The Society Wedding of the Year

What do you do for money, honey?

Bingu wa Mutharika, the President of Malawi, has just remarried, a few years after the death of his first wife, Ethel. The Times is reporting that it was quite a bash. Bingu arrived in true P. Diddy style, emerging from a white Chrysler flown in from South Africa for the occasion wearing a white tuxedo with white gloves, having driven over two roads specially built to take the bride and groom to Civo Stadium for their restrained and tasteful nuptials. The bridal party arrived in a fleet of new Mercedes’, and the whole wedding is alleged to have cost about GBP 2 million, part of which paid for a twenty-eight tier wedding cake.

Apart from the identity of the joker who convinced Bingu that he looked good in his white tux, the big question here is where the money came from. If these were state funds, it is a perfect example of the kind of spending that the fungibility article from the Lancet raised fears of, and which I discussed last week. Is aid money facilitating this kind of opulence? Two things need to be true before we can conclude this. Firstly, it must be the case that the President used state funds for his wedding. This isn’t clear. The Times article offers the following, neither part of which is particularly convincing:

Senior officials, speaking on condition of anonymity, have claimed that the president used public funds for the celebrations, an accusation that the government denies…

The Malawian government’s information minister rejected claims that public money had been used to pay for the wedding. “The [£2m] cost of the wedding has been met by the president himself and friends who wish him well,” he said.

The second issue is whether, even if state funds were used, aid money made any difference. It’s quite possible that the same wedding would have taken place, with the same cost, but with developmental spending suffering even more. If this is the counter-factual, then aid money isn’t facilitating bad spending but mitigating the damage it causes.

With regards to the first issue, as I said in the comments section of Matt’s post on fungibility, audit is where we should be focusing: a comprehensive audit should give us a very good idea of whether or not this money came from Government coffers or Bingu’s personal wealth, together with those of his supporters, some of whom are so fervent I have witnessed them running after his Presidential vehicle waving huge framed posters of him as he disappears from view. I’m going to discuss audit in a bit more depth later this week, but to their credit, the Times does mention the findings of a recent audit of Malawi’s Government expenditure in its article:

A report by the country’s auditor general [showed] that more than £800,000 of public funds had been spent on goods and services between 2003-05 which could not be accounted for.

The drawback? Despite the article being written by a Malawian (Mabvuto Banda, judging by the name, is at least of Malawian heritage), the article fails to point out that the audit reports it refers to relate to a previous Government, that of Bakili Muluzi. Members of this Government have already been investigated and indicted on corruption charges, and further arrests and investigations are always possible.

We should be Scared, but not of what we’re Scared of

Be scared of him, not the Governator.

You should be afraid, just not of what you were afraid of at first...

Amidst the brouhaha over the Lancet article on aid fungibility, there’s one underlying question that seems not to have been addressed explicitly: what is the basis on which we expect funding (aid and domestic resources) to be allocated? I work in this field, and this basic problem has only been addressed with any quality in one place.

The comment on this topic is of sharply variable quality. Most of the voices critical of this evident of ‘fungibility’ deserve to be dismissed out of hand. Many suggest that by reducing own-funding to health the Governments concerned are committing a grave sin, based on absolutely no evidence on what the marginal return of the money moved was in the health sector compared to other sectors. These are single issue activists who lack the will or capacity to think more broadly than their specialism, and as Owen Barder has said, we should scorn them. Two contributions raise specific issues about resource allocation that we should explore further.

Not surprisingly, Owen’s is one of them, and his is the only contribution I would class as unreservedly useful, indeed excellent. He makes the most important point that we must hold in mind: the Lancet article actually does not address fungibility of aid. Aid would be fungible if the exact aid dollars that were earmarked for health could be used for education, transport or even private jets. What the Lancet article shows is that aid money in a sector can free up resources that the Government was always able to spend anywhere it wanted in a new area. That money was already fungible – it has simply been moved from one place to another in response to non-fungible funds. This is of crucial importance to this debate, because it means we can dismiss the question of fungibility altogether. What we are really talking about is resource allocation procedures governing the always-fungible Government resources.

Laura Freschi at Aid Watch makes the other contribution we should pay attention to, though I’m not uncritical of it. She says that donors use project support and earmarked funding to try and ‘force’ recipient Governments to use their resources ‘well’ by which she means ‘as the donors think they should’. This assumes that Governments will not change their own fungible resource allocation after the introduction of new, non-fungible resources by donors, so all aid money is purely additional to the sector it appears in. She says that if it doesn’t do this, then the argument for using earmarked funds disappears. This contribution is important, because it now introduces into the discussion the intentions of donor resource allocation and structure decisions, though I argue below this is an incomplete understanding of how it actually works.

So, how should resources for development be allocated, and how does the reality depart from this norm? Ideally, our resource allocation procedure would be entirely rational. Imagine a world in which no distinction is made between aid and local funds, and all money is fungible, the resource allocation procedure of Government should be straightforward. Looking at all the funds the Government has, it allocates a certain amount to core running costs (salaries, electricity bills and such) and then distributes the balance based on an analysis of the key constraints to the development of the country. If they have problems in health, education, infrastructure and private sector development, the rational resource allocation procedure would then address the constraining factors in each area. Given resources are scarce, we allocate them by looking at where the marginal benefit of each dollar is highest. If after we’ve spent $20 in health, we find that the marginal benefit in education is higher, we switch our attention there, and so on.

What we don’t do is just pour money in one sector until all the problems it faces disappear: doing this is counterintuitive, since after a point, each dollar would have a bigger impact in a different sector.

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