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Aiding Social Protection: the political economy of externally financing social policy in developing countries

Periodic Reporting for period 4 - aidsocpro (Aiding Social Protection: the political economy of externally financing social policy in developing countries)

Reporting period: 2019-11-01 to 2021-05-31

The problem that was addressed by this project is two-fold. On one hand, we explored tensions involved with the macroeconomic management of aid and other official flows between financial need versus efforts by donors and international financial institutions (IFIs) to influence national policy agendas of the recipient countries, through conditionalities or other forms of pressure. On the other hand, we investigated how such influences play into the political economy surrounding the evolution of social policy in recipient countries, as a key realm of redistribution and distributive struggles within these countries.

The specific policy case of social protection – in particular, cash transfers (CTs) – brings together these two strands of research given that donors have at least notionally directed significant portions of aid towards the promotion of CTs. This is even though CTs are domestic social expenditures, denominated in domestic currency, which can in principle be financed domestically and do not require the foreign exchange that aid represents.

This transfer of aid from foreign to domestic resources poses a financial quandary or a ‘monetary transformation dilemma’, which potentially implicates a range of complex and politicised processes in macroeconomic policy. It also tends to exacerbate the politicised controversies and power struggles already involved within donor-recipient relations, as well as within the recipient countries themselves, from macroeconomic conditionalities to negotiations regarding domestic spending commitments.

These issues were researched through a mixed-method within-country and cross-country comparative case study approach applied to seven developing country cases (Cambodia and Philippines in Asia, Ethiopia, Ghana and Zambia in Africa, and Ecuador and Paraguay in Latin America). The approach combined quantitative research on balance of payments and financing constraints with qualitative process tracing based on elite interviews and documentary research.

We drew several conclusions from this research:

First, there has been a strong association of the social protection agenda with broader IFI reform agendas given that most so-called social protection financing is actually budget support within programme lending, or else is implicitly tied to such programme lending.

Second, the increased emphasis of social protection by donors within this context has tended to exacerbate the already-existing politicised tensions and power struggles apparent within donor-recipient relations as well as within the recipient countries themselves.

Finally, although these cash transfer programmes are often quite marginal, in terms of their size and significance but also in terms of their importance to local political economy dynamics, they have nonetheless been catalysing transformations of social provisioning systems in ways that normalise targeting modalities and segregation within these systems. The fact that CT programmes have been able to achieve such institutional inertia with very small amounts of aid, and despite being very superficial to local political economy dynamics, also points to the subtler mechanisms of power than simply the crude deployment of financial resources by donors.

Importance to society

The research results have strong importance to society first, by demonstrating that important channels of influence nonetheless continue to exist and are exerted in often quite powerful ways, even though these are only made explicit during episodes of crisis, while remaining implicit between these episodes.

A second concerns the ways that social policy systems are being shaped in these countries through these processes, towards narrowly targeted, fragmented, and segregated modes of provisioning, as exemplified by recent IMF and World Bank positions on the role of social protection within larger programmes of austerity and adjustment, both before and after the COVID pandemic.

In particular, our project highlights how organisations that have traditionally been involved in matters related to the stability of the international monetary system have been continuing to leverage their influence on such matters to push strongly contested policy agendas within the domestic sphere of policy making in developing countries (as well as within Europe).

More generally, the research informs policy making about the underlying political as well as economic conditions that could support the (re)construction of a more effective aid system and an international financial architecture that are genuinely redistributive towards the poorest countries and in ways that do not undermine national self-determination or reinforce structural dependency. The insights of the research could also be transferred to other important issues on the global agenda such as climate financing.
Major results include:
• 20 publications, including 9 journal articles in top-tier journals (according to JCRs of the WoS), and one award-winning book. All of the output is open access.
• Two guest edited special issues in top-tier journals,
• Significant progress made on a team co-authored monograph, to be submitted to Oxford University Press, and two other monographs.
• Three PhD theses near completion, preparing for defence in 2022.
• Extensive presentations, including keynote lectures, and convening of panels in various conferences throughout the project
• Two international conferences organised at the host institution, one in February 2017 and the other in February 2020.
• The PI also participated in several important policy events.
• During the COVID lockdown, the team a series of blogs on aspects of the lockdown that were related to our research on social protection and development financing.
• Collaboration and networking with Southern partners, UN organisations, and several international networks.
The iterative inductive approach used in the project to analyse trends in the structure of balance of payments as a means to identify their potentially constraining and compelling influences on the political economy of public policy is novel within the literatures on aid, on the political economy of social protection, on institutional change, and on policy diffusion, which are our main comparison literatures.

Our interdisciplinary collective approach combining macroeconomic and international finance research on the role of external financing, with political research on the policy processes related to the adoption, design and implementation of social protection policies in the case countries.

Our approach revealed potent avenues of inquiry that we have used in our qualitative interviews with government officials, in particular those from finance ministries and central banks.

Other theoretical contributions concern more specific theoretical, methodological and empirical engagements with the dominant consensus in related literatures.