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CGD’s recent publication of my paper on improving the statistical definition of Official Development Assistance (ODA) brought me into contact with several people involved with the ongoing review of this issue. (For the history of that process see my previous post.) Those conversations have stimulated my thinking. They have also helped me appreciate that among the questions in play, the hottest is how to count loans in ODA—where “hot” is some blend of complicated and controversial.
I wrote about loans in my last post. But I focused on arguing against factoring the probability of default into the assessed financial value of a loan. Here, I’ll explain some other loan-related recommendations. In another post, I’ll talk about other questions.
Not to be melodramatic, but the official system for counting foreign aid is in crisis. The longstanding mathematical rule determining whether a loan’s interest rate is low enough to qualify it as aid has gone out of sync with the times. The rule’s benchmark interest rate of 10% per year was reasonable when adopted in 1972, but not now. Today, wealthy governments can borrow below 3%, lend a couple percent higher, come in well under the 10% bar, and count the potentially profitable lending as aid.
Twenty-five years ago today, I walked into Building 1 of the Microsoft Corporation’s wooded campus in Redmond, WA, and reported for work as a programming intern. I had a pretty good time that summer. What I remember most is wondering whether I should buy a bit of stock in the company—and then spending all my earnings on long-distance calls to my new girlfriend.
Over the decade, donors have publicly declared that they would improve how they operate in order to make aid work better. They would coordinate better, let recipient countries take more ownership of project design, and so on. Ten years and ten days ago, there was the Rome Declaration.
In the last few days, a delicate dance of reconciliation between Myanmar and its estranged foreign creditors reached its final measures. At the Club de Paris---the collective negotiating forum for creditor governments such as Japan and the United States---a press release just announced a debt deal with the poor and long-isolated Asian nation. The creditors committed to what is by Paris Club standards an exceptionally generous deal: cancelling half the debt in arrears---Myanmar defaulted in 1998---and instituting a 15-year repayment schedule for the remainder, including a 7-year grace period. Because the interest rates on most of these the loans are low, typically about 1%, this stretching out of repayment further reduces the debt's economic cost ("net present value" or NPV). Overall, the NPV will fall 60%. Meanwhile the World Bank and Asian Development Bank made their first loans to Myanmar in more than 20 years, in the process erasing their own arrears issues with the country.
This Thursday, the World bank will host the unveiling of the latest edition of the best-known ranking of think tanks, which is produced by the University of Pennsylvania. The public event will reveal whether the Brookings Institution has lost its hold on "Think Tank of the Year," which tanks made the top 50 worldwide, which are best in Latin America, and so on.
I'm delighted to congratulate my colleague David Roodman on his winning the first ever Editor's Prize of the Stata Journal for his 2009 and 2011 articles. Here is one of the more easily understood bits of the citation:
This blog post announces the launch of the Europe Beyond Aid initiative and presents a summary of the research and preliminary analysis in its first working paper.
Europeans more than pull their weight in aid to developing countries. Last year Europeans provided more than €60 billion ($80bn) in aid, more than two and a half times as much as the United States. European members account for just 40% of the national income of the Development Assistance Committee (DAC) but give more than 60% of the aid.