/DEVELOPMENT BULLETIN 7/ SPAIN: Slow Soft Loan Repayments Considerably Reduce Country’s Development Aid

By Tito Drago Reprint | | Print |

Tito Drago

MADRID, Apr 20 1996 (IPS) - Spanish official development aid (ODA) fell to just 0.24 percent of gross national product last year, down on 1994’s figure of 0.28 percent and well below a promised 1995 target of 0.35-0.5 percent, say NGOs here.

They met Friday to demand the government get Spain back on track towards meeting the U.N. sponsored target of 0.7 percent of gross national product (GNP) to go on ODA. The government had pledged to leave funds to cover a target of up to 0.5 percent in 1995 if the right projects were submitted for support.

“In practice nothing of what had been adopted in 1994, when it was agreed to reach 0.5 percent in 1995, has been realised,” said former Jesuit and activist Pablo Osses.

Osses, the driving force behind the movement to force the government to dedicate 0.7 percent of GNP to cooperation, told IPS that the NGOs want the special Funds For Development Aid budget (FAD) to be exclusively run by the foreign ministry.

They hope this way to break the commerce ministry’s influence over aid disbursal policy, accusing it of putting the wishes of Spanish business ahead of developing nations’ needs.

Tomas Mallo, NGO national coordinator of communications, said that the government’s “clear and deliberate” failure to fulfil its 1994 promise to reach 0.35-0.5 percent in 1995 was generating pessimism about the future of Spanish development cooperation.

A preliminary balance sheet of cooperation aid drawn up by NGOs on the basis of figures supplied by the government, found the percentage of budget appropriations earmarked for development projects not only failed to reach the minimum 0.35 percent of GNP in 1995, but at 0.24 percent was even lower than the 0.28 percent posted in 1994.

The new figures upset the predictions of the president of the Spanish Cooperation Agency, Ana Maria Ruiz Tagle, who had boasted that the promised 1995 aid figures would rank Spain as the world’s eleventh largest ODA donor.

In reality, diplomat and former secretary of state for cooperation Inocencio Arias told IPS this week, is that Spain will remain below the average of the donor countries, ranking 17th among the 21 developed nation members of the Organisation for Economic Cooperation and Development (OECD).

The issue is set to dominate the agenda of Friday’s meeting of the Cooperation Council of Non-Governmental Organisations, made up of NGOs representatives, the government, trade unions and private business. It has no executive power, but must be consulted in formulation of Spanish cooperation policy.

The NGOs rallied thousands in 1994 to protest in favour of the 0.7 target, leading to an all-party agreement that the country should work towards it. The 1995 budget was amended to guarantee 0.35 percent with contingency for 0.5 percent if the projects could be found and approved by the cabinet of socialist prime minister, Felipe Gonzalez.

The government, said Mallo, aside from breaking its promise, was also burdening the NGOs with the task of persuading the general public to accept more responsibility for aid through donation, so “society would do what the state has stopped doing”.

Government ministries are blaming each other for breaching the 1994 accord. Sources in the Ministry of Foreign Affairs, which run the State Secretariat Cooperation, blames the Ministry of Commerce.

The Commerce Ministry administers the credits for FAD, and a part of these credits are considered as a contribution to ODA in the form of concessionary aid granted at ‘soft’ interest rates lower than those available on the European capital markets.

Yet during 1995 net disbursements in FAD soft credits added up to slightly more than 200 million dollars, a quarter of what the Foreign Ministry expected.

Sources in the commerce ministry say disbursals to cover all the budgeted 850 million dollars were approved, but said its share of Spanish ODA was not based on these sums, but on net figures that also counted repayments of credit granted in past years.

The source added that when it accepted the 1994 pledge, it the commerce ministry warned the foreign ministry that the trend of net repayments would be downwards, as bigger repayments had been expected than had actually been received.

Not only that, this trend would continue, and he further warned that the foreign ministry could not count on net FAD disbursals to contribute towards reaching the 0.35 target if FAD soft loan repayment targets failed to be met.

The finger of blame for failing to heed this warning is pointing at former secretary of state for cooperation, José Luis Dicenta, now Spain’s ambassador to Mexico, who presented the budget targets to Parliament in 1994.

But Osses sees some benefit in any move towards crossing FAD loans off the list of ODA contributions if it results in an increase in direct grants as a result.

Most FAD soft loans, he said are destined to finance Spanish exports, but when shortfalls result from lowered interest rates or extended repayment maturity dates, the difference is effectively deducted from the available ODA budget.

The issue of including part or all of the value of soft loans to development projects in the Third World into total ODA budgets — especially where the donor nations traders benefit in contracts — is a live one worldwide.

Britain and Japan have especially been condemned for turning over aid resources in soft loans to richer developing nations with an eye to domestic business needs.