Davos Dispatch #4: Putin's Slapdown Instructive for Developing Countries

When Michael Dell, founder and CEO of Dell Computer, Inc. asked Russian Prime Minister Vladimir "how can we help?" in Davos last week, Putin's response was terse:"We don't need help. We are not invalids." The "slapdown" has been covered by everyone from CNN, the Huffington Post and techie blogs BoingBoing and Engadget. Putin's response was impolite -- sufficiently so to make headlines. Yet I say thank goodness someone in the sort-of "developing world" -- i.e. until recently on the receiving end of donor largess from the IMF, World Bank, and the European Bank for Reconstruction and Development -- had the reaction he did.Why? For most developing countries, and especially for the poorest that are heavily aid dependent, such as those in Africa where many countries are receiving as much as 10 percent of GDP in the form of aid and thus up to 50 percent of government spending, it is rare for any government to look a gift horse in the mouth. This is true even when the gift is what donors want to fund and how they want to fund it rather than a priority for the recipient.Traditional donors are in principle committed to recipient government "ownership" and putting the recipient government "in the driver's seat" on priorities and policies. But they cannot resist telling recipients what's good for them (the recipients). One result is a proliferation of donors (private as well as public) with a proliferation of projects, imposing high transactions costs on poor country recipients.Surely the effectiveness of foreign aid, both private and public, would be greater if there were a lot more Putin-style talking back.One critique of the Washington Consensus is that the Washington institutions stuffed it down the throats of the countries like Korea, Brazil and Mexico that were desperate for IMF and World Bank loans in the 1990s. I am in the camp that says to a large extent it turns out that much of the advice was reasonable as the Korean Prime Minister said at a Davos luncheon. But the medicine was bitter and one result is that the Asians have set up their own IMF-like (Chiang Mai) arrangement (and self-insured with high reserves where they could) in the hope of never again having to go the IMF. And the Latins and Eastern Europeans are even now reluctant to turn to the IMF unless they are absolutely desperate. Iceland and Hungary have reached this point in recent weeks, but not Brazil or Mexico. (By contrast the countries that got the Fed swaps in November are much happier with that no-talk, no-condescension, low transaction cost arrangement.)Bottom line: The aid industry would work better if there were more talking back, and potential recipients said more often "no thanks," or "my way or the highway."