

Thus few people are aware that the Danish government recently cut off aid to developing countries by almost $165 millions. In 2004 the assistance measured 1 percent of GNP. This year it has been reduced to 0.9 percent. Even though this number is still impressive it is an odd time to cut back on aid given this year’s world summit and the massive awareness of the need to support poorer countries better. That is a surprising con.

Hollows development aid
There is another unexpected skeleton hidden in the closet. Denmark has long advocated for canceling the debts of developing countries. Two weeks before the UN World Summit a humanitarian organization published a surprising report that seems to pinpoint double standards. It revealed that the Danish state consistently has spent money earmarked for development aid to cancel third world debts. During the last three years $86 millions have been transferred from the aid pool to the Danish Trade Fund that used to cover the losses of Danish companies when developing countries fail to pay their bills.

The fund did so by taking over the debt. Even though this is not practice anymore many developing countries have significant debts to the Danish Trade Fund. If a debt is cancelled by the international debt initiative HIPC the fund is compensated by the Danish state. The millions needed are taken from the development aid pool. The fund has another significant income: Pay offs though bilateral agreements made by thirds world countries which debts have not been cancelled. That means that in the end the fund’s incomes are bigger than its expenses.

This profit is transferred back to the Danish state that since 1992 has been the owner of the Danish Trade Fund. Last year the state earned $118 millions on claiming debts. A significantly bigger amount than the one the fund receives from the development aid pool. Firstly the debts of developing countries seem to be a good deal for the Danish government. Secondly (and more fatal) the construction hollows the development aid pool by transferring money to a fund that seems perfectly fit to manage on its own.

The debt cancellation construction, in spite of its cleverness, adds one more “con” to the list. A very serious one.

Concerning funding of tsunami aid
Last year the tsunami catastrophe was on top of the global agenda. The Danish government reacted quickly by donating $69 millions to humanitarian aid in the disaster areas in Southeast Asia. An impressive amount compared to the size of the country and it instantly made Denmark one of the most generous contributors. That is another “pro”. Surely Denmark should be recognized for its quick and generous aid.

The huge donation worried many Danish NGOs. Would money be taken from other aid projects to cover the expenses in Southeast Asia? The government assured them that this would not happen – money would be found elsewhere. But six months later it was revealed that more than $7 millions had been taken from a pool devoted to a development project in Bolivia. That adds another “con” to Denmark’s list.

Policy review needed
So there are an equal number of pros and cons.

First and foremost Denmark is one of the world’s most generous donors of development aid and humanitarian assistance. But the halo needs a thorough polishing before Denmark can call it self a first mover when it comes to the MDGs. Today aid policies and funding practices have begun to undermine the credibility of this seemingly role model nation. To continue setting a good example it is crucial that Denmark reviews these before they start to puzzle the international community.

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